Last edited 19 Jan 2017

Works contractor

Management contracting is a procurement route in which the works are constructed by a number of different works contractors who are contracted to a management contractor.

The management contractor is generally appointed early in the design process so that their experience can be used to improve the cost and buildability of proposals as they develop as well as to advise on packaging (and the risks of interfaces). This also enables some works contracts to be tendered earlier than others, and sometimes, even before the design is completed (for example piling might commence whilst the detailed design of above ground works continues). This can shorten the time taken to complete the project, but does mean that there will be price uncertainty until the design is complete and all contracts have been let.

Management contracting differs from construction management in that management contractors contract the works contractors direct whereas construction managers only manage the trade contracts, the contracts are placed by the client. In legal terms the management contractor is acting as a principal whereas the construction manager is acting as an agent. This means that on a management contract, the client only has one contract to administer (whereas with construction management there can be many contracts for the client to administer), but they might want warranties from the works contractors so that they can make a direct claim against them, for example if the management contractor becomes insolvent.

The contractual components of a management contract project are likely to include:

The contract between the client and the management contractor.
Contracts between the management contractor and each works contractor.
An agreement between the client and each works contractor. There is a body of opinion that believes that if a management contractor operating on a cost plus fee arrangement pursues a works contractor in court for non-performance, the management contractor is unable to prove loss and damages. This is because the loss is simply passed on to the client, and so it is the client that has incurred the damage. This has increased the tendency for clients to require direct warranties with each works contractor.
Management contractor collateral warranties for funders, tenants or purchasers.
Works contractor collateral warranties for funders, tenants or purchasers.

Features of works contracts include:

Works contracts must now have their own separate certification of practical completion and so may have different defects liability periods. Certification cannot be dependent on completion of works outside of the scope of that contract.
As works contracts may be completed at different times, the management contractor must ensure that measures are in place to protect completed work from ongoing activities.
Works contracts may allow for retention, or may include a requirement for a retention bond.
Works contracts may include a requirement for a bond in relation to off-site materials and goods.
Where they carry out design, works contractors may be required to provide professional indemnity insurance. Otherwise, they may be required to provide product liability insurance.
Management contractors should keep works contractors informed about the overall progress of the project so that they are able to properly plan the timing of their works. They must also inform works contractors about certain key dates and certificates.
Works contracts may include incentivisation.
Works contractors may be required to agree an outline programme with the client setting out dates for the provision of information required by the client's consultant team.

NB For a detailed description of the sequence of tasks necessary on a management contract, see our free work plan: management contract: outline work plan.