In This Article
Construction Manager Responsibilities
Who Should Hire A Construction Manager
Pros And Cons Of Construction Managers
Hiring Recommendations See all articles on YOUR TEAM
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.
CONSTRUCTION MANAGER RESPONSIBILITIES
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.
WHO SHOULD HIRE A CONSTRUCTION MANAGER
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.
PROS AND CONS OF WORKING WITH A CONSTRUCTION MANAGER
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.
RECOMMENDATIONS FOR HIRING A CONSTRUCTION MANAGER
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.
View all articles on BUILDING YOUR TEAM Back to Top
Stacey says
Should I Pay A Construction Manager a Fixed Fee or Percentage?
I would not be comfortable with paying a CM a percentage of all of the subcontractors’ work. There is no incentive for the CM to try to keep costs down. How might I structure payment for a CMs services that is fair and addresses the issue of unchecked costs?
buildingadvisor says
The construction manager is a consultant to the owner. He does not buy materials, sign contracts with subcontractors, or take any financial risk. For that reason, a construction manager should charge less than a general contractor.
Most construction managers work for a percentage of the total job budget. The fee typically ranges from 5% to 15% for residential jobs, vs. 15% to 20% mark-up for a general contractor’s overhead and profit. The fee can be a fixed fee based on the job’s estimated cost or can be based on monthly payments to suppliers and subcontractors. It’s important to establish up front what will be included in the job cost.
A hybrid approach is to make monthly payments to the CM based on payments to subs and suppliers, but with a guaranteed maximum charge. This is sometimes called a “construction manager at risk,” as the CM shares some of the risk of cost overruns, a big risk on any construction project.
I am a big believer in fixed-price contracts with general contractors vs. open ended cost-plus contracts. As you suggest, there is little incentive to hold down costs on a cost-plus contract. The same is true for construction managers.
If you hire the CM for a fixed fee, he will want to get the job completed to the owner’s satisfaction as quickly as possible, with the fewest delays and problems. He will help you get competing subcontractor bids and you, the owner, will make the final selections and sign the contract with the subcontractos. The CM can also help you shop for the best prices on materials.
Holding down costs becomes primarily the owner’s responsibility – with the CM acting as a consultant. If you don’t want that responsibility, you’ll probably be happier with a traditional fixed-price contract with a general contractor.
Establishing the fixed fee can be tricky as you need to establish a job budget. The CM can help with this. Even if his estimate is a little on the high side, his fee will only be a little bigger. For example, if his price is $10,000 higher than the low bidder might have been, you will only pay him an extra $1,000, not so much on a $100,000-plus job.
Best of luck with your project!
Stacey says
Thank you for taking the time to answer my question in full.
I am considering using a CM specifically because I started a residential project with a GC which went south–poor quality vs. my high end finishes. I have brought in multiple other GCs. No one seems to want to assume the risk of working on top of my first GC’s mess. This project will likely cost somewhere between $80 to $100K. In my case, it sounds like it makes the most sense for my project to work with a CM under a fixed-price contract. Based on the 5% to 15% rule, it sounds like it would be reasonable to offer the CM $10K. Correct?
Regards,
Stacey
buildingadvisor says
I think hiring a construction manager under a fixed price would be a reasonable approach to getting the project back on track. Offering him $10k for the job would seem like a reasonable offer, although he may try to negotiate up. A more typical approach would be to ask the CM what he typically charges for this type of job and start from there.
Since there is not really a standardized job description or contract for construction management, it is important to use a contract that clearly spells out the CM’s (and owner’s) specific responsibilities. If both parties start out with a common understanding of who is responsible for what, you have a much better chance of a successful project.
Best of luck!
Bruce Hardin says
Should Construction Manager Sign the Permit?
My GC company is serving as CM on a number of residential projects for a developer. But my GC company is also permitting the jobs under my license as part of those responsibilities. What I don’t get is that the AIA agreement states I have no responsibility for any of the workmanship, but state and local laws most definitely say, as the GC named on the permit, that I certainly DO. And if I’m not the team member responsible to the owner for the safety and quality of the workmanship, then NO ONE is. At least no one qualified and licensed by the State to do so.
buildingadvisor says
These are good questions to be asking, and it’s best to ask them now, before a problem arises regarding work quality, job-site safety, or any liability to third parties such as payment to subs.
There are a great variety of construction manager (CM) roles and contracts. Most common is a CM-Adviser, which it sounds like you are. Large commercial or public works projects sometimes use a CM-Constructor (or CM-at Risk). Less common is a CM-Agent. AIA provides different contracts for each arrangement.
As an adviser, the CM is acting solely in an advisory capacity and generally assumes no liability other than professional negligence, subject to the wording of the specific contract. In all cases, state law and local regulations also come into play. For example, who can sign a building permit on what type of project is controlled by the local jurisdiction.
In general, you are correct that whoever signs the permit is assuming the risks of the GC in the eyes of the city and state. Whether you can contractually assign those risks to others, such as the owner or developer, is the sort of thing that courts end up deciding. One of the main legal principles cited in these cases is who was in control of the activities that caused the problem. In some cases, the CM has been found at fault.
To get greater clarification on these issues, you might want to speak with your insurance agent as well as a lawyer (I am not one). AIA and other standardized contracts are a good starting point, but need to be customized to reflect the specifics of the job as well as local law. This is especially true with CM contracts because of the wide variety.
You are correct that someone will be held liable if there are serious problems with job quality or safety. If it is ambiguous now, you are leaving it up to the insurance companies and courts to decide – never a good idea. Better to make it crystal clear in the contract who is assuming these risks, and to follow your lawyer’s advice about whose name should go on the permit.
Bruce says
That is great information. I really appreciate it. The attorney for this client provided the agreement, which is AIA CM as Adviser. But my company is pulling permits in it’s own name, which definitely creates risk. Did they provide the wrong AIA contract? Should it have been CM Constructor or Agent? I know you’re not a lawyer. Just want your opinion.
buildingadvisor says
Which contract is right depends on the role you are playing. There are a lot of variations, so I can’t say which is right for you — and I certainly don’t know all the options or how risks and liabilities play out. The biggest risk on most construction projects is cost overruns, but safety and quality are important as well. Everyone is trying to maximize their profit and minimize their risks, so these are the issues to pay attention to in the contract.
In general, a CM (adviser) has a lot less risk than a GC, but does not stand to make a big profit (or big loss). A CM is getting a fixed fee or percentage to help the owner with all phases of the project. It is a collaborative arrangement rather than competitive. In the best case, the owner/developer has trusted partner who can help him get the job completed on time and on budget.
As a CM-adviser, you helping the owner with the design, planning, bidding, and supervision of the project, but the owner is generally responsible for permits, payment to subs, cost overruns, and for the other risks you mentioned. This arrangement may and may not save him money, but might buy him peace of mind.
A CM-constructor, on the other hand, is very similar to a general contractor with many of the same risks, so you probably don’t want that. In that case, you would be applying for the permits and directly hiring the subs or a GC.
So I think you are taking a big risk pulling the permits in your name. Seems to me like this should be the responsibility of the owner/developer. Again, I strongly suggest that you ask a construction lawyer. And also check with your insurance agent as liability for job-site losses seems murky here.
Martin says
Hey this is Martin from Carmel New York’- I’m a small general contractor,– licensed in a couple of counties, and also the state of Connecticut. I don’t know where you are from– but I can guarantee you, based on some bad experiences– if your name and your company name is on the permit, forget what anybody tells you— if the anything goes bad, you will absolutely be listed as defendant number 1 on any lawsuit.
Joe Skeith says
Don’t mistake your role on this project. You are a General Contractor, not a Construction Manager. Avoid AIA documents which try to create a hybrid CM/Constructor relationship between the Owner and your construction company. AIA does not understand the role of a professional Construction Manager. The CM is not a Constructor this is an aberration of the Construction Management profession. GC’s are more accurately construction Project Managers, period end of story.
Al says
How to Find a Good Construction Manager & Subs
Can I hire your services as a construction manager or if not do you have any ideas how to find a good CM and then to get good subs? your advice would be extremely helpful. Thx, Al
buildingadvisor says
Currently, I do not provide any contracting or construction services.
As for finding a good construction manager and good subs, there is no easy answer. In most cases, the construction manager will help you find reliable subs and solicit bids. Otherwise, you are left with the usual approach to finding any good service providers – ask around, ask friends, ask at a contractor-oriented lumberyard. You can also use a service like Angie’s List, which has user reviews. (They will try to sell you a membership, but also offer a free limited membership.)
Once you have some names, it’s always a good idea to check references and check for consumer complaints with the BBB and contractor licensing board, if they are licensed.
Once you find one or two good subs, they can be a good source of names for other subs as the good ones tend to know each other and work together frequently.
As for finding a good construction manager, the issues are the same, but it’s more challenging as there are few people offering this service – especially for residential construction. Some contractors will agree to work in a CM role rather than a traditional contractor role. Some architects and engineers also do CM work, but generally on large commercial projects.
If you hire a contractor to function as a CM, there are trade-offs. In theory, you can save some money since you will not be paying any mark-up on materials and subs. On the other hand, you will be taking on most or all of the risk for cost overruns, construction errors, scheduling problems with subs, and so on.
Problems – big and small – and cost overruns are pretty much universal on construction projects. A general contractor has a strong incentive to minimize problems as he is on the hook for any added expense that he cannot pass on to you. A CM may be less motivated to hold down costs. So go into this with both eyes open.
At the end of the day, working with a traditional fixed-price contract is often the best approach from my perspective.
Mike says
This is hilarious. An adviser who reveals the murky nature if you hire the CM for part of the carpentry! The average homeowner doesn’t have a clue about the process, but they have a vision, and then they don’t want to pay for all the negative impact from their wobbly start-stop-change-this-and-then-that strategy: Hello, find a CM you have vetted and trust and ask them to please help keep you smiling through the process and as you cross the finish line. Thank you and cheers.
Dilshad Randhawa says
Is Construction Manager Liable for Defects?
I think this article is a bit incorrect. Sure, the Construction Manager might not be liable for defects or the aftermath, but, what if it’s a CM- At Risk? Construction Managers At Risk take a portion of risk and break them down with the owner and others. So, I believe it depends on the scenario, and it also depends what the contract between a owner and a CM says.
buildingadvisor says
Point well taken, but I don’t think it applies to many residential building projects, the focus of this website. Few few residential building projects use construction managers and I’ve never heard of one using a CM-At Risk, a complex contractual relationship used on some larger commercial and institutional projects. However, it’s important to note that the role of a construction manager can vary from project to project and needs to be well defined to work effectively and protect all parties involved in the project.
Nathan Phelps says
Get Second Opinion on Building Plans
To evaluate a set of plans, I’ve used the approach of having material estimators for rough work call out missing items and give their opinion of the plans. This provides an excellent test of the architect based on the response of outside eyes to their plans. For example: Prior to pulling permit, send the plans to a few local lumber yards for lumber and hardware estimates. Then ask the estimators for their humble opinion of the plans and whether they saw anything that’s not quite right. This approach has saved thousands down the road by preventing on-the-spot change orders. The estimators typically respond enthusiastically because, oddly enough, they say less than 5% of folks ask them their opinion of the plans.
If your architect, designer, structural engineer, etc., respond proactively to the outside advice then you’ve just upped the trust level quite a bit – a opposed to negative, egocentric ‘I’m the best architect around’ fluff.
Analisa says
Who Can Review Architect’s Unclear Specs?
My parents are looking to build a residential house in Curacao. The architect designed the drawings and provided the specifications but we’re not sure if the specs is detailed enough. The architect is also responsible for overseeing the project and hiring the contractors to build the home. Who can we get to review the specs? And should we be concerned that the architect is in charge of the entire process? We had a lawyer draw up the contract but she said she’s not an expert to review the spec documents? What would you advise? Do you think we should hire a project manager?
buildingadvisor says
You pose an interesting question that I have wrestled with a lot over the years. Basically, who within the building process, can you trust to have your best interests in mind. The traditional model assumes that the contractor is basically not trustworthy, so you need to hire an architect to supervise the contractor. When this approach works well, it creates a healthy system of checks and balances. This requires that the architect and builder work well together (often the architect recommends contractors who he/she feels are a good match for the job). In this case, there is an ongoing dialogue between the architect and contractor (and the owner) to work out the problems that inevitably arise during the course of a large construction project.
Incomplete specs are the source of many such problems. The more detailed the specs are, the better. However, as a practical matter, it is neither possible nor economical to spec every last detail, nail, and screw in a building. So, to some extent, you rely on the competence and good will of the architect and contractor to provide you with a complete and well-built building. If the specs are not detailed enough, you are at risk of getting substandard materials or construction details (or at least different than you had in mind). For example, you may be getting no building paper under the roofing, one finish coat of paint rather than two, and so on. Also the visual details may be different than what you have in mind. And finally, the final cost may go up substantially because important items were left out of the specs. For example, the contractor may claim that the bid was for cheap three-tab shingles and you wanted heavy architectural shingles, or you thought you were getting solid wood interior doors but the bid was for hollow, composite doors.
In some cases, these problems occur despite good intentions; in other cases, an unscrupulous contractor takes advantage of poor specs and unrealistically low allowances to win a project with a low bid, intending to make his profit on change orders and “extras.”
If you have good reason to believe that your specs are inadequate, having another third party, such as a construction manager, to review the specs might be a good option. Of course, you need to find someone you can trust to get it right. If possible, I would hire the construction manager (probably an architect or contractor), rather than the original architect, to supervise the contractor. After all, the original architect has already dropped the ball once.
However, now you have added yet another professional (and another bill) to the mix. A better solution is to start with a builder and/or architect whom you can trust to provide competent, professional work. At the end of the day, you need to trust someone as you can’t look over everyone’s shoulder all the time to make sure no one is cutting corners. If you are building in another country, as may be the case here, hiring an independent third party to oversee the work is probably a very good idea.
I suggest reviewing the sections on “Your Team” and “Plans & Specs”:
https://buildingadvisor.com/your-team/
https://buildingadvisor.com/project-management/where-to-get-plans-and-specs/