Managing the Construction Manager In a Cost-Plus Contract
Most people don’t think of everything needed in an owner’s representative.
On a major building project or any project that starts work before all the design is completed and the trades are purchased, the best project delivery system is the cost-plus-a-fee contract, also called "agency-style" or "pure" construction management. Although there are other types of contracts that include a price guarantee, those contracts set up an adversarial relationship between the owner and the contractor. I prefer a pure CM contract because, using this system, any owner can achieve a cost-effective result and avoid pitfalls.
However, I have one caveat: A competent owner's representative must serve the owner's interest. The owner's representative plays a crucial, often overlooked, role.
The owner’s rep should have sufficient experience working for owners but also for contractors and subcontractors. Credentials as an engineer or architect are helpful, but it is more important that the owner’s rep should work intimately with the owner’s organization to the greatest extent possible. Hiring an owner’s-representative CM firm just adds another layer of competing interests—the chosen CM firm has other jobs and owners to represent.
If possible, the owner’s representative should work on one project at a time. Also, since the owner's representative should take a hands-on approach to managing the CM’s team, the rep should have decision-making authority.
One purpose this serves is to keep the construction manager honest amid the competing interests that may interfere with the owner getting the best price. For example, the CM may have a coterie of subs that it works with, but that might eliminate the owner’s chance of getting a good price. Also, a CM may have a limited number of jobs and may not want to give too many projects to one sub, although the price is low. The way to avoid having this affect your job is to have your own bidders list and to participate actively in the bidding.
Keeping track of the general-conditions costs is paramount. Owners and CMs should agree to staff and salary ranges before they enter the contract, and the markup factor should be analyzed and negotiated. The CM should make its money from a fair fee, not in personnel costs.
All Staff Members Are Valuable
The owner’s representative must approve the CM’s staff, including the one individual who will take charge. The CM owes the owner a project manager who can run the job without constantly relying on a vice president at the owner’s expense. Further, CMs should not “park” people on the job—every person should be necessary and accountable.
That said, it is important to bring in experienced people early in the process. Money is well spent on a superintendent who can oversee the demolition, get up to speed on the drawings and participate in the early buys before foundations start.
If there is no purchasing department, the buying should be done by the CM’s project manager and executive. Estimating departments can assist, but the process must be managed by the project team to avoid confusion and possible omissions with the subs. No trade should be bought without completed plans for that trade, unless it is absolutely necessary. Scopes of work should be prepared by the CM and reviewed and augmented by the owner’s representative. The owner's rep should fully participate in the buy-out process.
The CM should provide a schedule and monitor it regularly to assure that it is realistically updated, with the owner’s representative double-checking it. Often, CMs tell the owner what it wants to hear, knowing the schedule will change. Flawed schedules set up costly delay claims that get in the way of project management.
The owner’s rep must participate in negotiations over staffing levels, too, but no incentives or penalties should be left to the subs. Damages, if required, should fall on the subs, with limits negotiated when the trades are bought out.
The owner’s rep and staff also should be physically present, with the understanding that the owner’s rep is in charge and the CM’s staff is responsible to him or her.
If your company does all or most of this, it will be on its way to a successful project.
Barbara A. Res, an engineer and attorney, serves as an owner's representative and is president of consultant Res Construction Services. She is also the author of All Alone on the 68th Floor: How One Woman Changed the Face of Construction and can be reached at email@example.com.