Construction management agreements serve as the foundation for successful construction projects, establishing the legal framework that governs the relationship between owners and construction managers. As experienced construction law practitioners like James Neeld understand, these agreements require careful drafting to protect all parties’ interests and clearly delineate responsibilities. This article examines four critical provisions that should be addressed in every construction management agreement.

Scope of Services Definition

The scope of services provision is perhaps the most fundamental element of any construction management agreement. This section must clearly articulate what the construction manager is—and is not—responsible for delivering. According to James Neeld, lawyer specializing in construction disputes, ambiguity in scope definition is one of the leading causes of construction litigation.

A well-drafted scope provision should address:

Pre-construction services: These typically include budgeting, scheduling, design review, value engineering, and constructability analysis. The agreement should specify deliverables for each service, such as the format and level of detail required for cost estimates.

Construction phase services: The agreement must clarify whether the construction manager serves in an advisory capacity or assumes responsibility for construction. If the latter, the agreement should detail project administration duties, including coordination of trades, quality control procedures, and safety protocols.

Post-construction services: These may include systems commissioning, warranty management, and project closeout procedures. The agreement should establish timelines and standards for completion.

James Neeld’s construction law practice has consistently emphasized the importance of supplementing general scope descriptions with detailed exhibits that itemize specific deliverables, as this approach minimizes the potential for disagreement about the construction manager’s obligations.

Fee Structure Options

Construction management agreements typically employ one of several fee structures, each with distinct advantages and disadvantages. The appropriate structure depends on project specifics, including size, complexity, and risk allocation preferences.

Percentage-based fees: Under this model, the construction manager receives a percentage of total project costs. While straightforward to calculate, percentage fees may create misaligned incentives, as the construction manager’s compensation increases with project costs.

Fixed fee: This approach establishes a predetermined sum for the construction manager’s services. Fixed fees provide cost certainty for owners but may require adjustment if the project scope changes significantly.

Cost-plus fee: This hybrid approach reimburses the construction manager for direct project costs plus a fee for overhead and profit. Cost-plus arrangements require transparent accounting practices and clear definitions of reimbursable expenses.

Guaranteed maximum price (GMP): In GMP arrangements, the construction manager guarantees that project costs will not exceed a specified ceiling. Any savings below the GMP may be shared between owner and construction manager according to a predetermined formula.

In James Neeld’s construction law experience, the fee structure should align with the project delivery method and risk allocation strategy. For complex projects with significant uncertainties, a cost-plus approach with incentives for cost control often proves most effective.

Insurance Requirements

Comprehensive insurance provisions are essential to mitigate risk in construction management agreements. These provisions should specify required coverages, minimum limits, and duration of coverage.

Commercial general liability (CGL): CGL insurance protects against third-party claims for bodily injury, property damage, and personal injury. The agreement should specify minimum coverage limits and require that the owner be named as an additional insured.

Professional liability: Also known as errors and omissions insurance, this coverage protects against claims arising from the construction manager’s professional negligence. Unlike CGL policies, professional liability insurance is typically written on a claims-made basis, requiring careful attention to reporting periods.

Builder’s risk: This property insurance covers the project during construction. The agreement should specify who is responsible for obtaining this coverage and how deductibles will be handled.

Workers’ compensation: The agreement must address workers’ compensation requirements for the construction manager and all subcontractors, ensuring compliance with applicable state laws.

James Neeld, lawyer with extensive experience in construction claims, advises that insurance provisions should also address waiver of subrogation rights, evidence of coverage requirements, and notice obligations for policy cancellations or material changes.

Termination Provisions

Even with careful planning, circumstances may necessitate early termination of a construction management agreement. Well-crafted termination provisions provide a roadmap for unwinding the relationship while minimizing disruption to the project.

Termination for cause: The agreement should enumerate specific events that constitute default, such as material breach, insolvency, or persistent failure to meet performance standards. Default provisions typically include notice requirements and cure periods.

Termination for convenience: Many agreements permit the owner to terminate without cause upon providing specified notice. These provisions should address the construction manager’s entitlement to payment for completed work and reasonable demobilization costs.

Suspension: As an alternative to termination, the agreement may allow the owner to suspend work temporarily. Suspension provisions should address the construction manager’s right to compensation during the suspension period and equitable adjustments to the schedule and fee if work resumes.

Force majeure: The agreement should identify events beyond the parties’ control that may excuse performance or justify termination, such as natural disasters, labor strikes, or governmental actions.

According to James Neeld’s construction law practice, termination provisions should also address practical considerations such as the orderly transfer of project documents, assignment of subcontracts, and disposition of materials and equipment.

Conclusion

Construction management agreements require careful attention to multiple interrelated provisions. By thoughtfully addressing scope definition, fee structure, insurance requirements, and termination rights, parties can establish a solid foundation for project success. As James Neeld and other experienced construction attorneys recognize, investing time in comprehensive agreement drafting ultimately saves resources by preventing disputes and providing clear guidance when challenges arise.

The construction industry continues to evolve, with emerging delivery methods and technological innovations creating new opportunities and challenges. In this dynamic environment, construction management agreements must balance flexibility with certainty, providing a framework that accommodates change while protecting the parties’ fundamental interests. With proper legal guidance, these agreements can facilitate successful project outcomes while mitigating risks for all stakeholders.