by Don Dobbs, President of Teamway Builders, inc. (reprinted with permission from Discovery Life Ministries)

In recent years many organizations, including churches, have inspected and chosen construction management as the delivery system (i.e., the approach used to accomplish the tasks of a building project) to produce their new structures. This brief synopsis will help define construction management for the reader. In keeping with our company's mission, we want to help you be prudent in deciding how to approach a building project. We intend to present basic information relative to two of the choices available: construction management and traditional general contractor bidding. Of course, we strongly recommend that you thoroughly discuss any of the approaches you might use with their proponents.

The Old Way: General Contractor Bidding
With general contractor bidding, the church, through an interview process, selects an architect to produce plans and specifications for a desired structure—perhaps a new sanctuary. After completion of the design, the architect supervises an invitation to general contractors (GCs) for offers to construct the building at a fixed cost to the church. The GCs’ proposals are called bids. The bids include all the costs of the work, which incidentally, can be itemized into seven general categories: labor, material, subcontractors, direct overhead (all fieldwork and field-related costs), indirect overhead (often called office overhead or general and administrative expenses), profit and contingencies.

Then the church, with the architect’s help, selects one of the GCs and with him enters into a fixed-price contract called a Stipulated Sum Agreement.

With this delivery system, the church intends to allow a professional to oversee the construction process while enjoying the comfort of a known cost for the work. This system propounds to produce the lowest price (through competitive bidding) along with a fixed cost to the church.

However, decades of experience have shown that the negative considerations tend to outweigh the positive. These negative considerations from the church’s viewpoint are:

• Loss of control of the construction process

• Loss of control of money

• No potential savings during construction

• Meeting the builder at the critical stage just before construction

• Having little information available about the project

• No valid control over architectural plans

The Better Way: Construction Management
The delivery system known as construction management (CM) gives the church as much input as it desires throughout both the design stage and construction. The church should retain the construction manager’s services before design work seriously commences so that for an agreed fee the CM (a company knowledgeable in construction), as an agent of the church, can work with both the architect and the church to develop an affordable structure. (In the event of an already-completed design, the CM can be employed to perform services for the pre-construction and construction phases.)

It is poor stewardship of the church’s time and money to hire an architect, give him a proposed budget, pay for completed plans, put them out for pricing, and then discover that the lowest bid has been NEARLY DOUBLE the budget. These overdesigns are examples of a serious problem that happens frequently in “The Old Way.” Employment of a CM helps prohibit overdesigns because a team of construction professionals is employed to work with the architect to bring together on paper the proper combination of size, type of structure, and budget so that construction is an immediate, inevitable result of the architectural plans, the first time around.

Since the CM is an agent of the church, the church has the authority to make decisions throughout the entire process—decisions such as which subcontractors are hired. Furthermore, a good construction management company is often able to pass savings to the church through negotiations with subcontractors and suppliers.

In essence the construction manager affords the church all the expertise and handling of details expected from a general contractors, but he makes possible the knowledge, control and potential savings enjoyed in the past by general contractors only. With construction management, the church has an ally, one who is employed to sit on “its side of the table,” to represent its needs and its position on the various decisions necessary to complete a project.

When the idea was in its infancy, construction managers were used as fourth-party watchdogs to represent owners as they dealt with general contractors. It later matured into a system in which often the general contractor was eliminated from the process. Without the GC there is no perceived asset that owners in general were to miss if they elected the newer CM approach. However, time and experience have shown that single-party responsibility usually amounted to a legal asset only, and that, as an accepted and normal practice, an owner who called the general contractor about a problem with an air conditioning system found the GC in turn called the respective subcontractor to fix the problem. It was rare the general contractor had to perform the repair work for which he had been paid contingency money during construction.

In addition, owners realized that being able to hire the subcontractors of their choice at a negotiated price not only was preferable, but also was a refreshing freedom they had previously enjoyed.

Keep in mind again that the contingency monies in The Old Way are kept by the general contractor, even though they may not have been needed. In “The Better Way”, the church keeps the contingency monies and uses them only if needed; hence, the church might experience substantial savings in this area alone.

Some may question whether the church can enjoy the same low prices on materials that general contractors receive from supply houses. Yes, they can. In fact, sometimes suppliers will give a better materials discount to churches than to builders, so in a construction management situation the church pays the invoice directly to the supplier and receives the negotiated discount directly.

For example, a set of plans might have carpet specifications of “cut pile construction, 100% Monsanto Generation nylon, gauge 1/10, 32 oz. per square yard, 8 stitches per inch…as manufactured by XYZ Company or equal,” which can be purchased and installed for $13 per square yard by a carpet subcontractor employed by the GC.

Let’s talk about an interesting possibility. Suppose the church employs this general contractor with a traditional bid agreement for a stipulated sum. You can correctly surmise that the cost of the carpet along with the general contractor’s markup—totaling about $15 per square yard—is included in the bid package. We’ll use 875 square yards of material as an example (a 7,500-square-foot carpeted sanctuary with a 5 percent extra for waste, divided by 9 to determine the number of square yards). At $13 per square yard, he would pay $11,375 to the carpet subcontractor.

But the GC finds, upon dealing directly with a carpet mill, that 1,000 yards of a better-grade 40 oz. carpet (which exceeds the architect’s specs) can be purchased for $7 per square yard. Moreover, he can buy it directly from the supplier. He shows the church a sample and says he can supply and install it for an extra $500, an excellent buy from the church’s viewpoint. The church committee agrees and signs a change order for $500 carpet upgrade. All are satisfied.

The GC can gain profit in several ways in this illustration. Please follow closely. Remember, he would have paid $13 per square yard to the local carpet company to supply and install the carpet specified in the plans. (The church does not know that cost, nor does it know the cost of the upgraded carpet.) Now the GC has a better carpet he can buy directly from the mil at $7 per square yard and can hire a carpet installer for $2.50 per square yard. At his cost of 9.50 per square yard, he can now supply and install your better-grade carpeting for $8,313 ($9.50 x 875).

He has increased his profit in at least two ways by:
> purchasing direct, hiring the labor, and making an extra $3,062 ($11,375 - $8,313),
> and the change order of $500. He paid less for the upgrade than he would have paid for the standard.

This makes a total of $3,562 EXTRA markup on the carpet. Note that his original markup was $1,750 ($2 per yard x 875 yards). The extra 125 yards he had to purchase to get the discount could be disposed of in any number of ways, including recarpeting the church’s existing office space for $1,875 ($15 per yard x 125 yards), which would result in another $688 profit, a hefty 58 percent.

I would like to state clearly that what the GC did in the above illustration is both legal and accepted in the construction business. He felt he gave the church a good product at a good price. By his own engineering, he was able to get the job done at a better price, which allowed him to profit more in a situation that, given another set of circumstances, could have cost him more money, not less.

My point in the matter is that, using the same illustration above, but with construction management, the church would have saved both the $500 spent for the change order and the $3,062 profit spent on the upgrade, because it would have paid no extra fee to the construction manager. It would have issued a check to the carpet mill for the exact cost of the carpet and a check to the carpet installer for the exact cost of his labor, and would have had similar options with the extra 125 yards, without a $688 profit to pay on the office installation.

This example illustrates the three major assets of the construction management delivery system:

Knowledge: With CM the church has complete information, including exact costs to suppliers and laborers in order to make better decisions.

Control: With CM the church issues checks DIRECTLY to the suppliers and laborers by invoice or contract.

Savings: With CM the church enjoys the benefits of discounts and negotiated savings DOLLAR FOR DOLLAR.

It is generally agreed that the construction process is difficult to predict overall because of the large number of uncontrollable variables, so that managing the production of a building demands aptitude in psychology, logistical planning and plain ol’ plowing.

It should also be noted that entering and completing a construction project will reveal the character of everyone involved, therefore, it is very important to KNOW the character of the company you choose to construct your building or represent you in the process.

Construction management offers you that advantage and is the best way to overcome the greatest number of problems facing your church in the expansion of its facilities. It provides a win/win opportunity for all parties and is fast becoming the overwhelming choice of churches, commerce and industry.

Don Dobbs resides in Greenville, South Carolina, has consulted with churches for over 20 years, and is president of Teamway Builders, Inc., a full-service general contracting and construction management firm focusing on churches and Christian schools throughout the United States.

Responsible stewardship in quality construction management starts with Teamway Builders. We help you “plan well and spend wisely.” Whether you are building a new sanctuary, a family life center, a retirement community, Christian school or other facility, let us show you how honesty, promptness, and superior building knowledge can help your ministry.