An Introduction to: Construction Management

Construction Management (CM) is becoming an increasingly popular procurement route for some of our developer clients due to time and cost savings. The route can, however, present some challenges, meaning it should be carefully considered in the context of individual projects and developer team experience and capability.

In this article, we will outline a typical CM structure and will also touch upon key practical considerations and associated risks.

What is Construction Management?

CM is a procurement method whereby the developer (as ‘Employer’) appoints a Construction Manager to oversee a project from planning through to completion, co-ordinating a team of professional Consultants and the design process, and then separately various specialist Trade Contractors to carry out construction works (as opposed to a single main/ general Contractor). There has been an uptick in the use of CM in procuring residential projects, however, we are also now seeing this used more widely in the industry and for various commercial development projects.

Construction Managers, whilst not party to any Consultant Appointments or Trade Contracts, nor bearing any design or construction responsibility, play a critical role in the administration and co-ordination of projects and the various Consultants and Trade Contractors involved. Their liability is limited to the proper performance of their construction management services, which are typically governed by their Appointment with the developer — often using the standard form JCT Construction Management Contract.

Consultants are typically engaged by the developer using bespoke forms of Appointments and are retained by the developer throughout the project.

Trade Contractors are appointed separately for discrete packages of works, usually using the JCT Construction Management Trade Contract. The form of contract operates in a broadly similar fashion to traditional JCT construction contracts, with the Construction Manager fulfilling the role of a Contract Administrator. Rather than a single Construction Contract for the project, there are multiple Trade Contracts in place, making the approach much more document heavy than other traditional procurement routes.

When is Construction Management Appropriate?

CM is usually most appropriate for those developers with strong construction management experience, expertise and resources, as it requires greater co-ordination and management than more traditional procurement methods. It tends to be suited to those developers with a more ‘hands on’ approach. Its popularity often fluctuates in line with industry trends and market conditions, but it can be particularly suitable for projects where:

the developer wishes to commence construction early, and before all design elements are fully finalised;
the developer is able to clearly separate design responsibility from construction responsibility, and has a need to retain design flexibility throughout the project;
the project is of a large scale and/or is technically complex, and therefore requires detailed engagement of specialist Trade Contractors.

Practical Considerations

If a developer considers a project suitable for a CM approach, next it should consider the key factors which typically then influence the successful delivery of the project:

Developer & Construction Manager Experience
1. CM as a procurement method has many moving parts and parties involved, and so it is imperative the developer has an established team of professionals to advise, and the resources to operate the project and manage the various risks and responsibilities throughout. The Construction Manager should be suitably experienced in CM procured projects and the significant administrative responsibilities inherent in the role. If either party fails to keep a tight rein, the knock-on effect on project delivery could be significant.
Accelerated Project Delivery
1. A benefit of CM can be accelerated project delivery and time savings, through the overlapping of the design and construction phases. Engaging Trade Contractors incrementally and early allows certain work packages to be tendered, commenced and even completed ahead of others – and often before the full project design is finalised.
2. The risk, however, is that the design process is delayed or changed, which can in turn delay the procurement of works packages and/or works on site.
3. Time and programme certainty is not ultimately achieved until the final works package is completed. If a single works package is delayed, it can potentially impact others. Similarly, if multiple works packages are delayed, the developer may need to pursue delay claims against multiple Trade Contractors, adding complexity to the administration of the project.
Cost Savings
1. Another benefit of CM is the ability to reduce costs, with evidence suggesting that by directly engaging and paying Trade Contractors developers benefit from lower prices due to greater cashflow certainty (and a main/ general Contractor’s “risk premium” is avoided). This may not necessarily always be the case, however, and so costs and savings should always be assessed on a project-by-project basis. For example, in instances developers may benefit more from economies of scale and bulk-buying discounts available to single main Contractors. In addition, because works packages are typically tendered sequentially, later procurements may potentially be exposed to market price fluctuations, which places a greater degree of overall cost risk on to the developer until the project is fully completed.
Responsibility/Risk
1. A key practical consideration when adopting CM is the absence of a single point of responsibility for design and workmanship risk. Unlike, for example, a design and build procurement route CM places greater risk and responsibility on the developer.
2. In the event of a defect or performance issue, it can sometimes be difficult for a developer to determine the point of responsibility and liability between the scopes of different Trade Contractors, and in turn this can delay any necessary remediation works and increase the risk of disputes between parties.

In the event of a defect or performance issue, it can sometimes be difficult for a developer to determine the point of responsibility and liability between the scopes of different Trade Contractors, and in turn this can delay any necessary remediation works and increase the risk of disputes between parties.

In summary, CM is a procurement route which has its potential benefits for some developers on certain projects. These benefits are largely dependent on the strict management, co-ordination and documentation of the project and the various construction parties involved.

If you have any questions in relation to the above, please contact a member of our construction team.