The Lowdown on Construction Management
Bringing a new commercial building project out of the realm of conceptualization and into reality requires the seamless orchestration and implementation of countless systems, people and materials. From project design and engineering, to permitting and compliance, to materials, equipment and labor, a single construction project can require the checking of countless boxes in order for it to be successful. The construction companies that are best at this are successful because they are organized, their projects are well planned, and they anticipate the potential issues that may (and probably will) arise.
The art and science of this process is known as construction management, and building owners embarking on new projects would be wise to understand the types of agreements that fall under this label and what the expectations are for each type. Once you know the difference, the next step is to know how to evaluate a construction company’s management skills in order to choose a building partner who will get the job done right.
Construction Management – The “Agent” or “At-Risk” Model
One of the first things to understand about commercial construction management is that there are a couple of different options you will likely encounter as you research builders. Two of the models that we work under at Fleming Construction are “agent” and “at-risk.”
Construction Management, Agent Model
The construction management agent model provides building owners with a resource for advice throughout the construction process. Construction manager agents will review your plans, budgets and timelines, help you assemble your teams, and make recommendations for changes based on their experience, but ultimately the responsibility for the success of the project stays in the hands of the building owner. The general contractor and sub-contractors take their orders from the building owner and the construction manager operates in a purely advisory capacity.
Pricing for this model is typically through an open book, cost-plus contract, which means that the agent and builder agree on the costs of services and an agreed upon margin of profit. A downside to this option, and something to be aware of, is there is less incentive to meet an NTE (not-to-exceed) price cap. However, if you are knowledgeable about building materials and labor pricing, and you’re an experienced builder, your estimates should coincide with the end costs.
Construction Management, At-Risk Model
On the other hand, the construction management at-risk model puts the success and failure of the project squarely on the shoulders of the construction manager. In this model, the construction manager is both manager and general contractor and manages all materials and field operations, guaranteeing that the price for the entire project will not exceed a certain limit.
At-risk construction managers have a higher level of liability because they are responsible for start-to-finish project execution, but they are also incentivized by the financial benefit of bringing a project in under budget and on deadline through the potential sharing of the cost savings. Experienced construction managers are willing to absorb the risks associated with this model because they are well-versed in creating project pathways that are highly efficient and do not rely on late stage back charges to inflate their profits. They understand the pitfalls of cutting corners for short term gains and invest more heavily in the planning stage than a general contractor or less experienced builder might.
How to Evaluate Construction Managers and Choose the Model that is Right for Your Project
One of the best ways to evaluate a construction manager – either agent or at-risk – is to look at their body of work. When researching a construction management partner, use these questions to guide you:
- Does the firm have demonstrated success in project execution on a size and scale that is in line with your project?
- Do they enjoy a high repeat business rate with their clients?
- Is the firm willing to give you references from previous projects?
In the construction industry, charlatans don’t tend to last for very long because, as the writer Douglas Adam says, “nothing travels faster than the speed of light, with the possible exception of bad news…” A construction management company with a reputation for quality and efficiency has earned their standing by delivering on their promises over time.
Whether to choose the at-risk or agent model comes down to your own experience and needs. If you’re a general contractor or an experienced real estate developer, you may only need a little third-party oversight to make sure your plans are in order. In this case, an agent model may be all you need. If this is your first project, however, or if you have run into expensive snags in the past that you’re not sure how to overcome, the at-risk model will likely be your best bet because it ensures you will get your project completed on time without the expensive surprises that can put your building in the red.