Management contracting is appropriate for large – scale projects requiring an early start on site. The design is undertaken on behalf of the employer and this procurement route is ideal where work needs to be started before the design on the project is completed. It therefore is of great assistance where the period available up to completion is restricted. This procurement route is also suitable for projects where the design is sophisticated or innovative, requiring proprietary systems or components designed by specialists.
The management contractor does not carry out any construction work, but manages the project on behalf of the client. It is a cost – reimbursable form of contract, with the management contractor being paid a fee. All the work is undertaken by subcontractors, referred to as works contractors, in distinct works packages, employed by the management contractor. A cost plan is produced at an early stage based upon estimates of the works packages, plus preliminaries and the management contractor ’ s fee.
The employer appoints the architect or contract administrator, CDM co – ordinator, quantity surveyor and any other consultant who may be required. There are two distincttime periods involved. During the first period, which is the preconstruction period, the management contractor should be appointed as early as possible to enable it to have an input into such matters as the design of the project, in particular the buildability aspect; health and safety matters; preparation of the budgets for works packages; and the programme. The fee to be paid to the management contractor is usually agreed at the outset of the preconstruction period.
During the construction period the works packages are put together by the management contractor in conjunction with the employer ’ s professional team. The management contractor will be required to manage, organise and supervise the works contractors, to ensure that the work is carried out in accordance with the requirements of the contract and completed on time.
The management contractor is paid the final cost of all the works packages plus any preliminaries and the fee. The fee is usually a lump sum, as paying the fee as a percentage of the total of the works package is not conducive to keeping the works package costs to a minimum.
The most commonly used standard form of management contract is the JCT Management Building Contract. It is an important concept of this management contract that the consequences of any default on the part of any works contractor do not fall on the management contractor. The management contractor is required to ensure that the work is carried out without defects and on time. However, this requirement does not bite if the only reason for a breach of the obligation is a breach of the works contract by a works contractor. There is no such comfort offered to the management contractor by the Engineering and Construction Contract (NEC 3) Option F Management Contract, which makes it clear that the management contractor is responsible for all work undertaken by the subcontractors.
This type of procurement method is generally regarded as low financial risk from the management contractor ’ s point of view. The client, however, is at greater risk financially than would be the case with a traditional procurement route, where the contractor works for a pre – determined lump sum. Employers can be caught out where the contract runs over a long period and unexpected inflation takes place, which results in the final cost of the project exceeding the cost plan.
Construction management offers an alternative to management contracting and in like manner is suitable for large projects where an early start on site is required. The major difference between construction management and management contracting is that the construction manager acts solely as a manager and is not in contract with the trade contractors, who undertake all of the work.
An additional difference between management contracting and construction management is that the construction manager is a first appointment and will be responsible for selecting the design team, even if they are in contract with the employer.
The employer enters into separate trade contracts with each of the trade contractors who will be carrying out the work. The JCT has produced a standard Construction
Management Appointment and a standard Construction Management Trade Contract for use on construction management projects.
The construction manager acts as an agent on behalf of the employer and manages the trade contractors ’ work and also the design. It is usually advisable for the employer to select and appoint its own quantity surveyor, who will act independently from the construction manager, to ensure that impartial cost advice is being provided.
In like manner to the management contract, the construction management contract is a cost – reimbursable contract, with the construction manager being paid a fee.
The downside of this procurement route is that, if there is a serious dispute between the construction manager and a trade contractor which cannot be amicably resolved, any formal proceeding must be commenced by the employer against the trade contractor.
In like manner to management contracting, construction management is low financial risk from the construction management constructor ’ s point of view. The financial risk for the employer arising from the two procurement routes is also the same.