Management Contracting vs Construction Management

Contents: Introduction / Management Contracting / Construction Management / Advantages of Management Contracting /  Disadvantages of Management Contracting / Advantages of Construction Management / Disadvantages of Construction Management / Publisher’s Notice. 

Introduction

 Management contracting and construction management are two distinct procurement methods used in the construction industry, each with unique characteristics, advantages, and disadvantages. 

Management contracting involves the employer engaging a management contractor to oversee and coordinate various sub-contractors, known as works contractors, without performing any construction work themselves. This method is particularly suited for fast-track projects where construction begins before the design is fully completed. 

On the other hand, construction management entails the client appointing a construction manager to manage and coordinate trade contractors, who are directly engaged by the client under separate contracts. This approach allows for greater client involvement and control but also requires the client to bear more risk and responsibility. 

Both methods offer flexibility and early start advantages but differ in terms of cost certainty, risk allocation, and the level of client involvement required. Understanding these procurement routes helps stakeholders choose the most suitable method for their project needs. This briefing note outlines the main features on both methods.

Management Contracting

1. Management contracting is a derivative of the traditional procurement method.
2. It was introduced into the UK from the US construction market.
3. The employer engages its own professional team to design the project.
4. A management contractor is also engaged to manage and coordinate the construction.
5. The management contractor hires sub-contractors, known as 'works contractors'.
6. The management contractor does not carry out any construction work itself.
7. The management contractor is paid a fee plus the prime costs incurred.
8. It is a cost reimbursement contract, not a lump sum contract.
9. The management contractor does not bear ultimate responsibility for the works contractors' performance.
10. Liability is limited to what the management contractor can recover from defaulting works contractors.
11. The management contractor should ideally be appointed during the early design stages.
12. It advises on design, tender action, materials procurement, and construction program.
13. During construction, it manages and coordinates works contractors.
14. The management contractor acts as a 'post box' for payments to works contractors.
15. It is primarily used for 'fast track' projects where construction starts before design completion.
16. Early works packages can be let before the design of later packages is completed.
17. The contractor's fee is likely to be less than its margin on sub-contractors' prices under a traditional contract.
18. Sub-contractor discounts are passed to the employer.
19. The management contractor is part of the employer’s professional team.
20. It has more incentive to act in the employer's best interests.
21. The employer has no price certainty until the last package is let.
22. The employer has less control and certainty on the final cost of each package.
23. There are potential legal difficulties in pursuing claims against the management contractor and works contractors.
24. The employer may find itself in several inter-linked disputes.
25. The amount of employer involvement and management required is greater than in other procurement routes.

Construction Management

1. In construction management, the client appoints a team of consultants to design the project.
2. The client also appoints a construction manager to manage and coordinate the construction process.
3. The construction manager does not carry out any construction work itself.
4. The construction manager manages a series of contractors known as trade contractors.
5. Trade contractors are engaged directly by the client under separate trade contracts.
6. The construction manager is paid a fee, usually a percentage of the estimated construction cost.
7. There is no single main contract in construction management.
8. The construction manager advises on buildability and procurement issues before construction.
9. During construction, it manages and coordinates the activities of the trade contractors.
10. The construction manager's responsibility is limited to reasonable skill and care.
11. The construction manager typically does not guarantee the performance of trade contractors.
12. The client bears the risk of delays and cost increases.
13. Some arrangements may require the construction manager to take some risk for non-performance.
14. Trade contracts are placed by the client for specific packages of work.
15. Trade contracts are hybrid contracts with elements of both main and sub-contracts.
16. Construction management suits clients who are experienced and have significant in-house resources.
17. It allows for a faster start on site than other procurement forms.
18. The client has greater control over the terms and conditions of trade contracts.
19. The client may obtain keener prices by placing trade packages separately.
20. The client has no cost certainty until the last trade contract is placed.
21. The client takes the risk of trade contractor default.
22. There is no single point of responsibility.
23. The amount of client involvement required is much greater.
24. The overall cost may be higher than in other procurement forms.
25. The client may need to pay the construction manager’s fee and more for separate trade packages.

Advantages of Management Contracting

1. Early works packages can be let before the design of later packages is completed.
2. Allows early involvement by the management contractor for buildability and value engineering.
3. The contractor's fee is likely to be less than its margin on sub-contractors' prices under a traditional contract.
4. Sub-contractor discounts are passed to the employer.
5. The management contractor is part of the employer’s professional team.
6. The contractor's fee should not increase through its own administration of the prime cost of the work.
7. The management contractor has more incentive to act in the employer's best interests.
8. It avoids the usual adversarial approach due to low risk of time and cost overruns.
9. Suitable for 'fast track' projects where construction starts before design completion.
10. The employer benefits from the management contractor's expertise in managing and coordinating works contractors.

Disadvantages of Management Contracting

1. The employer has no price certainty until the last package is let.
2. The employer has less control and certainty on the final cost of each package.
3. Potential legal difficulties in pursuing claims against the management contractor and works contractors.
4. The employer may find itself in several inter-linked disputes.
5. The amount of employer involvement and management required is greater.
6. The arrangement may finish up more expensive than traditional procurement.
7. The employer bears the risk of over expenditure on earlier packages.
8. There is no single point responsibility.
9. The employer may face difficulties in recouping over expenditure.
10. Increased complexity in managing multiple works contractors.

Advantages of Construction Management

1. Facilitates a faster start on site than other forms of procurement.
2. No need for most of the project to be designed prior to construction commencement.
3. The client has greater control over the terms and conditions of trade contracts.
4. The client may obtain keener prices by placing trade packages separately.
5. The client does not have to pay a main contractor's profit and overhead on sub-contract prices.
6. Suitable for large projects where the client wishes to be more involved.
7. The client can directly engage trade contractors.
8. Allows for greater flexibility in managing the construction process.
9. The client can exercise a greater measure of control over those carrying out the work.
10. The client can benefit from the construction manager's expertise in managing and coordinating trade contractors.

Disadvantages of Construction Management

1. The client has no cost certainty until the last trade contract is placed.
2. The client takes the risk of trade contractor default.
3. There is no single point of responsibility.
4. The amount of client involvement required is much greater.
5. The overall cost may be higher than in other procurement forms.
6. The client may need to pay the construction manager’s fee.
7. The client may have to pay more for separate trade packages.
8. The client bears the risk of delays and cost increases.
9. The client needs significant in-house resources and experience.
10. Increased complexity in managing multiple trade contractors.

Publisher’s Notice: This publication does not necessarily deal with every important topic, nor cover every aspect of the topics with which it deals. Briefing Notes do not include or provide legal or other advice to users The information contained in this document is intended to be for informational purposes and general interest only. Any enquiries about this document can be directed to info@contracts-direct.com. Publisher: Atkins-Shield Ltd: Company No. 11638521 

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