HVAC Construction Management vs. Owners
In the litigated world of today’s HVAC construction, owners and corporate executives are faced with many challenges and options in regards to management of construction projects.
With a basic understanding of several of the options, owners and executives can select what is best for their project; achieve a level of protection, and most importantly, assurance of a successful project.
One of the most overlooked items that must be understood, is a construction project is not a painless undertaking. All projects create disruptions, inconveniences, and can pull key personnel away from their normal duties. Not to mention dealing with utility interruptions, design issues requiring correction, project decisions to make, and resolving contractor issues.
The Architect and Engineer must also be monitored for clarifications, design issues that are being resolved in a timely manner, and to ensure full compliance of all contractual obligations.
From project conception, internal meetings, project design, and through completion of the last punch list item, an owner or executive must have complete written documentation kept in an organized manner for the project.
On large projects with long durations, good project documentation is very crucial as anyone involved in the project could have personnel changes prior to the completion date. Another key item is the project must be kept moving forward at all costs, because an owner must not allow the project to sit idle, due to delayed owner decisions, or awaiting design correction of design issues.
Even if an owner change needs to be implemented immediately, but impacts the critical path of the project schedule, it may be less costly to implement the change at a later date, even though the change would require some demolition of installed HVAC work.
Negotiated projects run smoother and have fewer issues to deal with, but one of the more costly routes can increase 15% to 30% more than a bid project. Negotiated projects are only second to design build in contractor preference of performing work. The additional cost is due to the contractor?s reputation is at risk, and will utilize top subcontractors on the project. This generally does not bid to more than two subs in each trade.
The contractor is also assured of a guaranteed profit margin of 11% to 15% (depends on market area), which is in most cases at least double of their bid margins. However, with this type of project, the contractor must justify its cost to the owner and can only bill the final cost of completion amount.
Bid Projects tend to be the less costly approach, but require a tremendous more amount of time to manage, as contractors will push issues to their limits and request clarifications on minor details. Contractors also open the bidding to most subcontractors, and will utilize the lowest numbers to win the bid award.
Contractors will bid this type of a project as low as a 3% profit margin and will beat down a subcontractor whom will have numerous exclusions attached to the bids. This is where the problems begin, as contractors will only look at the numbers on bid day, then realize the exposure.
On the first day, the contractor will begin submitting design alternatives and recommend substitute materials to reduce project costs. The next thing that occurs is design deficiencies will not be submitted by the contractor until the time of critical path impact with a delay claim included in the change order.
At risk construction management seems to be the construction raze at this time, and many of the large general contracting firms are offering this service. At risk construction management means the owner is assured the project will not exceed the estimated cost, and if so, is picked up by the contractor or construction management firm. Should any monies be left over, these are returned to the owner excluding any bonuses that may be included.
Utilizing a contractor for this type of service does not offer any owner protection or provides owner documentation of the project. Generally, what occurs is contractors have a bid rate and a sale rate for their labor, and will submit the cost of the sale rate labor on pay applications to reach the estimated cost of the project, so there is no project savings to the owner.
At risk construction management firms will document a project for the owner, however, will also be limiting their exposure should the project develop major issues.
Construction management firms offer the owner, the highest level of protection and planning on a construction project along with having the most accurate documentation of the project, because when contracted, they are an extension of the owner as a Professional Consultant.
CM Firms are also dependent on their reputation and will manage a project in the best interest of the owner, because they are not at risk financially, and do not have a vested interest in the project due to set fees and/or hourly rates. CM Firms will keep the owner informed of all project issues and assist the owner with determining the best resolution.
CM Firms will be out ahead of the contractor, clearing the path for subsequent installations and evaluating for potential issues that could arise. The contract documents are also implemented to the fullest extent along with ensuring contractual obligations are met by all parties, including A&E Firms. CM Firms also offer the highest level of owner protection should a litigation issue arise.
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