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September 12, 2002 8:56 AM CDT

General Contracting vs. Construction Management

By Steve Saucerman

If you're anything like me, you spend most of your day confused.

Sure, you might be able to look like you've got your act together for a few minutes at a time ? you may even be good enough to fool your boss ? but I know better. You're confused!

Come on, admit it. Don't worry, I won't tell anyone. Besides, we're not alone ? there are about five billion others in our club. I know, because I counted them at the last meeting.

As for me, I do pretty well for the first five minutes of every day ? and then it goes downhill from there. For the next eight hours and 55 minutes, I spend my day not understanding my co-workers, not understanding my clients, and really not understanding architects and engineers. Then I go home at 5 o'clock to not understand my wife and daughter.

So, with confusion such a key element in my life, it's little wonder I search out construction topics I find ambiguous or puzzling and attempt to sort them out. Such is the case with the titles General Contractor (GC) and Construction Manager (CM); a couple of phrases that we hear all the time in this industry and yet probably are a bit fuzzy about as to their exact definitions. This is particularly true when they are compared to one another.

But these definitions are important because except for a few specialized situations where a sub-contractor is the lead or prime contractor, the GC and the CM are generally the two recognized lead contractors for most commercial construction projects.

Before we begin to examine the GC and CM, it's important to note right away that it really can be difficult, if not impossible, to tell the difference between them. In particular, many GC's often act more like CM's by employing virtually all sub-contractors and little of their own forces on a particular job. Still, there are definable limits and attributes that do separate the two. Here are some accepted differences and similarities between the GC and the CM.

General Contracting
Let's start with the General Contractor. You are probably more familiar with the GC. These are often older, family-owned-and-run operations ? perhaps two or three generations deep ? that, with an annual volume of around $10 million, may employ anywhere from three to seven people full-time in the office and several additional full-time tradespeople to act as key field personnel. These outside players can be carpenters who double as job superintendents, but might just as easily be cement masons, bricklayers or excavators, depending on the GC's specialized area of work. In addition, the GC will often engage even more full or part-time help to make up the crews that perform the GC's "in-house" work; that is, work done by his or her own forces; not sub-contracted.

This entire group of full-time employees, those who enjoy the accepted employer fringes and benefits such as health insurance, retirement plans, vacation, etc., might be called the nucleus of the GC's organization. The remaining work would be supplemented with outside sub-contractors, suppliers, temp workers, and other independent contractors and firms ? those providing their own benefits. Keeping all of these employees on the payroll is an attribute more common to the GC and one notable difference between the GC and the CM structure.

Another characteristic that separates the GC from the CM is in how work is obtained. Although many older and more established GC's enjoy a fair percentage of negotiated work, the majority of work taken on by the GC comes through the competitive-bid process. This is particularly true when the GC is new to the field or the locale and doesn't yet have the name recognition and/or repeat clientele of the older, more established firms. The competitive-bid process goes something like this: An outside architect is hired by the owner to draft the plans and specifications for the project. Normally, this firm is retained to assist with preliminary budgets, to structure and oversee the bid process, and then supervise the actual construction.

A selected number of GC's are invited to submit blind, competitive-bid proposals for the project. The proposals will be based strictly on the plans and specifications and presented on bid-forms that are most often created by the architect.

Generally, anywhere from three to six ? but sometimes more ? GC's are invited to bid. Sometimes many, many more! I've been to commercial bid lettings with as many as 28 generals! Now tell me, would you really want to be the low bid out of 28?

During the proposal development and bidding process, all proposals from sub-contractors and suppliers are received and processed by the GC. At that point, depending on their merit, the chosen proposals are incorporated into the GC's overall proposal, where they may or may not be marked-up.

The GC's bid is then delivered to the owner before a predetermined date and time, known as a bid opening or bid letting. These lettings may be open, where all bids are read aloud to the public, or closed, meaning only the owner's representatives know the results.

Most of the time, once the bids have been thoroughly evaluated by the owner's representatives, the lowest, qualified bidder is selected for the project. However, the owner almost always retains the right to choose the next higher bidder(s) if he feels he would receive better overall value for his money. That can be for reasons ranging from previous bad experiences with some of the bidders to simply feeling more comfortable with one contractor over another.

Once the project begins, the GC's line of communication with the owner generally runs through the architect who acts as the owner's agent ? although primarily he or she has his or her own interests at heart. The owner may or may not have an established and trusting working relationship with the contractor and often has very little to say about what sub-contractors and suppliers are chosen for the project. Therefore, the relationship the owner has with GC is often more detached than, as we'll see, it would be with a CM.

The GC oversees the project and coordinates all of the subs, suppliers and equipment. Almost all of the sub-contractor and supplier communication to the architect is funneled through the GC's office. The GC's own in-house employee will likely act as the job superintendent or foreman and, depending on workload and his abilities, the GC may perform some, if not all, of the work with his or her own crews.

In the end, if all goes well with the project ? problems are kept to a minimum, schedule is maintained, and a final punchlist is worked up by the architect ? the GC addresses the punchlist comments, final payouts are made and the parties all go their separate ways.

If things don't go well, the situation can become quite adversarial. Remember, no attempt was made to establish an atmosphere of partnership between the GC, owner, and architect, so none exists. The closeout procedure will often turn into a mercenary money-grab, which is generally accompanied by a disproportionate level of saber rattling. In short, it becomes all men, women and children ? and builders ? for themselves!

Construction Management
The construction manager (CM) approaches his or her lead role a bit differently. The CM acts more as a fiduciary agent to the owner and remains responsible for almost all phases of the building process including bid solicitation, job management and accounting. There is generally a closer alliance between the CM and the owner than evident with the GC and owner. Of course, this type of relationship generally requires the CM to gain the owner's trust, a quality that often is only obtained after years of interaction and positive experience between the two.

In general, the CM doesn't keep many, if any, full-time, permanent tradespeople as employees. Virtually all of the hierarchy below the CM's administration level is made up of independent contractors and suppliers. The administration of employee benefits is avoided in this way, but it could be argued that the CM loses an element of control over the construction process from not having developed closer ties and loyalties with the workers.

The CM seldom becomes involved in the classic competitive-bid scenario where a lump sum price if offered to the owner for the complete project. If there is competition, it's generally between the fees, often a percentage above the direct cost for the project, of the competing CM's.

The CM works directly with each sub-contractor and supplier ? and even with a general contractor ? to come up with value-engineering ideas that maximize cost savings to the owner. Individual contracts and purchase orders are issued to all of the separate trades and suppliers, and the CM then oversees their work throughout the course of construction.

The conventional owner-wisdom is that the mark-up taken by the GC on sub-contractors and suppliers is avoided through the use of the CM, but in actual practice, this likely isn't the case. The net cost to the owner above and beyond the actual direct project cost would need to be considered to properly compare the two.

If the CM's overall fee is the same as the GC's profit plus overhead, which includes the sub-contractor and supplier mark-ups, there will be little saved by going with the CM. Basically, it turns into the same old shell-game of "where do we hide the numbers now?"

Architectural services may or may not be supplied by the CM. The CM may even have architects and engineers on staff; otherwise, the owner may bring his or her own architect to the table.

CM's are generally used for larger dollar-volume construction projects where the economics of incorporating a CM into the mix tends to make more budgetary sense.

Conclusion
The main difference then between the GC and CM appears to be more a product of administrative structure and employee relationships than about the actual techniques of the construction project itself. In fact, within any given locale, it's likely the same mason and electrician will be used regardless of whether the lead player is a GC or a CM. This way, the final end products, regardless of project leader, would end up being virtually identical to one another.

That being said, an owner's reason for choosing between the GC and the CM often may have more to do with the quality of the individuals running the firm and the owner's experience with that firm, and less to do with the structure of the firm itself. So what's new?


About the Author

With over 25 years in construction, primarily as an estimator and project manager, Steve Saucerman now writes, speaks and consults for the construction industry. He also teaches part-time in the Building Construction Technology division for Rock Valley College in Rockford, Ill. He has published two books and over 350 articles to date and his writing is featured in construction periodicals all over the world.

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