What is a Construction Management Contract?
By Jennifer Barry, Solicitor, Lovegrove Solicitors
What is a Construction Management Contract?
The basic premise of a Construction Management (CM) Contract is that the Owner, referred to as the ‘Principal’ under the contract, enters into a contract with a Construction Manager. The Construction Manager is responsible for arranging and supervising the performance of work by sub-contractors.
Essentially, a CM contract is one whereby the Owner enters into an arrangement for someone, often a registered builder although it is not a requirement, to manage the construction works. This is in contrast to a ‘traditional’ building contract whereby the Owner enters into a contract with a Builder directly. The Builder is responsible for engaging all sub-contractors and directing the works, and provides the Owner with warranties as to the quality of the works.
Under certain Construction Management contracts, there may also be a third party referred to as the ‘Client’s Representative’ (CR). It is common for an Owner to appoint an Architect to this position. The CR is responsible for deciding on matters such as extension of time claims by the Construction Manager, giving directions to the Construction Manager and inspecting the site to assess progress prior to the submission of each progress claim by the Construction Manager.
Who engages the sub-contractors?
Pursuant to a CM contract, there are two options for sub-contractors to be engaged to complete the works.
The first is where the sub-contractors enter into individual trade contracts with the Principal (the Owner) to carry out the required works. If the Principal chooses to take this route, the Principal will be responsible for payment of the sub-contractors for the work completed.
The alternative method is for the sub-contractors to enter into individual trade contracts with the Construction Manager. In this case, the Construction Manager will be responsible for payment of the sub-contractors and this amount will be added to the payment claims provided to the Owner by the Construction Manager. Obviously, such payment claims from the Construction Manager must include supporting verification of claims by the trades.
What happens if there are defective works?
Each of the trade contracts entered into with the sub-contractors will contain provisions relating to defect liability periods and warranties for work performed. Therefore, it is important to carefully consider the provisions of each individual trade contract and to obtain expert legal advice before entering into such contracts.
Depending upon the terms of the CM contract, it is possible that the Construction Manager will also provide warranties for defective work by a sub-contractor. It is, however, far more likely that the CM contract will contain a provision expressly stating that the Construction Manager will not be liable to the Owner for any acts or omissions by the sub-contractors. If that is the case, then the Owner will only have a claim against the individual sub-contractors for any defective work.
Notwithstanding the inclusion of any provision similar to that described above, the Construction Manager can be liable to the Owner for any breach of the CM contract or for failing to properly manage and arrange the carrying out of the works by the sub-contractors. There will be duties to the Owner spelt out in the CM contract and also a duty of care at common law.
Should I use a Construction Management contract?
While there are benefits to using a CM contract in certain situations, there are also risks involved as the Principal (the Owner) takes on many more risks than in a traditional building contract with a builder. This is particularly noteworthy if it is domestic rather than commercial construction.
If you are considering entering into a CM contract for your project, it is essential that you seek expert legal advice regarding the risks involved and the terms of the specific contract you are considering entering into.
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By Jennifer Barry
Solicitor, Lovegrove Solicitors
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© Lovegrove Solicitor’s 2014