How to select a CM/PM company
In recent years, the need for transparency and accountability in terms of cost, construction schedule and quality has become a major concern for construction projects in Japan. As a result, the number of projects in which management companies and consulting firms specializing in construction management (CM) and project management (PM) work on behalf of clients from a standpoint completely independent of designers and constructors is rapidly increasing.
In this article, we will discuss how to select the most appropriate management company or consulting firm for a construction project in Japan, using the selection of a construction management company as an example, from the following perspectives.
- Overall picture of the CM company selection process
- Organizing requirements and creating RFP
- Selection of candidate companies and sending of RFP
- Evaluation of business proposal
- Presentation and interview
- Selection of CM company and contract
1. Overall picture of the CM company selection process
In general, there are various methods of selecting a CM company depending on the situation and purpose of the project, such as publicly soliciting candidates or selecting one company in advance and then proceeding with the discussion. In this article, we will introduce a typical method in which the client selects candidates and then selects one company based on a comprehensive evaluation of the content of the business proposal and interviews.
As shown in the figure below, the CM company submits a business proposal in accordance with the client’s requirements, and after presentations and interviews, the CM company is narrowed down to one company.
In the following sections, we will explain each process of selecting a CM company in detail.
2. Organizing requirements and creating RFP
1) Organizing the client’s requirements
First, it is necessary for the client to organize the requirements such as the outline of the construction project and what they want the CM company to do.
This is because the scope of work of construction management is diverse, as described in “What is CM (Construction Management) in Japan?” Therefore, it is necessary to organize what tasks are to be performed at what stage of the project, even if it is a rough idea.
In this case, it is reasonable to identify the CM tasks that are required based on the purpose and situation of the project, and to organize the system and skills of the client side that are lacking to implement them.
2) Preparation of RFP (Request for Proposal)
The next step is to create an RFP based on the organized requirements. This RFP is largely composed of “basic items” and “proposal items”.
The CM company prepares a business proposal for the “Proposal” using the contents of the “Basic Items” as the given requirements. Examples of these “Basic Items” and “Proposal Items” are shown below.
Basic Items｜Information to be provided to CM Company
| Item Example | Example of description |
|---|---|
| Background and purpose of introducing CM business | Overview of the background and purpose of the need for CM services |
| Construction Project Overview | Project location, use, scale, structure, overall schedule, etc. |
| Construction project status | What is the current status and structure of the project, such as planning in progress or basic plan in progress with designer already selected? |
| Scope and requirements for CM work | Specific details of the work for which you are requesting a proposal, including deliverables, English language capability, and other requirements. |
| About the selection process | Selection schedule, deadline for submission of proposals, presentation schedule, questioning method, points to be emphasized in evaluation, etc. |
| Contact Person Information | Location, contact information, etc. |
| Others | Submission of NDA, etc. |
Proposal Items｜ Information to be Proposed by the CM Company
| Item Example | Example of description |
|---|---|
| Proposal Summary | Important points in business proposals |
| Implementation Policy | Propose a specific implementation policy based on the level of understanding of the purpose and content of the work. |
| Implementation Schedule | Work implementation schedule based on the overall project schedule |
| Implementation system | Implementation system up to the person in charge of operations, the main person in charge, and the engineer in charge |
| Similar business results | Track record and experience in similar work for CM companies, operations managers, and key personnel |
| operating costs | Cost of services based on business proposals |
| Others | Information security system, out-of-scope operations, restrictions, etc. |
This RFP will be the basis for the CM company to prepare a business proposal, so the more information about the target project given as basic items and the more well organized the requirements of the client are, the more specific the proposal will be.
3. Selection of candidate companies and sending of RFP
1) Selection of candidate companies
The next step is to select a candidate CM company. Depending on the scale of the target project and the scope of the CM work, it is common to identify four to six companies as candidates. This is so that proposals can be narrowed down to three to four companies in the end, taking into account the possibility that some companies may decline to submit proposals even after we have sent the RFP.
In the past, not only was the number of CM companies small, but the amount of information available on each company’s website was also limited. However, in recent years, the number of CM companies has increased, and each company is actively disclosing information about their business and past achievements.
Therefore, it is now possible to narrow down the candidates from the information available on each company’s website if the purpose is to select a candidate CM company. The specific points for selecting candidates are as follows.
- Company size, location, etc.
- Contents of CM business are explained in an easy-to-understand manner.
- The company has a lot of experience in CM work for projects similar in use and scale to the target project.
- Competitors are included among the clients.
Each CM company has its own characteristics in terms of building use, scale, and business activities. Therefore, selecting a candidate company from the above perspectives will lead to the selection of the most suitable CM company for the target construction project.
2) Sending of RFP
After the candidate CM companies are selected the RFP is sent to the person in charge. When it is sent, it is standard to confirm when a response can be expected from the company to submit the business proposal, and the company will try to get three to four companies to submit the business proposal.
4. Evaluation of the business proposal
After receiving the business proposals from the CM companies, each proposal is evaluated based on the “Proposal Items” in the RFP. At this time, the proposals are quantitatively evaluated by assigning points for each item in the proposal.
For example, if the important issue in the project is to reduce the construction cost, it is important to increase the weight of business proposals related to cost reduction.
In addition, it is ideal to organize the criteria for quantitative evaluation of the contents of the business proposal when preparing the RFP, so that evaluation can be conducted smoothly after the proposal is received.
As mentioned above, the important proposal items differ depending on the purpose and issues of the project, but in general, the points to be considered in the evaluation of a business proposal are as follows
In general, however, the following points should be considered when evaluating a business proposal.
- Is there a high level of understanding of the purpose and issues of the work?
- Are there specific proposals for the tasks?
- Is the content of the business proposal easy to read and understand?
- Are there any proposals or achievements that can be evaluated that other companies do not have?
- Is the implementation schedule concrete?
- Does the implementation system include the specific roles of each person in charge?
The above does not include the evaluation of service cost, but it is better not to use service cost as a major axis of evaluation at this point. The reasons for this are as follows:
- At the time of the business proposal, it is difficult to make comparisons under the same conditions because each company has different policies and systems for implementing the proposed work.
- The final cost of the work is determined after the CM company is selected and the work content and man-hours are finalized and adjusted.
- The impact of the operation cost is small compared to the construction cost of the entire project.
In addition, as introduced in “How much is the Fee for Construction Management Services in Japan?”, the CM service cost is generally within a certain range as a percentage of the overall construction cost, and is composed of direct labor cost and other expenses based on the accumulation of man-hours and unit cost. Therefore, if there is no significant difference in the unit cost and overhead ratio of each company, the final cost of operations is not likely to change that much.
Therefore, at this point in time, it is more reasonable to make a heavy evaluation from the perspective of how much you understand the purpose of the project, how much you are able to delve into the details of the work and make proposals, and whether you are able to solve the problems faced by the project and achieve the goals, rather than putting more weight on the evaluation of the work cost.
If a comparison of work costs is necessary at this stage, a comparison and evaluation can be made under the same conditions by comparing the unit cost and overhead cost ratio for each job category instead of the overall work costs.
In some cases, the process proceeds directly to the presentation and interview with each company, while in other cases, cases are narrowed down the candidate companies based on the business proposal due to the selection schedule or the internal adjustment of the client.
5. Presentation and interview
Here, presentations by the candidate companies and interviews with the candidate companies are conducted. These are the most important processes in the process of selecting a CM company, because they are opportunities to read a lot of important information that cannot be read from the business proposal.
In many cases, the presentation and interview are held on the same day, but it is best if all the people in charge of implementing the work be present on the day of the interview, whenever possible, to convey the enthusiasm of each company for the work.
The following is a specific explanation of these points.
1) Presentation
The presentation has an important role to play in addition to the purpose of deepening the client’s understanding of the contents of the business proposal.
It is to evaluate whether the presentation materials are easy to read and understand, and whether the person in charge of the implementation system, i.e., the person who is the CM company’s point of contact for the work, is able to explain and speak clearly.
Therefore, it is ideal to have the main person in charge present the contents of the business proposal, and if this is the case, the candidate should be informed in advance.
In this case, it is necessary to inform the candidate in advance. This is because not only will you be communicating most frequently with the person in charge throughout the project, but also the person on the client side will often be explaining the project internally based on the explanation received from the person in charge.
Therefore, it is important to focus on evaluating whether the person in charge is easy to understand and whether he or she can explain the received explanation to others in the same way.
2) Interview
Based on the candidate’s presentation, the interview is an opportunity for the client to ask questions and confirm the contents of the business proposal from all angles. The specific points of the interview are as follows.
- Performance and experience of the main person in charge⇨Ability to coordinate and manage
- Performance and experience of the engineer in charge⇨ Technical abilities and skills
- Other⇨ Vary depending on project status and objectives
In the interview, it is important to focus on the performance and experience of the main person in charge of the project and the engineer in charge.
As a major point of view, it is important to check the performance and experience of the person in charge in terms of coordination and management, which is necessary for smooth communication with the client, and the performance and experience of the engineer in charge in terms of technology, which in turn is critical for solving specific problems to achieve the objectives of the project.
For example, with the current project’s objectives and issues as the theme, ask whether they have experience in projects with similar issues, and if so, how they tackled the issues and what results they achieved.
This is because even if the CM company has experience in working on similar projects, it does not necessarily mean that the main person in charge or the engineer in charge has actually worked on those projects. Of course, it is important that the company and the person in charge of the project have a wealth of experience and achievements in similar projects, but if the person in charge of the project has abilities and skills based on achievements and experience, the project will be closer to achieving its goals.
6. Selection of CM company and contract
1) CM Company Selection
Based on the evaluation approach introduced so far, the CM company to be commissioned for the CM work is finally selected based on the overall evaluation of the content of the business proposal, the presentation, and the results of the interview.
Again, it is important to select one company based on the evaluation of whether or not the project can proceed smoothly and achieve the goals.
2) Final adjustment and contract with the selected company
Once you have narrowed down the list to one company, you will work with the selected company to adjust the scope of work, man-hours, and cost of the project.
Specifically, ask the selected CM company to review the man-hours and cost of the work after the client clarifies the additional work to be adopted in the other company’s proposal, the work to be excluded from the content of the selected company’s proposal, and the content of the work clarified in the presentation and interview.
At the same time, the contracting process is coordinated between the two companies, and after the scope of work, cost, and contract details are discussed, a contract is signed based on the details agreed upon by both parties.
In some cases, work costs are partially based on performance-based fees, but in general, the contract is based on the number of man-hours and the unit price.
For example, if the scope of work to be contracted is to be performed over a long period of time, from the initial design phase to the completion of construction, the contract is divided into two phases: work up to the construction contract (design phase and construction order phase) and work after the construction contract (construction phase). In addition, the timing of the payment of the service fee is also important.
The timing of payment varies, but if the contract is not for a long period of time, such as less than six months, a lump-sum invoice and payment upon completion of the work is used.
On the other hand, if the contract is for a longer period of time, payment is generally made on a quarterly to semi-annual basis, or in installments, such as monthly or yearly, depending on the project.
In some cases, the client and the CM company agree on the amount to be paid at each timing, while in other cases, the client and the CM company pay an average monthly fee based on the fee and the duration of the work.
As mentioned above, this article introduced how to select the most appropriate management company or consulting company for a construction project in Japan, using the selection of a construction management company as an example.
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