GETTING THE MOST FOR YOUR CONSTRUCTION DOLLAR: A COMPARISON BETWEEN GENERAL CONTRACTING AND CONSTRUCTION MANAGEMENT DELIVERY METHODS
One of the most important decisions every construction project Owner faces is determining what delivery method to utilize to get the best price and results. In a perfect world, project Owners would be able to bid and manage their project using both general contracting (GC) and construction management (CM) delivery methods simultaneously, thus revealing which delivery method would yield the best project in regards to cost, quality and schedule. Of course this is not practical, but the question remains: how do Owners get the most for their construction dollar?
Current industry trends have leaned toward the GC method. The Architectural/Engineering/Construction (AEC) Industry is a buyer’s market. Owners have found out that competitively bidding a project using the GC method usually results in lots of bidders and really low costs. However, a low cost on bid day doesn’t necessarily translate to a quality project. If costs are driven too low, contractors may not have enough profit in the project to behave in the best interest of the Owner, and low project costs could indicate the project was bid without a complete scope, thus increasing the chance of default and adding risk to the project.
With the GC delivery, the general contractor provides a lump sum to the Owner based on a set of complete documents from an Architect. The lump sum would be provided after the general contractor has three to four weeks to comprehend the entire project. During this process, multiple subcontractors bid the various scopes of work to varying degrees of accuracy. It is incumbent upon the general contractor to do their due diligence to make sure the subcontractors’ scope of work and costs are complete. A single bid number is turned in to the Owner. In this scenario, the general contractor retains any savings associated with the project.
Conversely, the CM delivery allows for the construction manager to be involved in the project as soon as the Architect is hired. The construction manager works alongside the Owner and Architect to understand each facet of the project and the Owner’s ultimate needs and wants. Major decisions regarding the scope and budget are made as a team with the Owner receiving the final say. Contingencies are established comparable with the risks associated with various aspects of the project. Subcontractors are engaged to troubleshoot the documents to ensure adequate scopes of work are defined in the plans and specifications. The construction manager details project logistics, site specific safety plans, and begins meeting with local authorities who will inspect and approve the project. The project is bid “open-book” and the Owner will see all bids for each category (concrete, electrical, plumbing, etc.). Bids are reviewed and risks are assessed, again as a team. A final contract amount is established and the Owner will negotiate how savings are to be distributed for the project.
One of the biggest differences between General Contracting and Construction Management is the way changes in the scope of work are handled. A general contractor typically has no contingency to deal with unforeseen conditions or changes in the scope of work. Change orders are sent to the Owner for added work and expected to be paid in full. If a contingency is not adequately budgeted based on the project risks, there could be confrontation about changes in the work. A construction manager, on the other hand, will assess scope gaps and project risks early in the programming and design phase. Adequate contingencies are established and documents are updated to address any inconsistencies. Change orders are then handled within the budget using the established contingency funds.
The CM delivery method also allows the Owner to have more of a say in how insurance, bonding, and subcontractor default insurance is handled. Insurance and bonding can cost up to 6% or 7% of the total project costs. Most of the time a construction manager can assist an Owner in shaving up to a full percentage point off the insurance costs versus that of a general contractor using traditional payment and performance bonds.
Often time, the best time to impact the bottom line of a project is during the programming and design process. It is much easier and more cost-effective to change project scope on a set of plans than it is to change construction in the field. And in today’s risky building environment, controlling your project risks using sound insurance and bonding strategies can lead to a much smoother project delivery. The bottom line is that an Owner has much more control over their project, and its costs, using construction management versus general contracting. And control is a very good thing.