In what circumstance is Construction Management not suitable for a developer?

Construction Management is a distinctive procurement route in that the developer (also known as the client) places, and then manages, individual subcontracts with separate specialist subcontractors as opposed to employing a principal contractor to undertake this work on their behalf.

Although I’ve endorsed Construction Management in previous articles as a lean route for SME developers, I wouldn’t not advocate for it on every project.

Directly employing subcontractors brings many benefits for developers, but it is a complicated business that is not for everyone.

To get started let’s go back over what should drive procurement policy.

In my opinion, there are 6 critical criteria that lead decision making when it comes to procurement. These 6 critical criteria are driven by whether the developer:

1. Wants to be involved in the construction
2. Wants to be able to alter the design during the construction
3. Thinks the project is complex
4. Wants early completion
5. Wants certainty on price
6. Wants maximum price competition

There are many different variables to consider and it’s not easy to make clear distinctions between procurement methods (Traditional, Design and Build, Construction Management etc.) since they often overlap.

In this article we want to understand when Construction Management is appropriate and when it is not. To really understand this, let’s map out how construction management, traditional procurement, and design and build procurement hold up against these 6 critical criteria and which is best suited to each.

Criteria #1 – Does the developer want involvement with construction?

Some developers want to be centrally involved in construction on a day-to-day basis. Others prefer to simply appoint a project team to get on with it, pay the fees for that appointment and pay the contractor for the works as they are completed.

Given that Construction Management removes the employment of a principal contractor, the developer takes on a more active role in the construction. For a project where the developer wants to avoid significant involvement in the construction, they should not select Construction Management.

The developer is however in the business of construction and cannot avoid it totally. Should they seek less involvement, the employment of a principal contractor via the traditional route requires less of them, reducing their involvement to; organising the funding, completing the tender process and thereafter delegating most of the management functions to an architect or QS.

While it is not necessarily advisable, it certainly is possible for the construction works to be left out of developer’s hands for its full duration. Naturally, this comes at a cost.

This decision will depend, in part, on the developer’s experience and the setup of their organisation. Either way, where Construction Management is not appropriate is on a project where a developer has no experience of the construction process or little appetite to build a team (Project Manager) capable of delivering it.

“If the developer wants to avoid involvement choose traditional procurement or design and build for less engagement. To reduce costs, the developer can be more involved by choosing Construction Management.”

Criteria #2 – Does the developer want to be able to alter the design during the project?

There are typically three reasons a developer may wish to alter the design mid-way through a project:

1. They may wish to change what is being built
2. They may need to revise the design because of previously incomplete information
3. They may need to make changes as a response to external factors

Construction contracts impose obligations on the contractor to build. It’s often overlooked that this also gives the contractor a right to do the work and that right cannot lightly be taken away. If the developer wishes to make changes to the specification as the work proceeds or wants to refine the design for whatever reason, they need to consider this in their procurement policy to limit costs.

It’s not unreasonable to think that a developer may, over the course of a 12-month project, wish to react to market conditions and change the specification or layout of the apartments that they are building to accommodate current market situation. In this situation, which procurement method is best?

Traditional contracting allows the developer to make changes, but these will be subject to a variation in price and programme. Meanwhile, Design and Build contracts are almost always awarded as lump sum contracts, which make variations awkward and expensive.

Construction Management on the other hand involves a series of separate subcontract packages, each of which can be finally specified after the project’s overall start date. Therefore, this procurement method has the highest flexibility if that’s what the developer needs.

“Construction Management is the best route if the developer wants maximum flexibility. If the developer wants to fix the design or hand over control to the principal contractor, traditional procurement or Design and Build is the best option.”

Criteria #3 – Is the project complex?

Complexity has many facets and is bound up within the time pressure to deliver and the experience of those involved with the project. It’s a difficult variable to measure.

When I refer to complexity in this context, my focus is on the technological complexity. For very complex projects, Construction Management is suitable. The contractual structure of Construction Management means there should be less conflict between design and the trade contractors.

In simple projects, it can be better to rely on the skill and judgement of a contractor by utilising Design and Build. With its single point responsibility, Design and Build is suited to simple jobs. However, if the project is too complex, Design and Build contractors may lack the experience and skill needed for the high levels of co-ordination and integration required with specialist subcontractors.

Where Design and Build can have drawbacks is that it means the developer has less control of the design. If design control is important, there is no reason to avoid Construction Management just because a project is simple. It has been used with great success on small projects where the participants are familiar with Construction Management and with each other.

“If the project is complex, the best choice is Construction Management. Where it is simpler, both Design and Build and Construction Management are a good fit.”

Criteria #4 – Does the developer want early completion?

Construction is a linear process. Design, tender, and build. These phases tend to follow one after the other. However, if these steps can be overlapped, the overall build period can be reduced significantly.

Traditional procurement is very linear; it requires the completion of the design in full before tendering starts; once tendering is finished, construction begins. There are techniques to speed up progress by leaving much of the detailed design until after the contract has been let, by including large provisional sums, but this isn’t best practice and can reduce cost certainty.

Other procurement methods are inherently quicker because they enable an early start on site. A Design and Build contractor will undertake design and their early assumptions are therefore fairly safe. Also, Design and Build is generally used for projects that are straightforward. Construction Management can be equally quick because, as the inter-linking relationships between subcontractors can be overlapped, design can be prepared per package and is therefore conducive to the quickest form of construction.

“If the developer is looking for earliest completion, Construction Management is the quickest solution. Where time is not the focus, Design and Build or Traditional can be better choices.”

Criteria #5 – Does the developer want certainty on price?

Price certainty is not the same as economy.

The reliability of initial budgets is significant for most developers in attracting funding. However, this must be weighed against the financial benefits of accepting some of the risks and with them, less certainty of price.

Traditional procurement leans towards giving more certainty, but also means an extensive, drawn-out design and tendering period before construction starts. By contrast, Design and Build is a lump sum contract for all the work required and offers a great deal of price certainty. With both, you get good levels of price certainty. Although the contractor will add contingencies into the price to deal with the unexpected, they remain the responsibility of the contractor. This certainty is offset by a higher price, but the benefit is that the price is established at the outset.

Construction Management is different. It’s formed of multiple subcontracts that are awarded as the work proceeds. Therefore, it’s difficult to be confident about the final price until the project is closer to completion. Whilst you get best price with Construction Management, cost certainty is not achieved until much later in the project – this is the trade-off.

“If a developer wants price certainty choose either Design and Build or traditional procurement. For best-price, choose Construction Management as below.”

Criteria #6 – Does the developer want maximum price competition and best value for money?

Traditional ‘main contractor’ procurement, or Design and Build procurement, means employing one principal contractor to include for risks, profit, and management. With Construction Management, the developer can pursue each specialist subcontract package individually, ensuring the lowest price is achieved for each package of work, reducing the overall build cost.

“For best-price, Construction Management will win every time.”

Summary

As you’re probably starting to see, the 6 critical criteria show that no single procurement solution satisfies every need. That’s why I would never advocate for Construction Management as a one size fits all. There are several important factors for developers to consider and some of the factors chosen may not apply to every project.

Before making a decision, a developer should consider all 6 critical criteria, allowing them to be clear on the major areas of risk and therefore, the suitability of various procurement options so that an appropriate method can be identified.

There are many situations and complexities and I’ve created a matrix below to summarise which solutions fit which criteria best:

[table id=21 /]

Figure 1: The 6 Critical Criteria for Procurement Policy

What’s the best solution for an SME developer?

I believe that the majority of SME developers should focus on 3 critical criteria to dictate their procurement policy:

1. The developer should want control and flexibility over the design
2. The developer should want to complete as quickly as possible
3. The developer wants certainty on price but, because margins are tight, maximum price competition and value for money (i.e., profit) is more important. With those three points in mind, the optimal route for most SME developers is Construction Management

Feature image photo by Kyle Glenn 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.