Construction management contract

From CEOpedia | Management online

Construction management contract is a document that provides the project team with access to the contractor's experience at an early stage. For this reason, the standard management contract distinguishes the pre-construction stage from the construction stage. Because of this distinction in fact, the employer has the possibility to terminate the relationship after the design phase, but before the construction work begins[1].

This form of contract should be used when[2]:

  • The Employer wishes the project to be made by an independent architect and a team of designers.
  • There is a need for early completion.
  • The project is quite large.
  • Project requirements are complex.
  • The project entails or may entail a change in the requirements of the employer during the construction.
  • The Employer requiring early completion want the maximum possible competition in terms of the price of construction works.

Condition of contract

The contracts are divided into sections. In short, these are[3]:

  • Intentions of the parties - This section includes an interpretative clause, a general statement of counterparty liabilities and provisions for contract documents and certification. There is a period before the start of construction, as well as the construction period, and the management fee for the contractor is expressed discretely for each of these periods. The contract also defines a change of project which gives the employer the opportunity to change the project scope
  • Possession and completion - The employer must notify the management executor to continue. This Means at the point between the initial contractions and construction. If The notice is not sent within one month then the contractor's employment will be deemed to have been established. However, If no notification is an error, it can be recognized as such and treated as a project extension element
  • Payment - There is no provision amending the management fee payable to the executive contractor in a range of renewations, delays, etc.
  • Determination - The Employer may establish a contract at any time. There are rules on how to deal with such a possibility so that the contractors of the work can be paid.
  • Work contractors - The main Contract obliges the contractor to use the standard terms of the employment contract, unless otherwise agreed.

Management contracting

The Principle of contract management is that the contractor is appointed in advance and on a contract with the employer. It is usually assumed that the management contractor does not take any actual construction work, but focuses on the management, cooperation and coordination of construction work. The management contractor is Expected to work as a partner with the employer in designing and implementing the project. The Main reason for this partnership is the prospect of creating a more integrated and buildable project, which will overcome the main problem of traditional strategy. A very important point is that the contractor has contracts with subcontractors, and it precisely distinguishes construction management from management contracting. Therefore, unlike the management of contractions, the risk of the interface is usually transferred by the management contractor[4].

Examples of Construction management contract

  • The Comprehensive Construction Management Contract is a legally binding instrument that outlines the agreement between a construction owner and a professional construction manager. This contract includes provisions for the scope of services to be rendered, the duties of both parties, the fees and payments, and any other terms and conditions of the agreement.
  • The Design/Build Construction Management Contract is a contractual arrangement between a construction owner and a design/build contractor. This contract outlines the scope of services to be provided by the contractor, the design and construction responsibilities of the contractor, the fees and payments, and any other terms and conditions of the agreement.
  • The Construction Manager at Risk Contract is a contractual agreement between a construction owner and a professional construction manager. This contract outlines the scope of services to be provided by the construction manager, the construction management responsibilities of the manager, the fees and payments, and any other terms and conditions of the agreement.
  • The Integrated Project Delivery Contract is a contractual agreement between a construction owner and a team of professionals. This contract outlines the scope of services to be provided by the team, the responsibilities of the team members, the fees and payments, and any other terms and conditions of the agreement.

Advantages of Construction management contract

A construction management contract provides a number of advantages for the project team:

  • It ensures that experienced contractors are engaged and consulted at the earliest possible stage in the construction project. This means that potential problems can be identified and addressed even before work begins.
  • It allows the employer to monitor and control the progress of the construction project, since the contractor is obliged to follow the terms of the contract and provide regular reports.
  • It provides a formal structure for the management of the project and can help reduce the risk of disputes.
  • It can also help to reduce the cost of the construction project by ensuring that the contractor has a clear understanding of the scope of work and is held accountable for any cost overruns.

Limitations of Construction management contract

Construction management contracts can provide a framework for successful projects, however, there are certain limitations that must be taken into consideration when entering into one. These include:

  • Lack of flexibility: A construction management contract is typically a fixed-price agreement which limits the contractor’s ability to make changes to the project.
  • Limited oversight: The contractor is responsible for overseeing the subcontractors and ensuring that they are following the agreed upon specifications. If the contractor fails to do this, the employer may not have the ability to intervene until after the project is complete.
  • Cost overruns: Because of the fixed-price nature of the contract, any additional costs associated with the project are the responsibility of the employer.
  • Disagreements between employer and contractor: It is important to have a well-written contract to ensure that both parties are clear on the expectations and obligations of each. If disagreements arise, it can be difficult to resolve them in a timely manner.

Other approaches related to Construction management contract

Construction management contract is not the only approach available to the project team to access the contractors experience at an early stage. Here are some other approaches related to construction management contracts.

  • Design-build contracts: This contract allows the contractor to be responsible for both the design and construction of the project. This is beneficial for the employer as it allows for the contractor to be involved in the design process earlier on, and therefore provide their expertise to the project team.
  • Integrated project delivery contracts: This contract is based on agreement between the owner, architect, and contractor. This approach gives the contractor a chance to be involved in the design process from the start, and to offer their expertise and advice throughout the project.
  • Construct-manage contracts: These contracts allow the contractor to manage the entire construction process from start to finish, from design to completion. This is beneficial because it allows the contractor to provide expertise and advice throughout the entire project, and ensure that the project is delivered on time and on budget.

Construction management contracts are not the only approach available to the project team to access the contractors experience at an early stage. Other approaches such as design-build contracts, integrated project delivery contracts, and construct-manage contracts can also be used to ensure that the project is completed on time and on budget.


Construction management contract — recommended articles
Provisional sum — Commencement date — Supplemental agreement — Prime contractor — Service Level Agreement — Task order — Evergreen clause — Forms of contract — Contract for project

References

Footnotes

  1. ↑ Construction Contracts: Law and Management p. 58
  2. ↑ Construction Contracts: Law and Management p. 59
  3. ↑ Construction Contracts: Law and Management p. 63
  4. ↑ Construction Contract Preparation and Management: From Concept to Completion p. 128

Author: Maciej Michałek

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