contract management

Construction Management Contract refers to an agreement in which the employer delegates the planning, execution, and overall management of a construction project to an individual or entity known as the contract manager or management contractor. In this type of contract, three main parties are involved: the employer, the contractor (contract manager), and the consultant. The employer, as the project owner, funds the project. The contractor or contract manager, as the project executor, is responsible for completing the project according to the agreed terms using their expertise. The consultant plays a crucial role in reducing project risks by providing plans and conveying the employer’s feedback to the contract manager, ensuring better project organization.

One notable aspect of construction management contracts is their mutual benefits. The employer enjoys the best quality and lowest costs by paying a fixed fee, while the contractor profits through project management expertise without investing in construction costs. The contract manager’s primary responsibilities include planning, determining execution methods, hiring skilled personnel, and managing the project’s technical and financial aspects. This highlights the importance of selecting an experienced and skilled contract manager to ensure project success.

Role and Responsibilities of the Contract Manager

The contract manager plays a pivotal and multifaceted role in a construction project, acting as an intermediary between the employer, workers, subcontractors, suppliers, and other stakeholders. Their primary duty is to facilitate negotiations, maintain records, provide recommendations, manage changes, and drive the project forward in the simplest and most effective manner.

Key responsibilities of the contract manager include:

• Preparing and organizing project execution plans and organizational charts.
• Selecting and hiring personnel needed for project design and execution, including subcontractors and skilled workers.
• Determining appropriate methods for project execution while adhering to quality and safety standards.
• Managing the technical aspects of the project, ensuring compliance with standards and approved plans.
• Managing project finances, including monitoring costs, purchasing materials, and paying wages.
• Planning project execution and scheduling various phases.
• Coordinating and managing subcontractors to ensure cohesive performance.
• Monitoring and managing project progress and evaluating the performance of workers and subcontractors.
• Preparing and submitting periodic progress reports to the employer.
• Obtaining necessary permits and licenses, if agreed upon in the contract.
• Ensuring safety standards during construction and insuring the project and involved personnel.
• Delivering the building on the agreed timeline and adhering to the schedule.

The exact scope of the contract manager’s duties depends on the contract terms. Given the need for sufficient experience and skills in construction and administrative matters, selecting a specialized company like Arsh Sazan Bistoon in Kerman, with a team of experienced professionals, can ensure the project is executed correctly and efficiently.

Payment Methods for Contract Managers

Payment methods for contract managers in construction projects vary and are typically determined by agreement between the employer and the contract manager. Common methods include:

• Percentage-based payment (Percentage Management Contract): The contract manager receives a percentage of the total project costs as their fee, which varies based on project type, location, complexity, and whether material procurement is included.
• Fixed-sum payment (Fixed Management Contract): A fixed amount is agreed upon as the management fee, providing cost certainty for the employer.
• Percentage with a cost ceiling (Capped Management Contract): The contract manager earns a set percentage if the project is completed within a specified cost limit, with a lower percentage for costs exceeding the cap, encouraging adherence to budget constraints.

Payments are typically made periodically based on project progress and incurred costs. The contract manager submits cost statements to the employer, and upon approval, receives their fee.

Execution Requirements for Construction Management Contracts

Effective execution of construction management contracts requires adherence to specific requirements, including:

• Sufficient experience and skills in construction and administrative matters.
• Possessing a valid execution license from the Engineering Organization, particularly in Iran.
• Ability to design building plans and manage project engineering.
• Obtaining all necessary permits and licenses.
• Selecting and hiring qualified personnel and subcontractors.
• Implementing effective and efficient execution methods.
• Establishing effective communication and coordination among all project stakeholders.
• Accurately estimating costs and managing project finances.
• Complying with national regulations and safety standards throughout the construction process.

Obtaining necessary permits and coordinating with various organizations can be time-consuming and complex. Hiring an experienced contract manager simplifies these processes for the employer.

Advantages and Disadvantages of Construction Management Contracts

Like any construction method, construction management contracts have specific advantages and disadvantages, as outlined below:

Advantages	Disadvantages
Cost savings: The employer typically pays less as no overhead profit is paid to the contractor, only actual costs and management fees.	Implementation challenges: Challenges may arise during the setup and initiation of the management contract.
Increased speed and quality: Centralized and specialized management can enhance project speed and construction quality.	Increased reliance on technology: This method may require greater dependence on specific technologies or software.
Greater flexibility: The method allows more flexibility during project execution, enabling the employer to make changes as needed.	Potential conflict of interest: Improperly structured contracts may lead to conflicts between the contract manager and employer.
Greater employer control: The employer has more involvement in selecting subcontractors and directly overseeing project progress.	Reduced direct control: The employer may have less direct control over execution details compared to other methods.
Reduced dispute risks: Professional management and clear task definitions can minimize disputes between the employer and contractors.
Improved coordination and efficiency: The contract manager enhances coordination among subcontractors, increasing overall project efficiency.
Cost transparency: The employer is typically informed about project cost details and can monitor budget spending.
Transfer of construction risks: In some cases, construction-related risks are transferred to the contract manager.

Guidelines for Management Contract Fees

Understanding the various sections and guidelines of a construction management contract is crucial for employers. In Iran, for public projects, guidelines such as Circular 66900 address the structure of management contracts in governmental transactions, covering aspects like project scope, manpower, equipment, costs, and control structures. This circular serves as a useful guide for establishing the contract framework and the rights and obligations of the parties.

Step-by-Step Construction Management Process

The construction management process typically involves the following stages:

1. Comprehensive planning: Defining project goals, budgeting, scheduling, and determining execution strategies.
2. Procurement: Sourcing materials, equipment, and resources needed for the project.
3. Subcontractor management: Coordinating and overseeing the performance of subcontractors in specialized project areas.
4. Construction execution: Carrying out all construction activities per plans and technical specifications.
5. Equipment installation and commissioning: Installing and setting up mechanical, electrical, and other required systems.
6. Engineering and design: Managing the design process and ensuring alignment with employer needs and standards.
7. Project startup and delivery preparation: Conducting final tests and preparing delivery documentation.
8. Final project delivery: Officially handing over the building to the employer after ensuring all phases are complete and defects resolved.
9. Modifications and changes: Managing any required changes during the project.

Key Stakeholders in Construction Management

In construction management, various roles have specific duties and responsibilities:

• Employer: The project owner and primary investor who funds the construction.
• Contract Manager (Contractor): An individual or entity responsible for managing and executing the project on behalf of the employer.
• Consultant: Often present to provide expertise, design, and oversight to protect the employer’s interests.
• Subcontractors: Contractors hired by the contract manager to perform specific project tasks.

Construction Management Services

Construction management services encompass a wide range of activities aimed at facilitating, accelerating, and improving the quality of the construction process. These services include:

• Contracting with various project stakeholders, including subcontractors and suppliers.
• Providing specialized consultation to the employer throughout the project.
• Hiring skilled personnel and assigning contractors for each project segment.
• Comprehensive and detailed project planning and oversight of its execution.
• Providing welfare facilities and accommodation for workers, if needed.
• Maintaining and strengthening relationships among the employer, contractors, and other stakeholders.
• Coordinating among various project managers for inspections, certifications, and directives.
• Managing project finances, including cost control and payments.
• Ensuring quality execution and timely project delivery.
• Managing technical and engineering aspects of the project.
• Procuring equipment and construction materials.
• Renting or purchasing necessary tools and machinery.
• Executing all operational, technical, engineering, and electronic project tasks.
• Installing and commissioning systems such as electrical, cooling, and heating.
• Finalizing the project’s financial aspects.

Specialized Services by Arsh Sazan Bistoon in Kerman

Arsh Sazan Bistoon in Kerman, leveraging years of experience and expertise in construction management, is ready to provide specialized services to employers in Kerman and nationwide. With cutting-edge technical knowledge, a skilled team of engineers and experts, and deep insight into Kerman’s construction market, we can deliver your projects with the highest quality, in the shortest time, and at optimal costs. Our proven track record in diverse projects in Kerman reflects our commitment to excellence and customer satisfaction.

Construction Management and Structural Execution in Kerman

Arsh Sazan Bistoon in Kerman, with a thorough understanding of the local construction market’s conditions and regulations in Kerman, offers tailored construction management services for projects in this region. With strong connections to reputable contractors and suppliers and experience addressing common project challenges, we ensure the successful execution of your project.

Key Differences Between Construction Management and Management Contract

In the construction industry, the terms “construction management” and “management contract” are sometimes used interchangeably or confused, though they have fundamental differences:

Feature	Construction Management	Management Contract
Definition	The employer hires a manager or company to oversee and manage project execution for a fee.	A contract often involving a partnership where the builder collaborates with the landowner to construct a building and share profits or units.
Funding Source	The employer funds the construction costs.	The builder (contractor) typically funds the construction.
Primary Objective	Managing and executing the project with optimal quality and cost for the employer.	Construction and profit or unit sharing between the landowner and builder.
Number of Contracts	Typically one contract with the contract manager.	Typically one contract with the builder.
Roles of Parties	Employer: Funder and owner. Contract Manager: Responsible for management and execution.	Landowner: Initial owner. Builder: Responsible for construction and often funding.

In construction management, the employer has a single contract with the contract manager, while in a management contract (partnership construction), the employer (landowner) typically has one contract with the builder. In construction management, the manager receives a percentage of costs as a fee, whereas in a management contract, the builder earns a share of the building or profits based on the agreement.

Construction Management vs. Project Management

“Construction Management” and “Project Management” both play vital roles in construction projects but differ in scope and focus.

Project management typically covers a broader scope, encompassing all phases of a project’s lifecycle, from initial concept and design to execution, commissioning, and final delivery. The project manager focuses on managing project constraints like scope, time, budget, and quality to ensure the project meets its overall objectives.

In contrast, construction management is more focused on the execution and construction phase, with a strong emphasis on managing contractual relationships and obligations between the employer and various contractors. The contract manager prioritizes the project’s economic aspects and contract management, including handling claims and disputes.

Understanding Construction Management Contracts

Construction management contracts are the cornerstone of this project execution method, and understanding their various aspects is critical for both employers and contract managers. A contract must clearly define the scope of work, responsibilities of each party, payment terms, and project timeline. Construction management is one type of contracting method used in Iran.

Key Contract Clauses and Conditions

Construction management contracts typically include several key clauses and conditions that define the rights and obligations of the parties. These include:

• Parties’ details: Complete information about the employer and contract manager.
• Contract subject: Detailed description of the project, its location, and technical specifications.
• Contract amount and payment terms: Method for calculating the contract manager’s fee and payment schedule.
• Contract duration: Start and end dates of the project, including conditions for extensions or delays.
• Parties’ obligations: Description of the employer’s and contract manager’s responsibilities during the project.
• Termination conditions: Conditions under which either party can terminate the contract.
• Dispute resolution: Method for resolving potential disputes during the project.
• Guarantees and insurance: Specifying performance guarantees and required insurance coverage.
• Force majeure conditions: Handling unforeseen events.

Principles of Drafting a Construction Management Contract

Drafting an effective construction management contract requires precision and attention to detail. Key principles include:

• Clarity and precision: All clauses and conditions must be expressed clearly to avoid ambiguity.
• Precise identification of parties: Complete and accurate details of the employer and contract manager must be included.
• Clear contract subject definition: The scope of work and project specifications must be fully and unambiguously defined.
• Transparent payment terms: The fee calculation method, payment schedule, and related conditions must be clearly specified.
• Defined responsibilities: Each party’s duties and responsibilities must be precisely outlined.
• Change management: A process for managing potential changes during the project must be included.
• Dispute resolution mechanism: A method for resolving disputes must be specified.

Key Considerations for Contracts

When drafting a construction management contract, the following critical points must not be overlooked:

• Precise and complete definition of the contract subject.
• Specifying exact start and end dates and key project milestones.
• Detailing expectations, obligations, and responsibilities of both parties.
• Clearly defining the contract amount and payment terms.
• Including a mechanism for managing potential changes during the project.
• Specifying dispute resolution and contract termination methods.

Fee Percentages in Construction Management Contracts

In construction management contracts, the contract manager’s fee is typically calculated as a percentage of the total project costs. This percentage varies based on factors such as project type, scale, location, complexity, and the contract manager’s responsibilities.

Project Type	Typical Percentage Range
Standard urban apartments	10%
Villas and more complex residential projects	15% - 22%
Large commercial or industrial projects	8% or less
Apartment renovation	12% - 15%
Renovation of old properties	12% - 18%

Fee Percentages for 2024

In 2024, the general trend for management contract fees remained consistent with previous years. Urban apartments were typically around 10%, villas ranged between 15% and 22%, and large projects had lower percentages (around 8%). In some cases, the percentage may decrease as the overall project value increases.

Fee Percentages for 2025

Based on the 2025 engineering service tariffs published by the Engineering Organization, the general trend is expected to remain similar to previous years. Official tariffs for “management contract” agreements may be announced by relevant authorities, which employers can refer to for precise information.

Fee Percentage Calculation Method

The fee percentage is typically calculated by applying the agreed percentage to the total acceptable project costs, including materials, wages, and other direct execution costs. In some cases, certain costs may be excluded from the percentage calculation by agreement. Rarely, the fee may be calculated as a percentage of the project’s gross profit. Understanding the exact calculation method is critical.

Role of Construction Management in Project Success

Construction management plays a vital role in ensuring the success of construction projects. Effective management leads to timely project completion, precise budget control, adherence to quality standards, and compliance with regulations. It also helps reduce risks, resolve disputes, and enhance efficiency throughout the construction process, preventing delays and improving project timelines.

For a complete list of technical regulations and guidelines, refer to this page.

Objectives of Construction Management Contracts

The primary objectives of construction management contracts include:

• Completing the project within the specified timeline.
• Controlling costs and managing the project budget.
• Maintaining and enhancing construction quality per standards.
• Complying with construction industry regulations.
• Optimizing the construction process using the contract manager’s expertise.

Key Considerations for Drafting Contracts

To draft a successful construction management contract, the following key points are essential:

• Precisely defining the scope of work and responsibilities of each party.
• Clearly specifying payment terms and fee structure.
• Establishing a realistic timeline and key project milestones.
• Including mechanisms for dispute resolution and contract termination.
• Defining insurance requirements and legal responsibilities.

Sample Construction Management Contract

For a better understanding of the structure and terms of construction management contracts, you can use the sample contracts provided below:

Sample Construction Management Contract

Download Construction Management Contract

Click the file names above to download.

Final Note

If you are planning a construction project in Kerman or elsewhere and seeking a reliable and efficient management solution, Arsh Sazan Bistoon in Kerman is ready to support you throughout all project stages. Leveraging experience, expertise, and modern knowledge, we ensure your project is completed with the highest quality, on time, and at optimal costs. Contact us for more information and a free consultation.