The terms Construction Manager and General Contractor are often interchanged in conversation. While both parties are involved in the general management of a construction project, they’re actually very different from one another in regards to responsibilities, liabilities and costs – even the employees’ focuses and priorities will be different. Today, we’ll explore the difference between Construction Managers and General Contractors, along with the reasons that developers choose one over the other.
What Is A General Contractor?
A General Contractor is a company who agrees to build the entire project – they’re the party ultimately responsible for the timely and proper performance of the work for a set price.
A General Contractor doesn’t perform all of the work themselves. In fact, they might not perform any at all. But they ARE in charge of hiring subcontractors to perform the work as required. General Contractors take responsibility for hiring, coordinating and paying the subcontractors as work is performed.
What Is A Construction Manager?
A Construction Management Firm is a consultant hired by a developer or property owner to manage and oversee the performance of contractors that they’re hired. The developer, owner, etc. hire each of these contractors directly. In turn, the Construction Manager makes sure the workers perform correctly and in a timely manner.
A Construction Manager does not perform any of the work, nor do they have any liability in the event of a contractor defaulting, making errors (more on this later) or any financial interest in the actual money being spent on the construction – there are exceptions to this.
The Differences Between Construction Managers And General Contractors
Now that we’ve clarified what a General Contractor and a Construction Manager actually are, let’s get into the difference between them.
Here are the notable differences between Construction Managers and General Contractors, which we’ll explore in a bit of detail below:
- Legal & Contractual Obligations – How Each Are Hired
- Performance Of The Work – Supervision, Compliance, Etc.
- Liability & Insurance – Who’s Responsible For What
- Priorities – Client Interests, Profitability, Time, Etc.
- Finances – Payments, Overhead, Etc.
Let’s look at each of these aspects in greater detail!
Related Articles:
- What Is It Like Being A Construction Project Manager? A Day In The Life
- Our Comprehensive List Of 25 Ways Contractors Lose Money
- Change Order Best Practices: What Contractors & Clients Need To Know
PROMOTION
1. Legal & Contractual Obligations – How Each Are Hired
When it comes to the Legal aspects of construction, there is a large difference between the terms that General Contractors and Construction Managers are held to.
In a design-bid-build scenario, a General Contractor is typically awarded the project on a Lump Sum basis. This means in exchange for a fixed amount of money, the GC is now responsible for 100% completion of the project. Along with this comes a few stipulations:
- The GC must get the project built in accordance with all project requirements or they’ll be penalized.
- The contract is binding and the Owner has a lot of leverage.
- The GC takes on legal responsibility – and issues its’ own subcontracts – for all contractors that they hire in order to build.
A Construction Manager is hired as a consultant. They’re essentially brought on as an expert in construction management and are on-board to manage the Owner’s contractors. The Owner themselves are essentially hiring contractors to build their project, including issuing them a contract directly. The CM steps in to oversee these contractors.
In turn, the Construction Manager does not hold any contracts with contractors, nor are they liable in any way if the contractors do not perform in accordance with the contract they signed.
2. Performance Of The Work – Supervision, Compliance, Etc.
General Contractors are responsible for actually performing the work, whereas Construction Managers are in charge of monitoring contractors as they work.
As said in item no. 1, the General Contractor’s agreement with the Owner states that the GC is in charge of performing all the work required, one way or the other. This includes a few processes that you’re probably aware of.
The work itself must be supervised and managed. The General Contractor needs to have their own Project Managers, Site Superintendents and other managerial staff on their payroll, all of whom are there to make sure performance is going to plan.
General Contractors must provide, either themselves or via subcontract, all labor, equipment, materials and supplies required to do the work, too.
Thirdly, GCs are responsible for doing the work in accordance with project documents. This includes performance standards, certifications, passing inspections, etc.
Construction Managers have an interesting role when it comes to the performance of work.
Construction Managers are hired to be experts, particularly when it comes to the management of the work taking place. This includes developing schedules, monitoring progress, processing requisitions, maintaining project documents and coordination between the contractors and other parties involved like Architects, Engineers, etc.
CMs are not responsible for anything the contractor does on a nut-and-bolt level – that’s up to the contractor. They aren’t responsible for the contractor performing the actual work correctly. Instead, this is left to other experts involved – site inspectors, third party inspection agencies, design professionals and the like.
3. Liability & Insurance – Who’s Responsible For What
There is a large difference in the amount of liability a Construction Manager is exposed to compared to a GC.
Construction accidents are extremely expensive in any form, even when no one is hurt. When a General Contractor agrees to take on a project, they must provide some comfort to their Client first.
GCs provide a hefty amount of insurance that protects themselves and the Owner alike in the event of an accident. These policies are extremely expensive in their own right, but are MUCH more expensive for newer General Contractors. In turn, GCs spend a lot out of pocket just to be in business.
GCs also take on a lot of risk. A worker gets hurt? An accident happens? They’re responsible, at least until (expensive) lawyers and experts get involved.
Construction Managers usually provide some level of insurance, such as Errors & Omissions coverage, but this is a lot less expensive than the policy a GC purchases. In turn, Construction Managers require a much smaller, less expensive insurance policy to perform their work.
Construction Managers are protected when it comes to onsite liability. These onsite issues are between the Client and contractors – the Construction Manager is a separate third party consultant.
4. Priorities – Client Interests, Profitability, Time, Etc.
General Contractors have a MAJOR vested interest in getting the project finished as quickly as possible, while maintaining the budget and performance requirements – if they don’t, they could risk not being paid or even being kicked off the project.
In turn, General Contractors depend on getting the job done right. They need to be paid and they need to pay their costs – subcontractors, materials, etc. Some General Contractors’ agreements include Liquidated Damages, which usually involve a financial penalty for being late. In turn, GCs really don’t want to be late.
Also, the quicker and cheaper the GC can get the project finished, the more money they make.
Construction Managers are hired like any other consultant – they’re on board to help the Client. While they operate with the Client’s interests in mind, they aren’t physically tied together that closely.
If the contractors hired by the Client aren’t hitting their own schedules, making mistakes while performing the work or any other number of blunders, the Construction Managers aren’t held responsible.
PROMOTION
Of course, there are situations when the CM is held responsible for a problem. They could have their agreement terminated by the Client. While this isn’t good business, a CM won’t be in financial ruin like the GC would be – they’ve probably been paid for all but a few weeks’ of recent work.
Owners get more leverage when they hire a Construction Manager on an at-risk basis. In these scenarios, the Construction Manager makes more when the project is kept under a certain budget, but risk footing the bill for cost overruns and delays. This ensures the Owner that the CM has a vested interest in the timely and efficient completion of the job.
5. Finances – Payments, Overhead, Etc.
One huge difference between Construction Managers and General Contractors are how they’re paid and how much they’re paid, too. Not only that, but one requires a lot more money to stay in business than the other.
When a General Contractor agrees to perform a project for $25M, they’ll be paid that entire amount over the life of the project. It goes without saying, though, that the GC doesn’t just keep the $25M. They have costs:
- Labor to perform the work.
- Equipment to perform the work.
- Subcontractors and services must be paid.
- Insurance, taxes and other fees.
- Overhead – management costs, offices, etc.
The GC will hopefully have money left over once paying for all of these items. This is what’s actually considered profit.
They also need to do the work, THEN get paid. This means that General Contractors need a lot of cash on-hand to get the work going and keep it going while they wait for payment.
Construction Managers are usually paid by the hour. Each of their staff members has an hourly rate that’s stated in their Agreement. They typically bill the Client on a weekly or monthly basis. Yes, Construction Managers may need cash on-hand to cover costs while they wait for payment, too. But what costs do a CM really have? Managers, an office somewhere, computers, phones, internet, some insurance – that’s it.
Construction Managers in turn need a lot less money to operate on a day to day basis. They don’t have as much potential to make a windfall of profit like the GC goes, but their costs are significantly less and they aren’t burned as badly when issues arise.
The Difference Between Construction Managers And General Contractors In Summary
While they both work in construction and have some overlap, there’s quite a difference between construction managers and general contractors! Whether it be the legal aspects of doing the work, the finances, the liability or the day-to-day duties, CMs and GCs have to completely separate purposes. The funny part, is that many Project Managers in construction have worked as both! It’s a small world. I hope this article has been helpful and informative. Thanks for reading!
