Private vs Public Development and Construction Management

Private Sector Development Needs

Private development needs are centered around the following criteria:

• The primary goal is to make a profit, and that profit must be quantifiable.
• If adequate profit cannot be foreseen, the development will not be undertaken.
• Once a final decision has been made on income levels, the cost is determined and must not be exceeded.
• If the expected profit is not achieved, the project is considered a failure from the client’s point of view.

Motivations for Private Developers

• Generating a direct financial profit from the process of development.
• Creating developments specifically for sale.
• Some developers specialize in certain types of property, such as residential, office, industrial, or hotel developments.
• Achieving maximum profitability.

Public Sector Development Objectives

Public Sector Needs

• Cost is not a clear-cut measurement of the effectiveness of the project; the benefits of a hospital, clinic, school, or police station are largely unquantifiable.
• Cost planning serves to improve the effective allocation of funds.
• Improving accountability in the expenditure of public money.

Public Sector Motivations

• Maintaining public accountability.
• Having regard for the overall needs of the community.
• Providing essential public services and facilities for the community.

Management Contracting vs Construction Management

Contractual Arrangements and Status

• Contractual arrangement for works contractors: In Management Contracting, contracts for work packages are created between the management contractor and the individual works contractors. In Construction Management, these are created between the client and the works contractors.
• Status of the management contractor: In Construction Management, the management organization acts in a professional role on par with other professionals appointed by the client, whereas the management contractor is generally considered subordinate to the professional team members.

Contractual Relationships and Risk Profiles

• Contractual Relationships: In Management Contracting, the management contractor is in contract with the works contractors. However, in Construction Management, the construction manager is not in contract with the works contractors; those contracts are created between the client and the works contractors.
• Risk Profile: In Management Contracting, unlike Construction Management, the employer does not appoint the works contractors directly. This means that the risk of subcontractor insolvency sits with the main contractor in Management Contracting.
• Payment Structure: In Management Contracting, the management contractor is paid the final cost of all work packages plus any preliminaries and a fee. The fee is usually a lump sum.
• Role of Management Contractor: Although it is best for the Management Contractor to be a highly experienced construction company in both forms, in Management Contracting, they are not required to undertake any of the actual works.