Construction Management And It’s Use in the Construction Industry

A different type of contract for the modern construction project.

Construction Management is a form of contract within the construction industry that is used throughout the world. Unlike lump sum contracts, construction management allow the general contractor to take on a universal role to help manage the overall project.

How Is Construction Management Different?

Construction management was first introduced formally to the construction market in the 1900s as an alternative to traditional lump sum projects. To start let’s define the traditional approach to a project:

  • Contractor receives a set of documents prepared by a group of consultants
  • The documents referred to as the “contract documents” are for the most part complete. The contractor submits a bid for the project based on the drawings and specifications.
  • Any scope that changes outside of the “contract documents” the contractor submits a quotation for a change order

Under a construction management things change slightly. Some of the risk for the overall scope of the project is placed back on the contractor. Below is a breakdown on how a construction management contract works:

  • In some cases the contractor or construction manager is brought in early to assist with the design.
  • The contractor develops a detailed estimate which in some cases includes tendered numbers as well as contingencies or allowances to complete the project. These contingencies are intended to help supplement the documents.
  • As the project progresses contingencies are drawn down from in order to complete the project.
  • Owner initiated changes are priced in addition to the contract.

As you can see above the construction manager has more incentive to ensure the estimate is complete and depending on the type of contract shares some of the overall project risk.

Types of Construction Management Contracts

There are a few different types of construction management contracts that exist. In each region these may be tweaked or named differently:

Construction Management At Risk

The construction management at risk contract type is more onerous on the contractor. The contractor essentially takes on the risk for the financial health of the project. Depending on the inclusions the contractor takes on some responsibility for managing them within their budget. Typical inclusions can include things such as site conditions and design coordination.

Construction Management – Cost Plus

While these types of contracts don’t come around often a cost plus type contract involves the construction manager assisting the owner with the construction project. Unlike the above at risk option, in this situation the construction manager does not take any of the risk. Any over runs on budget line items are the responsibility of the owner.

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What Are Some Key Tips For Getting Into Construction Management

The world of construction management can be intimidating if you haven’t done it before but overall it creates a more cooperative project environment. Everyone is more encouraged to work together and much of the confrontational aspect of construction management is removed.

Get Involved In The Project Early

This is a key tip – construction managers are only as good as their role and what they are allowed to do. A big part of that is having input on the design development and being able to catch problem details early.

Develop A Construction Schedule Early On

Developing a construction schedule early on will help your owner and the remainder of the project team. A construction schedule will give your team dates to work towards for each of their milestones including design and permitting.

Leave Room In The Budget For Unknowns

Submitting your construction budget at the lowest possible number is never wise. Things will typically come up in construction that you couldn’t have foreseen to make sure to leave room for that type of thing. If your owner is sensitive about that type of thing, try and do it without them knowing or be upfront about it and honest with not accepting risk for unknown conditions.

Don’t Do It Unless You’re Experienced

One of the biggest mistakes we see with construction management contracts is inexperienced construction managers getting involved with them without realizing what they’ve signed on to. If the project type or concept is unfamiliar to you, consider getting some experience under your belt on traditional contract types to develop a better understanding of the risk.

Wrapping Up Construction Management

What contract type is the project that you’re currently running? Is it construction management? Let us know below in the comments and if you can share our content to your social media!

14 thoughts on “Construction Management And It’s Use in the Construction Industry”

  1. Thank you for the heads up that it’s always wise to be upfront by quoting a higher construction budget to cover up for possible risks and unforeseen adjustments than to quote low. Should Dad go into construction project management, I’d suggest he explain this to the client before a project even starts. It would be safer both for him and for the client to be well safeguarded by a buffer so the project could continue even when problems arise. This is why I think expert construction management services are ideal.

  2. One important thing to keep in mind is that you should always have enough budget set aside just in case you would encounter something that would unexpectedly come up. The reason for this is that what if you would encounter unexpected expenses and you would have to deal with it, then at least you have a backup plan in the budget you’ve set aside for this contingency measure. If I had the chance to work as a construction manager then I would want to make sure that I have more than enough budget set aside just in case something does come up and it would take away from the entire budget set for the construction.

  3. Thank you for pointing out that a constructions manager is brought in early to assist with the design. My husband and I have been thinking about having a house built. It’s good to know that a construction manager helps in the early design phases.

  4. Hey! StrategicERP here!
    Thank you for this article
    I personally liked this article coz I got to know so many things from which I was unaware
    I’ll love to see more articles in future


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