Construction Industry, Real Estate Industry

Construction Management Practical Use Guidelines

- An introduction to Japanese Style Construction Management -
February 6, 2002
Ministry of Land, Infrastructure and Transport and Tourism

I. Introduction

The Construction Management system (hereby referred to as CM) began as a construction/manufacturing management system in the 1960’s in the USA. However, in recent years Japan’s interest in the CM system has increased, with private sector construction works led by foreign companies and major developers already using the system.
Nevertheless, concerted effort in regards to using the CM system in Japan is rare. In order to solidify the CM system for general use, and in order to establish the construction/manufacturing management system hereafter, all of the construction work that is carried out must be done by contractors, designers, and clients etc., who have a common appreciation, and understanding of the CM system and its issues. An efficient, suitable and smooth application of the CM system is a pressing need for Japan’s future.
In order to cultivate a better understanding for those concerned/authorized with the CM system, as well as to contribute to the future spread of the CM system, we have reviewed the CM, aiming to create a basic guideline for the CM system as well as arrange the CM system contents and themes within a written report.
A the written report using only the US CM system that already has its fixed institution, culture and customs etc., would be incomplete, because it would not take into account the differences between our two country’s cultures. We therefore styled the Japanese CM system on the American CM system, although we edited it as appropriate for our cultural/infrastructure differences.

II. CM System Summary

1. CM System (Pure CM)
The CM (Construction Management) system is one of the most widely used construction/manufacturing management systems in the USA. While standing neutral in the technological arena, the construction manager (CMR) acts in the client’s interest at each step of the designing, ordering and construction process, performing all or a part of the management work. This includes the reviewing of design work, examining the ordering method, process control, quality control, and cost administration
In recent years, Japan, too, has seen improvement in the practical usage of the CM system, led by private construction works.
(Note 1): Although it is dependent upon the size and nature of the project, the CMR is often made up of two or more specialists. In this guideline, the team that works for the client as proxies and assistants are called the “CMR”, while an individual member of the “CMR” (or leader) is called a “CMr”.
Under the CM system, the management work, such as designing, ordering and construction, that is undertaken individually by the designer, client and construction contractor respectively under the traditional package contract (all-in one contract), is carried out by the client. The CMR acts as the client assistant or proxy to provide all, or a part of the managerial service under a “Management Business Agreement” concluded between the CMR and the client. The client pays the CMR compensation for the services.
In the case regarding the construction execution, the client, under advice from the CMR, separately classifies each order in accordance with the nature of the construction work (3). The client and the contractor (4)conclude a separate “construction work undertaking contract”
Note (2): The compensation for the CMR consists of the CM remuneration, (CM Fee), and actual expenses for the management/administration (the cost that the CMR spent in executing the management services).
Note (3): Depending on the client’s needs, there are two cases:
a) ①While separate orders are placed to multiple varieties of specialist construction companies, the rest that are not suitable for splitting up are ordered collectively as a package contract.
b) Orders are split up and placed with individual specialized construction companies.
However, under exceptional circumstances when the CMR is uncomfortable with the separate orders, the orders are put together for one construction work as a collective order.
Note (4): The “contractor”, in regards to construction work, is classified into two groups: one is the whole package contractor who integrates various types of specific jobs. The other is an individual specialist who undertakes a specific job (e.g. scaffolding erector, earthwork laborer, concrete iron bar reinforcer, plasterer/coater, interior design finisher, electrics installer, air-condition installer etc.). In the case of a collective order, the package contractor acts as the “Prime Contractor” to undertake the overall management function, where the specialized construction companies perform their specific work as “subcontractors” of the prime contractor. In the case of the SM system, because each type of work is ordered separately, it is often the case that the specialized construction companies are not “subcontractors”, but rather accept orders directly from the client and are “prime contractors”.
・ In the USA, this kind of unmixed CM method is called “Pure CM” (also sometimes known as “Agency Style CM” or “For Fee Style CM”), and is distinct from what is described in 2 as “At risk CM”.
・ In Japan, designers (5) have been studying “Pure CM” intensely.
Note (5): In this guideline, “Designers” is defined as both the “architecture designer” and the “construction consultant” who are engaged in civil engineering designs etc.
2. At Risk CM
In the CM system (Pure CM). the client bears the final risk regarding the construction work (the risk inherent in completing all of the separate projects and the completion of the construction work in its entirety). It is therefore possible that the client’s expenditure for construction costs may increase. In the USA, in order to decrease the client’s construction costs, the CMR is often made responsible not only for the management, but also for the total risk in the construction work. This kind of CM system is called an “At Risk CM”.
In the case of the “At Risk CM” in the USA, there are times when the CMR exceeds the position of assistant to the client and takes on the role of a manager. This is especially the case when, in the final stage of planning, the CMR bears the risk regarding the construction work by establishing the Guaranteed Maximum Price (1), and tries to lower the risk by concluding a construction contract with the related specialized construction companies. In this way, the CMR becomes more than the basic management administrator, and can be seen instead as a general contractor. Regarding this kind of case, there is a tendency for the CMR to have its pay augmented proportionally to the amount of extra work it must do for the risk related management.
That point aside, the fundamental administrative/managerial duties of the “At Risk CM” are the same as that of “Pure CM” (2).
(Note 1) In the USA, the client may ask the CMR, at the final stage of designing, to present the estimate of the total construction cost and offer the Guaranteed Maximum Price (GMP).
Regarding the GMP, if an agreement is reached between the client and CMR after clearly specifying the scope of the CMR’s duty and responsibility, the CMR undertakes management on the bidding as in the case of a “Pure CM”. It is often the case that the CMR concludes its own contract with the chosen contractor to perform the management of the completion date, the cost, quality control etc. In the case that the GMP has been established, the CMR guarantees the upper limit of the sum total of construction costs, and if the actual cost exceeds the GMP, the CMR must bear the excess amount. However, if circumstances change after the agreement, it is often the case that the agreements are in turn revised. Also, an upper limit is set for the CMR’s responsibility in accordance to the circumstances of the construction etc. If it is the case that the project is going better than expected, then there is often an incentive such as a bonus specified in the contract for the CMR. These “At Risk CMs” are often referred to as “Ceiling price CM style”, or “At Risk CM with GMP”.
(Note2) In the USA, in the project’s initial stages, the client concludes the “Management Duties Contract”, as is the case with a “Pure CM”. However, a special clause in the initial contract states whether the CMR will be responsible for the risk (the stipulation of the MGP). At the stage when the sum total of the construction cost is worked out in the plan, the client demands the CMR establish a GMP. When an agreement is reached between the client and the CMR, then the MGP clause comes into effect.
In Japan, with the package contract system that is in place, the general contractor does much the same job as the CMR in an “At risk CM” system.
Certainly, if you look only at the fact that the general contractor’s construction management ability is high, one could say that s/he fulfills the role of the CMR. However, the package contract system is very different from the “At Risk CM” system in its transparency.
In the package ordering system, the general contractor is free to create contracts with the subcontracted specialized construction companies at her/his own discretion, usually without showing the contracts to the client, nor taking any directions from the client.
In the case of the “At Risk CM” in the USA, the CMR must obtain the client’s prior consent before creating contracts with the subcontractors and material suppliers. This is in order to ensure the client’s discretionary authority regarding the choice of subcontractors, through which the contracted prices become evident. In cases when the open book system is applied (3), the invoices from the CMR to the subcontractors or suppliers reveal the actual amount of payment (or planned payment) to them, as well as all other expenses.
(Note3) The open book system discloses the process of all of the construction costs incurred by the contractor. Because it impartially shows all payments and the equivalent value, the contractor discloses all of the cost related information to the client, which is audited by either the client or an unaffiliated party. The open book system assures the transparency in the cost structure because:
a) The contract price between the CMR and contractor is made clear.
b) All of the receipts for piecework payments to the contractor are attached and presented to the client every month or quarter year, making the actual payments clear.
c) The costs for the common temporary construction, administration at the site, and general management etc., are settled so that all of the actual expenses such as labor fee, materials fee, subcontracting fee are made abundantly clear to the client.
d) If necessary, the client can commission a third party to audit the open book.
Furthermore, in the USA the open book system is used even with the bulk order system. In this case, the construction cost is broken down into various components to be shown to the client, as well as a list of subcontractors.
This means that in Japan, if the general contractor gets the CM fee as a manager for the client to disclose the subcontracting expenses to the client, an “At risk CM” System that is supported by the excellent administration capability can be realized. This fact needs to be properly taken in consideration when preparing a “Japanese version of CM system”.
It is necessary to clarify questions for the “At risk CM system” such as:
a) Is the agreement between the client and the CMR made under an entrustment or contract?
b) Does the CMR need a license required by the construction industry law? (4) etc.
(Note 4) Few examples exist in Japan of actual implementation of the “At Risk CM” system, and careful studies are therefore required for detailed plans. If the CMR is engaged in business such as contracting the completion of a series of construction works, it is required for the CMR to obtain the construction license (Article 3, Construction Industry Law). Also in the case that the CMR is directly contracted by a client for the construction work of a public facility or utility, a prior examination of the CMR’s business status is required (Clause 23, Article 27, Construction Industry Law).
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3. The Role of the CMR in Designing, Ordering and Executing Construction Work:
(1) Package Contract System Flow
In Japan, under the construction/manufacturing management system, with the exception of public construction projects where separate orders are placed, it is general practice for the client to give a package contract to a general contractor for a lump sum price.
〔Japanese Package Contract System Flow〕
a) Designing:The designer draws up a blueprint to fit the client’s needs and demands.
b) Ordering:The client calculates the estimated construction cost based on the blueprints and hires a general contractor who successfully bids as the prime contractor.
c) Execution:The general contractor draws up the work and construction schedule based on the design documents, hires specialized subcontractors to carry out the construction work, and administers the management and quality control to complete and deliver the construction work . Construction management is performed according to the Building Standards Act, and the Architect and Builder Act.
Due to this being the “Package Contract System for a Lump Sum Price”, the client is not involved in any cost details, and the cost management is all performed by the general contractor, who pays the subcontractors, but normally does not divulge this information to the client.
(2) CM System Flow
In the case of the package contract system, in terms of actual designing and construction, it is often the case that the client feels uneasy and questions if the cost, progress and quality are consistently optimized. The client may also worry as to what extent, and how, management utilizes funds and undertakes risks.
With the CM system, in order to erase these kinds of client fears, the management responsibility for all of the work by the designer, client, and contractor for designing, ordering and constructing are borne by the client, and all or a part of the of the duties are performed by the CMR directly under the client.
In the case of the CM system, although it varies due to the scope of the CMR’s duties, a typical set of duties would be similar to the flow below:
(Flow when the CM system is applied)
a) Design: The CMR gives the designer necessary advice for processing the schedule and cost, and proposes ways to lower the costs by reviewing the design documents. According to the client’s requests, the CMR sometimes makes the “VE on Design” (1).
b) Ordering: The CMR makes a proposal about the separate orders and the ordering method, and gives advice about the recruiting and selection of contractors. (In the USA, it is common to make separate orders for specialist construction companies.)
The CMR also performs other functions, such as estimating the construction costs and drawing up the contract documents.
c) Execution: The CMR carries out the duties such as coordination among the contractors, management of the construction work schedule (preparation of the work schedule), and reviewing the construction drawings from the CMR standpoint (2).
Regarding the payment from the client to the contractors, the CMR performs cost administration and management, such as checking the partial payments on piecework after reviewing the contractors’ invoices, as well comparison to the actual expenditures for common temporal construction etc.
(Note 1) “VE on design” or “Value Engineering on Design” proposes alternative plans in order to improve the original design at the basic designing and/or detailed designing stages.
(Note 2) Even in the case of the CM system, it is necessary for the construction work supervision to be based upon the Building Standards Act and the Architect and Builder Act. It is necessary to investigate if the CMR should have similar qualification requirements, or if it is necessary for a special supervisor to be appointed to share some of the workload responsibilities.
As mentioned above, under the CM system, CMR management duties are normally regularized at the planning stage. However, because the CMR aims to bring the client’s needs and demands regarding the construction project to realization to the greatest extent possible, the CMR sometimes takes part in the earlier stages of the project (e.g. advice for the client to determine project details, or involved in later stages, after the completion of the project, by giving advice on maintenance). Because of this, the CM duties can be included in project management (PM), and the duties are therefore sometimes called “PM/CM system”.
(Note) Project management (PM) is defined as the process implemented for the most effective and feasible project realization for a client.
Specifically, it is defined as the comprehensive management for a project in its entirety. The person who undertakes the job is called the Project Manager (PMR).
Normally, both the client and contractor manage the proceeding of the project. The service of working for project management is a known as project management services (PM Services). In general, the difference between PM services and CM services is that the PM services commence earlier in the project planning and conception stage.
In the case of a package contract, it is generally difficult for the General Contractor to offer the VE proposals before the bidding. However, if the CM system is utilized practically, the CMR can give assistance as a part of its duties to help design a new construction method, and to adopt a new, more effective plan for lessening the work schedule and cost.
4. Contents of CMR Responsibility
The content of the main management responsibilities of the CMR are listed below:
The actual management responsibilities of a CMR do not include all of the management contents listed below, but rather are a selection from the list below to fit the client needs (sometimes things other than this list as well), and can be made into a concrete contract.
Here, to make the responsibilities of the CMR’s management easy to understand, the contents have been split into three parts: Design, Order, and Construction.
[Contents of CMR’s Main Responsibilities]
(1) Design Steps
1. Design applicant assessment
2. Advice for client regarding designer selection
3. Advice for client regarding designer contract
4. Examination of plan (in terms of execution, cost, schedule)
5. Suggestions for VE on design
6. Suggestions for execution schedule
7. Examination/suggestions for construction budget
(2) Ordering Steps
1 Proposal for order division (construction work assortment)
2. Ordering method suggestions
3. Contractor recruiting, selection advice to client
4. Advice to client regarding contractor assessment, qualifications
5. Construction work cost calculation support
6. Draw up construction work undertaking contract
7. Advice to client regarding contract
(3) Execution Step
1. Coordination among contractors
2. Draw up process plan
3. Work process management
4. Check the detailed construction drawings from the CMR’s perspective
5. Check the quality control to be performed by the client (from the CMR’s perspective)
6. Check the ordering of labor, equipment
7. Contractor evaluation
8. Invoice management/payment management
9. Cost management
10. Report to the client regarding construction progress (work schedule, construction costs etc.)
11. Manage documentation regarding construction
12. Technical support and backing/settlement of disputes regarding contractor complaints
13. Forming an information transmission system to prevent information misunderstanding
14. Present at intermediate and final inspections
15. Confirmation of document handover
16. Draw up work report
(Reference) A standard CM contract format is set by the Construction Management Association of America (CMAA), The Associate General Contractors of America (AGC), and the American Institute of Architects (AIA). Regarding the contents of the CMR duties, in the case of the CMAA, construction is a 5-step process segregated into: Pre-designing, designing, bid and acceptance, construction, and post-construction. According to the AGC, construction is described as a 2-step process: pre-construction and construction.
5. Required nature/ability of CMR
(1) Client and CMR relationship of mutual trust
In the CM system, the CMR functions as the assistant and proxy for the client, and it is his greatest responsibility to protect the client’s interests. Because of this, the major duty of the job is a relationship of mutual trust with the client, and therefore the CMR must be someone of high ethical standards.
For the client, the CM system is not a “miracle cure”. It is necessary for the client to be fully aware that if the CMR does not have the nature or ability required for this post, the client’s risk and costs may rise.
(2) Independence from designer, contractor
There are cases when the CMR fully understands the client’s desire for quality, work schedule, and cost, and therefore steps into the client’s shoes, and takes control of the designer and contractor. In that case, the CMR is required to have a separate position from the designer and contractor as a general rule.
(Note) In Japan, in the current state where the CM system is not spreading, there may be a case where designers and contactors, having skills and abilities as a CMR, may take on a CMR role. However, it is preferable as a general rule that such a contractor or designer does not handle construction or design for a CM project.
However, the above will not apply if the CMR is, in case of the “At Risk CM”, is identical to the independent contractor (which is specified by the Construction Act). The CMR may then surpass its original role, and can perform management duties for the client via contract.
(3) Required abilities of a CMR
A CMR, as explained below, requires specialized experience backed by a high level of ability. It is not necessary for all of the following abilities to be possessed by one person, but rather a team of people endowed with them.
・ Planning, purchasing, and executing management ability
・ The ability to understand the designer’s philosophy, and to review and revise design documents
・ Understanding of the varieties of construction work and the ability to propose order divisions
・ The ability to manage contractor complaints
・ The ability to regulate work schedule, quality and cost to the client’s satisfaction
・ The ability to manage contractor payments (precise checking of invoice accuracy)
・ The ability to check the construction drawings drawn up by the contractor
・ Understanding of the work contents of each division regarding specialized contractors, their business conditions/features, as well as industrial relations etc.
・ The ability to make reports and documentation for the client
・ Practical business ability related to construction work contracts and construction industry business management
• Risk management ability: disasters, project alterations, work schedule alterations, cost fluctuations etc.
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III. An Introduction to The present state of needs in the Japanese Market for the CM System

1. The Situation for Needs and Use of the CM System
(1) The Market Needs of the CM System
According to the “Survey of the Current State of the CM System in Civil Construction” (March 2001, effective response: 66 companies) conducted by the Research Institute of Construction & Economy (Kensetsu Keizai Kenkyujo), 90% of major civil clients with large of annual orders recognized the CM system, and 70% have undertaken at least some kind of approach to the CM system.
According to the “Survey of Order Processing for the Public Construction Works by Local Public Bodies: The status of Using External Assistance and Implementing the CM System” (February 2001, Effective response: 673 companies) conducted by the Research Institute of Construction & Economy (Kensetsu Keizai Kenkyujo),71.6% of the local public bodies consider that it is necessary to recieve assistance from an external party or parties for construction order processing. Among responses, the main reasons for receiving external assistance (multiple answers allowed) were “Need Professional Knowledge and Skills” (57.2%), “Can Expect to Improve the Efficiency of the Business” (23.6%), and “Insufficient Technical Staff” (15.4%).
Also, 21.5% answered that they would like to use a form of CM service if such a service is available.
2. Background to Implementation of the CM System in Japan
(1) Changing Client Conscience
The present construction/manufacturing management system in Japan has, except for public construction works where the separate purchase system is used, mainly used the package contract system in practice. Under the package contract system, the General Contractor has been carrying out the construction management, as well as taking the responsibility for securing the quality, as well as lightening the risk and labor for the client. This has been of great merit for the client.
However, in the rapid upheaval of the economic environment surrounding clients, consciousness of costs has been rising. On the other hand, technological strength of specialized contractors has been enhanced, and the individual clients themselves have started seeking more diversity in construction/management systems. For these reasons, people have started focusing on the CM system from the following perspectives:
a) Transparent cost structure
b) Transparent subcontractor selection and purchase process
c) Understanding of what is a fair and reasonable price
d) Securing quality
e) Reinforcement of purchase departments
Especially in Japan, because of cost structure transparency, there are large expectations that the CM system can be a viable choice over the package order system.
It is conceivable that the CM system will come to be expected for local public bodies.
It is conceivable that the CM system will be a certain expectation mainly for local public bodies, with a shortage of engineers, in perspective of complementary supplementation for engineers as well as functional enhancement of clients in the stages of design, order and construction.
Also, due to implementation of the “ Act for proper processing of public construction tender and contract ” etc., the amount of work required of public clients is expanding, such as request for disclosure of information about tender/contract. To meet the swelling requirement, there may be a need for local bodies for enhancing their ordering function in a shortage of their own engineers.
In this case, there will be additional duties for the public engineers, such as selection of CMR, finalization of contract contents, supervision, assessment of achievement etc.
(2) Designer’s conscious change
Some designers have an experience in management work through management services carried out from the planning stage as an engineer for the client, in occasions such as an overseas governmental development assistance project. In Japan, the CM system has been considered as a new business corresponding to the client’s conscious change. Some companies are enhancing their organization to undertake the CM business through actual CMR services rendered to civil construction work.
(3) Contractor’s conscious change
Corresponding to the client’s conscious change, the contractor’s conscious regarding the CM system is also changing. General contractors have been demonstrating their high management ability in the package contract method, and have had relatively less concern about the CM system. However, recently, they are increasingly concerned about the CM system as a fee-based business, corresponding to the needs from clients who seek transparency. Also, some general contractors are restructuring their organization to be able to undertake the CM business.
Specialized contractors have also had less concern about the CM system except for some facility construction companies, as it has been a trend that they work for a general contactor as its subcontractor.
However, there have been increasing expectations towards the CM system among specialized contractors in the circumstance that their technical skills have improved, and they are now trying to avoid receiving an order from a prime contractor at a low price. The CR system increases opportunities for specialized contractors to directly enter into contract with the client through separate order placement or a public recruitment of specialized contractors.
“Innovation strategy for specialized contractors” prepared by the Ministry of Land, Infrastructure, Transport and Tourism in July 2000 pointed out that the CM system would be a big business chance for specialized contractors having excellent quality and skills.
(4) The Activities of the Japanese CM Association
To meet the citizen needs, “We would like to construct economically and efficiently high quality buildings”, and boost consumer satisfaction (CS), the “Construction management Association of Japan” (CMAJ) was established in April 2001 with the following activity goals:
a) The CM system’s wide reach to engineers and consumers
b) CM system research/investigation
c) CMr training
d) Exchange and coordinate with domestic and overseas organizations
The association is presently promoting activities to prepare ethical rules and CMR qualification requirements, aiming to reconstruct a sound construction/manufacturing system and train engineers to be a professional with a sense of ethics.
3. Expectations on the CM system
The practical aims for the CM system in Japan can be seen below:
• Due to the diverse manufacturing/construction management systems available, the client has a wide range of choices available
• The cost structure is completely transparent to the client, who can therefore grasp a reasonable price
 While there are cases where the cost is reduced by making cost structure transparent, there is also a perspective that total cost, including construction costs, would be cheaper with the package contract system.
• Securing the ordering process’s transparency and accountability to the stake holders (share holders, tax payers etc.)
・ Practical use of private sector technical management skills for each step in the designing, ordering and execution construction process
・ There are opinions that the cost and construction time can be reduced by obtaining assistance in design VE or design alteration from a CMR, or by asking the CMR to take care of process coordination. Also, for the sake of VE implementation, employment of a CMR who has an excellent ability to withdraw the know-how from the contractor and specialized contractors can be considered.
・ Thorough quality control
・ Reinforcing the ordering system (complementing technical experts in the ordering party supplementally)
・ Backing of highly skilled/good quality contractors (in particular specialized contractors)
In the USA, the CM system stresses the importance of assuring quality and on-time results.
Also, the reasons why the government agency in the USA adopts the CM system include office functions for handling technical complaints, complementing staff supplementally (considering seasonal fluctuation, too), and improving design contents. Controlling cost increment by preventing a delay of construction schedule, cost reduction by reducing and controlling labor cost are targeted, but general cost reduction is not a focus.
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IV. Heeding the Matter of Practical Use of the CM System

In Japan, in the present climate where the CM system is not spreading enough, heeding the following matter is necessary for the possibility of practical use. Furthermore, there are a few topics below that are common even in advanced CM system countries such as the USA.
1. Public Position for the CMR
Presently there is no public position for the CMR according to laws and ordinances etc.
Concerning laws and ordinances for a public position for the CMR:
a) Because the practical use of the CM system has just been started in Japan, it is possible that public regulation could prevent the CM system from developing soundly.
b) In the USA, with the exception of public construction works in Idaho, it is not necessary for a CMR to hold an official license.
c) Due to the requirement that official qualifications for a license be at an agreed upon minimum level, the official licensing is not considered necessary as of this moment.
(Note) In Idaho, according to state law, under the CM system, a CMR is required to hold a license to perform public construction. In order to receive a license, a CMR must have experience and merit in the CM field, and must successfully pass an exam conducted by the state.
However, for the establishment of a trusting, ethical relationship between the CMR and client, it is necessary to exclude and punish unethical workers. It is desirable that the CMR related organizations promote activities to establish a CMR rating/evaluation system.
2. CMR Independence
Because it is the CMR’s duty to guarantee the client’s interest, and in order to secure the trust for the CMR, it is necessary for the CMR to be not only ethical but also independent from the designer and contractor in the project.
When establishing “Official Ethical Rules” on the relationship between the CMR, the designer and the contractor in the CMR industry group, it is necessary to also consider the independence.
(Note) In the USA, when a CMR is performing public utilities construction, it is not allowed for the CMR to be the designer or contractor. In Idaho, there is clear mention on the official CM permit that this is prohibited. However, as with army engineers, there are some cases where the designer and the CMR can be the one and the same, and in some small-scale construction projects in California, it is treated as an exception.
3. CMr Qualification System
The individual CMr who becomes the CMR team leader must have high ethics, as well as a high level of ability for CM duties such as management experience and knowledge.
In Japan, the present situation is unlike in Europe and the USA. There are no private training programs and qualifications for CMr’s, and the database that holds all of the CMR’s achievements is still not completed. Therefore, for immediate measure, when a client chooses a CMR, it is suggested that the client request that the CMr hold qualifications such as architectural, engineering or managerial qualification.
When the CM system becomes established and CMr’s achievement information is stored, it could be thought that the management ability is a more important factor than qualification in a given specialty, and could therefore lead to the need for a new private qualifications examination system.
It is expected that in order to contribute to the client selecting a CMR, the CMR related organizations will study on the CMR training program and the private CMR qualification examination system.
(Note) The CMAA (Construction Management Association of America) implements standardized levels for the Certified Construction Manager (CCM) certification program.
4.Responsibility and Guarantee/Insurance Regime
In the CM system, the risks relating to construction completion in a bulk ordering system, which general contractors as prime constructors bear, are given to the client and the contractor. It is generally said that each constructor bears the risk with construction dispersed by construction type, and the client bears the risk relating to the completion of overall construction.
Because in the “At risk CM”, the client and CMR will share the risk of the client, it is necessary to clarify in the contract the scope of the responsibility and risks for the client and the CMR respectively (e.g. Guaranteed maximum price (GMP) etc.).
(Note 1) In the package ordering system, the risks relating to the construction completion which general contractors bear include;
1) Risk relating to construction (keeping construction schedule, securing quality, complying with construction budget, work safety etc)
2) responsibility obliged to bear by law (prime constructor’s responsibility based on the Construction Industry Act, providing a chief health and safety officer based on the Industrial Safety and Health Law, disposal responsibility based on the Waste Processing Act, civil law, defect bond responsibility based on the housing quality control promotion law etc.)
A CMR can basically be thought of as not being responsible as a prime contractor.
However, in case of the “At risk CM” system, the CMR makes direct contracts with specialized contractors, and the CMR acts like a contractor, it is necessary for the CMR to consider the necessity of granting the Construction Industry Act and the possibility of an application for the prime contractor responsibility based on the Construction Industry Act.
・ Prime contractor responsibility based on the Construction Industry Act
・ Establishment of responsible party in accordance to the Worker Health and Safety Act etc.
・ Establishment of responsible party in accordance to the Waste Processing Act etc.
In the CM system, because it is the client’s sole responsibility to bear the risk relating to construction completion, it is required to prepare various schemes (bond, insurance etc.) listed below to avoid risk. Furthermore, as a precondition for the bond and insurance, the scope of role and responsibility of the client, CMR, designer, and contractor etc. upon introducing the CM system must be clearly stated in the contract etc.
・ Performance guarantee system and payment guarantee system
・ CMR specialist compensation responsibility insurance regime
・ Contractor error compensation insurance regime
It is necessary to consider an “Open System” for the CMR system projects, where the facts are disclosed for the market to eliminate CMR’s who demanded the designer or contractor to provide unfair interests, caused damage to the client due to the error of the CMR, or produced a significant defect.
5. Way of Thinking about Cost
(1) Making the Cost Structure Clear
One of the key distinctions of the CM system is that because the construction is classified into categories, the actual payment for the contractor (and specialized contractors etc.) can be immediately grasped by the purchaser.
In the bulk purchase system, the construction costs are:
a) The direct construction cost of each construction classification
b) Hypothesized expense
c) Actual management expense
d) General management expense etc.
In many of the cases, it is organized like this, however, because the relationship between the purchaser and the general contractor is an “entire fee contract”, the contractor is at the freedom of his own discretion to make subcontracts as he wishes, and in general the amount of cases where the purchaser knows the payment of the subcontractors are few and far between.
In the CM system, because the CMR makes clear the calculations for the prices of all the specialist construction workers, the purchaser can grasp all of the payments and prices. Furthermore, because the CMR audits all of the contractor’s yields, and does all of the actual price management, it is much easier to grasp the cost structure in the CM system than in the Bulk purchase system for the purchaser.
Furthermore, in the CM system, because the cost management that is done by the general contractor in the package purchase system is handled by the client and the CMR, we should note that the workload on the client side is augmented, and the risk (e.g. increment of construction fee) will be involved
[Note] About the “Cost + Fee system”
In the USA, the “Cost + Fee system” (Note) is becoming established. The CM System is adopting the “Cost + Fee system” because the cost breakdown is easy for the purchaser to grasp.
(Note) The “Cost + Fee System” is a legally disclosed payment system that consists of the contractor’s construction costs (Order fee, raw materials fee, workforce fee etc.), and the contractor fee (remuneration.)
The “Cost + Fee System” are classified into fee and cost, and cost is again classified into the following:
a) Assorted construction work and contractor for the purchased money
b) General condition cost (classified into hypothesized cost based and regulated in the contract)
In this case, the CMR is:
a) Construction Costs piecework payments
b) General Condition costs calculated actual expenses etc. inspecting of the invoices by the contractor, and informing the purchaser of the cost breakdown.
The “Cost + Fee System” is construction fee piecework payments and general condition cost and with the actual expense calculation, because the purchaser is able to grasp a fair and reasonable price, it can be said that it is easy for the cost to be lowered for the purchaser.
In Japan, the “Cost + Fee System” is rarely adopted in the private sector, (Note), Although in the case of conjugation with the CM system, it can be thought of as necessary of consideration.
(Note) The “Cost On System” where the client, contractor, and subcontractor enter into a contract after deciding the subcontractor’s fee and the prime contractor’s management fee can be considered as a kind of "Cost + Fee Systems".
(Note) In the USA, in the case of the “At Risk CM”, it is often the case that at the stage of planning when the total amount of construction costs is decided, similarly to the “Cost + Fee” system, the Greatest Maximum Price (GMP) is established, called the “Cost + Fee with GMP.”
(Reference) Not only the construction cost payments, the“ Cost + Fee system” is sometimes adopted, which divides the direct payments and compensation to the CMR
(2) A Consideration of CM Duties
In the CM system, the CMR is compensated for his CM duties. This compensation is called the “CM Fee”. This fee consists of management fees (the CMR’s managerial duties are the main expense.)
In the US CM System, the CMR’s compensation is written in the contract either as a “CM Fee”, or as “Lump sum fee” compensation.
The basis of the CM fee is mainly dependent on the scope of the CMR’s management duties, the scope of the project, and the amount of work etc.
(Note) Regarding the CM fee amount, it varies depending on the scope of the CMR management duties, and it is generally 2 to 5% of the total construction costs. However, in Japan where the situation differs from the USA in terms of the completeness of the design documentation, the size of the specialized construction workers etc., a thorough consideration about the fee calculation is necessary.
Again, in the case of the “At Risk CM”, there is a tendency that the bigger the risk, the bigger the amount of duties and affairs (and fee.)
In the USA, according to the Construction Management Association of America (CMAA), the CM fee is the profit that the individual CMR takes. However, the Associated General Contactors of America (AGC) say that the CM fee is the allowance from the CMR’s branch office, the general management fee, capital expenses, and profits. These 4 items define the total CM fee.
There is one more element to be considered in the cost structure for the general management expenses (costs). In the “At Risk CM”, the subcontractor’s fee is also included, which makes this section increase.
As the CM fee is unfamiliar in Japanese construction industry and is not included in the process of integration of fees, substantial investigation and clarification about the difference, as well as measurement of the lump fee contract of a packaged contract is required.
(3) Contingency
Up until now with the package purchase method, the contractor and general contractor have been responsible for the risk. However, in the CM system, the purchaser is responsible for the risk. In the ISA, projects that have adopted the CM system that have an unpredicted event befall them, and have the cost rise due to unpredicted additional construction and design changes often fall back on “Contingency” (emergency budget in case of unplanned events/necessary changes.)
The contingency plan by the purchaser takes into account other similar projects and payment for construction workers and construction that is not normally in the budget. If the purchaser asks the CMR about the contingency, the CMR will offer the necessary advice, although normally the purchaser’s originally announced budget will not change.
If the project proceeds as originally planned, then the contingency fund is saved. However, if the construction project takes more man-hours than expected etc. then there are cases when the contingency fund may have to be used.
6.CMR Selection
In the case that the CM System is adopted, the success or failure of a project is dependent upon the purchaser choosing a CMR with ability.
If a CMR with a poor disposition and ability is chosen, then the purchaser’s risk and costs are in danger of rising.
At the time of CMR selection, the purchaser must not look only at the CMR fee, but also at the ability, experience and comprehensive evaluation in order to choose the correct CMR. The purchaser must have ability in understanding the assessments of the CMRs.
The ideal method of CMR selection is not solely made on the price alone, but also must evaluate the CMR on management ability, appropriateness for the project and the ability to advise and propose ideas well. In Japan, the public works construction proposal system (note 1) etc. can be seen as reference for the CMR selection method (note 2.)
Note (1) The open proposal system based on the “Action Plan for Improvement of tendering and Contracting Procedures”, in January 2006 is considered to be required for procurement of CM works of certain scale in the public works sector that are subject to the WTO Government Procurement Agreement.
Note (2) There is a strong opinion that the method of CMR selection in public construction work should be the “Quality Based Selection Method” (QBS.) The QBS Method is recommended by the “Union of International Architects” (UIA.) The QBS method stresses the choice of “person” and ability over “price.” However, in Japan, it is normally the case that the local governments choose price as the main factor of importance.
At the time of choosing a CMR, much consideration must be given to the scope of the CMR’s affairs (duties/responsibilities), and to judge whether the CMR’s qualifications and achievements are suitable for the scope of affairs.
In Japan, the CMR system is in an early stage of practical use, and the development of the CMR is an issue in the future. For some time to come, design offices (including both civil engineering and construction) and general construction vendors who have CMR experienced in oversees construction works are considered to be the major players who perform the management work as CMR as well as specialized CMR vendors. When CMR system becomes established in Japan in the future, CMR selection is considered to occur with performance and capability evaluation.
7. CMR Contract
The contents of the contracts in the USA for the “Management Duties Contract” between the purchaser and CMR can be thought of as very similar to the Japanese “Business Consignment Contact” (a contract of responsibility) (Note 1).
Note (1) Quasi-entrustment is a type of entrustment that only includes works that are not acts of law, and to which the entrustment rules of Civil Law are applied.
(Reference) Although some say that the “Management work contract” between the purchaser and CMR is a “contract” from the legal standpoint, the rules in the standard agreement of both CMAA and AGC indicate that it is considered to be very similar to the quasi-entrustment contract in Japan.
In Japan from now, it is necessary for the smooth practical use of the CM system, for the scope of management duties, and power and responsibilities, standard management duty contract (CM contract), to be adjusted. Also, in the case of the CMR taking part in the planning prerequisites, the planning contract, construction work superintendence contract, and the construction work undertaking contracts all need to be thoroughly examined.
8. Practical Use of Information Technology (IT) and the CM System
Presently, there is much progress in the Business to Consumer e-commerce marketplace. Many types of manufacturers and consumers (purchasers) directly connect via e-commerce over the internet. In the construction business too, there is progress being made by the many purchasers who are using electronic bidding and electronic ordering, having blueprint conferences over the Internet, and budget meetings over the Internet as well. (Note 1) This flow of IT reform has changed things that have hitherto been difficult for purchasers to grasp (especially for a purchaser who has had few previous construction transactions,) such as construction equipment and raw material prices, as well as contractor information. This has now become open, and it should be made clear that the bulk ordering method in terms of cost, and risk, if compared the CM system, the purchaser has much more choice in the CM system.
(Note 1) The Ministry of Land, Infrastructure and Transport has made information on the subject of electronic bidding and electronic ordering etc. in the “Ministry of Land, Infrastructure and Transport CALS/EC” (Public Utilities Integration Information system) and is making positive progress.
Again, in the CM system, there is the possibility of increased smooth intermediation and agency between the CMR, the purchaser, and the contractor. If the B to C marketplace develops well, the CMR may be able to use IT to make coordination smoother.
In the private sector construction marketplace, CMR’s and specialized construction workers etc. are already registered on the B to C electronic market. The consumer can therefore make a CMR selection, and with that support, bid contractors etc. The CM system is developing in accordance with IT use, and construction work can be reformed.
In order for IT to be introduced successfully to the CM system, the following steps are necessary:
1. Construction of the database which include evaluation about construction and management abilities of specialized construction workers.
2. Further investigation is required into the registration of CMRs on the electronic market that create security measure for purchasers.
9. Restructuring of the Construction industry
Because the construction and manufacturing system historical background and culture is unique, it can be thought that it would be difficult to import the Western CM system as is into Japan.
In the case of “The form of the Japanese CM system,” the designer, general contractor, and specialist construction workers etc. have been, up until now, serving their functions in the Japanese Construction Manufacturing system as expected. Much thought is therefore necessary to be put into what the roles would become and change with the introduced CM system.
(1) The Designer and CM system
Up until now in Japan, there has been consideration about the “Pure CM” as a “Japanese version of the CM system” mainly in the design world. In the “Pure CM” in Japan, the designer acts as the client’s manager, and depending on the type of project, makes a package purchase to the general contractor, or makes a separate order to a specialized construction worker.
In Japan it is often the case that the designer gives the purchaser advice since the project planning stage, with it possible to be seen as fulfilling the role of the CMR. Again, even in the advanced examples in Japan of “Pure CM” system projects, the planner can be seen as fulfilling the role of the CMR.
However, because the CMR can guarantee independency from the designer, in projects where the designer becomes the CMR, it is as a general rule not hoped that all of the planning duties are performed collectively under the same responsibility.
In the case when the designer firm etc. becomes the CMR, it can easily be pointed out that the construction knowledge management ability is much lower in terms of the package purchase system than that of a general contractor. However, there are planners in overseas management offices who, more than just taking part in planning, have more than enough construction management ability.
Again, in cases where the planning office etc. has already become the CMR in the project, it can be seen that these companies are proactively hiring technicians with construction management experience and planning to get more.
It is of note that in Japan, working diagrams supplement design documentation in the purchase/ordering phase, which are not to the quality it should be. Improvement of quality of the design documentation in the purchase/ordering phase is a challenge however, when implemented in the CM system in Japan.
Thus, during the design phase, the CMR should perform design management, including review of the design documentation from the perspective of implementation, and if necessary the CMR may redesign or perform design VE. It is necessary that the designer be fully aware of the role that CMR plays during design phase.
Boundary of each work type of construction work should be clearly defined, and as necessary CMR may review order partitioning, in terms of organization, method and schedule, with designers.
In the case of construction work, supervision of construction work and management work done by the CMR may sometimes overlap, and the scope of work for both should therefore be reviewed.
(Reference) In the USA, completeness of design documents is required to be high, though on the other hand there is no task such as “Construction management” defined in Building Acts and Architect Acts.
2) Client and the CM system
 Some clients regard the CM system as a type of all-purpose cure for cost reduction by making the cost structure and ordering process transparent. However it is absolutely not. Clients may rather take the greater risk of completion of the work under the CM system than the existing packaged contract system. Clients need to pick the best system for construction, production and management which only having the proper understanding of the CM system can provide.
 While clients depend on a prime contractor in the existing packaged contract system, they should change their awareness in this regard and grow out of such a dependent mindset. Also, clients are required to build good partnerships with designers and contractors based on clearly defined contractual relationships through receiving adequate advice and support from the CMR.
 We see such movement when comparing the CM system with the existing packaged contract system and reviewing the pros and cons of each from the standpoint of a client (developer etc.) in the private construction sector.
(3) General contractors and CM system
 Domestic (Japanese) general contractors are expected to play the role of CMR in the “At Risk CM” by using their full capabilities to enforce management.
We should consider issues, in this regard, such as the relationship between clients and CMRs, which may be through entrustment or contract, and whether the CMR must have a proper construction license under Construction Industry Law (see Note 4 on page 5.)
 It is considered to be effective to overlap the design phase and the construction phase slightly in order that the CMR and “At Risk CM” can drive the construction work (Note 1.) However, the CMR may be required to have a certain level of management capability and experience that general contractors possess.
Note (1) For a method where design and construction can be undertaken simultaneously, there is a "Design build (DB) system" in the USA, as opposed to the “At Risk CM.” Also in the USA, for the purpose of early completion of the construction, once the design for the basement is completed, even before completing the design for the ground floor, it is considered that the “At Risk CM” has been created, because the FastTrack is implemented in commencing the basement section..
In the “Pure CM”, in the case that the CM determines that it would be benefit the client, the CM may be able to prevent problems (e.g. failures etc.,) and improve the efficiency of the management by collectively ordering various types of construction from the general contractor, or ordering only one type of construction in a project with multiple construction processes to a general contractor.
As of now, while some general contractors are establishing an organization handling the CM system inside the company, considering it as a fee business, other general contractors are not proactive in regards to the CM system. It is anticipated that the CM system is considered a business change where general contractors can exercise their management abilities and therefore proactively consider introducing the system in the industry.
(4) Specialized Construction Workers and the CM System
If the CM system spreads in the industry, through separate ordering, specialized construction workers and the like, will enter directly into a construction contract, and the specialized construction workers can therefore exercise their technical proposal abilities. Because the specialized construction workers have high quality technique, it would lead them to a big business change.
Also, if an e-commerce and specialized construction business becomes an IT base (e.g. database), this trend may be accelerated.
The actual trading conditions of a prime contractor and a subcontractor in the package ordering system, according to the “Research for the Actual Business Conditions in the Specialized construction industry” conducted by the Ministry of Land, Infrastructure, Transport and Tourism (November 2000), the “Limit price” ordering” where the prime contractor demands a large discount without any reason, and the fact that the subcontractor unilaterally has to bear the construction waste disposal etc. are big issues. In the CM system, because a written contract and thorough discussion of the estimation are required, some effects can be anticipated. For example, the traditional “wet” business relationship (e.g. work commencement before contract is made with an oral agreement) is rectified, and an explicitly stated (e.g. through a contract etc.) relationship will be more common.
On the other hand, upon introducing the CM system, it will be necessary to cultivate specialized construction workers who can handle multiple types of construction by workers of differing types of specialization working together, and who can integrate multiple types of construction on behalf of the general contractors.
Also, regarding the CM system, there is an indication that the coordination function of the specialized construction workers may be deteriorated at the site of each construction type for the separate ordering. Therefore, the CMR would be required to make the construction responsibility system at the site under a smooth liaison with the specialized construction workers.
Furthermore, in the CM system, because the specialized construction workers will bear the responsibility and the risks relating to the construction, specialized construction workers need to build a construction standard, defect guarantee system etc. between specialized construction bodies etc.

V. Issue and Application of the CM System for Public Construction Work

1. Study of CM System in Japan
Since the early 1990s, it has been indicated that the CM system is needed not only for public construction works, but for purchasing for construction work in general.
The reasons why the CM system is necessary for public works clients are;
1) The CM system will increase options for the client with various types of construction management systems.
2) The CMR that conducts design, order, and execution duties can support the public clients.
3) The CM system will make construction costs transparent
The Ministry of Land, Infrastructure and Transport (MLIT) has been addressed with the challenge of introducing the Japanese CM system. In particular, MLIT feels that the CM system will bring about significant benefits for construction works conducted by local governments. From this perspective, MLIT has set up “The CM System Study Working Group” which consists of academic experts, as well as representatives from private sectors and from public sectors.
In addition, since January 2001, MLIT launched a trial application of the CM system with Kiyosu JCT North, using construction work management of the private sector. In the construction management, a new bidding and contract process was implemented. At the same time, assessment and follow up of the construction work was conducted as well., MLIT installed “Assessment Working Group for Trial Projects of CM technology” in order to evaluate the CM system by studying various frameworks for bidding and contract creation based upon other types of management technologies and conducting next trial projects.
2. Demands for the CM system in Local Governments
When trying to apply the CM system to public construction work, it is expected that the local governments require the CM system because these local governments sometimes do not have engineers to manage their construction works. These local public governments will therefore be major CM system users. For some local governments that have sufficient engineering resources, the CM system is necessary only if applied to difficult or large scale public construction works
According to local governments taking a progressive approach to the CM system and the “Study on Using External Assistance in Local Public Sectors”, needs for the CM system can be summarized as follows;
(a) Demands for Design and Procurement
○ The CM system would enable a more detailed document design check from the construction perspective.
○ Using the CM system, design change costs would be lowered.
○ Via Design Value Engineering and design review, the total construction cost would be reduced.
○ The CM system would be necessary for technologically advanced or non- repeatable construction work.
○ The need for consultation from experts regarding purchasing scope and purchasing method would be aided with the CM system.
○ There would be increased purchasing process transparency with the CM system.
⇒MLIT found that there are particular requirements for the CM system that provide consultation and support to clients at the design and purchase stage.
b) Demands for Cost Management and Payment
○ Increased transparency in cost structure and accountability to taxpayers
○ The contract value, its breakdown, and subcontracting value should be made clear.
○ Payment and billing procedure, (payment vs. progress/completion) should be assessed from a technical perspective.
⇒MLIT found that there are requirements for a transparent cost structure and cost management system.
c)Demands for Supervising and Inspection
○ To receive support for supervising and inspection, (currently difficult to receive.)
○ To receive advice from experts for construction schedule and quality assurance.
○ To improve efficiency in construction using the CM system.
⇒MLIT found that there are requirements for effective construction management for the CM system.
3. Purpose and Expected Benefits of the CM system
(1) Purpose and Benefits of CM system
○The purposes and expected benefits of CM system for public construction work are as follows;
・ Support for client procurements in terms of quality and quantity (“quantity” is defined as support for engineering resources)
・ Increased transparency in cost structure
・ Want to find an appropriate price level (results of design on value engineering and various management)
・ Maintain thorough quality management
・ Enhance clients’ capabilities at the design and procurement stage.
・ Increase transparency in procurement process
・ Prevent corruptive behaviors and increase accountability to taxpayers
・ Reinforcement of supervising and inspection
・ Training clients’ engineers (enhancing management capability)
* By introducing the CM system, engineers in purchasing organizations are requested to perform higher level management, such as selecting a CMR, defining contracting scope, supervising, and assessing results. Types of CM system may differ depending upon purpose of the CM system.
(2) Support of Client’s Work
The CM system functions effectively for local governments in which engineers are insufficient for managing their public construction work in the following 4 cases.
Case 1: The local governments do not employ engineers to manage their public works. The local governments always have a dearth of engineering staff compared to the volume of public construction works that need to be managed.
Case 2: The public construction work in which high-level technologies are necessary, and the client’s engineers do not have appropriate technological capabilities, or in the case that the client’s engineers are requested to have high-level management capabilities.
Case 3 The case when the client’s engineers are not available temporarily when multiple construction works are going on in parallel. The case in which multiple contractors (designers or builders) are involved in a single construction work and the client’s engineers are occupied by coordination work among these contractors.
Case 4 During the long-term construction work, it is sometimes necessary to move the client’s engineers to other posts..
4. CMR Application Model for Public Work Clients
(Case A) Advisory Service Model
In this model, the CMR renders advisory services for clients by inspecting design drawings, design value engineering, as well as defining scope, and purchasing method.
(Case B) Cost Management Model
In this model, the CMR performs a part or all of cost management work including the construction cost estimate, cost analysis and payment approval.
(Case C) Construction Management Model
In this model, the CMR performs approval of drawings, coordination of contractors, quality management, and schedule management.
(Case D) General Management Model
In this model, the CMR performs a part, or all of the construction management work as an assistant to the client throughout the design, order, and construction phase of project.
MLIT is aware that some public work clients tend to feel that the CM system would be difficult to utilize effectively because its procedure is complicated and restricted. However, the CM system is not always as difficult as said public work clients may feel.
As mentioned in Case A, advisory services for design, procurement or consulting services are considered on occasion to be the CM system. There will likely be large demand for these services from local governments that have an insufficient number of engineers to manage public works.
The CM services can be classified from Case A to Case C. Such individual service items may be carried out individually or as a whole.
In particular, the case when many contractors involved in a project in which a single and consistent communication relay is necessary to coordinate the contractors, the CMR is likely to act as an assistant to the client for all construction management work (as mentioned in the Case D above.) It should be noted that there are some opinions that the advisory service, or technical assistance to public works clients by external organizations is not considered as the CM system.
However, the CM system aims that the “CMR performs a part of, or all of construction management work on behalf of public work clients in a neutral position in terms of technology throughout a design, procurement, and construction phase of project.” The CM service as mentioned in Case A is naturally included in the services provided by the CM system. For Case C and Case D, the CRM supports superintendent supervising services.
Because building works need construction supervision as stipulated by building codes and authorized architect law, the CMR must have an equivalent qualification in order to share management roles with authorized construction supervisors.
(Reference) Public Construction Work Superintendent
1. In public construction works, the client’s engineers are appointed as authorized superintendents for both civil and building works. These superintendents are authorized to perform the following duties based on the Construction Contract Agreement;
・ To give instructions to, give approval of, and discuss with the contractor regarding performing contract obligations
・ To create and provide detailed drawings for construction work based on design drawings, or to approve detailed drawings
・ To control, inspect, and monitor the construction process upon based design drawings
2. Because some public works clients do not have sufficient engineering resources, superintendents for such organizations have multiple tasks to perform at the same time, resulting in a very heavy workload. These organizations therefore require assistance from outside experts in order to complementarily supplement their management capabilities. According to Building Codes and Authorized Architect Law, authorized supervisors are required for building works even if they are public building works.
3. As for civil works, there are certain cases in which superintendents take on the role of authorized supervisors, with construction consultants assisting them.
Management services as mentioned in Case C and Case D intend to support superintendents from the client’s side and these services differ from those of authorized supervisors required for building works. However, it should be noted that there is a distinction between CMR management services and the control of authorized supervisors because both activities may actually be similar at construction sites.
4. In building works ordered by public work clients, authorized supervising tasks tend to be outsourced.
Important parts of construction work, which are critical to quality are outsourced to parties other than design contractors. (In local public governments, occasionally design contractors perform supervising work for construction of the building they designed, much in the same way as can be seen in the private sector.)
5. Basic Approach to Using the CM System
(1) Basic Understanding
The CM services and duration of services that are required by public clients vary depending on the client’s organization and projects.
Consequently it is useful to define the “Implementation Procedure,” which stipulates the scope of CM services and role and responsibility of the client and CMR for each project.
* Even for clients who have an annual CM service contract with the CMR, it is useful to define the “Implementation Procedure” for the individual project base.
It is perceived that this “Implementation Procedure” will be changed in order to be applicable to all the projects throughout the year when the scope of the CM services can be defined for the yearly contract.
The “Implementation Procedure” should include the definition of the construction work under the CM services, scope of CM services, selection method of CMR, criteria of selection, and how to apply for the CMR.
(2) The Scope of CMR Services (example)
a)Planning, Purchasing Advisory Service Model (Case A)
- Technical advisory service for the design and procurement phase
- Advisory service for selecting and evaluating the designer
- Advisory service for inspecting design documents
- Advisory service for VE on design and defining project scope
- Advisory service for procurement approach
- Advisory service for evaluating qualifications of construction contractor
- Advisory service for bidding and selection of construction contractor
- Advisory service for terms and conditions of construction contract
b)Cost Management Model (Case B)
- Advisory service for construction cost estimate
- Analysis of construction costs (construction classification)
- Evaluating invoices submitted by contractor for progress payments or completion payment
- Advisory service for assessing and adjusting costs incurred by design changes
- Payment administration etc.
c)Execution Management Model (Case C)
- Coordinating contractors
- Preparing construction plan
- Schedule control
- Review of detailed drawings prepared by construction contractors
- Review of quality management performed by construction contractor
- Reporting on work progress
- Contract execution related documentation/recording administration
d)Construction Management Model (Case D)
The scope of this model is any item listed in(1) ~(4)
* The above information is an example. Depending on the public client’s needs, the scope of the CMR’s responsibilities may be only some parts of the above information, or in some cases duties that are not mentioned in the above information.
(3) Organization and Qualifications of CMR
Organizations which play a CMR role are not only companies specialized in the CMR business, but architect design offices and construction technology centers which have experience in construction management for public construction works.
When architect design firms and construction technology centers are employed as a CMR, they must fully understand the client’s goals for the project. The main goal to be adhered to in the project may be the quality, schedule, or cost of the project. The CMR should be in a position on to represent the client and be independent from designers or contractors.
* In the future, CMR qualifications and prerequisites for should be studied by official organizations. In addition to such study, the official registration system in which potential CMR companies can subscribe will also be one of issues to be addressed. Through the registration system, MLIT will be able to collect information for the basis of selecting a CMR.
(4) CMR Selection
Ideally, the public sector construction work method for choosing a CMR would evaluate the CMR’s management ability, and technical proposal skills that relate to the project.
There is therefore a proposal system that can be thought of as adequate (elaborated in page 18, (Note 1).
CMR recruiting and application acceptance should be guaranteed unbiased and made abundantly clear, for example a public appeal system such as demanding a “CM Duties Written Proposal”.
In order to exclude selecting CMR’s for selfish reasons, a basic necessity is to prepare a “CMR Selection Criteria” that the selection will be made upon that is ensured to be clear.
Again, because there have been exceedingly few actual results for orders by public utilities, it is necessary to create a provisional selection criterion.
Examples of CMR selection criteria:
a) enterprise undertaking technological strength and experience (entrusted expected responsibilities for the project and similar successful prior results, as well as possession of technical personnel etc.)
b) CMR ability/experience (entrusted expected responsibilities for the project and similar successful prior results, the CMR team leader (CMr), and each team member’s qualifications, experience etc.)
c) CM Business plan proposal and validity for the CMR in regards to entrusted expected responsibilities for the project, appropriateness for understanding the nature of the project, operation plan, work schedule plan, operation technique etc.
d) Client system support (client system support, through the CMR team’s directions and operation enforcement, the client’s personnel management ability is effectively increased etc,) can be considered.
Especially if:
a) It is thought that technological strength should be considered an important factor.
b) Client system support (client system support, through the CMR team’s directions and operation enforcement, the client’s personnel management ability is effectively increased etc,) can be considered.
Especially if:
It is thought that technological strength should be considered an important factor.
For a CMR selection system, the establishment of a selection committee board can be considered, although the selection method and committee board construction, as well as choosing beforehand whether or not to disclose the reasons for the choices that are made, as well as the choice criteria must all be previously established. In order to ensure a clear choice, it may be relevant to bring in a specialist from outside to the selection committee board in order to independently monitor that the selection criteria are kept to.
(5) CMR Contract
In (Case A) ~ (Case D), the character of the management business contract between the CMR and the client can basically be thought of as “the level of trust” between the two.
Furthermore, although more consideration is necessary, in cases such as (Case A), when the CMR is an individual, he can also be thought of for part time work as a special government agent legal advisor etc. The business contract between the CMR and the client can be thought of as decided by the contents of the business venture, the scope of the business venture, the duration of the works, the CMR’s position (client, planner, builder etc. relations,) entrusted materials and method of payment, the rights and obligations of the work, non-disclosure agreement, re-peat consignment prohibition, business performance report, injury responsibility, contract release etc.
From hereafter, it will be necessary for even public construction to prepare a standard business management contract (CM contract) covering the scope of management affairs power, and responsibility etc.
Again, consideration is necessary for how, in the case that the CMR participates in the pre-planning, the planning contract, construction superintendence contract (in the case of architectural construction work), and construction work undertaking ought to be. Sometimes contracts are contracted for each project, and sometimes only for a certain period of time, regardless of certain projects.
6. Points to be Considered in CM System Utilization
(1) Bidding and Contract
In (Case a) ~ (Case d), there is no major constraint under current tendering and contracting systems because the CMR is the trustee of the work.
However, for some management operations the CMR is entrusted with, the public construction works client may need to review the consistency with current system. In particular, the interrelationship between the CMR supervising and inspecting operations for the client need to be fully organized in accordance to the public accounting law and Local Government Act.
Also in the process of CMR appointment, the client is required to evaluate comprehensively not only the price but also skill and experience of the CMR. Therefore, when proposal assessment is applied, a rational selecting criterion and selection system should be prepared. On the other hand, when assesments other than the proposal are applied, the interrelationship with the so called “automated award system” (as a general rule lowest bidder in target price range wins,) defined in public account law and Local Government Act needs to be organized.
(2) Estimation Method for Work management etc.
The total amount of compensation for the CMR’s management work can be measured by adding the primary cost (primary labour cost and direct cost) with the general management fee (which is calculated by multiplying the direct labour cost by a certain ratio. In the future, a better framework for calculating the value of the management work (for instance a specific calculation for the general management fee,) should be organized.
For the value of the management work that a CMR performs, a “Calculation Standard for CMR Compensation”, which includes the calculation method of the CM fee (CM compensation) and management cost, should be defined.
In case each of (case a) ~ (case d) are ordered separately under the current ccalculation system, too precise order partitioning requires common temporary work cost, site management cost and the general management fee for each type of work, and may therefore increase the cost. Thus great care must be taken in the partitioning of the order type.
(3) Performance Evaluation for the Management Work
When a CM system is introduced, the performance of CMR management work and the effect of introducing the CMR system should be fully evaluated in terms of public construction work. Likewise the evaluation result is expected to be utilized in the selection of the CMR for future reference.
(4) Responsibility of the CMR
When the CMR’s management work is primarily providing advise to the client, external responsibility for executing the business is attributed to the client.
However the contract should include a clause that states that if any errors that are attributable to the CMR are identified, the CMR must bear the responsibility.
When the CMR management work is entrusted under a quasi-entrustment contract, it is considered that the CMR owes General Legal Obligation but no-fault liability (such as the defect liability of a contract.)
However care must be taken in the contract of management operations with a CMR because the client could cancel the contract or claim damages if the CMR is considered to be liable. The contract should define liability, and liability insurance in particular, which is necessary in the event that damage is incurred by the CMR’s execution of management work (such as the review of a detailed drawing plan , or supervision of process management and quality management.)
When the CM system is implemented, it is expected that each order can be segmented into smaller units ,and one order is divided and then goes to multiple parties. Therefore attention must be paid to the construction of a structure that consists of responsible vendors and eliminate the gap between works, which could be a defect, and therefore prevent any conflicts.
(5) Other Considerations
The Following Should be Considered:
 Involvement of the CMR with things that are not related to client’s direct construction such as coordination with the neighborhood.
 Handling of the cost for management work in a governmental subsidy program.
 Relationship between construction supervisor and CMR’s work
 Appointment of health and safety regulator under the Industrial Health and Safety Law when the orders were separated.
7.Issues That May Occur When a CMR Bears Risks
When the CM system is utilized, it is expected that a client asks the CMR to bear risks as well as to perform management work, since the client takes the risk concerning completion of total construction. To cope with such needs from clients, the “At Risk Form CMR” is considered in (Case e).
If a CMR meets said client’s need, the CMR can assume the role of a construction contractor.
(Case e) “At Risk” form CMR
Takes the management work in (Case a) – (Case d) as well as taking risks. Further research is required, such as the positioning in construction industry law)
(Case e) needs to be considered based on “At Risk CM” in the USA. See II. 2 (page 3).
Normally it is undesirable that a CMR assumes actual construction work for the project, although occasionally, as in the case of “At Risk CM” in the USA, a CMR can take a risk at a maximum based on the client’s needs and can then contract with specialized constructors directly as a guarantee (Note 1).
(Note 1) We need to perform further research on the “At Risk CM”, because there are few actual cases implemented in Japan. However, the one thing that is clear is that the CMR should perform construction with aconstruction license when it has a contract work basis (Article 3 of Construction Industry Law). review of the CMR’s business status is also required when the CMR gets a contract for public facilities or construction directly from a client (Article 27-23 of Construction Industry Law).
When CM system is implemented, and the CMR takes risks as in the “At Risk CM” in a public construction work, there may be issues need to be considered in terms of construction industry law and tendering contracting system. Following is a list of the major issues:
(1) Legal issues under construction industry law
 Does a CMR’s job fall under a construction contract?
 Does a CMR need to have a construction license?
 Will CMRs be reviewed by the criteria of the CMR’s business status?If so, what will the screening criterion be?
 Will the safeguards under construction industry law be applied to CMR?
 Must a CMR have an administrative engineer and a chief engineer?
 Is a CMR eligible for Act for Promoting Proper Tendering and Contracting for Public Works (which imposes the execution of the account book system, with an obligation to present it to the client.)
(2) Issues of the Bid and Contract system
 Is a CMR required to be cleared for screening of the bidding qualifications?
 How will CMR grading be handled?
 What does a CMR’s technical assessment consist of?
 The relationship with WTO Government Procurement Agreements (is it applicable to the construction service as well as design and consulting services?)
 What is the nature of a contract between a client and a CMR entrustment or contract in the case like “At Risk CM”?
 How do we convert a management contract to another contract which bears the risk? (Would it be treated as a supplementary contract or a discrete contract? In the latter case, would it fulfill a private contract?)
(3) Cost Management Issues
 What is the method of estimating remuneration for a CMR that takes on the role of a construction contractor? (In the USA in the “At Risk” CM, subcontracting work must be included and integrated into the cost because the remuneration is the sum total of the fee and expenditure.)
 In the process of a target price estimation, is it possible to specify items such as individual orders, general condition costs (e.g. provisional) and contingency?
 Is it possible to specify a Guaranteed Maximum Price (GMP?)
(4) Responsibilities
 How is the interrelationship with the current fulfillment warranty system to be recognized?
 To what extent is a CMR responsible for risks and work completion?
(5) Others
 Is it possible to include contingencies or reserves?
 How should the relationship between the CMR and supervising and inspection duties of engineers be managed by the client?
 What should the relationship be between the CMR and the construction supervising duties be controlled?
 What should the relationship between the CMR and the responsible party for health and safety regulations be controlled?
 Is the CMR responsible as a prime contractor under Waste Management Law?

VI. Conclusion

In order to expand the CM system in the future, as already stated, various issues remain.
While there are issues with which each field ought to struggle, such as the assurance of the ethics of CMR, the training of CMr‘s, the preparation of standard contracts, and progress in the completion of blueprints; there are also issues such as the division of duties with construction managers, the regulation of relationships with already-existing institutions, and the relationships with the laws concerning the construction industry. In order for the CM system to be put to practical use in cities and towns, and for the parties ordering materials to participate, standard guidelines for putting the CM system into practice、the standards for selecting a CMR, and other topics must be studied.
Among these issues, there are numerous areas where these interactions exert a large influence on this country’s systems of control and construction, as well as areas where medium- and long-term investigations are necessary. Furthermore, the accumulation of examples of putting the CM system into practice are anticipated in the future, however, in order to effectively investigate the issues, it is thought that the empirical investigation of examples put into practice will be effective.
Furthermore, most of the issues until now have been areas that concern those that contractors, designers, clients, and others who participate in construction. In the future however, it will be necessary for all people concerned to cooperate and proceed with the studies.