Terence writes: How would you recommend paying a project manager? Would it be a percentage of the building cost or a daily or hourly rate? What would the rate be?
Steve Bliss of BuildingAdvisor.com responds: Construction management is still primarily used on large commercial projects, but is gaining in popularity in residential work as it promises to reduce costs and give the owner greater control of the project. The owner gets to see all the numbers plus, in theory at least, the construction manager (CM) is working to help the owner get the best job at the lowest price, rather than trying to maximize his own profit.
In the most common arrangement, a construction manager essentially performs the same role of a general contractor, but without taking on the risk of a general contractor, and therefore should charge you less. You have the final say on what materials to buy, what subs to hire, and whether the work meets your requirements. The downside, however, is that if things don’t go well, the problems are yours as you, the owner, are really the general contractor.
In most cases, the construction manager is or was a general contractor. Having a contractor working as your adviser and advocate can be appealing, but can also get messy if roles and responsibilities are not clearly defined. For example, if the CM is performing some of the work with his own crew or is providing all the subcontractors from his own list of subs (after all, that’s who he knows and trusts) can you be sure that you are getting truly competitive bids or that the CM is not quietly getting a cut? If the CM is charging very little for his services, maybe there’s a reason.
There are many variations of construction management. And since the use of construction managers on residential projects is not common, it’s hard to fall back on standard practices. With each contract it’s important to clearly spell out the roles and responsibilities and to understand who is responsible for various types of problems. Along these lines, check with your insurance carrier as to who should carry what type of construction insurance. For example, if you sign the contracts with the subs and pay them directly, you may be taking on more liability than if you make all payments through the CM.
Since construction management contracts can vary a great deal, payment can as well. The most common is a flat fee based on a percentage of construction costs. Fees typically range from 5% to 15% of total construction costs. The fee will reflect how much the CM or one of his employees will be on site, which will vary with the type of job. You will pay more for a comprehensive service in which the construction manager helps the owner review the plans, purchase the right materials, find and hire subs, and then coordinates and oversees their work. In general, the larger the job, the lower the percentage should be.
For a more limited role, for example, to just help you review the plans and find subs, a CM is best paid by the hour. Since a CM is essentially a consultant and likely to be, by profession, an architect, contractor, or engineer, you can expect to pay $50 to $100/hr. or more depending on their specific role and level of expertise. For this type of limited role, a flat fee or hourly rate should cost you less than a percentage of construction costs.
In theory, construction management can save you money and give you more control of the project. Some companies offering this service promise 10 to 20% savings over a standard contract. The biggest downside is that the CM is generally not liable for problems that may arise such as mistakes in the plans, poor workmanship, cost overruns, and so on. If the construction manager is supplying some of the labor with his own employees, his role can get murky, so I don’t recommend that. Read more about the pros and cons of hiring a construction manager.
Finally, make absolutely sure that you are hiring someone with the right skills, reputation, experience, and references as you need to trust that this person has the expertise required and is acting in your best interests throughout the project.
Read more on Hiring Construction Managers.