With the upturn in the development market, some developers are starting to think more creatively about their choice of construction procurement method in order to get better “bang for their buck” and gain a programme advantage over competitors.
For those keen or at least willing to move away from the familiarity of the single point responsibility design and build route (under which the contractor takes full responsibility for the design and build of the project), one option for sufficiently complex or high value development projects is the more “hands on” approach of package contracting and, in particular, construction management.
Construction management is a procurement route in which the works are constructed by a number of different trade contractors, managed by a construction manager, but contracted to the client. Value is achieved through breaking the project down into its component parts and competitively tendering each works package. We are currently working on a number of projects with this structure.
Whilst in the UK, construction management has traditionally been reserved for very large or technologically complex projects, such as Heathrow Terminal 5, its use appears to be gaining momentum for larger or high value projects in the development sector. It has been adopted on the first element of the second stage of the Battersea Power Station project and more recently on the circa £300m redevelopment of Selfridges department store in London.
A construction manager (who generally has the ethos of a contractor) is appointed as a member of the professional team early in the design process. He acts on the client’s behalf to work alongside the design team so that his experience can be used to optimise cost and help shape the “buildability” of developing proposals. The appointment of the construction manager as a consultant, rather than a contractor, and the fact that he does not carry out construction work, helps to preserve his independence. It also facilitates a more open and transparent relationship with the client than would generally be possible under the design and build or traditional model.
In particular, with reports of swelling order books and long lead times for certain components in the construction industry (see article above), construction management can offer noticeable programme advantages for savvy developers. Whilst traditional procurement and design and build both require the project design to be largely (if not fully) developed before the construction work is put out to tender, under construction management, design, tendering and construction overlap. This allows developers to steal a march on competitors by early procurement on those work packages with particularly long lead times whilst the design of other packages is being developed.
Quality may also be improved, as early integration of the design and construction processes means that innovative solutions can be adopted more easily. The professional team is directly appointed and retained by the client, meaning that the client retains control of design team performance. Late changes can be made more cost-effectively by the re-programming or redesign of later packages before they are let.
However, construction management does come with a word of caution: to be successful, construction management requires both experience and commitment from the client and an appetite for risk. To achieve the programme advantages of construction management, the client must have sufficient management resources (both in terms of experience and time) to consistently steer the project from inception to completion and must be decisive in making decisions on the design. Indecision by the client can lead to programme delays and, without proper guidance, quality can suffer where there is no single point of responsibility for the works.
The importance of the client’s appetite for risk cannot be underestimated. Under construction management, there is no fixed construction period or construction price, and the client retains the risk of cost overruns and the responsibility of the project team and trade contractors.
Whilst construction management is generally considered to be the least-adversarial procurement route, where disputes or delay/disruption claims do arise, the lack of a single point of responsibility for design and construction can be particularly problematic and costly. The client may find itself bringing claims against a number of consultants and/or trade contractors in respect to a particular claim where no one organisation can clearly be identified as responsible for a particular issue.
In short, careful consideration of the client’s needs, the time and resources available to it and its appetite for risk must all be carefully considered before adopting the construction management route. Most crucial of all - for those who need a fixed price, construction management is best left for another day.