An Introduction to Construction Management
Construction Management is a totally unique procurement route. Using this method, the developer directly employs multiple subcontractors (referred to as Trade Contractors) instead of employing a single Main Contractor. The single feature that makes Construction Management unique, particularly from Management Contracting, is that the developer (referred to as the Employer) places individual contracts with separate specialist subcontractors themselves.
Traditionally, the developer employs a Construction Manager to manage the project on their behalf for a fee lower than that of a main contractor. The Construction Manager has no vested interest in the financial outcome of the project and, barring professional negligence, carries no risk. Their overriding obligation is to act in the best interests of the developer. He or she will manage the programme and performance of the trade package contractors, financially and operationally, and give the developer the opportunity to take informed decisions throughout the project.
Construction management is growing in popularity and many developers are delivering their schemes in-house on a quasi-construction management basis. On these schemes, they act as Construction Manager themselves and directly employ subcontractors. Depending on the developer’s resources, this may be the entire scheme or just elements such as the shell and core or the fit out.
The developer creates a virtual main contracting capability in-house and this brings advantages such as optimised programmes and a genuine alignment between the construction arm and the developer’s sales objectives.
In this modern approach to procurement, the layout of the project team is as shown in the table below.
When is Construction Management appropriate?
Construction management is the most appropriate form of procurement where some or all of the following conditions are present on a development:
- The developer is construction savvy and has the suitable resources to manage a construction project.
- The primary project risks are related to time and cost (i.e. the developer is working in the private sector and needs to sell the houses within a prescribed period to ensure profitability).
- The developer wants to get an early start to the construction works.
- The developer wants the flexibility to make minor changes to the design / specification throughout the process with minimal impact on time or finances.
- Build cost needs to be competitive but value for money is more important than simply building at the lowest possible price.
- The developer can separate the design responsibility from the responsibility for the build.
- The project is technically complex and requires detailed engagement of specialist subcontractors.
Critical Success factors in Construction Management
If the developer believes the project is suitable for the construction management approach, the next priority is to focus on the critical factors that ensure the development will be a success; these are discussed below.
1) The developer’s experience
For the construction management method to work, the developer must take a proactive and detailed approach to its management responsibilities. They need an in-house team that is suitably resourced and experienced to deal with the challenges of managing a construction project.
For complex projects, this is not a procurement route for the inexperienced.
2) Focus on time and cost
Construction management is a procurement route that focuses on being speedier than alternative methods. The entire team needs to be aware of the emphasis on speed in order to facilitate quicker decision-making.
The developer must lead by example when choosing construction management as fast projects need quick decisions. Everyone involved needs to take a decisive approach to decision-making, from developer to architect.
3) Value for money
For developers, a reduction in construction cost is always advantageous, but the lowest price does not always deliver the best ‘value for money’. In many cases, to attract prospective buyers, the development needs to be unique and standout from other buildings in and around it. This differentiation could be through product selection or in the quality of the installation – standing out will increase sales.
Construction management can allow developers to negotiate specialist subcontract packages themselves and identify the products and specification most appropriate for each element. This gives them the ability to mould the final development to their needs and the desire of the end-user.
4) An early start
Developers often finance schemes by borrowing capital at great expense. In this case, an early start to reduce the construction programme (and therefore borrowing period) is attractive and will increase the profitability of a scheme.
For construction management, the fundamental design questions need to be clarified very early in the process to allow procurement to commence swiftly and early.
Construction Management and Contracts
The central feature of construction management is that the developer is in contract directly with all of its trade (sub) contractors. This means the developer is directly responsible for the performance, payment and commercial settlement of these agreements.
A developer should use either the standard form contracts available such as the JCT or NEC suite of contracts, or alternatively has bespoke contracts drafted for the project. The JCT has a specific Construction Management Contract which it describes as “for use on construction projects where the employer appoints separate trade contracts to carry out the works…”.
The JCT Construction Management contract forms were recently re-drafted as part of the 2016 suite of contracts and those that are relevant are:
- The JCT Construction Management Appointment (CM/A)
- The Construction Management Trade Contract (CM/TC)
- The JCT Sub-subcontract (SubSub)
Final Takeaway thoughts…
The construction management option is not an opportunity to cut out the main contractor and pocket the saving. For this option, the developer needs a dedicated team of operation, commercial and planning personnel to manage and administer the project.
The developer should only consider undertaking this role directly if it has the appropriate in-house team with experience in delivering projects of the scale and complexity in prospect. However, if this is something the developer can achieve – they’ll likely deliver a project with greater control and on a reduced budget and programme.