ConstructionManagementvs.

GeneralContractorMethodofContracting

POINTSOFVALUEOFTHECONSTRUCTIONMANAGEMENTMETHOD

InanefforttotakeadvantageofouropportunitytodiscusswiththeOwnerthemerits
ofnegotiatingConstructionManagementservicesforyourfacilityneeds,Iwouldlike
tohighlightforyouafewofthemanyadvantagesoftheConstructionManagement
Method.

BenefitNumber1:ConstructionManagementContractsBetterServetoAlignthe
ContractorsObjectiveswithThoseoftheOwner

Theprimarydifferencebetweennegotiatedandhardbidcontractshastodowiththe
incentivesforperformance.AGeneralContractor,lumpsumcontractuses100%
completeddrawingstoestablishasetpricefortheconstructionofaprojectandthe
GeneralContractorisrewardedtotheextentthattheprojectcostsarelessthanthebid
price.Thisisthecasebecausethedifferencebetweentheprojectcostsandthebid
amountisFeefortheGeneralContractor(GC).Asaresult,itbecomestheobjectiveof
theGCtoconstructtheOwnersfacilityattheleastcostpossible.Theproblemis,asthe
GCdetermineswaysinwhichtoreducecost,theOwnerreceivesnoaddedbenefit.
TheobjectivesoftheOwnerandtheGeneralContractorareatoddsfromthe
beginning.

InaConstructionManagement(CM)contractontheotherhand,theFeeisestablished
asafixedamount.Beyondthefee,everythingelseisacostoftheworkprovidingno
otheropportunitiestotheConstructionManagerforadditionalfee.Asaresult,the
ConstructionManagerandtheOwnershareacommonobjectivetogetthebestprice,
fromtherightcontractororsupplier,forthecostofthework.Inthisfashion,the
Owner,Architect,andtheConstructionManagerworktogethertoensuretheprojects
success.TheanimosityinherentintheGCapproachisavoidedundertheCM
approach.ItbecomesthedutyoftheConstructionManagertoprotecttheOwners
interestswithsubcontractorsandsuppliersthroughouttheconstructionprocess.

BenefitNumber2:NegotiatedContractsAllowaConstructionManagertobeOnBoard
EarlyandParticipateinthePreconstructionProcess

Therehavebeenmanystudiesdoneaboutthedesignprocessthroughouttheyears,
andtheyallcontinuetoarriveatasimilarconclusion.Thatconclusionisthatthe
decisionsmadeattheearlystagesofthedesignprocesshavethemostimpactonthe
successoftheproject.Thisistruenotonlywithrespecttosatisfyingtheprogram
needs,butalsointermsofestablishingaprojectsbudgetandscheduleaswell.Given
thisunderstanding,theroleoftheConstructionManagerasapartofthepre
constructionphase/designphasecannotbeoveremphasized.

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DuringthePreconstructionPhase,anOwnercanexpecttheirConstructionManager
toprovideinformation,bothdataandrecommendationsthatwillenabletheOwner
tomakethebestdesigndecisionspossible.Inthisrole,theOwnercanrelyonthe
ConstructionManagertoprovideinputabouttheprojectwithrespectto:

9 Estimatesofthecostofconstruction
9 Estimatesofcomparativecostsfordifferentsystems(i.e.structuralframe,
HVAC,exteriorskin,roofing,etc.)
9 Alternativestomaterials,systemsanddesignapproach
9 Schedulesfordesignandconstruction
9 Developvalueengineeringalternativestodesign
9 Estimatesofpermittingtimesandrequirements
9 Recommendationsformaterialandequipmentselections
9 Pricechecksonthedesignasitprogressestoensureitstayswithinthe
budget
9 Recommendationsforsubcontractorsandthebiddingprocess

Thereare,ofcourse,avarietyofotherissueswhichtheConstructionManagerwill
focusonduringthepreconstructionphaseaswell,butthoselistedarenecessaryto
theOwnersandArchitectsdecisionmakingprocess.Withbothaccurateand
timelyinputfromtheConstructionManager,theOwnerisbestpositionedtomake
gooddecisionsandthereforeisabletomaximizetheuseofhisconstructiondollar.

AnotherimportantrolethroughoutthedesignphasefortheConstructionManager
istheroleofdesignreviewer.Assuch,theConstructionManagertroubleshootsthe
designtopreventchangeordersandredesign.Byreviewingthedesign,the
ConstructionManagercanalsoadviseonsubtlechangesthatdrasticallyaffectthe
abilityoftheprojecttobeconstructed.

BenefitNumber3:ConstructionManagementContractsAllowforFlexibilityinDefining
andChangingtheProjectScope

ConstructionManagementcontracts,unlikeanyothertypeofdeliverymethod,are
exceptionallygoodatprovidingameanstoallowflexibilityforanOwnerduringthe
developmentofafacility.BecauseCMcontractsaligntheobjectivesofthe
ConstructionManagerwiththoseoftheOwner,theyinfactcreatetheresources
necessarytorespondtoanOwnersneedsthroughouttheprocess.Thecollateral
costsandchallengesfacedwithOwnerdirectedchangesduringboththedesignand
constructionprocesscanbemetwithcontractdefinedprocessestomanagethe
changes.BecausechangesdonotprovideameansfortheConstructionManagerto
enhancehisfee,theycanbedealtwithinanopenbookfashionjointlywiththe
OwnerandConstructionManager.

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BenefitNumber4:ConstructionManagementContractsProvideanOwnerAccesstoAllofthe
ProjectCosts

OneoftheprimarybyproductsofaCMcontractistheOwnersaccesstoactualcosts.
Withahardbidproject,theGeneralContractorbillsforanestimatedpercentageof
completionforscheduledvaluesofwork.Therefore,theOwnerislefttojudge
whetherthescheduledvalueofworkaswellastheestimatedpercentageof
completionisaccurate.Asaresult,theOwnerpaysforworkthatmayormaynotbe
completedatthattime.WithaCMcontract,anOwneronlypaysforcoststhatare
actuallyincurred,muchlikeyoudoinyourownbusiness.Theburdenisonthe
ConstructionManagertoprovidethebackuptosubstantiatecostsandtotheextent
thatbackupcannotbeprovided;theOwnerisnotrequiredtopay.

BenefitNumber5:ConstructionManagementContractsAllowforFlexibilityinthe
BiddingProcess

TheCMdeliverymethodallowsanOwnerandConstructionManagertodesigna
biddingprocessspecifictotheneedsoftheproject.Forexample,ifaprojecthasshort
constructionduration,buttheconstructionscheduleisconstrainedbythesitework,the
ConstructionManagercandesignanearlybidpackagetocompetitivelybidjustthe
sitework,whiletherestofthedesignisbeingcompleted.

AnothertangiblebenefittotheConstructionManagersinvolvementinthebidding
processistheabilitytoprequalifyaselectlistofsubcontractorsandsuppliers.In
doingso,theOwnercanbeassuredthateachbidderwillhavethecapacityand
resourcesnecessarytocompletetheworktothesatisfactionofboththeConstruction
ManagerandtheOwner.

BenefitNumber6:TheSelectionofaConstructionManagerFocusesonQualifications

AnOwnernotonlywantsthelowestcostfacility,butanassurancethattheywill
receivethebestqualityforthemoneyandatimelydelivery.TheGeneralContractor
approachreallyonlyconsiderslowestcostwhenselectingaSubcontractor.Theother,
morequalitativevariablestendtobeovershadowedasthoughtheyareequivalentfor
eachcandidate.

TheCMprocessontheotherhand,recognizesthat90%ofthejobcostswillbe
competitivelybidamongcontractorsandsuppliers,andgiventhatassurance,the
importantcriteriatobeevaluatedwhenselectingaConstructionManageraremostly
qualitative.

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Therefore,theConstructionManagementapproachfocusesoncharacteristicssuchas:

9 Companyexperience
9 Companyresources
9 Preconstructionperformance
9 ApproachtoOwnersandArchitects
9 Experienceofprojectteam
9 Trackrecordfordeliveringsimilarprojects

Obviously,thislistisabbreviated,butthepointisthattheCMcontractseeksto
developateamofprofessionalsskilledindevelopingyourprojectandassuch,
recognizestheimportanceofqualificationsinensuringsuccess.

BenefitNumber7:ConstructionManagementContractsResultinFewerChangeOrdersto
theContract

RecognizingthattheConstructionManagerhasparticipatedthroughoutthedesign
phasesofthepreconstructionprocess,itisreasonabletoassumethattheConstruction
Managershouldhaveabroaderperspectiveofthepotentialissuesthatmayarise
duringconstructionandwhichmayultimatelyrequireschangestothework.Asa
result,forexampletheConstructionManagerwillbebetterpreparedtoaddress
modificationstorelatedtounknownconditionsortheclients/architectsrequestto
makechangestothescopeoftheproject.

MinimalchangesaredirectlyrelatedtotheabilitytoestablishabudgetonaCMproject
andmanagethechangesthatinvariablyoccuroneveryconstructionjob.Although
oftenunwanted,itisprudentforanOwnertorecognizethatmanyofthesechanges
areinevitableandresultfromfactorsoutsideofthearchitectspractice.Thedesignand
constructionofafacilityisnotastaticprocesswithpredictableandcontrollable
variables,althoughthatiswhatabidmethodassumes.Thedesignprocessinstead,is
anevolutionofrequirements,methods,andmaterialschangingfromdesignthrough
constructionandultimatelyintotheOwnersmoveinperiod.WiththeGeneral
Contractingapproach,theflexibilitytorespondandmanagethesechangesislimited;
andtypically,theresultisanincreasedprojectcost,sincemanyofthechangesare
unavoidable.TheConstructionManagementapproach,however,enablesan
evaluationofthechanges,considerationofalternativesandoptions,andabalancingof
thebudgettomaintaintheanticipatedcost.

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BenefitNumber8:RealSavingsforTaxExemptOrganizations

OneofthesignificantadvantagesofConstructionManagementistheabilitytosaveon
salestaxesontaxexemptorganizations.Althoughtheseentitiesaretaxexempt,some
cannotpassontheirtaxexemptstatustoathirdparty.Theymustactuallywritethe
checksformaterials.Thesearesignificantdollars.

Mostprojectsareaboutonehalfmaterialandonehalflabor.Forinstance,amillion
dollarprojectwouldincludeaboutonehalfmilliondollarsofmaterials.Ninepercent
of$500,000.00is$45,000.

Wehavedevelopedasystemthatallowsthematerialstobepurchaseddirectly,thus
savingthesalestaxandatthesametimeholdthecontractorresponsibleformaterials,
quantitiesandcostincreases.

BenefitNumber9:ConstructionManagementprojectsallowfortheOwnertoevaluatetherisk
andnecessitiesofbonds.

MostGeneralContractorprojectsarebonded.TheGCprovidesthebondforhiswork
andtheworkofhissubcontractors.Thesecostsareincludedinthebidandcanrange
from1to4%dependingonthefinancialstrengthoftheGC.WithaGCproject,
bondingprovidesfinancialassurancetotheclientforGCandhissubcontractors.The
GCsbondcoversasubcontractor,evenwithhorriblefinancialproblems.Shouldthe
subcontractorgobroke,theGCmustcompletethework.

WithConstructionManagementprojectstheOwner,withtheassistanceoftheCMcan
evaluatetheriskandthecostofthebondforeachcontractor.Dependingonthe
financialstrengthandlongevityofthecontractors,theOwnermayopttonotrequirea
bondonacasebycasebasis,thussavingthedollarshefeelsareatalmostnorisk.

Withtaxexemptorganizations,wherethematerialsarepurchaseddirect,thematerial
billsarepaidandlienreleasesaresecured.Shouldacontractorfailtomakeapayroll,
heisusuallyoutofbusiness.Asthematerialbillsarepaid,thefinancialexposureis
onlyonepayperiod,thuseliminatingthenecessityofbonding.Generallythereis
abouta1%savingsintheoverallprojectcostsduetolesserfinancialexposureand
bondingrequirements.

Evenfortaxexemptorganizations,thereareafewcaseswhereabondisprudent.For
example,achurchmayopttorequireabondonaconcretecontractorduetothe
disproportionatecosttoremoveandreplaceunacceptablework.

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SummaryofAdvantagesofConstructionManagementContracts

Asarecap,andinnoparticularorder,Ihavetriedtoitemizetheadvantagestothe
OwneroftheConstructionManagementapproachdiscussedherein:

1.TheCMcanorchestratethebiddingofindividualbidpackagestoenableafast
trackapproachtoconstruction.
2.Theearliestpossiblestartingandcompletiondatesareobtainableduetophased
construction.
3.TheobjectivesoftheOwnerandConstructionManagerarealigned.TheOwner,
ArchitectandCMworktogethertowardstheprojectssuccess.Theanimosity
attributedtoothercontractformatsisavoidedundertheCMmethodology.
4.TheCMactstoprotecttheOwnersinterestswithsubcontractorsthroughoutthe
Constructionphase.
5.TheOwnerisabletomaximizetheuseofhisconstructiondollarduetothecost
inputduringthedesignphase.
6.Prepurchasingoflongleaditemsisavailableinordertopreventdelaysinthe
constructionphase.
7.TheCMtroubleshootsthedesigntopreventchangeordersandredesign.The
CMalsochecksconstructabilityandconstructionmethodologies.
8.Itispossibletoredesigncertainportionsoftheprojectwithoutaffectingthe
scheduleduringconstruction.
9.PricechecksbytheCMthroughoutthedesignphasekeeptheprojectinbudget
andonschedulebypreventingredesign.
10.TheCMschedulesandadministratesthebidprocess.
11.TheCMworksonafixedfeeorpercentagefeebasiswithalloftheconstruction
savingsbeingreturnedtotheOwner.
12.Thereisinputoncosts,materials,andschedulingthroughoutthedesignphase.
TheOwnerisbestpositionedtomakegooddesigndecisionswhenarmedwith
accurateandtimelyinformationthroughthepreconstructioninvolvementofthe
ConstructionManager.
13.TheOwnerisaffordedanopenbooktojobcostsandisbilledactualcostsrather
thananestimateofcosts.
14. TherearetypicallyfewerchangeordersonCMprojectsthanthereareonbidjobs.
15.TheselectionprocessforConstructionManagerfocusesonqualificationsrather
thanprice.
16.Bidsarereceivedfromaselectlistofprequalifiedsubcontractors,thusgivingthe
Ownerthebenefitofabidproject.
17.Costsarepaidforaftertheyareincurred.TheOwnerisnotexpectedtocashflow
expenses.
18.Therearerealsavingsformosttaxexemptorganizations.
19.Theneedforbondingcanbeevaluatedonacasebycasebasis.

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Obviously, it is our opinion that the CM methodology offers the Owner the greatest benefit
in terms of construction value for the dollar. This methodology also allows the Owner the
greatest degree of flexibility in determining the specifics of his design. The Construction
Management contract format has become increasingly popular as it offers the Owner the
preconstruction expertise of an entity that is actually involved in the construction of the
project. We have used this contract format with a number of different clients throughout the
Tulsa metro area and are confident that this is the appropriate approach for the Owner as
they embark on their new project.

TRIGON
General Contractors & Construction Managers, Inc.

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