For construction management firms delivering construction management and program management services on a fee-only basis, it’s the best of times and it’s the worst of times. At a time when CM-for-fee as a discrete project delivery approach is struggling despite a torrid market, program management is on fire.
ENR’s Top 100 CM/PM Firms generated $8.72 billion in fees in 2006, up a strong 18.1% from 2005’s number. But this hides the real story. CM-for-fee revenue in 2006 was $3.87 billion for the group, up only 1.3% from $3.83 billion in 2005. But PM fees for the Top 100 skyrocketed to $4.85 billion, up 36.2% over 2005’s mark of $3.56 billion.
Agency CM is shrinking, says Gui Ponce de Leon, CEO of PMA Consultants. “You are still finding it in K-12 schools and on university projects, but model contract documents have insulated CMs from any risk,” limiting owner interest in it as a project delivery system, he says. PM, on the other hand, is booming. “We are seeing PM on projects as small as $50 million where there are multiple contracts to be managed,” he says.
Many firms are reaping the benefits on this PM boom. “We have four clients in the [Houston-based] Texas Medical Center complex alone,” says James Broaddus, CEO of Broaddus & Associates. One of the firm’s major projects is a $330-million outpatient hospital for Methodist Hospital in the TMC complex. “Five years ago, none of them would have ever considered PM,” he says. Broaddus’s firm also is PM on a $95-million Level 4 biocontainment research facility for the University of Texas Medical Branch at Galveston, he says.
PMs should be able to answer owner concerns over costs. “Almost every decision an owner makes from site selection to change orders involves cost issues,” says Broaddus. So, his firm has established in-house cost-estimating capabilities to address cost concerns, he says.
Some firms are finding international work is an increasingly attractive market for program management. The Rise Group is working as a third-party consultant on The Shard of Light tower in London, the Renzo Piano designed office tower that will be London’s tallest building. “The global investment community wants risk mitigation worldwide, regardless of whether people in the location of the project have experience with third-party program managers. That’s the type of service we supply,” says David Crowell, COO of Rise Group.
One firm that is trying to break the mold is PMA Consultants. “I read the book The World Is Flat by Thomas Friedman and it made a lot of sense to me,” says Ponce de Leon. He says that, in a typical construction scenario, owners hire an architect, which hires consultants that hire subconsultants, all adding layers of inefficiency. The same is true with a general contractor, that hires subcontractors, that hire sub-subcontractors.
“Why not hire and manage all the major players as first-tier players?” Ponce de Leon asks. That way, you can hire the best at the best prices and contracts, and make sure all the best advice and ideas get a full hearing. “By holding the paper on every major player in the process, you get the best ideas without interference.” He calls this “Flat Build.”
Ponce de Leon admits this approach would be a tough sell. So, PMA is using it for the first time on its own new office space in Ann Arbor, Mich., which is slated for completion next year, he says.