When CM is the Best Choice

Minneapolis, MN – 08/06/2013

The traditional delivery method of design-bid-build is generally regarded as delivering facilities at the lowest cost. However, the reality is that encouraging the architect and a construction expert to work together from inception can save both time and money and result in a higher quality project. The use of a Construction Manager (CM) provides greater control over the entire process while fostering proactive teamwork among all parties, resulting in the most cost-effective solution while also providing a smoother, more flexible process for the owner.

Operating as an extension of the owner’s staff, a CM advocates for the owner and helps optimize the allocation of the project’s budget to the owner’s program. Construction Managers understand that owners are busy with their specific business, and do not expect them to be experts at managing a project from start to finish. Managing a project requires intimate understanding of the design and engineering process, construction budgets and scheduling, construction means and methods, as well as how to best work with trade labor and regulatory agencies.

To better understand how CM works, this article will outline the different forms of the CM approach, its benefits and potential pitfalls, and the owner’s perspective. It also will help you determine which process is best for your project.

CM is typically offered in one of the following three forms:

1. Agency Construction Management
   Under this delivery method, the CM acts as an extension of the owner’s staff and manages the work of all prime contractors who have direct contracts with the owner. An agency CM typically does not self-perform trade labor work on the project. This is the preeminent CM delivery method for public sector work.
2. Construction Management at Risk
   This arrangement is used most often in the private sector, and combines the responsibilities of Agency CM with financial risk for the construction cost of the project. In this case, the CM prepares a Guaranteed Maximum Price (GMP) at some point prior to the start of work. In this delivery system, the trade contractors may have direct contracts with the CM or the owner depending on the terms of the Owner/CM agreement.
3. Construction Manager as Constructor
   This is essentially “Agency CM” except that it provides the CM with the opportunity to submit a bid for portions of the work. If the CM is awarded the bid, then it will be allowed to perform that work under a separate contract with the owner. This method provides an advantage in schedule and quality control but is sometimes perceived as creating a conflict of interest in instances where the CM is evaluating the performance, change order requests or quotations for its own trade contracts. CM as Constructor is not always perceived as a separate and distinct delivery method from Agency CM, but it is contractually very different. While this form has not gained wide acceptance in the public sector, increasing numbers of owners are discovering this is a viable and effective method once the competitive aspects are understood.

Benefits of CM include:

• Expert advocate promoting the owner’s best interest.
• Schedule monitoring, reporting and enforcement.
• Team relationship between the owner, the designer and the construction manager ensures a smoother process.
• Effective Budgeting – It has been estimated that 80% of all savings take place during the design phase. The opportunity to realize these savings is greatest at the earliest part of pre-design and decreases as the project approaches the bid phase. Therefore, an experienced CM should be brought on as early as possible in the project.
• A construction manager can and should be selected for their qualifications, specific expertise and value that they bring to the project.
• Because the work is broken up into smaller contracts, the limitations of bonding capacity are reduced.
• Stronger sense of organized control over the project.
• Warranties and guarantees are properly received, processed and followed-up.
• When properly implemented, construction management is not an added cost to the project because you use either a General Contractor or a CM, not both.

Potential Pitfalls of CM

It is a benefit to work with a construction manager who has a general contracting background and skill-set. Owners must be careful not to secure a CM who does not have either the ability to self-perform or the relationships in place that are necessary to enforce schedule compliance. Additionally, an owner must be careful not to partner with a CM who might:

• Misrepresent their cost of services by hiding staff or other reimbursables in the project general conditions or by billing staff at a rate that is very different from their true compensation.
• Offer to provide services at a bargain basement fee, then understaff the project or staff it with unqualified persons. Typically these firms fail to provide substantive value to the project and add cost with no real benefit.
• Increase their fees by marking up change orders.
• Not break down bid categories sufficiently for the owner to realize the advantage of direct access to subcontractor bids.

Owner’s Perspective

In a recent CMAA/FMI Owner’s survey, clients agreed the pre-design phase was the most important phase, next to construction. Therefore, they felt more time dedicated to this phase would enable a project to go forward faster with fewer changes and a higher satisfaction rate among owners. Many owners commented that involving the construction manager during the conceptual stage decreased the risk of disputes over assumptions.

Owners also determined that “effective leadership” is the number one problem, along with lack of coordination among team members. That is why it is important to hire a CM with experience, integrity and a proven track record of successful projects and strong leadership.

“I cannot imagine going through our project without Knutson Construction Services,” commented Joe Smith, Hospital Administrator and CEO, Boone County Hospital, Boone, Iowa. Knutson Construction Services oversaw the construction of a $10 million addition to the hospital to house all patient care departments.

“What I valued most about Knutson was their willingness to take ownership of issues and the schedule,” Smith added. “My recommendation to any owner considering construction management is to make sure the construction manager has a successful track record of taking responsibility for the schedule and coordination of all the different trades. It’s also important to remember the selection of the on-site superintendent is critical. For our project, Knutson Construction Services provided a professional who excelled in building cooperative relationships with all the trades and ensured everyone lived up to their commitments in terms of quality workmanship and schedules,” continued Smith. “Throughout our project, Knutson Construction Services and their on-site superintendent were our strongest allies.”

When is CM the Best Choice?

Questions owners should ask themselves prior to selecting a delivery method:

• How are we going to manage the project?
• Do we have the expertise, capability and manpower to manage the project in-house?
• Is the size or complexity of the project appropriate to take advantage of the benefits of CM?
• Is project phasing important? Do we need phased occupancies or will the project impact occupied facilities that must remain in operation?
• Can we afford to wait for the AE to complete all of the design before we begin any portion of the construction work, or do we need to take advantage of an early start on some of the work or some of the systems procurement?
• Do we know a CM experienced in our industry who has a successful track record, and who we could approach for input?

Once an Owner decides the CM that is the best choice for their project, how can they ensure the proposals they receive are truly comparable? The RFP should:

• Be detailed and well-written. It must not only provide the information necessary to differentiate the capabilities of the respondents, but level the playing field by removing the potential for hidden costs.
• Delineate the services desired, the expected duration for the project, and a copy of the contract form with modifications that the owner intends to execute with the successful respondent.
• Require that staff be billed at Direct Personnel Expense (DPE) rates and indicate whether special benefits such as a company vehicle or car allowance may be included in the rate.
• Require a detailed work plan quantifying the anticipated labor hours for each position summarized by phase of service and distributed over the project schedule.
• State the reimbursables to be included, and capped, in the respondent’s proposal.
• State the way the fee is to be calculated including the specific project elements that make up construction cost, and how that fee is to be billed during the performance of the work.

Construction Management is only one choice of delivery for owners. However, it is a rapidly-growing, effective method, combining the advantage of an experienced team’s input on cost-saving measures during pre-construction and on-site advocacy of the owner’s interests during construction with the competitive cost advantage of open bidding. Knutson Construction Services strives to provide clients with the ultimate building advantage and offers extensive experience in construction management in a variety of markets including:

• Government
• Education
• Healthcare
• Commercial Office/Retail
• Corrections
• Recreation
• Religion

For more information regarding Construction Management, please contact Jim Mott at 319.351.2040, [email protected].