Construction projects involve multiple stakeholders and many risks; to manage this, we have different procurement routes; Construction Management is one of these. This article will explain Construction Management, its differences from other procurement routes, when it is most effective, and exactly how it works.
What are other procurement routes?
As we know, construction is a sector with multiple professional roles and hundreds of specialist sub-skills contributing to the process. Regardless of their individual complexity, any reasonably sized construction project involves a high level of organisational intricacy that is not present in most other sectors.
With that level of complexity comes the ability to manage things in many different ways. You will recognise that there are many other procurement methods to allocate risk on projects, with the primary routes being Traditional Contracting, Design and Build Contracting, Management Contracting and Construction Management.
Designing Buildings Wiki states:
“Construction management is a procurement route in which several different trade contractors construct the works. These trade contractors are contracted to the client but managed by a construction manager”
Throughout this article, we shall explore what Construction Management is, its pros, cons, and best use cases.
Why do we have procurement routes?
There are many risks with project delivery, and construction projects are no different, perhaps the riskiest of all types of projects. There are various definitions of risk, but if we stick with a couple of the big ones. The Royal Institute of Chartered Surveyors defines risk as:
“An uncertain event or circumstance that, if it occurs, will affect the outcome of a programme. Risk management is now widely recognised as being concerned with both threat and opportunity.”
The Association for Project Management Body of Knowledge defines risk as:
“An uncertain event or set of circumstances that should they occur would affect the achievement of one or more project objectives.”
Whichever way you define risk, there is absolutely no doubt that in the management of projects, risk management is of paramount importance. Construction is no different, so we have different procurement routes, each allocating risk differently.
Comprehending the sector’s fragmentation is vital to understanding risk management best. If we consider there to be four primary stakeholders in a construction project, this helps us better appreciate the roles each play:
Risk management is concerned with identifying the salient risks, assessing their likelihood of occurring, and deciding how best to manage the project efficiently in light of this information. In entering into a contract, the four stakeholders above should clearly understand the primary risks, and the client should be allocated risk with whom the risk best sits.
This is a fundamental part of the procurement process, which I believe is often missed. The client should, at the outset, identify the salient risks and their likelihood of happening and then select a procurement route best suited to managing those risks. Often, particularly in the SME world, this does not occur.
This can be for a variety of reasons, often the funder of the project will arbitrarily state that the only procurement route they accept is Design and Build, or perhaps, the client doesn’t even consider the project in terms of its own specific merits and risks, instead electing to do what it has always done.
Either way, the management of risk is often not best managed.
We have talked in previous articles about Design and Build, Traditional Contracting and Management Contracting. However, this article focuses on Construction Management as a procurement route.
What is Construction Management?
With Construction Management, the client does not employ a single Main Contractor. They directly use multiple subcontractors, called “Trade Contractors”, while also hiring a specialist “Construction Manager” to coordinate the contracts and contractors and generally manage the construction.
This philosophy for managing construction projects in this way was founded in America and came to the UK late in the 20th century and was the cornerstone of successful businesses such as Mace, who started as “Construction Managers”.
The single most important differentiating aspect of Construction Management and the one which distinguishes it most clearly from its closet counterpart, Management Contracting, is that the client places these contracts directly with multiple specialist contractors. As a result of this, you have a flat organisational structure below the client, as seen in the following diagram:
The Construction Manager has no contractual responsibility or even liability for the performance of the Trade Contractors (Subcontractors). If they do, this is actually more like Management Contracting.
A simple way to understand the role of the Construction Manager is that they are a construction consultant in the same way the Architect is a design consultant. For Construction Management to work correctly, the client must take an active role in managing the process, similarly to the design phase.
If the Architect leads the design process during the design phase of a project but cannot ascertain clarity and decisions from the client, the design stage can be more challenging and elongated. The same is the case with construction when it comes to Construction Management: the client needs to be an active participant to deliver at pace. As a procurement route, Construction Management is intended to be speedier than other routes, and decision-making needs to be swift to reduce costs.
So how is risk allocated in Construction Management?
1 . Financial Risk
Construction Management is different for the client because it only understands its final fixed price after placing each Trade Contract package, which often takes much longer than placing a single Main Contract as with the traditional approach to contracting.
What they do benefit from, however, is the ability to remove the Main Contractor’s overheads and profit when procuring subcontractors. Furthermore, in engaging with the specialist directly, the client will benefit from value engineering of both the programme and the price directly with the specialist: a benefit typically taken by the Main Contractor.
2 . Time Risk
Regarding the programme, Construction Management has been proven to be one of the quickest routes to practical completion. The Construction Manager will define the programme; from there, the client will allocate the risk of delays against this programme with each of its individual Trade Contractors.
One point of reference here is that individual Trade (Sub) Contractors are often smaller entities than a typical Main Contractor. Therefore, their ability to take on significant liability for LADs may be less than with the Main Contractor and accordingly, how these damages are dealt with is essential; otherwise, the client may be left holding a significant liability.
3 . Quality Risk
As with other routes, the client needs to focus heavily on the adequacy of the architectural design during the design stages. With Construction Management, the design team must define the architectural intent and specification of the works to ensure this can be appropriately included in the contract documents for each Trade Contractor. Once defined, Construction Management contracts are no different to traditional Main Contracts in how they ensure the delivery of those specifications.
Construction Management as a procurement route is not the most common route. In fact, it involves a philosophy quite different from other routes but does come with significant advantages if used well. Construction Management can deliver a quicker build programme and reduced overall construction costs.
In the SME space, Construction Management has been growing in popularity. In another article, we described how many developers deliver their schemes on a quasi-construction management basis employing a project management team and acting as the Construction Manager themselves, directly engaging subcontractors.
With the increasing cost of construction materials, the financial risk to projects is front and focus. With SME clients continuing to look for cost-effective ways to manage their construction projects, Construction Management is an alternative worth considering.
Photo by Josh Olalde on Unsplash
About Paul Heming
Paul was a Quantity Surveyor who gained 10 years experience of managing £200 million worth of flagship UK projects, including 20 Fenchurch Street and Battersea Power Station. In 2015, Paul founded C-Link with the intention of sharing his expertise of managing major projects with the SME market.