CONSTRUCTION MANAGEMENT CONTRACT In this delivery method a Construction Manager (CM) is selected to construct the project based on fully

completed drawings and specifications prepared by an architect hired by the agency. The CM provides advice during design. The CM is selected based on competitive proposals from three to five firms. CHARACTERISTIC The CM approach differs from the other methods in the following ways:
1) The project manager approves the CMs construction management staff and

their required time on the project.

2) The CM provides pre-construction services, including construction cost

estimating and constructability review, throughout programming and design.

3) The project manager approves the subcontractor bidders list and the selected

subcontractors.
4) All of the costs of the CM and subcontractors are open book to the project

manager and subject to the project managers approval. There is no profit markup by the CM on the subcontracts. The CM approach best fits a project where design requirements are complex, the owner wants to supplement the expertise of its project management staff, and the owner wants full control of the design and construction process. This approach is considered the most cost effective since the CM is involved early to help assure the design is constructible and affordable, and the owner can control the level of services that are purchased. The CM method is significantly faster than the GC method when a fast-track approach is used. In this approach, the CM starts construction on each of the project components as soon as that particular portion of the design is completed and bids are received for that work. In new construction, the earthwork and foundations can begin months before the rest of the building design is fully completed.

The management approach can be represented as follows:

Types of CM construction tracts commonly used:

1) Cost-Plus-Fee: In a cost-plus-fee contract the owner pays the CM the actual

cost of the construction (based on competitive bids for each trade subcontract) plus certain reimbursable expenses without any profit mark-up, and is charged a fixed fee by the CM for the services provided.
2) Guaranteed Maximum Price (GMP): In this contract, the CM agrees

beforehand that the cost of the work will not exceed a specified figure, known as the GMP. The GMP is based on competitive bids for each trade subcontract, but the CM charges an additional fee for taking on the risk of the guarantee. The CM is also allocated some contingency to pay for construction changes that are within the design intent of the project. Changes beyond the design intent require approval by all stakeholders.

APPLICATION Managing contractor contracts are only warranted for major projects with special needs, such as those where: 1) there are many or significant unknown factors, such as undefined scope, unpredictable risks and changeable project objectives, that cannot be resolved before it is necessary to let a contract in order to meet the project program; 2) project threats and opportunities are complex and require management collectively by the contracting parties and other participants; 3) there are many complex or difficult stakeholder interfaces and relationships; 4) the interests of key participants need to be brought together early in the project; 5) industry input and innovation during the design stage are desirable, for example to take advantage of emerging technology, specialist construction expertise or other opportunities; 6) completion times are tight and fixed;
7) project funding is fixed.

ADVANTAGES A Managing contractor contract offers the following benefits:

1. the agency and the contractor work together to determine project requirements, resolve

issues and develop the design, reducing the risk that the agencys requirements will not be met and promoting optimum design outcomes; 2. involvement of the contractor and stakeholders in design decisions facilitates the development of appropriate responses to the project objectives; 3. the agency controls the design and can make changes without incurring the disproportionate additional costs, including delay costs, likely with a D&C or DD&C contract; 4. the contractor assists the agency to control the costs during the design phase; 5. once a GCS is agreed, the contractor will not be paid more unless the agency directs a variation; 6. the contract includes incentives for the contractor to make cost savings; 7. design activities can continue during the tender process, minimising delays; 8. it is possible to commence construction before the design is completed, normally once the GCS is agreed;

9. the need for separate project management services is reduced, since the contractor undertakes most project management functions; 10. the tender prices need not allow for as much risk as for a D&C contract; 11. tendering costs are low since tenders include only fees and non-price information; 12. the contractor is responsible for design/construction interface risks and coordination of all subcontractors and consultants; and 13. the contract can incorporate non-adversarial mechanisms for resolving differences efficiently, such as the establishment of a dispute resolution board. DISANVANTAGES A Managing contractor contract has the following risks: 1. success depends on cooperative relationships and the contractor efficiently managing project risks and controlling costs; 2. to achieve the optimum cost control, the agency must be prepared to amend its requirements if the contractor identifies a cost increase; 3. design development work is paid on a cost plus basis and the contractor has little incentive to expedite progress in the early stages; 4. contract administration is complex and requires more agency resources in the early stages to establish the project scope and objectives; 5. margins on the cost of the work are likely to be high; 6. target prices set at the outset, when the scope of the work is uncertain, may not be achievable; 7. the GCS is set without competition and may not offer value for money;
8. the agencys expectations may be unrealistic and agreement on a GCS or time targets

may not be reached, leading to termination of the contract and significant time delays; and
9. the number of willing and competent tenderers is limited.