We will be closing on an industrial building shortly, and will need to reconstruct approximately 12,000 square feet of office space. I have heard that Construction Management is a better way to build. Is it, and how does it work?

There are two major ways to hire a contracting company to work for you. The first and most traditional method is called General Contracting. In this model, you and an architect produce plans and specifications for the work to be done. Most often, a bidding process between several reputable general contractors would then be orchestrated by your architect.It is important that the plans and specifications be as detailed as possible, specifying quality, and in many cases, brands or equivalents. This is the only way that you will achieve an “apples vs. apples” comparison between several general contractors.

The chief advantage of General Contracting is that your work is being performed at a fixed cost, established through competitive bidding and that the contractor is assuming a certain amount of risk in fixing the price. If the work takes longer, or he runs into unforeseen difficulties, it is his financial burden, not yours. Typically his bid will be broken down into several categories: labor, material, subcontractors, fieldwork, general administrative expense, contingencies, and profit.

Construction Management is a newer model of performing the same type of work. A construction manager acts as the agent of his client, hiring subcontractors and authorizing payments to them directly from the client. A construction manager is typically paid a percentage of the project cost. The advantage of this delivery system is that you, as the client, have complete control over the process. In essence, the construction manager is assisting you as you act as your own general contractor. Since the construction manager is your agent, you will have complete control over the building process, including negotiating with suppliers and subcontractors.

Another advantage of Construction Management is that if there are potential savings to be achieved during construction (perhaps a special buy, or discounted services from a subcontractor), the savings are yours. If a General Contractor were to have the same opportunity, he could pocket the difference as additional profit.

The downside to Construction Management is that you have no peace of mind with regard to the final cost and you are also assuming all the risk of unforeseen issues. Since Construction Management has the more financial risk, the cost of hiring a construction manager is generally going to be less than hiring a general contractor.

So there really is no “one size fits all” answer to your question as to which is the best method. It is a personal decision that takes into account your risk-tolerance and pocketbook!