Introduction
Management contracting procurement method is using in large and complex projects. By using this procurement, method client can reduce their risk and transfer management responsibilities to several contractors.
In some cases, the client might appoint one contractor as the management contractor.
First of all. The project will be divided into several packages by client, and few management contractors will be appointed for each package. In most of the cases, this appointment will be made at the design stage. The main intention of appointing management contractors at the design stage is to involve them in design development.
Important: Young professionals should know that management contracting and construction management are two different things.
In this method, the client will only communicate with management contractors. It is their (management contractors) responsibility that they should communicate all suppliers and sub-contractors and manage the project progress. The client will only have an agreement with Management contractors. Mostly This contract agreement will cover both pre-contract activities and post contract activities (which the client wishes, management contractor to carry out and participate).
Management contractor will reimburse whatever the cost based on the agreement. Payment terms in these agreements can be cost plus percentage fee, cost plus fixed price or target cost.
Task and services provided by management contractor at pre-contract stage (if appointed at the contract stage)
- Participate and advise, of the project design & possible developments
- Recommending subcontract appointments and consultant appointments
- Checking and involving in feasibility studies
- Supports for approvals
- Advising on production process and materials
Task and services provided by the management contract at the post-contract stage
- Supervising construction process maintaining site progress
- Managing subcontractors and suppliers
- Arrangement of site accommodations and welfare facilities
- Setting out of the project
- Coordination of site test and commissioning
Advantages of management contracting
- Clients risk is minimal & requirement number of the number of staff as consultants is minimum compare to project scale.\
- Contractors will involve in the early stage of the project. And management contractors will give their opinion and inputs to reduce project risks
- Management contracts of opinions and inputs regarding the material and design will ensure design flexibility.
- Most importantly, If one management contractor fails, others can deliver their best output, and the project will move forward.
Disadvantages of management contracting
- Contractors can intentionally escalate project cost by giving costly inputs such as high-end material and specs.
- Since client appointing several contractors as management contractors, price competition will be low.
- Clients have to depend on management contractors success and will not have control of the project progress.
Management contracting vs traditional contracting
In a traditional contract, the client appoints a single main contractor once the design is largely complete, and that contractor carries a fixed or measured price along with responsibility for programme and quality. Management contracting works differently. The management contractor is brought on board while the design is still being developed, so buildability, sequencing and cost advice can shape the drawings before they are finalised. Work is then let out in packages to specialist subcontractors, and the management contractor is reimbursed on a cost basis rather than carrying a single lump-sum risk.
This shift changes where risk sits. Under a traditional contract, price certainty is established early, and the main contractor absorbs most of the cost and programme risk. Under management contracting, the client retains more of that risk because the final cost is only known once all packages are let. In exchange, the client gets an earlier start on site, more design flexibility, and contractor input while changes are still cheap to make.
Typical risk for the client
The biggest risk for the client is cost certainty. Because payment is reimbursement-based rather than fixed price, the final account depends on how well the management contractor controls package costs, and the client has less leverage than under a lump-sum contract if costs drift. Clients commonly manage this by requiring open-book accounting, agreeing a guaranteed maximum price or target cost with a pain/gain share, and appointing an experienced quantity surveyor to monitor package tenders and cost reports throughout the project.
Management contracting sits between traditional lump-sum and full construction management approaches, giving clients contractor expertise during design without giving up overall cost control. It suits large, complex projects where early contractor input on buildability and programme outweighs the trade-off of lower price competition. Comparing it against other procurement methods is the best way to decide whether it fits a given project.