Want to save money? Hire a Construction Manager to build the project.

My last blog post was featured in the weekly BP email which was exciting. Thanks for those of you that have been reading the posts. Don't forget to add a comment at the bottom. 

Onto the post.

From Wikipedia, a Construction Manager (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. A CM differs from a Project Manager (PM) in that the CM is only involved during construction. A PM is involved from the beginning of a project in the design phases. If a project contains both a PM and CM the CM answers to the PM. Here is a good with more information on the differences between the two.

Let's get it out of the way. Why will an Owner save money if they hire a CM and not a Contractor? A Contractor hires/contracts all subcontractors and is responsible for them. Additionally they will pay for materials and mark them up and account for office overhead in their project bid. A CM has none of those responsibilities.

A CM is responsible for organizing/scheduling all sub contractors but the Owner is the one who is contractually tied to the subcontractors. All materials are bought by the Owner. However the CM will do all the work in obtaining the correct amount of materials.

The CM may be paid with a fixed fee or take a percentage of the cost of materials and labor. Usually a fixed fee is used so that the amount is known up front. That is all an Owner wants. To know the cost up front with no surprises to have an accurate ROI.

Who is a CM? Lots of people. I've been one, an engineer may be one and even Contractors who do not want the liability of being a General Contractor may be one. Before an Owner hires a CM they need to verify with the state if they need to be licensed. I believe California may now require a CM license. Not sure about other states.

An Architect acts as a good CM (if they provide the service) because they understand everything that is going on with the project. However some Architects don't understand the difference between what is drawn on the paper and how it actually gets built. A Contractor is a good CM because they have experience in building. Other professions or professional CMs may be good as well. Whoever is chosen definitely request a few Referrals and previous project were they acted as a CM.

Cons

• The Owner accepts more liability during construction. Rather than just suing a General Contractor they have to sue each subcontractor.
• Depending how much work the CM provides the Owner might be doing a lot of organizing and scheduling. Maybe too much.
• A newbie may be taken advantage of if terms are not clearly spelled out from the beginning.
• Some type of loans require a GC.

Pros

• A CM cost less money due to them not having construction liability. They are hired to organize, schedule and inspect work performed by subcontractors. A Good CM will have construction experience in the type of projects the Owner is building.
• A CM will not up charge materials that are bought. Unless agreed to in contract.
• The materials are in the Owner's name.
• A CM acts on the Owner's behalf. The have no interest in the project costing more.
• Usually they only have one project at a time. They are 100% vested in the Owners project.

Who should be hired? A CM or GC? For the newbie developers stick with a GC for the first few projects. Just be sure to shadow the GC to learn as much as possible. For those that are ready to work with a CM start the relationship with clear responsibilities and the goals for the project. A trusted CM will do wonders for an Owner's sleeping habits and ROI.