黑洞社区

They were once a common sight on the building sites and in site offices of the UK. But over many years of recession and hardship for the industry, construction managers became an increasingly rare beast.

Now the economics worst is (hopefully) behind us, some are talking of a revival, though not perhaps to previous numbers. 鈥淲e are talking about [construction management] now because there has been rapid inflation,鈥� says James Pellatt, head of projects at Great Portland Estates. Indeed, over the last 30 years, clients have appreciated the reduced exposure to inflation that construction management can offer. And now the RICS is predicting that prices will rise by up to 5.5% every year until the end of the decade, which looks pretty punchy when set against general inflation forecasts of 2.5%. The climactic conditions, it would seem, are right for a return of the role.

But construction management remains stubbornly out of favour. Andy Butler, a director at Laing O鈥橰ourke, says: 鈥淎t this stage, we would have been in a construction management cycle: that we鈥檙e not shows that it鈥檚 pretty much out of the door.鈥�

黑洞社区 was recently given exclusive access to a seminar run by Alinea and solicitors Fieldfisher on what has 鈥渒illed off the construction manager鈥�, and here we ask: will the role continue to decline, from critically endangered to extinct? Or is there still time for it to bounce back?

Heyday

First a short history lesson: construction management was introduced to the UK during the late 1980s when property development firm Olympia and York imported the technique from the US to manage the construction of the Canary Wharf Tower. Over in the City of London meanwhile, Stuart Lipton used it as the procurement route for delivering the Broadgate complex, the era鈥檚 seminal project.

Pellatt remembers the buzz that surrounded construction management when he was starting out in the industry at the time. 鈥淭his form of procurement was to be the answer,鈥� he says, recalling how it was claimed to offer a quicker and more efficient way of managing the supply chain.

During the following decade, a roll-call of high-profile projects used construction management, including Tate Modern, which was managed by Schal - then the construction management arm of Tarmac, now Carillion.

Butler remains a fan of the route. 鈥淥ne of the greatest things about construction management is that you got closer to the action. You didn鈥檛 have the noise of a main contractor interfering in the management of the supply chain,鈥� he says, adding that construction management enables projects to progress faster to procurement.

However, over the past decade, construction management has fallen out of fashion, its reputation stained by the damning verdict on John Laing鈥檚 botched job on the Great Eastern Hotel in east London.

Even British Land and Stanhope, traditionally two of construction management鈥檚 staunchest champions, have turned their back on it for their most recent projects, notes Butler.

Construction management isn鈥檛 quite dead but there鈥檚 no doubt that over the last five years, it鈥檚 got to a point where it鈥檚 on the operating table

Steve Watts, Alinea

Decline

Specialist construction managers have all disappeared in the UK, leaving only main contractors offering the service.

鈥淚t鈥檚 not quite dead but there鈥檚 no doubt that over the last five years, it鈥檚 got to a point where it鈥檚 on the operating table,鈥� says Steve Watts, a partner at cost consultant Alinea.

Watts says that one of the pitfalls of construction management is the lack of in-built incentives contained in such arrangements for controlling the length or cost of projects.

Another problem is allocating resources.

When he was at Schal, Butler recalls that the specialist construction manager had a rule of thumb that it should deploy one staff member for every $10m that the contract was worth. 鈥淭hat meant a lot less people than on a traditional project,鈥� he says.

For contractors, he adds, another barrier is meeting demand from clients for experienced managers. 鈥淔rom the client鈥檚 point of view, you have to have the absolute best people doing it and the main contractors don鈥檛 want their best people doing it.

鈥淚t ties up very skilled, experienced staff for long periods of time so consequently delivers a very low return per head. The main contractor will be reluctant to put their very senior experienced guys in because you won鈥檛 get the returns.鈥�

Meanwhile, the benefits of speedier delivery have been undermined by the slowed-down pace of the planning process, says Geoff Taylor, project director at developer Almacantar.

鈥淥ne of the claims of construction management in the 1980s was that it could get jobs to site quickly, but we are now in a situation where that matters less because of the unbelievable amount of time it takes to get an implementable planning permission.鈥�

Often, believes Pellatt, it makes more sense for a client to employ an experienced individual construction manager rather than a company that offers the service.

鈥淚t鈥檚 a lot cheaper for a client to employ somebody with good construction management skills than it is to employ a construction manager: that鈥檚 where the skills have gone to.鈥�

But the real deal breaker has been funders鈥� reluctance to support the procurement route, argues Butler.

鈥淥verseas funders in particular don鈥檛 understand the model and so are not prepared to give it a chance,鈥� agrees Cecily Davies, head of engineering, projects and construction at Fieldfisher.

Even though Great Portland may not use development finance itself, Pellatt believes the picture is not quite so black and white. 鈥淚f you can show that you can manage a budget with sufficient contingency and you are dealing with the risk you can still get funding for construction management projects.鈥�

He says a bigger hurdle is the reluctance of purchasers, like pension funds, to tolerate risk.

鈥淭heir perception of the construction industry may often be their own domestic extension, which might not have gone well. They have a really negative impression and they just want somebody to rely on to provide them with a warranty in case something goes wrong.鈥�

Main contractors will be able to offer potential purchasers much stronger warranties than construction managers, he explains. The latter鈥檚 warranties will only cover the services they are offering, leaving the less financially robust subcontractors to shoulder the guarantees.

A combination of these factors help explain why two-stage dominates the scene.

Rise?

However, Watts reports 鈥済rowing fatigue鈥� within the supply chain with the two-stage process.

鈥淢any main contractors are seeing projects stall at stage one of the two-stage process because things are not stacking up and are exposed to projects where there鈥檚 not much certainty and good people are tied up.鈥�

GPE鈥檚 Pellatt agrees many contractors are finding the two-stage process a drain on their resources. 鈥淚f there is a more efficient way of procuring, they will still do it,鈥� he says.

Butler confesses that he doesn鈥檛 like two stage because it encourages adversarial behaviour.

As for single stage, he says bidding costs on such contracts typically work out at 0.5-0.7% of the project. 鈥淲hen you have net profit of 3%, that鈥檚 a huge percentage. It鈥檚 only appropriate for a well-defined project and most importantly, a well-disciplined client.鈥�

And Pellatt says many of the problems ascribed to construction management, like failing to source the right trade contractor at the right time, are not unique to this form of procurement.

Watts agrees: 鈥淲e are never truly satisfied. It feels like doing simple things well is the real failure for us whether we are using design and build or construction management.鈥�

And construction management compares well. 鈥淥ur data mostly suggests that a well-run construction manager gives you the best price for the overall programme,鈥� says Watts, pointing to research from the turn of the last decade which compared the out-turn costs of the different procurement systems.

The best-performing projects tended to be ones procured using construction management, although the worst had also used this route.

So does construction management have a future?

If it does, it is likely to be a niche rather than a mass market activity. Paul Allen of project manager TowerEight believes distressed projects might see a construction management revival among clients.

鈥淭wo stage is letting them down and they are reverting to construction management to see if the price is right. There are more and more clients looking at that when they have these problems.鈥�

Watts says a 鈥渓eaner, meaner鈥� version of construction management, consisting of smaller and more expert teams, may have some legs.

鈥淭here is a future for construction management even in its present form, particularly owner occupiers, but not in the general market,鈥� says Butler, 鈥淐onstruction management is the most equitable and least adversarial [route] without doubt. Unfortunately, we work in a transactional industry, we are risk-averse and burdened with liability paranoia.鈥�

Perhaps the problem isn鈥檛 with construction management, it鈥檚 the industry itself.