Unfortunately for buyers of construction management (CM) services, not all fees are structured the same, which can cause difficulty in comparing and evaluating them. And to make it worse, not being well-versed on what you’re buying can lead to expensive surprises after the contract is signed. To give you a better understanding of CM costs and what to look for when hiring a CM, check out the following questions:
Does the CM Fee represent the total cost of hiring a CM, or are there other costs?
The fee represents only part of the cost of hiring a CM. The way most standard CM contracts are written, the total cost is made up of two parts: (1) the CM Fee and (2) the cost of Reimbursable Expenses.
What are Reimbursable Expenses?
Reimbursable Expenses include the items necessary to maintain the CM’s temporary jobsite office during construction -- office trailer, postage/messenger service, office equipment/supplies, telephone/fax/internet service, portable toilet, electricity, etc.
Also typically included in Reimbursable Expenses is the cost of the CM’s management personnel stationed at the jobsite office. Unless the project is very large, on-site management personnel is usually limited to the field superintendent.
It is important to note how the CM is proposing to bill for the time of the superintendent and other on-site personnel. Some CMs charge an hourly rate and then apply it to more than 40 hours per week, so you wind up paying a lot more than you had planned. A fixed cost or a monthly rate is preferable; however, if you do pay an hourly rate, it should be based on a 40-hour week, with any overtime that might be needed already built into the rate.
What is included in the CM Fee? Is it strictly profit?
The CM Fee includes a profit margin, but it is typically structured to also include the cost of administrative overhead and other home-office personnel required for the project.
Does the CM Fee always include pre-construction as well as construction services?
Not necessarily. Some CMs are fully engaged during pre-construction, providing advice and guidance as to feasibility studies, conceptual and detailed estimating, value engineering, lifecycle costing, scheduling, plan reviews and sustainability analysis, and they charge a fee for this service. Other CMs are less engaged during pre-construction and charge nothing for their work. Just remember, the main reason for construction delays and cost overruns is that nobody is “minding the store” during pre-construction.
Should the CM Fee be fixed or a percentage of the cost of the work?
A fixed fee is just that, fixed, regardless of the cost of construction. A fee that is calculated as a percentage of the cost of the work provides little, if any, incentive for the CM to keep costs down. In fact, it may have the opposite result. A fixed fee should not change unless the size or scope of the project changes significantly.
If you do use a percentage fee, make sure the cost of the work on which it is calculated includes construction costs, not project costs, which can include design fees, equipment and furniture, and other items furnished by the owner.
Should Reimbursable Expenses be fixed or a percentage of the cost of the work?
Because Reimbursable Expenses are strictly a function of time rather than projects type, size or scope, they are not calculated on a percentage basis. If the full scope of the project is known early on, Reimbursable Expenses can be stated as a fixed cost. If the full scope is not known, a monthly charge is appropriate.
Are Reimbursable Expenses the same as General Conditions?
Some owners mistakenly use the terms interchangeably. In an RFP, they might ask for general conditions when what they really want is Reimbursable Expenses.
General conditions include all support activities and services necessary to carry out the construction that do not ultimately remain a permanent part of the building -- temporary heat and cover, permits, insurance, dumpsters, construction fencing, access roads, material hoisting, rubbish removal, etc.
Reimbursable Expenses – those items related to providing a temporary jobsite office during construction – represent only a small fraction of the overall general conditions for a project.
Do all CMs handle General Conditions work the same?
No. Some, typically those with general contracting experience, prefer to maintain control of the general conditions in order to better manage the job site. Other CMs, typically those without general contracting experience, sometimes lack the hands-on experience to deal with this work directly and prefer to assign it to subcontractors in their trade packages.
Controlling the general conditions work presents opportunities to reduce costs by more efficient management, and by sharing among several trade contractors’ activities such as temporary heat and cover, scaffolding, materials handling and storage, temporary roads, temporary partitions, etc. It also avoids additional mark-up by the trade contractors on that work.
Are CM Fees negotiable?
Generally yes. Once you have chosen the CM you want to work with, don’t be afraid to broach the subject. There may be services included that you can do without, or the CM may have ideas about how to shorten the schedule.
What if a CM hasn’t built my kind of building?
It’s not as critical for your CM to have experience in a particular building type as it is for your architect or designer. In fact, a diverse portfolio of projects can enhance a CM’s ability to successfully manage the building process regardless of the building type. It is their overall skill and experience in project management that results in adherence to deadlines and budgets, high client loyalty and repeat business. Talk to past clients to assess whether depth or breadth of experience is the winning strategy for you.
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