General Contractor; Prime Contractor; Sub-Contractor; Construction Manager

The management of the process by which an owner, once having identified the need for a Capital Project, successfully accomplishes the tasks of project goal formulation, design, construction and placing in operation of that project, has some confusing terms for the inexperienced owner, especially in the construction activities portion of the project. This article focuses on the construction phase of the project.

We are assuming that the Owner, if not well-informed in the area of design and construction, has hired an Owner's Representative or Development Manager, to act as the Owner's knowledgeable expert in coordinating and completing the tasks. They are the Owner's first line of defense against the inherent risks of any design and construction project.

While a good Owner's Rep should be able to assess and recommend the appropriate contract format to Ownership, any responsible owner should understand the implications and associated risks in undertaking any contract.

The construction phase begins early in today's projects, mainly due to the increased awareness of the time-cost of money and the need to bring projects online quicker, hence the "fast-tracking", or accelerated phasing, of many projects. A qualified Owner's Rep has enough expertise in construction activities to be able to identify at what point in the project's progress it will be most cost-beneficial to bring the "Constructor" into the fold of the team, and under what contract format this will be done.

The industry has developed two main types of construction entity: the General Contractor and the Construction Manager.

Once construction evolved out of the Agrarian Era, during which time a large percentage of buildings required nothing more than the owner's self-labor to construct his dwelling, the "public institutions" such as the king or the church had their "Master Mason's" or Master Builders". Since then, the roles and titles of the various specialized team members began to evolve and change.

As the Industrial Era dawned, the "user" began moving further and further away from the "source" of the creation of a facility. The Master Mason was replaced by the Master Builder. The Master Builder was more intelligent and experienced than the tradesmen working directly on building materials, and could do more than the Master Mason, but had learned to delegate more and more of the specialties to "specialists". He coordinated them within his overall "grand plan", and the Owner got his facility built.

In today's design/construction milieu, any Capital Project involves a team of specialists who design it, build it, furnish it and put it into operations for the "users". The "construction" of the project is typically the largest financial investment portion of the project.

Construction as it is practiced in the U.S. today, has evolved over the past twenty to twenty-five years from the basic Owner-working-with-Architect-and-General Contractor (GC) format to the more prevalent Construction Management process that it is today.

General Contractor (GC)
This term historically represented a construction firm, who had in it's direct employ a sufficient number of personnel with experience in a multitude of construction trades, i.e. carpenters, masons, electricians, plasterers, plumbers, general laborers, mechanical, etc., etc. In addition they had senior personnel acting as Project Mangers, Superintendents, estimators and procurement specialists. The GC took on a construction project on a fixed price (Lump Sum), a cost-plus price, or a unit-price basis, and was the entity financially at-risk for completing the project within this cost agreement. General Contracting, in this true sense of the original meaning, has all but disappeared in today's construction milieu. Due to the vagaries of the market, when General Contractors began to have a more difficult time maintaining a large, diverse base of tradesmen as employees, they found it more expeditious to "sub-contract" various trades to specialist contractors in various fields. As the specialist field became more varied and diverse the GC's began to rely more and more on sub-contracting. Under their GC types of contracts, they were still at-risk to deliver, and had responsibility for their "Subs" completing their contractual obligations.

Construction Manager (CM)
As construction projects became even more complex, GC entities saw that they could market their skills as the "Manager" of the Construction process, hence the term Construction Managers. They reduced their employees to Senior Management staff, Project Managers, estimators, Project Superintendents, and a core of Laborers. All of the actual construction work was sub-contracted to the specialty contractors mentioned above. The CM's "contracted" with the subs, but the CM was still the "Contractor" or "Constructor", responsible for the coordination and completion of the work and at risk for the same. Within the CM format, there are two basic forms of the contract with the Owner: "CM as Agent" (CMa) and "CM as Constructor" (CMc). The basic premise of the CMa format is that all of the sub-contracts "run to" the Owner, who is responsible only for paying the "Subs" directly. This in itself, although mistakenly assumed by many, does NOT make the Owner the "General Contractor" in terms of expertise, knowledge, coordination or management of the subs. The CMa is still responsible and "At-Risk" for the "construction" management and the day-to-day activities of the subs. The CMa is responsible for quality, cost and schedule. The second, CMc implies that the CMc is "contracting" directly with all of the Subs and is responsible for paying the subcontractors. The CM is still responsible for all of the construction activities. The Owner pays only the CM. For the Owner who has the staff infrastructure to handle the accounting tasks of paying and tracking multiple payments to a multitude of "Sub-contractors", the "Agency" format has potential savings in that the CMa fee is significantly lower than the CMc fee.

The General Contractor format has become the exception in highly urbanized areas. It is usually found only in minor to medium commercial work, and even there it is the exception rather than the rule as many so-called GC's actually "sub" out much of the work. However the term is still used and has become indicative of the format in whereby the GC has the responsibility for all of the sub-trades in both the "contractual" as well as the coordination. The GC format may be most appropriate for a project where all of the elements are fairly straight-forward and/or repetitive.

As this system of doing construction work took hold in the industry, related professional groups began to take this form of contracting more seriously, and had their "contract" departments begin to formulate "standard" contract forms for their members to use with their clients. These are to be found in the American Institute of Architects (AIA), Association of General Contractors (AGC), and the Construction Management Association of America (CMAA).

Within these formats are sub-formats that define the risk/reward relationships and lines of responsibility. GC or CM contracts can be Lump Sum, Cost-Plus or a Guaranteed Maximum Price (GMP). Unit pricing can be used in all of these for many purposes. Each project must be analyzed for complexity, uniqueness, time-constraints, award policies, normal vs. fast-tracking, etc., to determine the best composite of formats.

The advantages to using the CM format are in enabling the CM to being brought in at an early stage when their expertise in construction-related items can be brought to bear in the value engineering, Constructibility and cost/benefit studies for proposed systems and materials. They enable the design consultants to test theories and potentials, they help the owner to choose life-cycle maintenance benefits of systems and help to refine construction schedules.

An important item to keep in mind is that the CM format in itself is does not provide an Owner with the overall Project expertise that is needed in any major Capital Project. An Owner's Representative or Development Manager best provides that. Owner's Representation or Development Management refers to a much more comprehensive service that manages the entire Capital Improvement Program process professionally, efficiently and safely.

Chasan • Nicoletti Inc. is an Owner's Representative firm providing Capital Program Project Management.  It was formed in New York in 1985 by Alan D. Chasan and has completed many projects for Owners and Tenants alike in its 16-year history.  CNI has completed over $175 million in Capital Improvement Projects Management in the U.S..  Our staff is thoroughly experienced and qualified to provide PM services and maintain CNI's ethical and professional level of protecting Owner's interests.

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