Owners & Construction Management

Earl Worsham 

In the litigated Construction world of today building Owners and Corporate Executives are faced with many challenges and options regarding management of Construction projects. However; with a basic understanding of several of the options Owner's & Executives can select what is best for their project, achieve a level of protection and most importantly assurance of a successful project. Another item that needs to be understood is a construction project is not a painless undertaking; all projects create disruptions, inconveniences, and pulls key personnel away from their normal duties. Not to mention dealing with utility interruptions, design issues requiring correction, project decisions to make (where, when, & how) and resolving Contractor issues. The Architect and Engineer must also be monitored and managed to insure clarifications, design issues are being resolved in a timely manner, along with insuring full compliance of all contractual obligations.

From project conception, internal meetings, project design, and through completion of the last punch list item an Owner or Executive needs complete written documentation kept in an organized manner for the project. On large projects with long durations good project documentation is very crucial as anyone involved in the project could have personnel changes prior to the completion date. Another key item is the project must be kept moving forward at all costs as an Owner cannot allow or afford to have the project to sit idle because of delayed Owner decisions or awaiting design correction of design issues. Even if an Owner change needs to be implemented immediately but would impact the critical path of the project schedule it may be less costly to implement the change at a later date even though the change would require some demolition of installed work.

Now we are back to the options an Owner or Executive have regarding how to manage a construction project.

Negotiated Projects - Run smoother and have less issues to deal with but one of the more costly routes (15% to 30% more than a bid project). Negotiated Projects are only second to Design build in Contractor preference of performing work. The additional cost is due to the Contractor's reputation at risk and will utilize top Sub-Contractors on the project (generally does not bid to more than two Subs in each trade). The Contractor is also assured of a guaranteed profit margin of 11% to 15% (in this market area) which is in most cases at least double of his bid margins. However, this type of project the Contractor must justify its cost to the Owner and can only bill the final cost of completion amount.

Bid Project - Tend to be the less costly approach but require a tremendous more amount of time to manage as Contractors will push issues to their limits and request clarifications on minor details. Contractors also open the bidding to most Sub-Contractors and will utilize the lowest numbers to win the bid award. Contractors will bid this type of a project as low as a 3% profit margin and will beat down Sub-Contractor whom will have numerous exclusions attached to the bids. This is where the problems begin as Contractors will only look at the numbers on bid day then realize the exposure. On the first day the Contractor will begin submitting design alternatives and recommend substitute materials to reduce project costs. The next thing that occurs is design deficiencies will not be submitted by the Contractor until the time of critical path impact with a delay claim included in the change order.

At Risk Construction Management - This seems to be the Construction raze at this time and many of the large General Contracting firms are offering this service. At Risk Construction Management means the Owner is assured the project will not exceed the estimated cost and if so is picked up by the Contractor or Construction Management Firm, should any monies be left over these are returned to the Owner excluding any bonuses that may be included. Utilizing a Contractor for this type of service does not offer any Owner protection or provides Owner documentation of the project. Generally what occurs is Contract's have a bid rate and a sale rate for their labor and will submit the cost of the sale rate labor on pay applications to reach the estimated cost of the project so there is not any project savings to the Owner. At Risk Construction Management firms will document a project for the Owner, however will also be limiting their exposure should the project develop major issues.

Construction Management Firms - Offer the Owner the highest level of protection and planning on a Construction project along with having the most accurate documentation of the project because when contracted they are an extension of the Owner as a Professional Consultant. CM Firms are also dependent on their reputation and will manage a project in the best interest of the Owner because they are not at risk financially and do not have a vested interest in the project due to set fees and / or hourly rates. CM Firms will keep the Owner informed of all project issues and assist the Owner with determining the best resolution. CM Firms will be out ahead of the Contractor clearing the path for subsequent installations and evaluating for potential issues that could arise. The Contract Documents are also implemented to the fullest extent along with insuring Contractual obligations are met by all partied including A&E Firms. CM Firms also offer the highest level of Owner protection should a litigation issue arise.

The above information is an outline or guide to assist Owners and Corporate Executives to determine what is the best method for their organization to manage a construction project.