Construction Management    Design-Build    Lump Sum
  Comparison Chart

CONSTRUCTION MANAGEMENT CONTRACT

Definition - This is an agreement to perform the services and the work for a percentage or a fixed fee with the qualified general contracting organization serving as the construction professional and expert on the Building Team with the owner and architect/engineer from the beginning of design throughout the completion of construction. The contract can be converted to a Guaranteed Maximum Price Contract when the plans are sufficiently complete to define the scope of the work.

Selection Method - The owner should make a careful objective review of the qualifications of interested general contractors, giving due consideration to their experience in working with architects and engineers on work of similar character during design development and make an award to the one best qualified with an acceptable fee.

Owner’s Requirements

Staff involvement and ability to make prompt decisions after weighing the Building Team's recommendations.

 

Selection of architect/engineer who is willing to operate as a team member and be receptive to the construction manager's recommendations.

 

A job where flexibility to change is important, whose time allowance precludes waiting for completed bid documents or a job not easily marketable because of lack of definition of scope, or size.

Advantages

Creates a "team" with the owner, general contractor/construction manager, and architect/engineer, before plans are developed.

General contractor/construction manager is available to give his advise on construction feasibility, cost, site selection, and scheduling.

 

Time and cost saving by starting construction before all plans are complete.

 

Ability to competitively bid, including public work in a public letting situation, all the trade contracts on the job, while at the same time having a qualified general contractor on the team from the inception of design through final completion and acceptance of the project.

Cautions

Final cost not guaranteed (unless converted when plans are sufficiently completed to a Guaranteed Maximum Price Contract).

 

Burden on owner in selection of a general contractor experienced in scheduling, cost control, plan and specification review, etc., and who has management experience to act as a team member and qualified to direct the work of the individual trade contractors.

 

Under many public bidding statutes, a construction manager is precluded from performing work with his own forces.

DESIGN - BUILD CONTRACT

Definition- Agreement with one single administrative entity, the prime contractor, who provides the design and construction under one contract. The construction portion of the work may be done under a Lump Sum, a Cost Plus, or Guaranteed maximum Price contract.

Selection Method - Contract may be negotiated or competitively bid. IF competitively bid, it is extremely difficult to compare proposals so that the owner may be assured that he is selecting that proposal which will result in the lowest ultimate cost. The owner must produce program requirements and preliminary plans and specifications with as much definition as possible. He must then make a careful cost-benefit analysis of the proposals submitted.

An added feature in reviewing the qualifications under a Design - Build contract, of course, is the review of the capabilities and experience of the contractor to control the design function. In certain states the general contractor may perform this function within his own organization; in others he must work with a separate architect/engineer consulting firm, unless he has a corporate professional license to practice architecture and/or engineering.

Owner’s Requirements

Staff proficiency in monitoring costs and auditing.

 

Where there is to be competition on a price basis, the owner must have extremely strong staff capabilities to evaluate the proposals and make a proper cost-benefit analysis.

 

Demonstrated ability to program requirements.

Advantages

Owner’s program and engineering staff can work directly and closely on a continuing basis with one contract entity, experienced in both the design and construction process.

 

Construction may be started before plans are complete and the work phased which may produce a time savings for the entire project.

Cautions

In other forms of contracting with three contracting identities the owner, contractor, an architect/engineer there is a certain check and balance system which does not exist under the Design-Build method. For example, form, convenience, cost of maintenance and aesthetics may be unduly sacrificed to low initial first cost. Even with the "building team" concept under the construction management type of contract there still exists the three identities - while cooperating, they are in a sense independent.

The burden on the owner to select a qualified contractor/designer becomes even heavier than in the other forms of contract. When the price is guaranteed and particularly where the contract has been let on competitive basis, the owner must accept a certain lack of flexibility in obtaining desired features of the work and may have to accept certain details of the final design, which he considers undesirable.

LUMP SUM CONTRACT

Definition- Agreement to perform the work for one fixed price, regardless of cost to the contractor.

Selection Method - Competitive bidding among general contractors for construction of the entire project under a single contract is preferred. Bidding may be from a pre-selected list of bidders, or from anyone who wishes to bid. In public work and some private work the bidders must furnish proof of financial capability such as a bond or certified check. When using a pre-selected list on private work, the owner and his architect/engineer should carefully and objectively weigh capabilities of the contractors while assembling the list; after the list is determined, when the bids are received, he should award the job to the lowest bidder. Pre-selection is not possible on most public work.

Owner’s Requirements

Completed detailed plans and specification.

 

Adequate professional inspection and supervisory personnel, experienced in construction, either in house or from architects and engineers.

 

Staff and consultant proficiency in planning, budgeting, construction feasibility and marketing construction.

 

Marketable job.

Advantages

Economy of contractor effort with his own money at risk.

 

Objectivity of selection on private work.

 

Final price known (assuming no changes in plans and specifications.)

 

Less bookkeeping and auditing expense.

Cautions

Owner and contractor may have opposite financial interests.

 

The complicated procedures required to process changes and the resulting cost to both parties.

 

Delay in start of construction until plans are 100% complete and bids taken.

 

Reliance on consultants to provide practical construction advice, budgets, and schedules, prior to receipt of bids.

COMPARISON CHART

The Associated General Contractors (AGC) of NH Building Committee has drafted the following guidelines for use by project owners when selecting the most appropriate construction contract method.

The complexities and decisions that must be made in order to have a successful construction experience can be overwhelming.  This guide is intended to answer some of the questions concerning the three basic types of construction procurement contracts.

We have provided a side-by-side comparison of the three contract types which includes descriptions and examples of project for which each is most and least suited.

We hope that these materials will provide you, as a project owner, with the information you need to make an informed decision regarding your next construction contract.

Click here for Side-By Side Comparison of Contract Methods