Construction Management Agreement

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Construction Management Agreement

What Is a Construction Management Agreement?

This agreement is made with a registered engineer, a licensed architect, and general contractors regarding the services and management of construction contracts. This agreement allows deciding responsibilities and roles, wages, and deadlines for the project. It helps in documenting the expectations and goals of the engineer or contractors.

When Do You Need a Construction Management Agreement?

The name might make you think that this is a construction agreement signed with a contractor, but it isn’t signed when a professional is performing any actual design work or construction for your project. If you are planning to hire a construction manager, then you can choose this agreement. If you are hired as a construction manager to see a construction project, then also you can opt for this agreement.

Inclusions in the Construction Management Agreement

In order to ensure that the construction project is carried out properly, you should write all the responsibilities and duties which should be carried by the construction manager. There are some general provisions added in the agreement, which include labor harmony, work quality, standard care, burden rate, compensations, manager’s qualification, and warranty.

How to Draft a Construction Management Agreement?

A construction management contract should have specified deadlines for each part of the construction process. The parties should mutually decide how to consider the status of completion for each part of the process. At the outset, they must estimate the total of construction and any charges that would have to be paid during the period of construction. Whether these costs would be subject to change or not depends on whether the parties decide to go for a cost-plus contract or a fixed remuneration contract.

The standard construction management agreement should contain details about the payment cycles, modes of payment, and the amount payable at each stage of the process. Deciding this can be on the basis of mutually agreed completion rate, or after a fixed time period. If any party fails to adhere to the provisions, then they must be penalized. The levy and the amount of penalty should be outlined in the contract along with any arbitration processes that the parties may institute.

All you need is to take the help of the template, which can help you to know about the format of the agreement. After knowing the proper format, you can decide to make an agreement with the help of a professional lawyer.

Benefits of the Construction Management Agreement

If you sign such an agreement with the contractor, then it will be easier for you to get the construction project completed under the supervision of the construction manager. It helps in keeping track of all savings, money, and work quality. It is a good option for fast construction projects as the construction manager can get the work done in lesser days. If the construction project is large, then work has to be divided among subcontractors, and this work can be done by the construction manager.

Types of the Construction Management Agreement

There are four major types of construction contracts, all based on the payments made to the contractor

  • In a lump sum payment contract, the owner pays a fixed figure for the entire contract. This payment may happen at a single time or spread over the entire period of construction
  • In a cost-plus contract, the owner agrees to pay the contractor a fixed percentage over the total cost he incurred during the construction process. Such contracts could include provisions that fix a ceiling on total cost a contractor can disclose for payment
  • In a unit price contract, the owner agrees to pay the contractor a price per unit for the total units of goods that have been utilized in the construction process.
  • In a time and material contract, the owner pays a fixed price for the total number of man-hours and the units of material utilized during the process. In these types of contracts, the contractor assumes a higher responsibility for the completion of the project in return for higher payments on the time and material spent.

Key Terms/Clauses in the Construction Management Agreement

  • General provisions
  • Details of both owner and manager
  • Pre-construction and construction phase services
  • Work quality and standard care
  • Labor harmony
  • Financial arrangement of owner
  • CM compensation
  • Accounting records
  • Violation code

What Happens in Case of Violation?

It will be better that you follow all the laws in the agreement as it can make you pay a huge penalty for it. When you are signing the agreement, you should read the violation code, as this will help you to know about the punishment for it.

[Also Read: Standard Form of Agreement Between Owner and Construction Manager]

Sample for Construction Management Agreement

A construction management agreement template can be downloaded from below.

Construction Management Agreement - Download PDF

Agreement between owner and construction manager

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