Developer Hammerson has adopted its own style of construction management for major projects. John D Allen finds out how it works
WORK at Birmingham's Bull Ring site will see developer Hammerson adopting a construction management approach to set up the contracts for the two phase redevelopment, being undertaken in partnership with Birmingham City Council.
The preferred procurement route is now being worked out with Shepherd Construction of York, appointed to manage the initial £20 million enabling works programme.
A similar style of contract management is being adapted for the new Oracle shopping centre in Reading. This is in the hands of Bovis Construction which some years ago carried out the £55 million rebuild at 99 Bishopsgate for Hammerson, employing broadly the same approach.
More recently, a similar procurement route has been successfully applied at the £38 million Globe House development on London's Embankment where Tarmac is the main contractor.
The Bull Ring provides the latest example of how the indus-try's major clients are bringing their weight to bear on the way the industry works.
And Geoff Wright, director of project management for Hammerson UK Properties, happens to be chairman of the Construction Clients' Forum as well as one of the deputy chairmen of the Construction Industry Board.
If the Hammerson construction management approach works as well as it promises two of the main aims of the Latham investigation will be met: cost reduction for the client, combined with a reasonable profit margin for the contractors.
But is this construction management with a difference? The trial £20 million run at the Bull Ring is the precursor to the main £200 million development.
This forerunner contract has come about due to Hammerson's decision, with the agreement of the city council, to demolish and rebuild the existing shopping centre rather than refurbish. To make way for the major building operations to start next year, the market traders now on the Bull Ring site will be relocated in a new indoor market with glazed facade along Edgbaston Street. The contract negotiated with Shepherd Construction will cover building the new indoor mar-ket, refurbishing the existing Rag and Tow Markets, and construction of a new 900 space car park above the indoor market.
It is this pack-age which comprises the enabling works. Hammer-son uses three preferred procurement routes: design and build for simple contracts like multi-storey car parks; standard JCT80 amended for contracts between £10 million and £15 million; for anything above that, the construction management (CM) approach is used to establish the terms of the main contract.
Once having assembled the majority of the works packages, the trick is to convert the whole thing to a JCT80 amended form of contract. This process also yields a guaranteed maximum price (GMP) for the job overall, generated in the course of GMP negotiations with the trade contractors.
Mr Wright explains: 'We place the orders direct with people who would remain works package contractors by the CM route. But they take on the status of domestic sub-contractors once the contract is converted. This is the more easily done because we go out to the trades contractors on the basis of the DOM1 document from the JCT 80 contract.
'The main contractor is appoin-ted as construction manager on day one, at which time we have agreed his fees for management services, and have settled what his add-on figures will be for converting to a GMP form of contract. At that stage we have also determined the main contractor's overheads and profit margin.
'Once you have your main contractor on board in his initial role as construction manager, you can go through procurement of the sub-trades with him,' says Mr Wright.
'When we have reached the 80 per cent bought-out stage for the sub-trades, we novate all those contracts to the construction manager, who then becomes the main contractor.'
In the case of the enabling works, the trade contracts will be novated by Hammerson UK Properties to Shepherd Construction.
The same pattern is likely to be followed for phases one and two. Whoever is appointed will start as construction manager and finish as main contractor.
There is nothing outstandingly novel about this procedure. It is frequently used in the US.
Mr Wright had his first experience of it in the 1980s while working with Turner Construction in New York.
But this system of contract management has been refined over the years and now Hammerson is planning to use it for all its major development projects.
'In terms of construction cost, Hammerson will be spending a total of £220 million on the Bull Ring development by the time it is finished,' says Mr Wright.
'That covers the enabling works and phases one and two which will cost about £100 million each.
'When I say £220 million, that is what we expect the out-turn cost to be on completion in 2001.
'This way we get the best of both worlds. Construction man-agement has the advantage that the client can enter into detailed negotiations with the firms taking the key works packages. The disadvantage of CM is the risk element.'
Hammerson's method allows Mr Wright to place a cap on construction costs. But it needs an
experienced main contractor to handle it.
'If he is capped to a certain figure, the main contractor has a strong incentive to make sure
he finishes on time and within budget.
'If he does so, then he is assured of some profit to come from the job,' says Mr Wright.