While this role was originally developed for use on large commercial projects, it is now used occasionally on single-family residential projects. There are a number of variations, but on small jobs (not the Trump Tower) the essence of the job is this: the construction manager oversees the project for the owner and is paid an hourly or flat fee to make sure things go as planned on the job site.
As the owner’s representative, the construction manager (CM) oversees the subcontractors, making sure that that the work is done correctly, follows the plan, stays on schedule, and is free of monkey business around change orders and other upcharges. Like an architect, the construction manager is the owner’s representative, looking out for the owner’s best interests, at least in theory.
The construction manager may also perform some of the same services that an architect can provide if hired to handle construction documents, bidding, and construction administration. They may help evaluate plans, find and solicit bids from subcontractors, and help negotiate terms with subcontractors, handle permits and inspections, and approve change orders and progress payments. It is mostly an advisory role like a consultant, with you, the owner, making the final decisions. The more tasks assigned to the CM , beyond managing the subs, the more you will spend on the construction manager. Possible responsibilities include:
- Finding and hiring subcontractors
- Scheduling the subs and monitoring their work
- Troubleshooting job-site issues with plans, subs, etc.
- Reviewing change order requests
- Helping with cost estimating
- Helping with permitting and inspections
- Negotiating material discounts
- Ordering materials, and inspecting deliveries
- Reviewing bills
Who are construction managers? Some construction managers are licensed architects. Many are former or current general contractors. Some offer a hybrid service where they act more-or-less act like a general contractor, providing some of the general carpentry work, but work for an hourly or flat fee rather than adding overhead and profit into their bid. In this scenario, you, the owner would see the subcontractors’ bids, choose who to hire, and contract directly with the subs.
Hybrid approach. A big challenge using a construction manager to build or remodel a house is getting the general carpentry work. Framing crews are plentiful, but finish carpentry subcontractors are less common in many areas. Also carpentry work often happens in bits and pieces in and around the work of the subs. The carpenters keep the project moving, tie up loose ends, and troubleshoot problems on site. This is especially true on large remodeling projects, where adapting to existing conditions, some of them hidden, is a big part of the job.
One solution is for the construction manager (acting more as a GC) to complete the general carpentry work with his own crew. If he starts buying materials and adding overhead and profit to his crew’s expenses, then he is acting as a general contractor on that part of the job. This gets a bit murky. It is cleaner if he still works based on his management fee and is simply reimbursed by the owner for the carpentry materials and labor. After all, he is supposed to be your representative, looking out for your best interests.
If you work with a hybrid-type contract, get as much done as you can with subcontractors, and pay for the rest with a fixed-price contract, or a cost-plus (time-and-materials) contract with a guaranteed maximum. As an owner, you will want the general carpentry costs to be controlled, as with other subcontracts.
If you want to be your own general contractor, but don’t have extensive construction experience or do not have the time to supervise the construction, then hiring a construction manager may make sense. A good construction manager can be your eyes and ears on the job site, troubleshoot job-site issues, and keep everyone honest. Jobs that rely heavily on subcontractor work, but also require a good deal of coordination on the job site are good candidates for construction managers.
CONSTRUCTION MANAGER COSTS
Construction managers generally work for a flat fee based on a percentage of construction costs. For large commercial projects, the fees can be as low as 1% to 5% of total construction costs. On residential projects, fees typically range from 5% to 15% depending on the type of job, level of involvement, and total job budget.
For smaller jobs or more limited involvement, you can also pay an hourly fee. The hourly rate would be similar to the rate you would pay an architect, engineer, or other professional. You can expect to spend $50 to $100 or more per hour depending on the CM’s expertise and responsibilities.
The fee paid to a construction manager should be less than you would pay for a general contractor because the CM has much less risk. You, the owner, are ultimately responsible for all job-site problems and for cost overruns. Cost overruns are a fact of life on construction projects and can quickly eat up a contractor’s profit. The CM does not take this financial risk. Instead, the owner assumes this risk.
While is sounds good on paper, this work arrangement is not commonly used in residential construction. Because it is relatively rare, and with so many variations, there is not a tried-and-true system to follow. While in theory, it’s like having a general contractor who’s on your side, helping you cut costs and maintain quality, and working for a simple fee, the reality is often more murky, especially if the CM is providing construction services for part of the job.
Also, since most CM’s are also GCs and have relationships with subcontractors, a less-than-scrupulous construction manager may still be getting some mark-up on the subs’ work. Finally, the construction manager is taking on very little risk and is generally not liable if things go south. Since you, the owner, are contracting directly with the subs and suppliers, you end up owning all problems with scheduling, workmanship, conflicts between subs, change orders and cost overruns.
You should pay a construction manager substantially less than you would a general contractor, as the construction manager is earning a guaranteed rate and is taking on little or no risk. A good construction manager can certainly help you reduce risks and manage costs by effective management of the job, but it’s your money on the table if things don’t go as planned.
Pros of using a construction manager:
- It’s like having a general contractor with your best interests in mind
- The construction manager’s fees are open, not hidden within the bid
- Should save you money, compared to a traditional general contractor
- Subcontractors’ bids and some material costs are open to you
- You have more control over the work.
Cons of using a construction manager:
- Legally, you will be acting as your own contractor, assuming the risk for most types of problems.
- The construction manager is not liable for construction defects, delays, or other problems.
- Cost overruns are yours, not the construction manager’s.
- Any subcontractor problems are ultimately yours as you have hired them directly.
- If the construction manager is doing some of the work, relationship gets murky.
- Construction manager may be making money off subs.
If you are determined to be your own contractor, but don’t have the construction experience or the time to be on the job, it may make sense to hire a construction manager to help you manage the job. But it is not a panacea. The model probably works best on large jobs that can be done mostly by subcontractors. In that case, the construction manager can help you find, hire, and negotiate with subs and coordinate and inspect their work on the job site.
Where the construction manager is providing general carpentry services with his own employees, use a contract that controls costs: either through a fixed bid or time-and-materials contract with a guaranteed maximum.