What you can expect

There have been many studies done about the design process throughout the years, and they all continue to arrive at a similar conclusion. That conclusion is that the decisions made at the early stages of the design process have the most impact on the success of the project. This is true not only with respect to satisfying the program needs but also in terms of establishing a projectʹs budget and schedule as well. Given this understanding, the role of the Construction Manager as a part of the preconstruction phase/design phase cannot be over‐emphasized.

During the Pre‐construction Phase, an Owner can expect their Construction Manager to provide information, both data, and recommendations that will enable the Owner to make the best design decisions possible. In this role, the Owner can rely on the Construction Manager to provide input about the project with respect to:

• – Estimates of the cost of construction
• – Estimates of comparative costs for different systems (i.e. structural frame, HVAC, exterior skin, roofing, etc.)
• – Alternatives to materials, systems and design approach
• – Schedules for design and construction
• – Develop value engineering alternatives to design
• – Estimates of permitting times and requirements
• – Recommendations for material and equipment selections
• – Price checks on the design as it progresses to ensure it stays within the
• – Budget
• – Recommendations for subcontractors and the bidding process

There are, of course, a variety of other issues which the Construction Manager will focus on during the preconstruction phase as well, but those listed are necessary to the Ownerʹs and Architectʹs decision-making process. With both accurate and timely input from the Construction Manager, the Owner is best positioned to make good decisions and therefore is able to maximize the use of his construction dollar.

Another important role throughout the design phase for the Construction Manager is the role of design reviewer. As such, the Construction Manager troubleshoots the design to prevent change orders and redesign. By reviewing the design, the Construction Manager can also advise on subtle changes that drastically affect the ability of the project to be constructed.

Most General Contractor projects are bonded. The GC provides the bond for his work and the work of his subcontractors. These costs are included in the bid and can range from 1 to 4% depending on the financial strength of the GC. With a GC project, bonding provides financial assurance to the client for GC and his subcontractors. The GCʹs bond covers a subcontractor, even with horrible financial problems. Should the subcontractor ʺgo brokeʺ, the GC must complete the work.

With Construction Management projects the Owner, with the assistance of the CM can evaluate the risk and the cost of the bond for each contractor. Depending on the financial strength and longevity of the contractors, the Owner may opt to not require a bond on a case by case basis, thus saving the dollars he feels are at almost no risk. With tax‐exempt organizations, where the materials are purchased direct, the material bills are paid and lien releases are secured. Should a contractor fail to make a payroll, he is usually out of business. As the material bills are paid, the financial exposure is only one pay period, thus eliminating the necessity of bonding. Generally there is about a 1% savings in the overall project costs due to lesser financial exposure and bonding requirements.

Even for tax‐exempt organizations, there are a few cases where a bond is prudent. For example, a church may opt to require a bond on a concrete contractor due to the disproportionate cost to remove and replace unacceptable work.

One of the significant advantages of Construction Management is the ability to save on sales taxes on tax‐exempt organizations. Although these entities are tax exempt, some cannot pass on their tax-exempt status to a third party. They must actually write the checks for materials. These are significant dollars.

Most projects are about one-half material and one-half labor. For instance, a million dollar project would include about one half million dollars of materials. Nine percent of $500,000.00 is $45,000.

We have developed a system that allows the materials to be purchased directly, thus saving the sales tax and at the same time hold the contractor responsible for materials, quantities and cost increases.

Recognizing that the Construction Manager has participated throughout the design phases of the pre‐construction process, it is reasonable to assume that the Construction Manager should have a broader perspective of the potential issues that may arise during construction and which may ultimately requires changes to the work. As a result, for example, the Construction Manager will be better prepared to address modifications to related to unknown conditions or the clients/architects request to make changes to the scope of the project.

Minimal changes are directly related to the ability to establish a budget on a CM project and manage the changes that invariably occur on every construction job. Although often unwanted, it is prudent for an Owner to recognize that many of these changes are inevitable and result from factors outside of the architectʹs practice. The design and construction of a facility is not a static process with predictable and controllable variables, although that is what a bid method assumes. The design process instead, is an evolution of requirements, methods, and materials changing from design through construction and ultimately into the Ownerʹs move‐in period. With the General Contracting approach, the flexibility to respond and manage these changes is limited; and typically, the result is an increased project cost, since many of the changes are unavoidable. The Construction Management approach, however, enables an evaluation of the changes, consideration of alternatives and options, and a balancing of the budget to maintain the anticipated cost.

An Owner not only wants the lowest cost facility but an assurance that they will receive the best quality for the money and a timely delivery. The General Contractor approach really only considers the lowest cost when selecting a Subcontractor. The other, more qualitative variables tend to be overshadowed as though they are equivalent for each candidate.

The CM process, on the other hand, recognizes that 90% of the job costs will be competitively bid among contractors and suppliers, and given that assurance, the important criteria to be evaluated when selecting a Construction Manager are mostly qualitative.

Therefore, the Construction Management approach focuses on characteristics such as:

• – Company experience
• – Company resources
• – Preconstruction performance
• – Approach to Owners and Architects
• – Experience of project team
• – Track record of delivering similar projects

Obviously, this list is abbreviated, but the point is that the CM contract seeks to develop a ʺteamʺ of professionals skilled in developing your project and as such, recognizes the importance of qualifications in ensuring success.

The CM delivery method allows an Owner and Construction Manager to design a bidding process specific to the needs of the project. For example, if a project has short construction duration, but the construction schedule is constrained by the sitework, the Construction Manager can design an early bid package to competitively bid just the sitework, while the rest of the design is being completed.

Another tangible benefit to the Construction Managerʹs involvement in the bidding process is the ability to pre‐qualify a select list of subcontractors and suppliers. In doing so, the Owner can be assured that each bidder will have the capacity and resources necessary to complete the work to the satisfaction of both the Construction Manager and the Owner.

One of the primary by‐products of a CM contract is the Ownerʹs access to actual costs. With a hard bid project, the General Contractor bills for an estimated percentage of completion for scheduled values of work. Therefore, the Owner is left to judge whether the scheduled value of work, as well as the estimated percentage of completion, is accurate. As a result, the Owner pays for work that may or may not be completed at that time. With a CM contract, an Owner only pays for costs that are actually incurred, much like you do in your own business. The burden is on the Construction Manager to provide the backup to substantiate costs and to the extent, that backup cannot be provided; the Owner is not required to pay.

Construction Management contracts, unlike any other type of delivery method, are exceptionally good at providing a means to allow flexibility for an Owner during the development of a facility. Because CM contracts align the objectives of the Construction Manager with those of the Owner, they, in fact, create the resources necessary to respond to an Ownerʹs needs throughout the process. The collateral costs and challenges faced with Owner directed changes during both the design and construction process can be met with contract defined processes to manage the changes. Because changes do not provide a means for the Construction Manager to enhance his fee, they can be dealt with in an open book fashion jointly with the Owner and Construction Manager.

The primary difference between negotiated and hard bid contracts has to do with the incentives for performance. A General Contractor, ʺlump sumʺ contract uses 100% completed drawings to establish a set price for the construction of a project and the General Contractor is rewarded to the extent that the project costs are less than the bid price. This is the case because the difference between the project costs and the bid amount is Fee for the General Contractor (GC). As a result, it becomes the objective of the GC to construct the Ownerʹs facility at the least cost possible. The problem is, as the GC determines ways in which to reduce cost, the Owner receives no added benefit. The objectives of the Owner and the General Contractor are at odds from the beginning.

In a Construction Management (CM) contract, on the other hand, the Fee is established as a fixed amount. Beyond the fee, everything else is a ʺcost of the workʺ providing no other opportunities to the Construction Manager for an additional fee. As a result, the Construction Manager and the Owner share a common objective to get the best price, from the right contractor or supplier, for the cost of the work. In this fashion, the Owner, Architect, and the Construction Manager work together to ensure the projectʹs success. The animosity inherent in the GC approach is avoided under the CM approach. It becomes the duty of the Construction Manager to protect the Ownerʹs interests with subcontractors and suppliers throughout the construction process.