A paper by OBERTO OBERTI, B.Arch., M.Arch., M.A.I.B.C., M.R.A.I.C., A.A.A., N.C.A.R.B., President, PHEIDIAS PROJECT MANAGEMENT CORPORATION.
Project management by professionals is that which is practiced by consultants in the field of design and construction and who do not have an involvement in the construction industry as contractors or producers of building materials.
Project management is a confused notion applied to many different working and contractual arrangements. Often in the field of construction, project management is offered by general contractors as a substitute for traditional contracts to allow for speed and flexibility, but this type of project management system is not substantially different from a traditional cost plus contract arrangement, in which a contractor becomes an agent for the owner and operates on the basis of a fee, not unlike a consultant who is a designer. In most cases, however, the contractor is not a designer and will basically be in charge of a design done by others, reversing the traditional roles, and creating a situation where the controlled party (who should be controlled by the designer for adherence to design, quality and value engineering) becomes the controller.
Project management by professionals who are designers is a management technique that some designers, both as architects and as engineers, have offered when owners find it appropriate to retain the design company not only to design but especially to organize and carry through a project from the time of project conception to substantial completion by the last construction contractor and, during warranty periods, to monitor deficiencies and their rectification. Clearly, a reputable contractor may monitor its own deficiencies and warranty requirements, but this is not an ideal arrangement, as previously noted, because it reverses the roles in terms of controls, and creates a conflict of interest that is much greater than the traditional professional role of designers.
When an owner engages a professional design company to be its project manager it is both appropriate and economically advantageous that the owner enter into direct contract with a variety of contractors and sub-trades for the project implementation, under the management and supervision of the project management and design company.During construction, the function of a general contractor may be utilized when it is retained to build the basic part of the project, say the structure, which it is capable of producing with its own forces, while the other portions of the work are directly let by contract between the owner and the most experienced and economical trades.
The purpose of this paper is to explain a production system that is widely used in the private development industry and that may benefit any type of construction project, focusing on the benefit of a proper integration of design and construction when an experienced designer is offered the opportunity of managing the entire process.
Why Project Management?
In earlier days many general contractors had a large labour and technical force that encompassed most of the areas covered by the majority of trades. These general contractors would do the estimating of projects in accordance with what their own expertise and work force could produce, and would then be able to enter into lump sum contracts for almost the entire part of the project which they would do directly. It was also common to have longer term planning and to see a considerable portion of time spent on designing and tendering and re-tendering projects ahead of the construction schedule. This practice has changed over the years, especially in North America, and today a large portion of the work of general contractors bidding or managing entire projects is similar to that of construction brokers and site coordinators. This should not be misunderstood as a criticism of general contractors or contractors’ practices. It is simply a new fact of life, perhaps as a result of the complexity of buildings and of financial constraints. Design and construction are also required to happen as quickly as possible, creating difficulties in the tendering process and making it inadvisable to wait for the tendering process to know the real cost of the design. At the conclusion of the tendering process, if the design has to be modified to achieve a budgeted cost that is not reflected by the bids, more precious time is lost, or crude cuts need to be hastily implemented, damaging the end result. In addition, the traditional tendering system has its own problems. The difficulties of putting together a complete bid for a general contractor are compounded by the lack of time (and also often the lack of money) that architects and engineers have to produce crystal clear and totally complete drawings and specifications, by the lack of time that the trades have to study thoroughly all the contract documents prior to bidding, and by the inevitable habit of trying to delay up to the last minute the submission of the bids by the trades to the general contractors. General contractors, acting as middle men between the designers and the sub-trades, may also have difficulties communicating the design intent and seeking the optimum alternatives to achieve value engineering, thus driving up the cost of construction for lesser values despite their best efforts. In addition, there are small trades who have truly excellent ideas to contribute to the design and specifications of projects, but this information hardly has an opportunity to filter from their offices through to the general contractor and to the consultants, so that actual improvements can be achieved prior to contract time. As a consequence of this general state of affairs, improvements are often proposed by trying to achieve greater collaboration between contractors and consultants with a flow of information to the designers from the trades and to the trades from the designers. However, the reality is that the best way one can communicate with the work force of the trades is by having the designers’ team directly relate and discuss solutions to design issues with the specialist trades and suppliers. To bridge the continual problems generated by an informal exchange of information and by the necessity of having experienced construction coordination, it is now a common practice to try to find some person or company called a project manager who, with Godlike ability, would bring all the project together and succeed in producing the dream of a perfect, fast, efficient and economical building, bringing everybody together and making everybody perform. We wish to make the case that this individual or team of individuals or company should comprise primarily of design professionals who have construction management and administration expertise.
Project Manager: A Consulting Professional or a General Contractor?
When it becomes obvious that economy, efficiency and quality may not necessarily be achieved by following earlier methods of design, tendering and contracting, a large array of questions arise on how to select the key manager and controller of the whole process that will lead from a concept of a project to a finalized and occupied built product. Arguments have been raised ranging from the necessity of having the project directed by an experienced contractor to that of having the project directed by the more technically oriented and pure consultant. Again, we are touching here on a field that is almost philosophical in nature and every owner and consultant will have a slightly different bias, but we should argue reasonably that for the success of a project design capability, administrative competence, construction experience and integrity in the decision making process are indispensable. We will follow the point of view that when a traditional lump sum contract is not chosen, no matter how great the experience and integrity of a contractor is, it cannot be considered a party without a conflict of interest, and has the disadvantage of not doing the design and taking on the project after, rather than before, the design is prepared. A general contractor that is becoming an agent of the owner and basically acting as a professional consultant managing a construction project is almost in a position of changing bargaining sides for one project while being on the opposite side in other projects. By doing other projects, as a general contractor on a lump sum basis, in other situations, the general contractor is, in fact, one of the participants and bidders in the construction industry, and has a variety of links with the trades that are different and opposed in nature and interest from those of the owner. Instead, the professional designer does not normally have construction interests in conflict with those of the owner, and in the case of architects in many jurisdictions, the designer is even prohibited from having an interest in any of the construction trades or materials producers. This problem becomes even more obvious if the project manager who is also a general contractor is one of the contractors on-site providing services and portions of the construction bidding to himself with costs paid by the owner. We are going to review the case in which an owner considers it more appropriate to have a design company which is a pure construction consultant provide the project management function.
Project Management: A Process or a Job?
One of the dangers in approaching a project management type of construction proposal is that of addressing it as if it were only a matter of following a different set of procedures and contractual arrangements. For the proper management and success of a project, the objectives of the project must be the fundamental centre of all activities, including contract arrangements and procedures. By this we mean that from the first discussions with the owner, the vital element is to properly note and prepare the economic objectives of the project, the pro-formas, the means to achieve anticipated profits and other project goals, and basically the general strategy and economy of the project as seen from the client’s perspective. The activity of the project manager is then truly defined as a job to achieve those economic goals. The cost of this job will then be budgeted in accordance with those goals but at the same time with flexibility so that it is likely that there will be sufficient funds and incentives for the project manager to do what is necessary in order to achieve the desired objectives for the client. Too often the emphasis is placed on project management as a process or as a management technique and much time is spent on a careful identification of areas of responsibility that belong to the client, to the project manager and to other parties. This may actually lead to a lack of understanding of the collective effort necessary to achieve the economic objectives, which are truly the primary purpose for the existence of a project manager. Ultimately, the project management and design team must understand that what is demanded from them is the delivery of a certain product that will have a certain favourable position in the anticipated economic environment. This is the main task of the team leader.
At the Beginning
Once the necessary notes and recommendations have been made concerning the intended product, that is the proposed project, the project manager must deal with the owner establishing a good working agreement. The contract to be drafted must have three key ingredients. First of all, although it is indispensable for the owner to have a budget that is all-inclusive, and the project manager must be committed to make the project perform within the budget, it should be understood that both the financial risk and the reward are fundamentally of the owner. As a consequence, the project manager must negotiate an agreement whereby his work will be paid on a time basis and he will have the discretion to spend all the time that he deems necessary and prudent to help the owner achieve its objectives. I may add immediately, however, that any extra cost of time spent by the design and project management team must be more than offset by savings in the project, greater value for the owner, or responding to the owner’s decisions to change project program in a substantial way. A second crucial item is that the project manager’s cost reimbursement based on time should have a performance incentive to induce the project manager to achieve the intended results for the owner and to satisfy the owner that the project manager has a financial stake in the achievement of the project objectives. The combination of the first and second criteria should lead to a contract that will indicate that the project manager will be paid on a time basis as close to his cost and overhead as possible, but with an adequate profit incentive by means of bonus proportionate to the profit, economic success or appraised profit, produced for the owner after completion. The third crucial criterion to be followed in the contract is that the project manager must be truly an independent design professional who will not enter into additional contracts for the project, who will not execute any portion of the construction with its own company, but who will arrange, coordinate and supervise all contracts for the owner, and that the owner will enter directly into all contracts necessary for the execution of the work, including all material procurements that may be necessary, according to the contracts that the project manager will administer. Once the above steps have been taken and the necessary legal advice concerning the details, but not the essence of the contract, are completed, it will become a logical step for the project manager to assist the owner as a team leader from design inception in dealing with the lenders, other consultants forming the design team, marketing and feasibility experts, and contractors. The beauty of this system is that it unites in a single vision and single purpose all the project participants.
Design, Budgeting and Financing
One of the advantages in having a project manager who is also a design professional firm or company is that it can then best design a project that suits the noted objectives directly for the owner, without additional intermediaries.While doing that the project manager can, and must, consult with approving authorities and with the contractors and trades that are interested in familiarizing themselves with the design, being prepared to be able to comment and to have sufficient time and understanding to prepare the best possible sub-trade bids. If the project manager is the prime consultant it can assist the other consultants in the same process and, as a consequence, arrive within the traditional time frame to a complete design that is in reality much more thought out than it would have been otherwise possible. At the same time as the design is being prepared, the budget can be detailed and reviewed, and on completion of design it is possible to have a reasonably detailed budget that is already matching an advanced set of working drawings done to achieve the requirements of the owner and of all the authorities having jurisdiction. From what is being said, it is obvious that “fast tracking” is not necessarily a recommended way of administering a project management job, even if design is only a small portion of the project. It is still ideal to achieve a point in time prior to construction during which almost the entire project will be actually priced in a fairly traditional bidding procedure by the contractors and trades, arriving at an almost complete list of lump sum prices to do the work, substantially covering the total project. It is in this manner that probably the most disastrous pitfall of all projects, that is the inability to stay within construction budgets, can be avoided and the likelihood of success ensured.
The Budgetary Advantage
Once a list of lump sum sub-trade prices is obtained, it will be possible to know that the budget is right, and it is the availability of this information to the project manager, the owner and the lenders that will not only inspire confidence in the project but will prevent the project manager from taking on an almost impossible task and an absurd liability in terms of estimated project costs. It is true that an independent quantity surveyor may be brought in to obtain a professional estimate of construction costs, and avoid a liability problem, but the average standards of the industry in North America have proven unsatisfactory relative to the real performance achievable with trade price interaction. In most development projects the margin required by quantity surveyors estimates tend to create a crisis of confidence in the market viability of projects, as they tend to show little or no profit as being the conservative scenario. The real prices of sub-trades and design optimisation produce a great advantage.
Because of the background of the financial community, it is important for the project manager, both to protect its potential liability and to avoid inevitable mistakes, to have an opportunity to check that the budget exceeds the lump sum construction costs offered by the trades once the design and the pricing is complete. And this is one of the problems of fast tracking. The project manager must be careful to point out to the owner and to the lender that the budget is no more than a sum of available prices. By choosing a system that basically has little or no contingency it must be clear that the owner takes the risk, however small, that one of the trades may default and that no other trades might be available at that time at a reasonable price. The danger always exists that the project manager be treated as a contractor with the budget as a construction price, and it is important to dispel this fallacy at every step where it may arise, as an unfair potential taking advantage of a professional providing a valuable service to the owner. In this system, the owner has the advantage of having a complete disclosure of the true value of the component bids and the true cost of the work, without contingency, overhead and profit by a general contractor. The saving is so substantial that it is worth the risk of knowing the real cost and trying to achieve it; but obviously the contingency risk margin must be factored in by the owner. It can be added to the budget for cosmetic purposes, if the owner wishes. Not all lenders understand a project management proposal. However, having conscientiously prepared the work as described, the writer and most certainly many professional designers have never failed to persuade established lenders with a competent staff of the wisdom and actual advantages of financing projects on this basis. The reason is that a lender has everything to gain by knowing the true construction prices and knowing directly that trades and materials are being paid for. No one can provide better certification to a lender than the professional project manager, and the degree of control that can be exercised by the lender through the project manager in terms of payment certification and budget control is probably superior to that of any other system. The project manager can supply to the lender that same quality and detail of information and supervision that he provides in his reporting to the owner. Both the owner and the lender have the opportunity to know in detail the amount of work done by each of the trades, and through the payment certification system when and how much the contractors and the suppliers are being paid. The likelihood of liens is decreased. Trade contractors have a greater incentive to perform for the owner by being paid directly and by being assured by the certification system immediate payment for prompt and satisfactory work.
The Contracts and the Certification Programme
The contracts will necessarily be between the owners and the trade contractors with one contract for each trade. The contracts must identify the project manager as the agent of the owner and as the overall approving authority. The project manager will be identified in a way similar to the position of the prime consultant in standard contracts between the owners and contractors, and many similar considerations will apply. Experience and legal advice have indicated that it is very advantageous to develop a simple and straightforward form of contract, clearly identifying the position of the project manager as an agent of the owner and the professional in charge, having overall authority to prepare and to supervise the execution of the project. The format of the contracts will identify both the methods of payment and of certification of the work done for approval. The certification is the next major task of the project manager and is, perhaps, after design and budgeting, the most dangerous. There must be an integration of budget, contract format, certification, payment system and budget reporting system. It is important to try to obtain, in most cases, that each contract specify a scale of values in accordance to which invoicing will be done by the contractor so that the review for certificate approvals can be done against easily measurable yardsticks. For example, if a contractor has the job of supplying and erecting a steel structure for an industrial plant containing twenty bays, it would be desirable to agree on a value per bay and to have invoicing done on completion of each bay, rather than by pounds of steel installed. Similarly, on a concrete high-rise, invoicing may be done by the floor. Inspection and verification is made so much easier and the danger of oversights and mistakes is reduced. Of course, in most cases, the schedule will be more complex, but the objective is to achieve a clear system of yardsticks by means of which the work invoiced can be clearly identified and checked in quantity as well as in quality. Perhaps the most likely reason for losing control of the job is that the project manager is under so much pressure to process and review applications for payments by the many trades, that it may be pushed to approve and certify more than the work that has been correctly executed. As a general precautionary rule, the able project management team will normally convince the trades to accept a slower and careful certification process by means of which trades are assured payment on time, even if certification is slightly behind and payment is for a smaller percentage than the work actually done, until substantial completion is achieved. It is a normal management procedure that trades accept in good faith when payment certification is not otherwise unreasonably delayed with fancy excuses.
The budget combined with a time schedule is the fundamental means of control of the project. When required, a cash flow projection may tie the two aspects of the project, time and money, together. However, scheduling and cash flow projections may quickly become so complicated on paper and so time consuming in terms of changes and details, that in reality rougher formats are more accurate and more advisable for a smooth operation of the project. Excess of information produces delays in reporting real changes, obfuscation of the fundamentals and ultimately no information at all. Prior to commencement and during construction, an on-going task is that of assigning various responsibilities to professional consultants, to the appropriate contractors as per contracts, and to on-site coordination. For example, at the beginning the soils engineer, the shoring engineer and the foundation and structural engineers should meet and review, on site, on the basis of the excavation drawings and specifications, the requirements, time constraints and responsibilities of what is to be done. The project manager should arrange for this and set the pattern for all future job meetings, assignment of responsibilities and management of coordination. A typical problem at the beginning would be who sets the lines and verifies the depth of excavation, location of formwork and so forth. The project manager is not an on-site contractor and contractors are likely to try to press him into this role. The proper way is for the project manager to arrange to have the surveyors provide all the reference points of the excavation and the structural contractor provide the on-site crew to establish all of the building lines which should be checked by the surveyors before any structural element is cast in place, at least up to the components of the structure that provide the key reference points. The on-site representative of the project manager should always have nothing more than a pure coordinating role, and should never actively participate in aspects of construction. The only on-site presence of the project manger should be through a clerk of works — project superintendent coordinating person. If followed scrupulously, this kind of procedure provides all the indispensable checks and a smooth flow of construction, without any real drawbacks. Problems only arise when the coordinator becomes too active and wants to actually do some of the construction work. The project manual, including specifications for the project, outlines areas of responsibilities and the coordination and cooperation requirements for all the contractors; the project manager’s on-site coordinator controls the assignment of responsibilities daily and checks that contractual commitments are maintained. Most trades have a very precise notion of what they are supposed to do. Checking of performance is the only responsibility of the project manager, with assistance from various consultants ranging from surveyors to mechanical engineers. In a way, the art of the project management company is that of obtaining a better performance by making others work, rather than by doing the project by itself.
Procedures and Format of Certification
As the contractors advance, requests for progress draws flow to the office of the project manager. Whether these requests are in accordance with a contractual schedule of values or not, they will normally fall into one of two categories. They will either be partial progress payment requests on any of the major contracts on which this is contemplated or miscellaneous payment requests by small trades and suppliers for a one time only lump sum payment. In fact, the miscellaneous may even include some of the small amount of work that is in the best interest of the owners to see done on a time and material basis. For example, it may be quite reasonable to have budgeted a certain sum for trenching done by machine by the hour. On all but the smallest contracts, a strict format of certification should be followed in accordance with the sample certificates that will be part of the contract documents and of the project manual. These certificates will document approval for payment of a portion of the work and will go to the contractor, the owners and the financing institution. The contractor will be required to return the signed certificate together with a Statutory Declaration, giving an affidavit that all labour and materials are paid up to and including the period covered by the certificate. In accordance with the contract, the signed certificate will cause the owners and the lender to authorize funds to be advanced for payment to the contractor. It is highly recommended that payment of each contractor be done by means of a trust account with a cheque signed by the project manager to the contractor. This permits the project manager to safeguard his sole authority to authorize payment to the contractor, and to even stop payment at the last minute in the event of discovery of any material mistake. Most importantly, this removes the temptation by contractors to bypass the project manager and to pressure the owner into taking a more direct role and making payments without consultation with the project manager. Miscellaneous requests for payments on small contracts will be handled separately once a month by means of a miscellaneous certificate, although payment will follow the same procedure as noted before. The entire certification and payment program must be reconciled every month and a monthly statement must be provided, not only for internal control of the project manager’s office but also for ongoing control by the owner and by the lender. The statement should show only four fundamental columns for each budget item: expenses for the month, total expenses until that month, original budgeted amount and remaining budget for each item. One additional aspect of project reporting is that of the project manager to the bonding companies. It is a prudent practice to demand that contractors be bonded for both performance and labour and materials at least to fifty percent of most contracts, and keeping bonding companies informed is an indispensable part of the certification programme.
Overall Project Reporting and Completion
The monthly computerized statement, as well as field inspections, are combined to provide to the lender and to the client monthly overall certificates. On substantial completion, all trades are required to provide a final statutory declaration as well as their form of warranty, and the project manager will make lists of deficiencies to be matched by sufficient holdback monies. It is important that statutory declarations be signed as affidavits by officers making them as a person, rather than as a company representative, to provide additional recourse in case of default by sudden bankruptcy of their company.
The Owner and the Project Manager
A project management approach to design, development and construction may be advantageously proposed to knowledgeable owners who are developers and general contractors in their own right as well to owners who have had no prior exposure to construction. For both parties the advantage consists in obtaining services which integrate design and construction by contract rather than committing to an overhead of employees which is ordinarily more costly than the provision of services on a time limited basis and by contract. The developer/contractor will have the advantage of being able to compare performance and services with those of its own staff which may be freed to do other productive roles, and achieve a competitive edge, while the inexperienced owner will have the advantage of achieving the capabilities of a developer/contractor by contract on a one time basis through the protection provided by the unlimited liability of a professional organization which is not shielded by the limited liability corporate structure. The other side of the coin is that designers who have to go through formal tendering procedures to achieve a price credible to the owner often find that the target budget is not achievable, both because the owner pushes for unreasonable expectations and because the intermediary function of the general contractor renders the project more expensive. The result is that even additional cost of design is often required to redesign and re-tender until a balance is obtained between the design and the successful general contractor’s price. One additional consideration for the owner is that with multiple contracts to the sub-trades the owner maintains control of the job site even in the event of extra cost claims or other job disputes by any of the individual contractors, who may even be replaced while litigation might be commenced. Whereas with a general contract to a single contractor, the effective control of the site is transferred to the single general contractor, the result being that the owner may not be able to effectively resist pressures of extras that often render the original contract price a useless forgotten memory. A project management system is effectively a guarantee of control by the owner of the entire concept and delivery of a built product.
We have presented only the fundamentals of what is and makes possible a project management system that is independently administered by agents of the owners and that combines the design, the payment certification and the construction processes. One may note that by just following the fundamentals carefully and strictly, most of the common pitfalls of these kinds of projects may be avoided and very satisfactory results can be achieved.