Last month I started talking about Project Delivery Systems. When you are managing a project you always need how the contractors, engineering contractors and construction contractors, working for you are organized. The different project delivery systems available to the Owner are:
- Owner Provided Delivery (OPD) which you may have been involved with.
- Design-Bid-Build - is the most common for projects and you are probably most familiar with this method.
- Construction Management - is a variation on the Design-Bid-Build.
- EPC - which is a variation of Design-Build.
Last month I talked about Owner Provided Delivery and Design-Bid-Build. This month I want to talk about Construction Management project delivery systems. The Construction Management type includes 2 general types, the Agency Construction Manager (ACM) and the Construction Managers At Risk (CMR). Since most designers are not trained in construction methods, process, and how equipment / material is built the Owner can and will hire a separate construction manager to manage the construction phase while supplying construction guidance during the design phase. The Construction Manager is just a person or company that is trained in the management of the construction process and has many years of construction experience. A lot of times it is just individuals working for themselves.
Legally an AGENT is a person who is authorized to act on behalf of another to create a legal relationship with a 3rd party. You may be familiar with Agent Agreements in procurement, which is fairly typical. Someone in the Owners organization is still responsible for the final decision however, the agent can make decisions on a daily basis acting on behalf of the Owner. This same type of agent agreement can be made with construction managers.
The ACM acts as an administrator and manager for the Owner in lieu of a General Contractor. The ACM has an interest in protecting the Owner through the Agent Agreement while the General Contractor has an interest in his own companies interest. The ACM provides the all important design phase service. For all your projects it is important to have the construction input during the design phase. The ACM can not have a conflict of interest when acting as an agent, therefore, he can only have an Agent Agreement and can not be working as a subcontractor. The ACM selection should be based on qualifications and not the lowest price. The Owner should make sure the ACM has the right qualifications and should not be giving the agreement to a friend who is not qualified.
With the ACM there is the opportunity to hire the best construction manager available. The Owner gets the all important design phase assistance. It is always cheaper to make construction changes in the design office than in the field. With the ACM there is the opportunity for the designer and construction manager to work as a team and to bond when the construction manager is on board at the beginning of the design phase. With the ACM on board during the design phase, the construction planning can take place, be included in the design, and provide the opportunity to fast track as required.
Not all things are rosy with the ACM as there is no single point of responsibility. The Owner still has to deal with several contractors - the design contractor, the ACM, the construction contractors. The Owner could still be the general contractor, which on a large project they may not have the infrastructure to handle. Since there are multiple contracts being managed there is no guarantee on what the final cost will be until the project is complete. The Owner will have a range of total project costs, but nothing definitive. When building a large complex project, the Owner will have a large number of contracts to manage which requires overhead on the Owners part. The Owner may become the prime contractor which has another whole set of problems that the Owner has to be aware of. If the Owner is not the prime then who is and what is the relationship between the Owner, prime and other contractors. Generally the Owners do not have the infrastructure to manage projects.
For example, most Owners manufacture and sell widgets. Their accounting system is set up to buy and sell widgets and supplies. You can not use this type of accounting system to manage a project. The Owners cost to set up the proper project infrastructure can be very high which the Owner may not want to take on.
The ACM is best suited for new projects and renovation projects that are schedule sensitive, i.e the design has to be done right the first time especially if you are fast tracking a project. Some projects are difficult to define and / or subject to change. I have construction expertise, however, on one project I consulted with the Owners ACM to make sure what we were planning in the design office would work in the field. This was at the very beginning of the design phase and the whole project depended on us being able to do the construction as we were planing. The majority of Owners have minimal time to do the projects and vey little construction expertise.
The other construction manager project delivery system is Construction Managers At Risk (CMR). Like the title says, the construction manager assumes some of the project risk. This method allows the Owner to delegate control and risk to the CMR. The CMR takes place in two steps. To start with, the CMR will contract with the Owner to provide upfront design assistance to the engineers doing the developmental design work. As I have stated before, this upfront construction input into the design is very important and on your projects you should do what you can to make this happen. Once the design is complete the construction manager then works out an agreement on price and schedule with the Owner to provide for the completion of the construction work. The Owner could go to another construction manager, however the new construction manager would be at a great disadvantage as they would not know the work scope as well as the construction manager who was involved in the design.
Some Owners have alliance agreements with contractors. The alliance agreements are a modified version of the CMR as they behave the same way. During the design process the construction manager can assess and minimize risk issues that arise or is well aware of them before bidding on the construction portion. With the construction managers’ input, the design is more thorough, surprises in the field during construction are minimized, and risk is addressed in the design office which results in a lower construction cost. Since the construction manager has worked on the design, and understands the risks he is more willing to accept them, which makes the Owner happy as he is trying to minimize his risk. Owners of private projects like this type of contract as the risk is minimized or mitigated and any risk is transferred to the construction manager.
When looking for a CMR, the Owner has many qualified construction managers to choose from giving him a great amount of flexibility. By using a CMR the Owner gets the all important design assistance as well as having a single point of responsibility, which is important to Owners. When information is required or something goes wrong there is one person to go to for answers. With the construction manager in the design office, changes can be made to improve the constructability in the field. There is a much better team alignment when the constructor and design group work on the project together. This improves communication during all phases of the project. As with the ACM, the design will be geared to reduce risk and ease of construction which will ultimately speed up the schedule.
There are also drawbacks for the Owner. Since the CMR will be the General Contractor there is no real competitive bidding process. So, if there is a guaranteed maximum price, it is difficult for the Owner to evaluate it. This is why it is important for the Owner to choose who he will work with. You want to work with those who have a good reputation.
As with the ACM, the CMR is suitable for new and renovation projects that are schedule sensitive or fast tracking. As well some projects are difficult to define or subject to change such as weather related changes. I managed one project where we were working with alliance contractors. The project was a large excavation and paving fast track project and the schedule was driving us into winter work. We worked with the contractor on the design to try and take the weather into account. For funding we figured out what it would cost if we did it in favourable conditions, then using the contractors experience added additional funds to cover the winter work. In the end, because we worked closely with the contractor on the design, assessing the risks and mitigating those risks, we were able to finish the work on schedule and under budget.
On all your projects, you should be seeking the expertise of the construction manager, or other construction personnel, in the design phase. You have to minimize problems in the field.
I will complete this subject next month.
Fundamentals of Project Management
Before you know it, the September 2014 Calgary ‘Fundamentals of Project Management’ workshop will be here. Now is the time to start thinking about what your work calendar will look like and sign up for your Project Management Survival Skills at one of the following locations.
If you are not able to make this one, we will also be in:
Denver CO September 23 - 25, 2014
Houston TX October 21 -23, 2014
Calgary AB November 19-21, 2014
For information and to register go to:
For workshop info go to:
Or contact email@example.com
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New On-line Course Coming Soon!
Fear has many names…...
Procrastination, uncertainty, trepidation.
But no matter what it’s called, it’s very good at wrapping a blanket around you. And you can’t think, let alone move. You’re just trying to keep warm, somehow, but the fear won’t go away.
We’re all not sure that we’re doing the right thing.
Yes, you are an IT project manager who’s job has disappeared and you see others packing up and moving to the Oil & Gas area. You feel as if everyone is braver than you, everyone is moving ahead. And you’re stuck. And then you pull the blanket closer. Well, they were just as scared as you.
We’re all afraid, of that you can be sure
We don’t want to start the process. If we start, we’re not sure we can make the move to oil and gas. If we move, we’re not sure our skills will apply. Will we make it or not? The key is to let this fear kill itself.
Kill the fear
We’ve been in the same position as you. We had no one to help us. Pulling the blanket closer was not an option. For you to get rid of the blanket, we have developed an on-line short course outlining how projects are managed in the Oil & Gas Industry. We want to help you kill your fears about making the move to Oil & Gas.
Stay tuned for additional information.