"Unlocking the Construction Management Agreement: Is It the Best Choice for Your Next Project?"

The Construction Management Agreement: A Closer Look at Pros, Cons, and Practical Scenarios

The type of contract chosen can significantly influence a project’s success. Construction Management Agreements (CMAs) are increasingly popular for their collaborative nature, but they come with benefits and challenges that developers must navigate carefully. Strong internal processes are essential to maximise CMAs’ advantages while minimising risks.

What Is a Construction Management Agreement?

Under a CMA, a construction manager acts as an advisor to the owner, typically compensated on a cost-plus basis with a management fee. This arrangement emphasises collaboration, allowing early contractor involvement in the project lifecycle. While advantageous, it demands active participation and oversight from the owner.

Pros of CMAs

1. Early Contractor Involvement (ECI)Scenario: A mixed-use project benefits from the construction manager’s input to optimise materials and sequencing, reducing costs and avoiding delays.Advantage: Early involvement allows constructability reviews, value engineering, and accurate cost forecasting.
2. Phased Construction CapabilityScenario: A retail project’s ground floor opens early for revenue generation while the upper floors are still under construction.Advantage: Flexibility in scheduling accelerates delivery and cash flow.
3. Cost TransparencyScenario: A residential development owner reviews detailed cost breakdowns to make informed decisions.Advantage: Cost-plus transparency minimises hidden costs and fosters accountability.
4. Collaborative Problem-SolvingScenario: During a healthcare facility build, the team resolves unexpected regulatory challenges efficiently.Advantage: Collaboration resolves unforeseen issues quickly for smoother execution.

Cons of CMAs and Risks

1. Limited Incentives for Cost SavingsScenario: A contractor sources materials without competitive pricing, increasing costs.Risk: Contractors may lack the motivation to prioritise cost efficiency.Mitigation: Tie performance incentives to cost and schedule milestones.
2. Inadequate Pre-Construction ReviewsScenario: Costly rework arises from insufficient review of design documents.Risk: Errors in documentation lead to delays and budget overruns.Mitigation: Require rigorous constructability reviews and risk assessments.
3. Owner’s Oversight BurdenScenario: Costs escalate because the owner lacks the expertise to validate contractor expenses.Risk: Owners must actively manage budgets, schedules, and quality.Mitigation: Strengthen in-house capabilities in design and risk management.
4. Uncertain Final CostsScenario: Unforeseen site conditions drive costs beyond initial estimates.Risk: The absence of fixed pricing complicates budgeting.Mitigation: Establish robust contingencies and clear scope change processes.

Strengthening In-House Capabilities

To mitigate CMA risks, owners must invest in:

1. Proactive Risk ManagementIdentify risks early to align project goals and execution strategies.
2. Design Management Ensure design documents are thorough and aligned with objectives.
3. Financial OversightTrack costs meticulously to align with budgets and scopes.
4. Stakeholder CoordinationFoster clear communication to prevent delays and misunderstandings.

Final Thoughts

CMAs offer flexibility and collaboration, ideal for complex or fast-track projects. However, they require diligent oversight, robust internal skills, and clear contractual frameworks to align responsibilities and incentives. Developers must weigh the pros and cons carefully and build strong in-house capabilities to succeed.

Have you used CMAs? Share your strategies for managing risks and optimising benefits in the comments!