Redefining construction management By Mary Bufe Jim Contratto, a veteran business development director for McCarthy Building Cos., St. Louis, sat down not long ago to talk with a prospective customer about a construction project in North Dakota. Based on everything Contratto had heard, the project was an ideal candidate for construction management, and he told the customer so. The face across the table furrowed. Construction management was the last thing they would consider, the customer said. It had been used on several projects previously, and the experience was something they didn’t wish to repeat. Projects with complex engineering systems and construction schedules, such as many labs, can be a strong candidate for the CM project delivery system. Photo: Dale Photographics Inc. Click to enlarge. This wasn’t the first CM horror story Contratto had heard. While he knows many owners who swear by this project delivery method, he’s also met his share of those who swear at it, opting instead for what they deem “safer” project delivery systems. After listening to their stories, Contratto noticed their experiences all had a similar ring. “In virtually every case, I realized that these owners weren’t getting CM at all,” he says. “They were being sold construction management with a very small scope of CM services.” In fact, the term “construction management” has meant different things to different people since it was introduced in the 1970s. Until then, most construction projects were designed by architects or engineers and then bid out for construction. In some cases, the contractor negotiated a price directly with the owner. Adversarial relationships often followed. By the ’70s, however, projects were growing more complicated, thanks largely to advances in building science and technology. Energy systems and other building systems, for example, were becoming more complex, and required specific expertise to construct. Awarding the job to the lowest bidder would not necessarily guarantee quality, and yet owners still had to be accountable for their project budgets. Enter the construction manager. “In the early days, a construction manager was hired to serve as an extension of an owner’s team,” says Contratto. “The CM’s job was to budget construction costs, help with logistics on complicated projects, and make sure a quality project resulted.” But there were kinks in the system. What exactly were a CM’s responsibilities? How should the CM be paid? What was its relationship to the other members of the project team, particularly the project architect? The lines were not clearly drawn.  “Some companies sold CM by saying they’d manage the construction process for the owner,” Contratto says. “By that, they meant they’d take bids from subs, award contracts to the low bidder, and be done.” The results were not always well-received. Today, however, that trend has reversed.   CM for a new century Construction managers today are still hired to serve as an extension of the owner, but their duties are usually more clearly defined, says Contratto. “A CM is not a program manager, and it’s not a designer. A CM’s core value should be as a builder: a company that understands the construction and partnering processes.” A CM is brought into a project because they can speak to design, HVAC, electrical systems, plumbing, schedules, and value engineering. An owner can trust a good CM to take a hard look at a project and help the whole team through the design and construction process. Bob Stundtner, director of capital project management at Cornell Univ., Ithaca, N.Y., has used CM for decades. “We’ve had some bad CM experiences over the years,” he says. “But typically that’s been when the CM is providing management expertise, and most of the risk is on the university. Today, we look for partners that truly take on the risk for us because they’re competent builders.”  “If your job is just to get bids, then the way to save money on a project is to get more bids,” notes Contratto. “But if you’re a CM that is also a builder, you can offer suggestions on ways to do things to do differently.” An owner should expect its CM to take ownership of the scheduling process, beginning with the architect’s designs, all the way through to equipment move-in. Photo: McCarthy.Click to enlarge. Owners today treat CMs as equal partners. CMs are valued for their ability to step back, look at an owner’s objectives, ask the big questions, and put the owner’s interests first. Because “true” CMs have no monetary interest in a project, other than their fee, they have no incentive to make the project bigger or slower. In fact, it’s in their best interest to make sure it is completed correctly, the first time, so they can move on to another assignment. How does a CM get paid? A CM relationship typically begins with the owner developing a set of expectations and services required for a project, which it then invites one or more construction management firms to price. “When we’re negotiating a CM fee, we’re very specific about what we’re buying,” says Stundtner. “The contract outlines that we’re paying for management, estimating, design input, and other services. We itemize everything so there are no surprises.” Part of the process involves determining the appropriate amount of profit that the CM will make for the work. “Theoretically, if we agree the CM will make $10, we set the project up so that we’re both successful, and the CM makes $10, not $5 or $20,” says Stundtner. “That means keeping an open book all the way, keeping tabs on the pluses and minuses.” The construction manager or owner may hold the contracts with subcontractors, with the CM reviewing bids, performing pre- and post-bid interviews, and generally making decisions on the owner’s behalf. While not always guaranteeing the project’s final cost, the process is designed to minimize the owner’s costs. There are many ways to reduce costs, says Contratto, especially when the CM is brought in early in the project. “Let’s say a research facility has a vision to build two towers, each with a mix of office and laboratory space. A good CM could look at that conceptual plan and point out that lab space requires a more expensive building frame and MEP systems than office space. It might recommend instead that one tower be designed for office space, the other for labs, eliminating the need for two costly towers. A decision like that made early can save a project a lot of money while still in programming.” “A good CM also is a good partner on preconstruction services as we negotiate the terms and conditions for executing the construction work,” agrees Stundtner. There are other reasons for bringing a CM into a project early, according to Contratto, one of which involves “selling” the project to the market. “Commercial construction activity is currently high in most parts of the country,” he explained. “So part of the CM’s job is to pre-qualify the best subs and convince them that your job is the one they should be bidding on.” This, he said, is where a CM firm’s reputation comes into a play. “Subcontractors want to work with a CM that has a reputation for enabling them to get their work done as efficiently as possible,” says Contratto. “A painting contractor, for example, doesn’t want the ceiling grid and tiles to go in until after the painting is finished. Otherwise, the contractor will have to spend extra time and money taping the ceiling off. If a CM is known for taking factors like these into account when creating a schedule, then the subs don’t need to add in “what if” money into their estimates, saving everyone.” Is CM right for every project? “It depends,” says Contratto. “If an owner lacks the knowledge base or resources on its own team, it could make sense to hire someone who will ‘watch the store’ whenever a project comes up.” That is exactly why an owner with multiple projects over several different facilities would hire a CM to manage all of its construction work. The CM adds another layer of professionalism and protection for the owner. The CM will act in the owner’s best interest. Organizations with larger design and construction staffs consider other factors when choosing a project delivery method. They examine the dynamics of each project, and then choose the construction method and team they think will best help them achieve their end goal. At Cornell, Stundtner says, CM usually surfaces in discussions on projects that are large—more than $30 million—have a difficult schedule or other complicating factors. “It’s a natural choice when we have projects in or adjacent to occupied buildings, or in science buildings where a significant portion of the work is in MEP systems.” Other organizations fall somewhere between those two extremes. For example, an organization whose real estate portfolio includes multiple building types in multiple cities might reserve CM for projects with a value of $1 million or more. By Stundtner’s way of thinking, experience is the No. 1 criterion in CM selection. “We look for partners not only with CM experience, but experience with us,” he says. “We put a lot of weight into a proven history and rely heavily on repeat relationships, often all the way down to the individual level. We want to work with people who understand the complexities of building adjacent to a nanotech facility or building a research facility on a tight schedule.” In making a decision about which CM to choose, Stundtner wants to know if the firm has projects in its portfolio that are similar to the one he is asking them to build. “Have they demonstrated they can do this? We’re not interested in training people to build these projects. We want the assurance that they know how to deliver,” he said. Should a CM be allowed to build the job? The answer to this question depends on who you ask. “A CM can self-perform,” says Contratto. “Sometimes it’s permitted, but it’s always up for discussion.” On the one hand, self- performance has the potential to affect the CM’s objectivity. Owners hire a CM for their perspective and don’t want it becoming clouded by any vested interests they might have in the work to be done. Some CM firms have gotten away from self-performing to shed their own risks. Contratto’s, on the other hand, has opted to continue to self-perform when its customers prefer it, which is relatively common. “When you have a builder mentality, you can look at a concrete frame design and make suggestions,” says Contratto. “We can participate in the hard-bid portion of the project with greater knowledge and insights, which can be a bonus to the owner.” What other things should an owner expect? An owner should expect its CM to have expertise in lots of areas, including: • Taking ownership. The CM should develop a team mentality and provide the framework for a win-win-win scenario with the A/E and owner, helping drive the project to success by being respectful to all team members. • Scheduling. An owner should expect its CM to take ownership of the scheduling process, beginning with the architect’s designs, all the way through to equipment move-in. The schedule should be designed to show all the activities that will be impacted if a given deadline is not met. “That way, everyone has knowledge and understanding of roles and responsibilities,” said Contratto. • Budgeting/estimating. If a project estimate comes in at $50 million, and the owner only has a budget of $42 million, the CM should be expected to have suggestions on how to keep the project within the budget. Maybe it means changing the frame from steel to concrete, or dozens of other small and large changes. A good CM, in fact, should have a strategy for handling price escalation in volatile markets. “If steel prices are volatile, you want to be sure subs aren’t padding their bids for price escalation,” says Contratto. “The CM could, for example, assign a material cost to use when bidding and tell the subs that they’ll be paid any difference between that price and their actual purchase cost. That’s one of many strategies for keeping costs in line.” • Cash flow projections. A CM should be able to tell an owner how much of his budget must be available at certain dates in a project. • Constructability reviews. One of the most important ways CMs can impact a project is by eliminating the risks that might lead subcontractors to add “what if” money to their bids. They can do so by carefully reviewing an engineer’s or architect’s documents to ensure their desires are clear. For example, a subcontractor who is asked to “provide training on mechanical/electrical equipment” might reasonably wonder, “How much training?” and price its bid accordingly. In this case, costs can be more easily controlled if the document specifies the number of training hours required. The key is to define vague terms and avoid potential risk, while ensuring quality standards are met. • Project packaging. A CM should know how to package a project so that smaller minority contractors can bid and participate. • Punch out and closeout. Like the owner it represents, a CM doesn’t want a project to last forever. Good ones, therefore, will “punch list” and create project documentation as the project goes along, rather than waiting till the end of a job. When the final punch list time arrives, the list is manageable and the paperwork is in order. •Warranty service. Nine months after a project is finished, the roof begins to leak. Whom does the owner call? If an owner had a good CM, that’s where the call should go. And the problem will be resolved. “CMs live and die by their references,” says Contratto. “A known, reputable CM has every motivation to keep an owner happy. “They say CMs are hired to put their customer’s interests first,” he adds. “And that’s true. But in doing so, we’re also serving our own self-interests. We have to perform well because we’re counting on their reference for the next job. Otherwise, we’re hurting not only ourselves, but reputable CMs everywhere.” Mary Bufe is a freelance writer living in St. Louis. This article was prepared by Bufe for McCarthy Building Cos., St. Louis (www.mccarthy.com). McCarthy, a multi-office firm, is one of the nation’s oldest privately held construction companies, has been building research facilities for more than 40 years, and is a sponsoring advertiser of Laboratory Design. Jim Contratto, quoted in this article, manages business development for the firms’ Science & Technology business unit (314-919-2343 ; jcontratto@mccarthy.com).