The construction manager may advise on pre-construction issues such as design and cost control, and will make recommendations on contract awards, coordination of trades, purchase of materials, payment of trade contractors, scheduling, and project closeout. Another view is that their fee should be ± equal to their staff costs (with benefits) devoted to the project. This percentage is usually around 15 percent of the base costs. Fifty years ago, most construction projects were run by a conventional general contractor. But to do that I need to know what the fair percentage rate is so we can calculate a reasonable fixed fee to offer. A general contractor usually has written agreements with subs and can enforce penalties against subs who don’t comply.. Services engineer.Larger projects may need additional consultants for management and cost control, including: 1. ADMINISTRATIVE COST CALCULATOR A survey performed by the Society of Human Resource Managers (SHRM) and the Bureau of National Affairs (BNA)* concluded that businesses with less then 250 employees will spend on an average of $1,602 per employee/per year. A CM contractor has a financial incentive to front-load charges (larger payments at first). On a smaller job, the CM may be required only a few hours a week. What's NOT included in a construction manager’s portfolio? ... 12% architectural Basic Fee for $100,000 construction cost and under. In another instance, specific determinate services, such as the preparation of an architectural rendering or marketing materials, could be provided at a fixed price or lump sum. What you’d definitely like to avoid are the headaches. Gary has written a state-specific contract writing software program called Construction Contract Writer, and maintains a blog on construction contract law at: http://garywmoselle.blogspot.com Method 1 – Percent of General Construction. That fee typically equates to about 10 to 15 percent of the entire construction cost. Obviously, the CM has a heavy financial incentive to deliver the completed project for less than the GMP. Construction management (CM) is a professional service that uses specialized, project management techniques to oversee the planning, design, and construction of a project, from its beginning to its end. Construction managers are used by state and local governments. Only local counsel can appreciate the business and legal environment under which a construction contract is drafted, negotiated and executed. Roughly $4M project. Why Owners Choose Construction Managers For projects from $0 – $500,000, the project management fee totals 5%. residential construction contract - construction cost plus a contractor fee. Usually, the CM contractor’s fee will be a percentage of all four cost categories. I have the advantage of being in Philadelphia where contractors, as a profession, have a bad reputation. But, of course, an owner will prefer back-loaded charges (higher payments due on completion). Construction manager at risk contracting is a potential win-win-win for most contractors. In the case of a CM (consulting) contract, only the owner has written agreements with trade contractors – usually many agreements. Other services for the same project could, in turn, be compensated on a per diem rate or percentage of the In our local construction market, this percentage is typically equal to 12% - 25% of the project costs. Capital construction projects managed by the Construction Management Division, Project Management Group of Facilities & Services must be assessed a project management fee appropriate to the scope and scale of the project. • communicating with contractors and suppliers 3. equipment Very few property owners want to manage the day-to-day operation of a construction project. • charges imposed by government authority on the owner of the construction site Much of the work was done by crews on the payroll of the general contractor. I actually use the CA part of the project as one of the major selling points during initial client meetings. 3. If the budget goes up, so does the fee, and vice versa. Fee Percentage. Weekly or Monthly Charge. Whether paid by the week or month, have a clear understanding about pro-rating any month or week before work starts, after work ends, and during periods when work stops. Your only responsibility may be to sign the agreement. 4% would have been more equitable. compensated on a percentage fee based on the construction cost for the project. Project manager. There are two primary kinds of home construction contracting formats that builders commonly use to map out contractor fees for residential construction. In fact, that’s what every general contractor does. Some will also charge a five percent fee, yet mark their materials and labor up 10 percent, meaning you are actually paying them 15 percent. In their eyes, he’s just another consultant, a construction consultant. But there’s no legal liability. But any of the fee agreements considered so far (lump sum, weekly, monthly or percent of job cost) could include a guaranteed maximum price. They bid Cost + 8%. MEP portion of the construction = 25% of the total = $12,500,000. Therefore, if you take on a large construction project that costs a grand total of $100,000, then you should expect to pay the manager around $10,000 to $15,000 for his or her services. First, the simple: The term ‘fees’ generally refers to payments made by the client to consultants for services under the terms of an agreement. If you build or remodel offices or commercial buildings, or handle industrial projects, you’ll usually have the opportunity to offer a CM contract as part of the negotiating process. Construction Administration is NOT an option, to be offered as an additional service. These costs often vary by the project size and tend to represent a smaller percentage of total soft costs on larger projects. The reason for this is that the CM at-Risk becomes the construction contractor, and construction will be the preponderance of the dollar value of the work. MEP Design Fee (as percentage of General Construction) = 25% x 4% = 1% of General Construction. The same split could be used to share in any cost over-run (the owner might pay 80 percent and the CM contractor might have to contribute 20 percent). A CM contractor earns a fee as a consultant, the same as any architect or engineer. If you’re looking for a better way to make a living in construction – a way that makes good use of what you know already – consider the advantages of construction management contracting. • financing costs TYPES OF CONSTRUCTION CONTRACTS 5. Any time the CM contractor’s fee is based on the construction cost, the CM contractor must have the right to audit the owner’s cost records. These fees must be paid to gain authorization for the project. The construction manager oversees project development in exchange for a fee. On a multi-prime CM project, the trade contractors are usually recruited by the CM contractor, are almost certainly approved by the CM contractor, and will work closely with the CM during construction. The CM (advisor, non constructor) we are considering is a good firm that specializes in what we need done. The construction manager shares in any savings if costs are less than the GMP; but he may have to pay some portion of the difference if there’s a cost over-run. Percentage of Construction Cost. ... that it would seem obvious to assume … Funders are also wary of these risks and their need for certainty will influence the But these trade contractors are legally responsible only to the owner. First, because it’s a CM contract, which means that most of the general contractor’s worst headaches are shifted to the owner: disputes about payment, liens, warranty, contractor claims, change orders, code compliance, etc. Of course, a CM gets a black eye when there’s trouble with a trade contractor. CM contracts are very different from traditional prime contracts, and have to be drawn carefully to avoid problems with property owners, trade contractors, suppliers and state regulators. Traditional construction contracting came in two flavors – either (1) fixed price or (2) time and materials (cost-plus). The owner signs agreements with trade contractors, pays the bills, and holds installing contractors responsible for their work. ... Grantees must be careful not to express this fee in the contract on a cost-plus-percentage-of cost … The prime contractor ran the show, handling invoices, claims, disputes, payments, change orders and requests. • directing project closeout CM contractors have many more choices, from simple to complex. Or it could be a percentage of the job cost. (2) The target fee schedule provides for 45 percent of the contract work to be subcontracted for such things as electrical and other specialties. This fee plan will work best on a small job that’s likely to be completed in a month or two. Reported by: Michelle Tolbert, A+ Realty and Construction LLC See the Jacksonville Construction Management Cost Report The Owner signs the contracts and the CM only manages and takes no risk, then the fee might be 1 or 2%, certainly no more than 3%, plus their staff costs. 3. In this case, the project manager will charge a fee per square foot, based on the total project cost. 2. materials The industry standard for construction manager fees ranges from 1% to 15% of the total cost depending on the scale and scope of the job. That’s bad, at least from the CM’s perspective, but the upside is that the CM isn’t legally responsible for failure of a trade contractor to perform. The architectural and design fee includes costs of feasibility studies, master planning, design work, and related costs incurred throughout the project. The management and coordination fees are generally a predetermined percentage of the actual costs. A CM contractor earns a fee for consulting services -- period. When you see a line item like this on a budget proposal, it’s generally listed as a percentage at the end of all the other job costs. The baseline fee was 6%, but the percentage decreased as the construction cost increased; and increased as the construction cost decreased. Your fee is guaranteed. One word of caution. 1. labor Many of the largest projects undertaken by the Corps of Engineers are now done with construction managers. with possible performance bonus. That’s why a construction management contract is so important. So, it is first important to assign a Level of Complexity to the project under consideration. True, the CM’s authority is limited. MEP portion of the construction = 25% of the total = $12,500,000. Third, even though it’s a consulting contract, you can earn more than the consulting fee. There are generally four types of development fees to be aware of when analyzing a commercial real estate investment opportunity: • assisting with change orders On Your Way to CM? The remainder was done by contractor specialists (subcontractors) working under agreements with the general contractor. How to choose which type of contract to use when hiring a contractor. Percentage of Construction Cost. Guaranteed Maximum Price. Fee levels at around 2.5% are, for example, well below the levels of overhead and profit that are currently sought in competition for design and build projects. Most commercial and industrial jobs are also done by construction managers. Because CM contracting is so different from traditional general contracting, it’s easy for others to be confused. :). • court costs or the cost of arbitration The CM contractor usually sends an invoice at the end of each pay period based on payments made to contractors and suppliers during that pay period. • checking insurance coverage The most common pay period is monthly. The disadvantages: Not every job needs a full-time CM. This is where fee agreements begin to get more complex. What about project controls? No matter what the percentage, it’s important to identify precisely what’s included in the definition of “construction cost.” The list of what’s included and what’s excluded should be very complete – resolving every possible issue for each of the four cost categories: A construction management contract is an agreement to pay for consulting services. But CM contracts routinely exclude the following from the definition of construction cost: 1.2 Percentage Based Fee 18 1.3 Construction Budget 19 1.4 Reimbursable Expenses 20 1.5 Allocation Of Project Fees 20 1.6 Additional Services / Project Variables 21 1.7 Re-Use Of Documents Or Design 21 1.8 Repeat Work 21 2.0 B U I L D I N G C A T E G O R I E S 22 2.1 Basic Categories 22 2.2 Alterations And Renovation 25 Class C and D projects require a 20 percent and 30 percent reduction, respectively. • keeping the owner informed of progress Be sure to visit the BNi Building News Online Bookstore for all your professional information needs. 2. Currently, the main attraction is ... construction management to justify the additional in-house resources required and the extra risk that the employer must hold. Cost Per Square Foot. The term “construction management” as used in the FTA Circular does not include the Construction Manager at-Risk method. Selecting the percentage is the easy part: Five to 10 percent is common on a smaller job; on a large job, such as an airport or power plant, the CM contractor’s fee could be as little as one or two percent. This is where fee agreements begin to get more complex. Their office overhead comes out of their fee. Project Management Fee by Percentage Total Project Cost (minus project management fees) Project … The contract will usually be awarded to the CM contractor with the lowest percentage bid. Again, there’s no incentive to complete work on time or within budget. 4. subcontracted services. The CM can recommend and encourage. As the cost of the project goes up, the percentage-based fee decreases. Construction Management Fees The cost of hiring a construction manager is an average of $21,463 or somewhere between $3,236 and $43,162. For example, if the division is 80-20, the CM contractor would receive 20 percent of any savings below the GMP. This is very similar to working on salary as an employee. • preparing bid packages and evaluating bids • the cost of buying or owning land or rights-of-way Both these types of contracts offer slightly different contractor fee schedules: ... the construction management contracts and fees percentage. The core consultant team for most building projects will include: 1. • compensation of design and engineering professionals … When a CM contract is offered for public bid, CM contractors may compete on the basis of their percentage. Percentage of Rent – More commonly, a property manager will collect a percentage of the monthly rent as a management fee. The CM doesn’t have to make good on a trade contractor’s mistakes. A Class B project requires a 10 percent reduction in amounts. • monitoring day-to-day construction If we look at the chart, project management fees are assessed as a percentage of the total cost of the project. The author: He’s not a general contractor, he’s what is now called a construction manager. He recommends an architect and an engineer, gets owner approval of the plans, guarantees a maximum price, selects trade contractors, ensures project completion to the owner’s satisfaction, and usually collects a nice bonus for completing work on time and under budget. A Construction Manager’s Fee Construction management as agency • the fee of the CM contractor That fee could be a set amount for the job or a set amount per month, week or hour. • approving the proposed contracts On the average, project/construction management costs during the construction phase of the project are in the range of 4–8 percent of TIC, according to Means Estimating Handbook [R.S. The project owner, not the construction manager, signs agreements with trade contractors. What to Expect from A Construction Manager Method 1 – Percent of General Construction. are the owner’s responsibility. They now say 6%. In time, wages or fees on 55 key HR activities. They can be related to permitting applications, costs to file permits, occup… Your fee agreement should identify what happens during an extended delay. But today, numerous projects, especially the more complex ones, are handled by construction companies that do little or none of the actual construction. • reviewing the plans and specs It is an integral part of the architectural process. The third option for structuring project management fees is a per square foot cost. Most construction managers will charge a fee of three to five percent of the total project cost. Everyone else on the construction site has a different agenda. A $1m project might attract a 10% fee, which equates to $100,000 A $1.5m project might attract an 8% fee, which equates to $120,000 A further defining characteristic of the percentage fee method is that it automatically adjusts during a project if the construction budget changes. For a single family home, this flat fee may be $100 a month. Even at that I have easily saved the cost of the fee over the build. A construction manager is the owner’s representative – answering only to the owner. A CM has no contracts with the trades and pays no bills. The going rate for Construction Management? Construction management or construction project management is the overall planning, coordination, and control of a construction process from beginning to completion. Architect (see Architect's fees). The fee makes up between 5 to 15% of the entire project, although the percentage shrinks for bigger projects. Typical fees can range from $1,000 – $20,000 per month. Up to this point in our discussion of CM fees, we’ve considered only the consulting fee -- we haven’t considered the construction cost. Who uses a construction manager? MEP Design Fee (as percentage of the MEP construction) = 4%. Disclaimer: Nothing in this article should be interpreted as a substitute for professional advice from an attorney practicing in your community. If the job will last many months, there will be an issue of how much is due on each statement date. If you’re like most construction contractors, what you do best and what you enjoy most is bringing the parts together to create something of value. If the job lasts 40 weeks and the rate is $2,500 per week, the total charge would be 40 times $2,500, or $100,000. Invoices drifted up the chain of contractors to the owner, and money flowed down the same chain from the owner or lender to subcontractors and suppliers. Construction Management Services $50.00 to $150.00 per hour $300.00 to $1,000.00 fixed fee - flat rate 8.00 to 20.00 percent of total project cost The fixed fee would be monthly also the percentage of the monthly rent. Lump Sum. As you read down this list, you may figure out that this is what you’re currently doing as a contractor. For example, we know a contractor in Malibu who makes a very good living doing commercial and high-end residential work. Structural engineer. Recommending vs. ... and price the whole job as a flat fee or percentage. The lowest responsible bidder got the job. Construction Manager Fee Scale. In general, construction managers are between 35 and 54 years of age, but it is also a field where younger people are taking part with up to 10 percent of construction managers being 24 years old . 2. Design and Construction Services is a reimbursable department providing project management services to construction projects. What a CM contractor doesn’t do may better define the work. This fee is based on a percentage of the total project cost minus the PM fees. This contract is beneficial to the contractor since any additional … ... the actual cost to build your project plus a management and coordination fee for the general contractor. Most property owners know very little about design and construction: finding qualified design personnel, preparing bid documents, researching potential contractors, evaluating bids, responding to change orders or requests for information. The various classes are defined in 915.404-4-71-4 (b). If you’ve been working as a traditional general contractor, you may not feel comfortable on your first CM job. 18.104.22.168 The Construction Manager shall award Trade Contracts representing ninety percent (90%) of the Cost of the Work or more, within the timeframe outlined in Exhibit D. Construction management was previously a male dominated field, but more women are becoming construction managers and are proving themselves to be capable and responsible. So, for a $100,000 project, you would expect to pay the project manager $5,000. Method 2: Percentage of Cost of Construction 10 Method 3: Fixed Fee or Lump Sum 13 C: Remuneration for Transportation and Infrastructure Engineering Services 14 ... TABLE 2 – Percentage Fee Scale for Basic Engineering Services for New Building Construction 19 TABLE 3 – Index of Building Types and Categories 21 TABLE 4 –Recommended Minimum Percentage fee Scale for Detailed Design for … The Contract This article courtesy of Gary W. Moselle, a California attorney specializing in state-specific construction contracts. Tags: Legal , More, Construction Management. Total General Construction Estimate = $50,000,000. General contracting as it was practiced 50 years ago hasn’t vanished. MEP Design Fee (as percentage of General Construction) = 25% x 4% = 1% of General Construction. Today's market has some contractors doing things that they shouldn't be doing, but here are some thoughts: I just paid a flat rate of 3% for a large, complex residence. this means, using this chart, that a: $500,000 house may have an architectural Basic … Total General Construction Estimate = $50,000,000. His clientele is very comfortable dealing with consultants – lawyers, accountants, financial advisors, etc. The CM doesn’t buy or install materials. MEP Design Fee (as percentage of the MEP construction) = 4%. Obviously, this difference in construction management contracting cuts both ways. The Changing World of Contractors and Construction Managers. The reason this is important is that various organizations assign higher or lower percentage fee rates to the project type, based on the project Level of Complexity. Thanks. Construction Management Fee means Landlord’s construction management fee of five percent (5%) of the Total Improvement Costs, which shall be the responsibility of Tenant, subject to the terms of Section 5.01 of this Exhibit B-1. But the owner does the deciding. Means Company, Inc., 1990]. The fee was allocated most often among the phases of Basic Services of the project like this: 15% - Schematic Design 20% - Design Development 40% - Construction Documents 05% - Bidding 20% - Construction Administration See this download for a … Second, because it’s a CM contract, you’re going to get paid for your time. Or the fee could be based on performance – often called CM at risk contracting. You’re more likely to see a 1 percent fee if your total costs are over $100 million. Construction project ... cost and fees are open book allowable and unallowable costs guaranteed maximum price (GMP) Construction Administration. It was also evident from the survey that the smaller the company, the higher the cost of … The CM contractor won't necessarily see all invoices for work done and materials supplied. • approving invoices The advantages: Compensation on a weekly or monthly basis will be a good choice when a CM contractor works substantially full-time on a single job from start to completion. Inspection fees include the cost of building inspections and fees for permits paid to the local government. CM Defined O&P is short for overhead and profit. • legal fees We told them pretty much bullshit. They are local as well, so no travel expenses need to be added to their costs. Some of the most experienced, most successful, most respected construction professionals we know fit the definition of construction manager. When you do CM work for a public agency, that agency will almost certainly prepare the contract for you. To be sure all costs are considered when calculating the fee, the CM contractor needs the right to inspect and copy the record of construction costs paid by the owner. • protecting the owner from construction claims This is usually called an at risk CM contract or CM@R. The maximum cost to the owner (excluding change orders) is set by contract. They are generally paid in instalments based on regular dates or at pre-defined stages of completed work. A Project Management Fee (PM fee) is charged to generate funding to pay for expenses. The percentage collected will vary, but is traditionally between 8% and 12% of the gross monthly rent. that said, we prefer Cost + Fee with GMP. A good CM contract will avoid or minimize nearly all the problems associated with traditional general contracting: risk of loss, disputes, excessive regulation, employee-employer issues, warranty claims, change orders and callbacks. Selecting the percentage is the easy part: Five to 10 percent is common on a smaller job; on a large job, such as an airport or power plant, the CM contractor’s fee could be as little as one or two percent. © Copyright 2019, BNi Building News | ConstructionWorkZone | All Rights Reserved The job description for a CM contractor will usually include: Markups That Affect Total Contract Costs. My research says 3-4%. The CM’s fee is a set amount -- no matter how much time is required and no matter how long the job lasts. This contractor gets involved early in the project, before design has started. The primary role of that manager is to protect the owner against excessive cost, delay, poor craftsmanship and unnecessary risk. A general contractor gives instructions to subs and suppliers and expects those instructions to be followed. 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