Construction management and general contracting are two different approaches to delivering a construction project, different contract structures, different risk allocations, and different incentive systems. Developers and owners who understand the distinction are better positioned to select the delivery method that fits their project, their risk tolerance, and their involvement in the construction process.
The General Contractor Model
Under a traditional general contractor arrangement, the owner enters a single contract with the GC for the completed project at an agreed-upon price. The GC takes on the responsibility to build the project as specified, manages all subcontractors, and carries the risk that the project can be delivered for the contracted price. If the GC’s costs exceed the contract amount, because their estimate was wrong, because they managed the project poorly, or because they selected subcontractors who could not deliver, the excess cost is the GC’s problem, not the owner’s.
This arrangement gives the owner cost certainty: the contract price is the price, subject to owner-directed changes and legitimate unforeseen conditions. But cost certainty comes at a price. The GC’s bid includes contingency for their own risk, margin for profit, and markup on subcontractor costs. The owner pays for the GC’s risk assumption.
The GC model also gives the owner limited visibility into subcontractor costs. The GC negotiates subcontract prices, marks them up, and presents the owner with a single contract sum. The owner does not know what the framing subcontractor cost, what the mechanical subcontractor cost, or how much margin the GC is applying to each trade. This opacity is appropriate, the GC has taken the risk and is entitled to manage costs as they see fit, but it does limit the owner’s ability to verify that the project is being built economically.
The Construction Management Model
Under a construction management arrangement, the construction manager does not hold the construction contracts. The subcontracts are held directly by the owner, and the CM manages those contracts on the owner’s behalf for a fee. The CM’s compensation is explicit, a management fee, not a markup on subcontractor costs embedded in a lump-sum price.
This structure gives the owner full transparency into subcontractor pricing. The owner sees every subcontract, knows what each trade costs, and can verify that the project is being delivered at competitive prices. The owner also retains more control, because the owner holds the subcontracts, they have a direct relationship with each trade and more flexibility to make decisions about scope, substitutions, and schedule.
The tradeoff is that the owner carries more cost risk. In a GC model, the GC absorbs cost overruns within their contract. In a CM model, subcontract overruns are the owner’s. A framing subcontractor who is behind schedule and requires overtime to catch up is the owner’s cost exposure, not the CM’s. The CM manages the situation, but the cost flows to the owner.
Construction management at-risk (CMAR) is a hybrid that partially restores cost certainty. Under CMAR, the CM provides a guaranteed maximum price (GMP), a ceiling on total cost, above which the CM absorbs overruns. The CM’s books remain open to the owner, preserving cost transparency, but the GMP protects the owner against project-level overruns. CMAR is the delivery method most commonly used on the projects in Innergy Integral’s principal portfolio, it combines the transparency of CM with the cost protection of a GC model.
How to Choose
Choose a GC model when:
- Cost certainty is the primary concern and the owner is willing to pay a premium for it
- The construction documents are complete and well-defined, reducing the risk of owner-directed changes
- The owner wants minimal involvement in day-to-day construction decisions
- The project is relatively simple and the subcontractor market is competitive
Choose a CM model when:
- The owner wants full cost transparency and direct insight into subcontractor pricing
- The project involves significant owner-initiated decisions during construction, material selections, scope modifications, design development
- The design is not fully complete at the time construction begins and flexibility is valued over cost certainty
- The owner has an owner’s representative in place who can manage the CM effectively and protect the owner’s interests in an open-book environment
Choose CMAR when:
- The owner wants cost transparency and an open book but also needs a cost ceiling
- The project is complex enough that a lump-sum GC bid would carry significant contingency that the owner would prefer to retain
- The design will be substantially complete at the time the GMP is established, giving the CM adequate information to price accurately
The Impact on Lender Requirements
The delivery method affects how construction lenders underwrite and monitor the project. A lump-sum GC contract gives the lender a clear picture of the project’s total construction cost and a single GC entity responsible for delivery. A CM arrangement with owner-held subcontracts requires the lender to understand the aggregate subcontract structure and the CM’s management role.
Lenders monitoring CM projects need monitoring programs that reflect the subcontract structure, tracking each subcontract’s completion status and cost-to-complete individually rather than evaluating a single GC contract. Innergy Integral’s monitoring programs are adapted to the delivery method on each project, whether GC, CM, or CMAR.
The choice between construction manager and general contractor is ultimately a question of who bears what risk, who controls what information, and who the owner trusts to manage the construction program with their interests rather than the contractor’s margin as the primary constraint on decision-making.
The decision between construction manager and general contractor ultimately comes down to what the owner values most: with a GC, the owner buys cost certainty and single-point accountability at the cost of construction transparency. With a CM, the owner buys transparency and control at the cost of assuming more direct responsibility for managing the contractor relationship. Neither structure is universally superior; both are superior in the right circumstances and for the right owner.
Related: Construction Management Services · Owner’s Representative Services · Construction Management Guide
Markets: Construction Management Seattle WA · Construction Management Dallas TX · Construction Management El Paso TX