Recently we took a break from the discussion on Construction Management and looked at Capital Reserve accounts. I have heard from a great number of you who have downloaded the “calculator” and have found it to be a great tool.

This week we are going to continue our service on Construction Management and the 3 primary types of CM. In part 2 of this series we looked at Construction Management - 4th Party.  This week, we will be exploring Construction Management Agency. As I stated in Part 2, every construction delivery method has pros and cons and you need to evaluate and carefully consider which approach provides your church with the appropriate level of service, quality, risk/reward, accountability, etc. With that said, let’s look at the pros and cons of CM Agency.

Construction Management – “Agency”:

PROS -

1.  The Construction Manager fills the “role” of the general contractor so you do not have the added cost of a general contractor and a 4th party construction manager.  This can net a savings to the project…and who would not like that.

2. In most states and municipalities, the church can not pull their own building permit, so the construction manager generally must also be a fully licensed general contractor in order to obtain the permits, so the church is retaining a true construction profssional and not just a paper pusher or a firm that is only functioning at 30,000 feet.  The construction manager is a highly qualified professional that is as qualified…and maybe more…to manage the complexity of a large commercial project.  An added benefit is that the construction manager has the liberty to use the best practices from general contracting, Design/Build, Design/Bid/Build (as their is a very thorough bidding process of the Trade Contractors) as well as the Do-it-Yourself approach.

3.  The church/owner is actively part of the selection process of all subcontractors and vendors and actually has direct contracts with the “trade” contractors.  This eliminates the “middle man” issues and allows the church to see and know exactly what they are paying for.  In addition, if there are discounts available for early payments (typically considered “net 10″ discounts) the church benefits from these discounts and not the general contractor.

4. If there are any aggregate net savings on the project, the owner receives 100% of the savings. As discussed in Part 1 of this series, every construction delivery method has a “Risk and Reward” equation that must be navigated by the church.  In CM Agency, there is a much higher reward element…thus a potential for a higher risk. A major component of the potential savings is driven by the fact that Trade Contractors are attracted to the relations that are established in this delivery because they get paid on a more timely basis thus they give better numbers for various reasons to start the project.  This along with other factors play a significant role in the savings component.

CONS -

1. There is no cap or “Not to Exceed” in the contract.  There is potential that the project could go over budget during the construction process. This is the “risk” factor that was discussed above.  There are a few components that need to be implemented to assist in mitigating this potential.  First, the Construction Manager should fix their fee as well as their “General Conditions” (these are things like the cost of the field personnel (i.e.superintendent), project managers, job trailer, etc.  By doing so, the risk is limited to the Trade Contractors scopes.  If this is implemented, the Construction Manager has a shared risk as well.  If the project goes over budget or over schedule, the construction manager will be negatively impacted. Also, if the construction manager is doing their job in the pre-construction phase of the project, then the risk of “scope creep” and cost overruns should be greatly reduced.

2. The Trade Contractors (also referred to as “Multiple Prime Contractors”) are all contracted directly with the church which means that any failure by a sub becomes a church issue.  I have heard this before….but it is only part of the story.  In an “agency” arrangement, the church has a significant role in selecting the Trade Contractors. The best construction mangers will do an in depth vetting and qualification process of all of the Trade Contractors and then present their recommendations to the church.  In this manner, the church has not only input, but complete buy-in of the selected Trade Contractors.  This is also part of the Risk and Reward equation. As part of this vetting process, decisions will be made as to the potential risks and reward of selecting certain Trade Contractors…so…there is joint ownership of the selection.

3. In the same light of #2 above, the warranty for the Trade Contractor’s work product is directly with the church.  All warranty is between the church and the Trade Contractor.  Now, if you have the right construction manager, they should be willing and able to lead all of the warranty related work and be the representative for the church.  The church should never feel like they have been abandoned by the construction manager.  The construction manager should serve as the advocate and intermediary for the church and coordinate the warranty efforts.  Now…we need to reiterate the Risk and Reward elements.  If a Trade Contractor were to go out of business, then there is the potential that the church could be impacted by added costs. But these are some of the discussions and decisions that are part of the vetting process.  If the church elects to hire a Trade Contractor that has the lowest price…and has iffy credit…and whose longevity is in question, just to save $x…then that is part of the risk component.  I am not saying that making that selection is wrong…but do it with eyes wide open as there is potential risk later…be smart.

Next time we will look at the 3rd Construction Management method – “At- Risk”

See you then.

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Tags: building project, church, church building, church construction, Construction Management, facilities, facilities management, Facility Stewardship