Project Manager Fees

[K M]

Any advice on how to pay a project manager? I come from an engineering background and one method for bidding on projects is a 'cost plus' model. So cost of materials plus X%.

Would this model work with a project manager on a rehab project? Something like 20% over cost. So the investor would get multiple bids from each subcontractor, pick the best based on all factors (price, reliability, professionalism et al.) The PM would get paid based on when the draws are done for each of the subs.

This way the PM will not pad the cost of the subs so his % gives him a higher draw.

Does this make sense? Just looking at options for how to manage a pm.

Thanks!

[Richard F.]

Well, I suppose it somewhat depends on the background of the project manager and the actual scope of work. As a Property Manager, on certain types of rehab projects for clients (outside of "normal" repair and redecorating) we charge either 10% of the contract price, or a straight hourly fee (terms are negotiated at the outset of our property management agreement). For this we obtain multiple bids, compare and make recommendations, coordinate the efforts, oversee the actual work on site (periodically checking progress, documenting with photos, making decisions and change orders when necessary), inspecting and documenting the finished job, reviewing punch list items and authorizing final payment.

OTOH, if you are talking about a LARGE project, or development type work...I have no idea!

[Account Closed]

If you pay someone cost plus or hourly they have little incentive to delivery early or on budget. The longer it takes and the more it costs the better they do.

Consider a mixed model where they get a fair reward for on-time and on-budget but they get more for doing better than that. A bonus for being early and/or a percentage of money saved on the project.

You really want to give them skin in the game so that they will respond more or less as you would do when on the site. Just be careful to keep the rewards balanced so cutting corners is not what they are paid to do.

Second though. There could be a market convention in your area for project management. I know there is for architects when they supervise a construction project. It will be a percentage of the deal but they have spec'ed all the materials down to a fair detail so little room for unreasonable padding.

John Corey

[Shane Wilson]

We have a full time project manager. I pay him $17 an hour. I should probably consider John's suggestion of adding incentives in but so far the six months I've had him he's performed well. He can handle a lot of the work himself but we also sub out a good deal of it to keep things moving.

He's very passionate about what he does and making sure he does a good job while at the same time understanding our budget and time constraints. We have one full time helper that works with him. I pay the helper $10.25 an hour. He's a good worker. Thats pretty much how we're structured anyway.

[David Marr]

Ah, this is what I do! As you can see in my signature line, Construction Services. I am a PM for hire and this is how most of my clients pay me.

I have one client that pays me a flat weekly fee + expenses + a per diem for travel if necessary. he negotiates all contracts then gives me his schedule, I make revisions and then we discuss. When we are done, we have negotiated on the time frame and if I go over the agreed schedule I work for free, however, if I complete the project early then I get a bonus, usually the remaining weeks + $5-10k depending on size of project.

The rest of my clients pay 15% of construction costs + expenses + per diem if necessary. They have me do the bidding with their drawings, I present them with the bid results and they select the subs. Their architect sets the schedule and before I sign a contract I review the schedule to see if it's reasonable, if it is, I sign and commence construction. If it's not, I meet with the client and their architect and discuss the schedule. If I bring the project in early and within 1% of the budget (over or under), I get a 5% bonus. For each percent over 1% over budget, I lose a percent (i.e.: 3% over = 3% bonus) Note: Most of my projects are commercial and in the $250k to $600k range so my bonuses are substantial.

Quality in materials usually isn't a problem because most of my projects have national suppliers and the subs for the most part are just bidding their labor.

[Account Closed]

Great advice David!

Thanks
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