Construction management for fee

In construction management for fee, the owner hires a construction manager as a professional adviser and agent, much as it hires an architect. The construction manager brings construction knowledge into the design phase, estimates and schedules the work as the design develops, divides the work into trade packages, runs the bidding for those packages on the owner's behalf, and then coordinates and administers the trade contractors during construction. The owner holds the trade contracts directly and pays the construction manager a fee for its services. The construction manager does not guarantee the cost of the work. That is the essential difference from construction management at risk, the subject of lesson 4.

The method has many names. In the United States it is usually called agency construction management, CM-as-adviser (CMa) or CM for fee; in Canada it is often called construction management for services, after the CCDC 5A contract. Program management and owner's representative services overlap with it: a program manager may oversee many projects for an owner, and an owner's representative may advise on a project without coordinating the trades.

How agency construction management is organized

The owner holds a contract with the designer, a contract with the construction manager, and a separate contract with each trade contractor, sometimes twenty or more on a large building. The construction manager has no contract with the trades; it acts on the owner's behalf in procuring and managing them, within authority the owner delegates. Because the owner holds the trade contracts, it also holds the risk that their combined cost exceeds the budget, the risk of coordination failures between trades, and the risk of a trade defaulting.

Why owners choose it

Construction management for fee gives the owner construction expertise early without giving up control of the trade contracts or paying for the construction manager to carry cost risk.

Universities, hospitals, governments and experienced developers with strong internal project teams often use it for complex buildings, renovations of occupied facilities and programs of many related projects. It is especially useful when the owner wants close control and has the staff to make decisions quickly and to carry the trade contracts.

The risks the owner keeps

The method's weakness is the flip side of its transparency: the owner carries the risks a general contractor would otherwise carry.

The construction manager is generally liable only if it fails to meet its professional standard of care. If its estimate at 90 % design is wrong because trade prices rose unexpectedly, the owner pays; if it is wrong because the construction manager was careless, the owner may have a claim, but proving negligence in an estimate is hard. Owners who choose the method for its transparency should understand that they are self-insuring the cost of the work.

Paying the construction manager

Construction managers for fee are usually paid in two parts. A preconstruction fee covers services during design, often a lump sum or hourly rates up to a cap. A construction-phase fee covers coordination and management during construction, either as a percentage of the cost of the work or as a fixed fee, plus reimbursable costs for site staff and general conditions items, which are sometimes themselves a fixed sum or capped.

# Comparing construction manager fee structures on a $72 million civic building (illustrative)
pct_fee = 0.032          # percentage of the cost of the work
fixed_fee = 2_300_000    # lump-sum construction-phase fee
precon = 420_000         # preconstruction fee (same in both)
for cost in (68_000_000, 72_000_000, 78_000_000):
    a = precon + pct_fee * cost
    b = precon + fixed_fee
    print(f"Cost of work {cost:>11,}: percentage fee total {a:>10,.0f}   fixed fee total {b:>10,.0f}")
# break-even cost at which the two structures give the same fee
print(f"Break-even cost of work: {fixed_fee / pct_fee:,.0f}")

Cost of work  68,000,000: percentage fee total  2,596,000   fixed fee total  2,720,000
Cost of work  72,000,000: percentage fee total  2,724,000   fixed fee total  2,720,000
Cost of work  78,000,000: percentage fee total  2,916,000   fixed fee total  2,720,000
Break-even cost of work: 71,875,000

A percentage fee rises as the cost of the work rises, which can look like a reward for overruns, although in practice a construction manager's reputation and future work depend on controlling cost. A fixed fee removes that apparent conflict but must be adjusted if the scope changes substantially, which needs a clear definition of the scope the fee covers. Many owners use a fixed fee with an adjustment only for owner-directed scope changes above a threshold, and some add an incentive tied to meeting the budget or schedule.

Packaging and sequencing the trades

One of the construction manager's most valuable tasks is dividing the work into trade packages and deciding when each is bid. Good packaging creates enough competition for each package, matches local trade capabilities, avoids gaps and overlaps through a responsibility matrix (CON-330 lesson 2), and puts long-lead and early-start packages first. On a fast-tracked project the construction manager might bid demolition and excavation at 30 % design, structure at 60 %, and finishes at 100 %, so that the building rises while its interior is still being designed.

# Bid sequencing for a fast-tracked civic building (months from start of design; illustrative)
packages = [  # (package, design % needed, months to bid and award, months of work before next trade can follow)
    ("Demolition and site preparation", 30, 1.5, 2),
    ("Excavation and shoring",          35, 1.5, 3),
    ("Foundations and structure",       60, 2.0, 7),
    ("Building envelope",               75, 2.0, 5),
    ("Mechanical and electrical",       90, 2.0, 10),
    ("Interior finishes",              100, 2.0, 6),
]
design_months = 14
for name, pct, bid, dur in packages:
    ready = pct / 100 * design_months
    print(f"{name:32} design ready at month {ready:4.1f}; award by month {ready + bid:4.1f}")
print("Under design-bid-build, all packages would wait until month", design_months, "plus bidding.")

Demolition and site preparation  design ready at month  4.2; award by month  5.7
Excavation and shoring           design ready at month  4.9; award by month  6.4
Foundations and structure        design ready at month  8.4; award by month 10.4
Building envelope                design ready at month 10.5; award by month 12.5
Mechanical and electrical        design ready at month 12.6; award by month 14.6
Interior finishes                design ready at month 14.0; award by month 16.0
Under design-bid-build, all packages would wait until month 14 plus bidding.

Each early package bought before the design is complete carries a risk that later design decisions will change it, so early packages should be ones whose scope is genuinely settled: site work, foundations designed with allowance for later changes, and long-lead equipment whose performance is known. The construction manager's job is to advise the owner which packages can safely go early and which should wait.

Standard contracts

In the United States, the AIA's CMa family was updated in 2019, and CMAA (the Construction Management Association of America) publishes its own family of agency CM contracts, which many public owners and universities use or adapt. ConsensusDocs also publishes owner and CM agreements in its 800 series.

When agency CM goes wrong

The method fails most often when an owner chooses it for its control and transparency but does not have the staff to carry the trade contracts and make decisions. Delays in decisions, late responses to trade questions, and disputes between trades that the owner must resolve all land on the owner's desk. A second failure mode is a construction manager that behaves like an adviser during design but lacks the field authority to coordinate twenty independent trade contractors who owe it nothing contractually. A third is scope gaps between packages, discovered when the last trade is being bid and the money is gone.