Putting a Team Together
Nov 1, 2000 12:00 PM, By John Murph
Construction management firms can provide expertise and experience that most in-house staffs won't have.
In recent years the educational facilities market has been moving away from the low-bid or lump-sum-bid method of contracting for construction services. In its place, education executives are using a contracting method that is relatively commonplace in commercial markets: construction management at risk. In the commercial sector, it is often referred to as negotiated construction.
Construction management at risk, or CM at risk, means simply that a school or university hires a firm to manage a construction project for a flat fee. The construction manager (CM) or program manager (PM) is hired during the design phase. The CM/PM works with the architect to keep the project within budget, bids the construction to subcontractors, gives a guaranteed maximum price (GMP) to the client, provides a bond and builds the project.
The primary appeal of the CM-at-risk strategy is that it places the hired management firm on the same side of the table as the school or university. Once the parties agree on a fixed fee, the CM/PM is able to work objectively in the school's interest. This strategy gets the client a very knowledgeable, experienced and trustworthy partner.
The cost The typical fee for a CM/PM firm ranges from 2 percent to 6 percent of the project construction cost - there should be no proportional relationship between fee and construction costs. The fee should be for services provided, nothing more. The significant variance between 2 percent and 6 percent is attributable to the fact that different projects require varying levels of services. In some cases the cost of housing the project team is included in the fee; in others, the school pays those costs directly. Some programs have a public-relations component, and some do not.
The right way to calculate a fee is to examine the specifics of the project, estimate the staff required to manage it, establish a design and construction schedule, and add up the labor cost. Then, add in the costs of housing and equipping the project team, travel, communications, web-page development, servers and e-mail systems and all the other expenses that the project team will encounter. By sharing information, the CM/PM can avoid much of the mystery and suspicion that can be part of calculating a fee. School officials actually can participate in the process.
Time is critical in pricing CM/PM services. The longer the program, the more staff hours will be required. The size of the program determines the number of people required.
Inside or outside? Nothing prevents a school system from hiring its own staff to manage a construction project. It sounds as though it would be less expensive.
But a school system that hires a construction-management staff might not be able to attract or retain the qualified people needed for what is, essentially, a short-term contract. Even for a project as long as three or four years, experienced professionals aren't likely to abandon a long-term career path to join your organization. And, as the project winds down, a school system might find its temporary workers distracted as they try to find their next jobs. Some will leave before your project is complete.
Hiring for a short-term project eventually will require downsizing. When the project is over, will you have any restrictions or regulations that would block you from eliminating the project management staff? Union rules, civil servant statutes and personnel policies can be roadblocks to cutting staff. Downsizing can be difficult or impossible.
Perhaps the greatest problem with hiring workers for construction management is the inability to develop a staff with professional depth. Schools can benefit from the project management experience that a CM/PM brings.
Professional experience If the CM/PM firm you hired is experienced and adequately large, the professional depth and systems you may need are already in place. There's a good chance that when something out of the ordinary occurs, someone in that company has had some experience relevant to the problem.
For example, about a third of the way through a recent high school renovation project, the mechanical, electrical, plumbing (MEP) contractor went bankrupt. The CM searched its database and in a matter of minutes found a senior project manager who had previously been the general manager for an MEP contractor.
The CM immediately brought the new manager into the troubled project and solved the crisis the same day. The CM retained the MEP contractor's on-site employees (unemployed as a result of the bankruptcy). Work continued with no significant downtime. Most schools or universities that hire their own construction-management staff couldn't provide that kind of bench strength and depth.
A CM firm lives and dies by its references. As a result, the CM team has a constant, built-in motive to bring quality and service to a client. CM firms must leave clients with smiles on their faces and a reference on their lips in order to get that recommendation for a future assignment.
Satisfaction fee A recent innovation in the market is called a satisfaction fee. For CMs who boast of meeting clients' needs, a satisfaction fee concept provides an opportunity to show they are willing to put their money where their mouths are. With a satisfaction fee, the CM takes a portion of its fee and the client pledges an identical amount. This sum is at risk based on the satisfaction of the client. The CM has quarterly meetings with the client to discuss how the CM is performing. The client gives the CM grades in pre-determined categories of performance. The grades determine whether the CM gets the fee. No satisfaction, no satisfaction fee.
The value of the quarterly meetings goes beyond the financial incentive. Inevitably, the CM team comes away from these meetings with ideas to improve its performance. And the client's senior management leaves each meeting better informed and more knowledgeable.
