Managagement Contracting – What is it? What are the Pro’s and Con’s?

By Aubyn Thompson, Pre-construction & Services Lead

Management Contracting is becoming a very popular way of procuring the services of a main contractor to expedite a project. For those who don’t understand this method of procurement, its where the main contractor forms part of the project team at a very early stage (during preliminary design stage) and assists the design team in procuring all elements through sub-contractors by tendering each sub-contract/package element on an open book basis for a fixed fee and preliminaries.

The Management Contractor is responsible for defining the sub-contract packages of work and provides firm estimates for these works through a rigid tender process. Where cost received for each element are not aligned with the project budget, the management contractor provides buildability and value engineering input to the design team assist in meeting the project budget objectives and thus providing cost governance in association with the clients cost consultants.

Essentially the Management Contractor expedites the works on site as a normal main contractor but their role is fundamentally to act also as a consultant to ensure the client project objectives for cost, programme and quality are met.

It is by far the most collaborative way for a project to be delivered as the Management Contractor essentially forms part of the main client design team.

The Management Contractor is not employed to undertake the work with his own labour but is employed to manage the procurement and build out process,
acting as the paymaster for the project sub-contract elements.

Pro’s and Cons

Pro’s

Beneficial for fast-track complex projects where minimal design information is available
Single point contractual and payment arrangement for the client with the management contractor (rather than to all of the individual works contractors)
It allows for early ‘buildability’ and programming input from the management contractor
The preliminaries and management fee can be fixed, therefore allowing for a degree of certainty on price

Con’s

This procurement approach is a low risk strategy for the management contractor as he/she has little responsibility
Whilst budgets can be set early, the contract cost certainty is unknown at the point of award and rigorous budget control needs to be adopted by the entire team
Although guaranteed maximum price can be achieved, the process is still fundamentally prime cost in its nature – which is an approach that many contractors naturally prefer
Great scope for client changes, but unless controlled there can be a tendency for costs to increase