How Project Managers in the Building Construction Industry Charge for Services
Project management services in the construction industry involves the role of a project manager in:
And of course, bringing a project to a successful closure.
It is the sole duty of a building project management team to accomplish specific goals with successes, despite given constraints, within a specified time. This goes way beyond setting up meetings, reminding contractors about deadlines, or taking stock of building material.
If you work for yourself, it is possible that you have always wondered how best to charge for your services without undercutting yourself, something that is the usual case, especially when you are fairly new in the business of managing building projects.
How Do Project Managers Charge their Clients?
In the building industry, the way you manage and oversee a project is the key to its successful implementation. This is essentially what a project manager is hired for.
So, how do project managers charge their clients for the management services they are hired for?
There are several ways to charge for your services as a project manager managing a building project. It can apply to both residential projects and some minor commercial projects like restaurants, shops, hotels, and educational institutions.
Ways to charge (though not limited to those mentioned) include the following popular choices:
- Invoicing based on hourly rates
- Flat fee per project
- Phase payments
- Retainer fee structure
- Percentage of project costs
1. Invoicing Based on Hourly Rates
Charging based on hourly rates for a building project should not go beyond the consultation phase if you can help it. After that, time-keeping will soon become an issue between the two parties (client and project manager).
A majority of clients do not feel very comfortable with this way of charging for services, especially those who have trust issues. It is based on scope, time, and the complexity of the project.
“The median hourly wage of project managers in 2011 was $40.50, and half of all project managers reportedly received wages of between $31.15 and $53.85 per hour.”
2. Flat Fee-Based Charges
This is based on a percentage of the total project cost and is a good way to charge, especially if it is for simple projects with a short execution and completion period.
Many clients prefer this way of charging and feel more comfortable with it because both parties know what to expect before work commences. But you can add a bit of flexibility with a clause so that if anything beyond your scope of works pops up, you can charge accordingly.
Typically, flat-fee rates typically work out to about 10% to 15% of the entire construction cost, depending on the scope, size, and location of the project. So, for instance, for a residential building construction project on a time and materials cost of about $100,000, the project management fee should be $10k to $15k. (Fees for larger value projects, say in the million dollar range, will likely amount to anything between 1.5% and 2.5 %).
Your scope of work must be well detailed and documented in your agreement before signing.
3. Phase Payments
There are five phases of project management until the task completion. In some cases, a project manager may split the payment for his/her fees following these five stages of construction. In other words, payment for each stage is independent of the others.
These phases constitute the project’s life cycle and are carefully tailored to suit a project’s requirements. A project manager hired for the job can decide to tailor his payments for services based on each phase of the project.
- Project initiation phase – Basically the feasibility testing stage, this first phase is usually more of the business ‘putting together the project’ phase. This is when to know whether the project is feasible or not and if it should be embarked upon.
- Project planning phase – The setting goals stage. This is an important aspect that is key to a successful project management. Its main focus is to develop the ‘roadmap’ that everyone involved in the project will follow.
- Project execution – There is a lot of action during this phase of construction works; setting up site meetings, providing status reports, performance reports, and regular updates on development updates. This is the time when deliverables are developed and completed.
- Performance - This is all about monitoring and measuring project progression while ensuring that every task aligns with the project manager’s plan.
- Project conclusion - Once the project is brought to a close, project managers will need to make a detailed punch-list of things that didn’t get accomplished during the project implementation. He/she must assign and work with team members to complete them. A final project report must be prepared at this stage.
Send an invoice out to your client when you hit each project phase milestone, based on your documented billing agreement which must have been pre-determined and agreed on by the two parties.
4. Retainer Fee Structure
A retainer fee agreement for project management services is a contract drawn between a project manager and a client, and unlike a paid-per-project basis, is paid in advance of the works to be done.
At the end of the service provided, the value of work performed is deducted from the retainer fee and any balance refunded to the client.
What’s the upside of this fee structure? Because it is a fixed fee your customer pays you every month, kind of in lieu of tasks to be done, it is work executed on a flatter cost structure in projects that has an element of continuity.
And the down-side? Nothing really, except you a project manager will have to make refunds at the end of the project if the client has made some over-payments.
5. Percentage of Project Costs
The project management fees in this payment structure are based on the project’s construction cost and are the most common and preferred way of charging for project management contracts.
The project cost which is the combined costs of hard and soft costs (construction cost, architectural fees, permits, engineer fees, etc…) forms the basis of a building project manager's fees, not unlike engineers, architects and interior designer's fees.
Typical charges are between 3% to 5% of the building cost. However, the higher the cost of the construction project, the lower the percentage charged.
Before you draw up and sign a documented agreement between you, as the project manager, and your clients, it is important to decide which form of charging is best suited for the project. This is majorly based on the size and the scope of works that will be involved.
While some projects require less work and are not time-consuming, some other building jobs may drag on for many months.
Discuss your mode of charging extensively with your client, come to a conclusion that suits you both, and then draw up the agreement. Never start working before the two parties are in agreement and some initial payments have been made.
Why You Need to Hire a Project Manager
Some clients feel that having to employ the services of a project manager for their building construction is an unnecessary additional expense. This is not so.
Hiring a construction manager or management team will greatly reduce the risk of unnecessary delays, overspending, and inability to meet set targets. Additionally, a project manager ensures tighter control of your budget and ensures you keep within the expected construction costs.
With the rate at which people over-spend on their building costs, sometimes by up to 35%, building project management offers the most effective way of keeping your costs down and eliminating losses.
A comprehensive project management service should start from the building project’s tender stage, through its implementation, until its successful completion.
This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.
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