Management Contracting Procurement | C-Link

6 March 2019

Management Contracting Procurement

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Management Contracting is a form of construction procurement where the Client for a project employs different Subcontractors directly. The Client has a Main Contractor in place that is responsible for managing the Subcontractors, but is not in contract with them in the same way as with traditional procurement.

In this form of contracting, the Client employs a Management Contractor to contribute from a very early stage and engage with its other Consultants. The Management Contractor provides advice and expertise with a construction angle to positively influence the design and manage the construction.

The key difference between Management Contracting and traditional procurement is that, although it’s best for the Management Contractor to be a highly experienced construction company in both forms, in Management Contracting they’re not required to undertake any of the actual works. Instead, they’re solely obligated to manage it on the Client’s behalf.

Rather than simply procuring one Main Contractor as under the traditional approach, with Management Contracting, the Client 100% subcontracts the works themselves, albeit under the advice and guidance of the Management Contractor. The layout of the project team is explained in the table below.

Table in Management Contracting

It’s important to remember that this isn’t Construction Management, because although the Management Contractor acts as the channel through which risks are transferred between the Client and the Subcontractors, they themselves are not contractually responsible for the defaults of either party.

All of the risk is transferred between the Client and the Subcontractors in individual contracts between those parties. The Management Contractor simply manages them on behalf of the Client.

As you can see in the diagram above, the Management Contractor is on the same level as the Client’s other Consultants. An important element of Management Contracting is that the Management Contractor is involved early – advising and assisting the other Consultants in all that they do.

Project Timeline in Management Contracting

The following summary provides an overview of how the parties interact at different stages of the project in Management Contracting.

Stage 1, Appointment

At the early stages of the project and design phases, shortly after the employment of other consultants such as the Architect and Structural Engineer, the Client appoints a Management Contractor to collaborate in the completion of the design. The Management Contractor does not lead or hold responsibility for the design, but does offer expert advice to ensure the end product can be delivered economically on site by the Subcontractors.

Stage 2, Pre-Construction

As the Design develops further, the Pre-Construction Phase begins. During this period the Management Contractor will define the different Works packages (Subcontract packages) on the scheme and separate them into procurable packages. The Management Contractor will then build a programme, together with a cost plan, followed by a competitive tender process on all the different specialist packages.

Once the Management Contractor has completed this competitive tender, they submit the recommendations to the Client who will then enter into Contract with the chosen subcontractors. The Management Contractor manages these subcontractors on behalf of the Client.

Stage 3, Construction

Once construction works commence, the Management Contractor is responsible for managing the various Subcontractors and ensuring that they meet the programme, specification and budgetary restrictions included within their respective Contracts with the Client.

During this period, the Management Contractor is not liable for any defaults or breaches by the Subcontractors, as they themselves are not directly in contract with them. However, the Management Contractor is employed to minimise delays and commercial fluctuations caused by variations and claims. Therefore, they have a vested interest in the success of the site works.

Stage 4, Final Account

At Final Account stage, the Management Contractor will support the Client in the conclusion of commercial discussions and undertake the lion share of the negotiations with the various Subcontractors in order to conclude the financial discussions.

Ahead of final closure, the Management Contractor will make recommendations on final account agreements but defer the final decision to the Client who will sign off the final account values and make final payment to the Subcontractors.

Applications for Management Contracting

The Management Contracting approach is generally reserved for major projects with high levels of complexity. On these projects, the Client requires an Architect to undertake the design and remain in control throughout, as opposed to having a Contractor led-design as with Design and Build.

There are four primary reasons for Client’s selecting Management Contracting as their procurement route. Typically, more than two or three of these should be the case for Management Contracting to be the appropriate route for a Client to select.

1. The project should be large and highly complex

If the technical and construction requirements are highly complicated, Management Contracting is a good route. With large and complex projects, it’s important to employ a suitably experienced and skilled Contractor. However, given the risk and complexity involved, this often means the Contractor will charge a premium to do so.

On high risk projects, the traditional procurement route is often more expensive. Management Contracting offers a viable alternative where the client can access the Contractor’s expertise without paying the premium.

2. The Client wants maximum price competition

Given that a traditional Main Contracting procurement route means the Contractor has to include for risks, which would heavily inflate the price, Management Contracting is an intelligent way to avoid this.

Also, because the Client is able to pursue each Subcontract Works package individually, they can ensure the lowest price is achieved for each package of work, reducing the overall build cost in the process.

3. The Client wants the Design completed by an Architect

Management Contracting is considered a viable alternative to Design and Build procurement given the early involvement of the Contractor and their ability to influence the design from a construction perspective.

As oppose to Design and Build Procurement, with Management Contracting a Client gains the Contractor’s expertise in Management Contracting without the Architect relinquishing any real power contractually or in terms of design responsibility.

4. The Client wants early completion

Theoretically, the early employment of a Management Contractor should ensure that the design lends itself to a simpler, more practical site solution. This allows the works to progress quickly and economically on site. The early involvement of a Management Contractor also allows for earlier involvement of specialist Subcontractors, which should also accelerate the works and bring forward completion.

The JCT and Management Contracting

In the 1980’s the JCT published their first ever standard form Management Contract. It has since been re-drafted and re-published in several editions, culminating in the 2016 suite of contracts which includes:

When using JCT Contracts it is always advisable to concurrently read the JCT Guidance Notes on the specific contract but also on choosing the right contract for your project to ensure you’re the contract and procurement route is a good fit.

Final Takeaway thoughts…

When selecting Management Contracting as a procurement route, always consider the context of the project and whether it is suitable for the approach. In this procurement route, risk is almost entirely with the Client in respect of cost and time. That means a certain level of in-house expertise is required for Management Contracting projects.

Despite this, Management Contracting brings with it many benefits including the expertise of a Contractor without the significant burden of their increased costs for risks. When used in the right context, Management Contracting is a very good way to increase quality (each package is subcontracted to a specialist with genuine expertise) while reducing the overall build programme and costs.

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