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  1. #1
    Join Date
    Feb 2006
    Location
    Northern VA
    Posts
    4

    Default Construction Management Fees?

    I just joined to JLC and have a question - what are Construction Management fees based on, vs. a General Contractor's bid?

    I have an opportunity with a couple but they want a Construction Manager rather than a Gen'l Contractor. I'm newly licensed in this market and I'm not sure how to figure a charge basis.

    Thanks!

  2. #2
    Join Date
    Jun 2004
    Location
    Holly Springs, GA
    Posts
    3,287

    Default Re: Construction Management Fees?

    Well, first you've got to define what you're calling "Construction Management". In the purest sense of the term, the CM doesn't hold contracts with the subs- the owner does. The CM simply "helps" the owner execute the project, and in return for lower risk of financial overruns, he gets a lower fee. His fee can be either a fixed amount per month, a percentage of the direct work costs, or a combination of both.

    Do they have any idea what they really want when they say they "want a Construction Manager rather than a Gen'l Contractor", or are they reiterating something they heard somewhere, and just "think" that's what they want?

    Bob

  3. #3
    Join Date
    Feb 2006
    Location
    Northern VA
    Posts
    4

    Default Re: Construction Management Fees?

    This desire come to me from the Panelized House salesman - met him at a local trade show last weekend. I receveid the prints today and there is an opprotunity to meet the Owners on Friday - I don't know what their motivation is yet. The salesman mentioned they "didn't like the last guy", and also that the "clients are exceptionally good people to work with", so go figure!

    It looks like the package will include the lumber, roofing, windows, doors, & siding, as well as permits. Site work, foundation, elect/plbg/hvac and assembly to be "managed.

    Sounds like a monthly fee would be easier to compute, but might leave the Owner wqith the sense that there is no motivation to close out the project!

  4. #4
    Join Date
    Jun 2004
    Location
    Holly Springs, GA
    Posts
    3,287

    Default Re: Construction Management Fees?

    Quote Originally Posted by slitzell

    Sounds like a monthly fee would be easier to compute, but might leave the Owner wqith the sense that there is no motivation to close out the project!
    Actually, it motivates them to make decisions in a timely manner and keep the process moving. On the flip side, having it be a % of cost makes it appear that there's no motivation for you to save them money.

    Bob

  5. #5
    Join Date
    Feb 2006
    Location
    Northern VA
    Posts
    4

    Default Re: Construction Management Fees?

    Good points, Bob.

    I just found a web site for the Construction Management Assoc. of America - http://cmaanet.org/ - are you familiar with this group?

    They discuss Agency CM vs. At-Risk CM where the Contractor functions more as a traditional Gen'l with fees based on project costs.

  6. #6
    Join Date
    Jun 2004
    Location
    Martinez, California
    Posts
    14,978

    Default Re: Construction Management Fees?

    Slitz:

    Here in the San Francisco Bay Area I am seeing a major shift to construction management and away from contracts,

    1) People have come to realize that nobody knows what things are going to cost, and many of the costs are outside of the contractors control, like arbitrary decisions by government agencies, price increases, and changes by the owners and architects.

    2) People like the idea of a small fee rather than a large contract price, it appears more professional rather than the contractor loading up his bid gambling on the costs. I see $3 to $5 million dollar jobs going as low as 3% now.

    3) Since the days of the old fashioned builders are gone (the guys with all the carpenters, trucks, tractors, backhoes etc.), and contractors subcontract everything now, it appears to the customer that he does nothing but administrate and deserves no more than an administrator's fee. So a CM fee makes sense for all involved.

    I don't know what price range you;re talking about, but the fees are higher in the lower ranges and lower with larger jobs.
    “It is not an endlessly expanding list of rights —the “right” to an education; the “right” to health care; the “right” to food and housing. That is not freedom. That is dependency. Those are not rights. Those are the rations of slavery – hay and a barn for human cattle.” - Alexis de Tocqueville

  7. #7
    Join Date
    Jun 2004
    Location
    Holly Springs, GA
    Posts
    3,287

    Default Re: Construction Management Fees?

    Quote Originally Posted by slitzell
    Good points, Bob.

    I just found a web site for the Construction Management Assoc. of America - http://cmaanet.org/ - are you familiar with this group?

    They discuss Agency CM vs. At-Risk CM where the Contractor functions more as a traditional Gen'l with fees based on project costs.
    I am familiar with CMAA, and agree with what they promote. What I described earlier was Agency CM, which is also what Dick is talking about. CM At-Risk is the confusing one, since there's not a clear line most of the time between acting as a "GC" or a "CM At-Risk"- I think it just leads to a lot of confusion.

    Bob

  8. #8
    Join Date
    Feb 2006
    Location
    Northern VA
    Posts
    4

    Default Re: Construction Management Fees?

    Thanks Fellas!

    I guess the other question I'd have is the contactual basis for Agency CM.

    Have you seen any sample contracts defining this relationship?

    Is this expected to be a full-time commitment by the CM or could a guy manage multiple projects?

    Could a CM also perform on some of the subcontractor roles (i.e. framing, siding, finish, etc.)? Or would this be considered a conflict of interest?

  9. #9
    Join Date
    Jan 2006
    Location
    Sandy Hook, Connecticut
    Posts
    192

    Default Re: Construction Management Fees?

    Slitzell,

    You can find contracts that the AIA has very helpful. I have been using the "Standard Form of Agreement Between Owner and Construction Manager where the Construction Manager is also the Constructor and where the Basis of Payment is the Cost of the Work plus a Fee" 1994 Edition AIA Document A131/CMc and AGC Document 566" for the last ten years. It works very well. I have revised it to apply more to my situation but in general it is a sound contract.

    I can't add any more than Bob or Dick have except the fees can be much the same as a GC would charge. I usually charge between 15 and 20 percent of the cost of the building and lot costs total excluding land purchase price.

    It boils down to a trusting relationship with the client. They know that they are protected by you as an owner representative. They also know that there is no markup on materials as they pay direct for everything. Your subs provide labor only bids, no materials.
    the cm

  10. #10
    Join Date
    Jun 2004
    Location
    Houston & Washington Texas
    Posts
    12,200

    Default Re: Construction Management Fees?

    Quote Originally Posted by the cm
    I usually charge between 15 and 20 percent of the cost of the building and lot costs total excluding land purchase price.
    CM:

    So does your fee cover land costs or is it excluded?

  11. #11
    Join Date
    Jan 2006
    Location
    Sandy Hook, Connecticut
    Posts
    192

    Default Re: Construction Management Fees?

    Hi Allen,

    Yes. Everything except the purchase price of the land.
    the cm

  12. #12
    Join Date
    Jun 2004
    Location
    Houston & Washington Texas
    Posts
    12,200

    Default Re: Construction Management Fees?

    CM:

    That seems about standard for the building industry, +-. I assume if you don't add for the land, that means you are not buying the land? Or are you.

  13. #13
    Join Date
    Jan 2006
    Location
    Sandy Hook, Connecticut
    Posts
    192

    Default Re: Construction Management Fees?

    If the client purchases a piece of property independently, thats the way it goes, but if the client somehow gets steered in the direction of one of my lots and buys it, lucky me. Guess which lots get shown first? I wish I could buy more, but unfortunately I haven't won the lottery yet. I would like to do nothing but wheel and deal in land when I get to the ripe old years. For now, I have a couple of close friends as land investors and we (as a group) can purchase enough approved building lots to keep a small inventory available to show prospective clients a good variety.
    the cm

  14. #14
    Join Date
    Jun 2004
    Location
    Houston & Washington Texas
    Posts
    12,200

    Default Re: Construction Management Fees?

    cm:

    You and I see things about the same way. By the way, I have never heard of any builder that prices their homes less than 10-12% of sales price. Your overhead is probably going to be 2-3% or more, so you really need 15% to net 12%.

  15. #15
    Join Date
    Jan 2006
    Location
    Sandy Hook, Connecticut
    Posts
    192

    Default Re: Construction Management Fees?

    Allen,

    Precisely. Add that to the profit on the building lot and the percentages actually become lucrative.
    the cm

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