The construction process is becoming more complex, as project scope, risk mitigation, project delivery methods and teaming approaches have expanded well beyond the old days of design-bid-build. This new reality has owners increasingly turning to third-party professional service firms to explain their options and make sure their plans are executed.

The market for professional services remains strong, as can be seen in the results of the ENR Top 100 Construction Management-for-Fee and Program Management Firms list. Revenue for the CM-PM group was up 3.3%, to $23.41 billion, in 2016, up from $22.66 billion in 2015. Domestic revenue from CM-PM work rose only 0.1%, to $16.63 billion. However, CM-PM revenue from projects and programs abroad rose sharply by 12.3%, to $6.78 billion, in 2016.

ENR 2017 Construction Management-for-Fee Firms Chart

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The market for professional services such as agency CM and PM is on the rise as the complexity of project planning and delivery increases, particularly where owner budget constraints limit the availability of in-house staff to understand and manage their projects. This trend has been ongoing.

“Many owners have had to react to increasing business pressures to optimize the operating expenses of their business,” says John E. Robbins, U.S. and North America managing director for Turner & Townsend. This pressure has resulted in smaller owner staffs, causing clients’ project executives to become more reliant on third-party experts to assist with planning and delivering their construction projects, he says.

Further, the remaining project executives on owner staffs do not always have the ability or expertise to deal with the myriad of available project delivery options. “The current volatility in the marketplace, challenges with staffing and trades, as well as the sophistication of the delivery systems require expertise that is difficult to develop in-house,” says Bill Rodgers, chief economist and managing principal at Cumming.

As a result, more and more mature capital improvement programs are moving toward agency CM-PM services after many of them start off by trying to do everything in-house. “Owners often underestimate the resources it takes to properly run a program and how time-consuming and expensive it is to hold those resources in-house. This realization usually occurs after stakeholder pressure to get projects moving pushes owners to an understanding of how much sophisticated and specialized knowledge is required to run a successful program,” says Michael Boomsma, vice president of education and facilities at Cordoba Corp.

New Competitors

While the market for professional services may be expanding, the nature and types of the service providers seems to be changing. Many large companies, including huge engineering conglomerates and contractors delivering CM-at-risk and design-build, are stepping in to provide professional services that, in the past, had been provided by traditional third-party CM firms.

Moreover, the growing market for CM-at-risk may be encroaching on the more traditional agency CM. “One trend that I see is the expanded use of CM-at-risk opportunities, especially in the education market sector, which would seem to compete with traditional agency CM,” says Philios Angelides, president of Alpha Corp. He says more contractors are being hired at the design phase to offer constructibility and bid scope reviews, cost estimating and preliminary schedule development.

“Owners often underestimate the resources it takes to properly run a program and how time-consuming and expensive it is to hold those resources in-house.”

– Michael Boomsma, Vice President, Cordoba Corp.

In addition, large engineering and contracting firms are expanding their scope of services to include traditional agency CM, bundling them as part of larger project packages and cutting into traditional CM firm work. “We are seeing certain trends in the marketplace with ongoing mergers and acquisitions of professional consulting and construction firms,” says Robbins.

Robbins says many of the large conglomerate firms now also are providing program-level management services and, in some cases, taking on construction risk. “While certain owners and clients gravitate toward an all-in-one solution to turnkey their programs and projects and may find these large conglomerates the right solution for them, we still find that, by and large, the majority of owners and clients see the value of multiple, independent third-party consultants, particularly at the program and project management level, to achieve the best level of service in each discipline.”

However, Robbins says Turner & Townsend will stick to its guns as an independent, third-party service provider. “As an independent program and project management firm, we generally always work on a fee-only basis to avoid any potential conflict of interest that could arise from other payment methods, such as a percentage fee of construction.”

Some agency CM firms say owner financial concerns are squeezing CM fees. “There is great pressure to reduce overall project costs since these costs have greatly outpaced any reasonable escalation standards,” says Blake Peck, CEO of McDonough Bolyard Peck Inc. This often results in owners wanting to commoditize CM-PM services and select providers based on price. “Ironically, most owners will tell you that [price-based CM firm selection] often results in higher overall costs because of the lower level of service provided,” Peck says.

Peck warns about using marginally qualified and low-priced service providers. He notes that many industry surveys have revealed that most large capital projects end up late or over budget or both. “The centuries-old solution in construction is to simply throw more people at a project until we finish. This is no longer sustainable from either a labor resource or funding perspective,” Peck says.

But that doesn’t mean top CM firms are satisfied with doing business as usual. “We need to leverage technology to expedite our data collection, management, analysis and decision-making processes to reduce our project staffing and enhance our project team’s skill sets,” says Peck.

For example, Peck says CM firms should be able to reduce a project staff of 12 to three or four skilled leaders who are able to make decisions in real time because of their ability to access and analyze information quickly.

Risky Business

Many professional service firms now are emphasizing not just project planning and management but also a variety of other skills and services needed by owners. “One area of service that is becoming more and more integral to the PM practice is risk management,” says Angelides. He says PMs now start as early as possible in project planning to develop risk registers and monitor the effect and impact of each risk item in the development and delivery of projects.

Agency CMs also are helping owners to adjust to the new realities of the market. When the economy was a little slower, owners were successful in pushing a greater amount of risk onto designers and contractors. However, with a strong market, construction firms are becoming less willing to accept harsh contract terms and risk-shifting

The term “owner of choice” is heard more and more these days, says Boomsma. “Owners understand that attracting good contractors and consultants starts with understanding and sophistication from the top down. Smart owners are quickly realizing that getting the best PM and CM firms to help them become an owner of choice is critical to building the best-qualified team, leading to successful projects down the road,” he says.

There is another relatively new service that some agency CMs and PMs are providing that has darker overtones. “We are seeing a gradual shift of private companies looking for traditional government CM-PM firms with secure government client experience,” says Leigh Valudes, vice president of Markon Solutions. Many of these private companies are defense contractors that are building offices here in the U.S. and around the world, responding to concerns over anti-terrorism/force protection (AT/FP) design and construction, Valudes says.

Many private owners are concerned about employee safety as many of these companies and their executives are receiving real threats that need to be dealt with. Valudes says government clients use AT/FP government standards, such as Unified Facilities Criteria and Intelligence Community Directives, for those safeguards, but commercial clients are unaware of these standards. Private-sector companies increasingly are turning to traditional third-party professional services for owner’s representation and to CM to find designers and contractors with credentials and experience to create secure campuses and buildings, says Valudes.