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Construction Management Agreements: Pricing
This article covers the pricing of construction management agreements (CMAs), including the fee of the construction manager, general conditions costs, subcontract costs, contingency and insurance. Note: Where appropriate, we will make distinctions between "cost-plus" and guaranteed maximum price (GMP) CMAs.
CM Fee
Generally speaking, a construction manager (CM)'s fee consists of two components: a preconstruction services fee and a construction phase fee. The preconstruction services fee covers the CM's services (if retained during the design phase of the project) for working with the owner and its design team on such items as constructability, site logistics, subcontract and general conditions costs budgeting, and scheduling. The fee for these services can be based on a monthly fee, a fixed fee for the anticipated duration of the preconstruction phase or actual personnel costs. Often, owners will request a cap on these fees, which would be a function of duration. Owners may also ask that the preconstruction services fee be credited against the construction phase fee once work begins.
During the preconstruction phase, the CM may also be requested to perform "early start work" (ESW), such as abatement, demolition and excavation. A separate fee for ESW would be negotiated and might be based on a percentage of the cost of the ESW, including related general conditions costs. The CM might also be requested to provide a lump sum for the cost of the ESW.
The second component of the fee covers the construction phase and is usually based on a negotiated percentage of subcontract costs and supervisory and other general conditions (GC) costs. The CM would also charge a fee on change orders at the same rate as first established; however, we usually request a "dead band," meaning that there is no additional fee on the first "X" dollars of change orders, on the theory that the owner should be given some grace amount before additional fee is due. Often, CMs ask that the fee also be based on liability and subcontract default insurance costs. We uniformly object to this and seek to limit the fee to subcontract and GC costs on the basis that insurance costs are merely pass-through costs; the CM is not at risk for these payments.
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