Construction using forms of management contracting

An alternative to the promoter or his consultant drawing up and letting contracts for construction of a project, is for the promoter to use a ‘management contractor’ to do this. There are two main forms of management contracting.

(a) Construction management

This term is used to mean the arrangement under which the promoter appoints a manager with his own staff to organize the letting and supervision of construction contracts which are placed by the promoter. Design may be by the promoter’s staff, or can be placed as a separate design package or packages let by the promoter, but supervised by the manager.
An advantage is that an experienced construction manager should be able to avoid or minimize the problems of co-ordinating contractors. Disadvantages include the separation of the promoter’s design requirements from construction supervision, and the extra cost of the manager and his staff.

(b) Management contracting

This is an arrangement more commonly adopted for complex building constructions rather than for civil engineering works. Under it the promoter appoints one contractor to manage all the construction inputs by letting contracts himself.
These ‘works contracts’ are effectively sub-contracts to the management contractor. Many may be labour-only contracts, while others are for ‘supply and erect’. The promoter may retain rights to approve or disapprove appointment of a works contractor. The promoter may also let a separate design contract, which is placed under the administrative charge of the management contractor.
Advantages are that the promoter is relieved of the responsibility for the letting of the many sub-contracts used, and the co-ordination of their inputs to meet the design required.
Disadvantages are that the speed of construction depends upon the ability of the management contractor to get efficient sub-contractors working for him. Some projects have been highly successful; others have suffered disastrous delays. Also, if construction starts before designs are sufficiently complete, any design alterations found necessary later can result in delays and excessive cost over-runs. Atangle of legal claims and counter-claims can then  arise as each of the parties involved – the promoter, management contractor, designers, and works contractors – tries to make others responsible for some or all of the cost over-run. The price risk to the promoter is relatively high, since the terms of a typical management contract permit extra costs and risks to pass straight through to him from the works contractors.

Management contracting was initially much favoured for large building developments with associated civil engineering work; but there has been considerable debate concerning its merits and the number of jobs using the method has declined.