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Journey Journal

Posted on June 19, 2024

“Can you lower your fee to match your competition?”

As a project manager or sales representative, you may have faced this question when meeting with clients and owners.

The construction industry is much like other service industries where this question is asked quite often. Other topics to go along with it include, “What does your fee consist of?” “Why is the lowest fee the best scenario?”

This whitepaper will explore those topics and help you, the owner, understand the concept of Fee vs. Value, and what that means to your bottom line.

Journey Construction does our absolute best to present a competitive fee for every project. We monitor and track our projects well and know the historical data that informs what a fee should be for each unique project.

We work hard to be competitive and remain in line with the competitive marketplace for construction services in two specific areas – fees and value.

Fees

An amount of money charged by a contractor, architect, or other professionals for their services. Can be a fixed or percentage-based fee that covers time, costs, and expertise.

How a Higher Fee Can Benefit Your Project

Commitment – Every professional takes on projects with the intention of delivering high-quality service and providing benefits like collaboration and creativity. At the end of the day, profitability plays a role in the outcome of the project. If the project starts with a low fee, it can ultimately create a distraction from the original commitment. Therefore, a contractor who isn’t distracted by fee enhancement can focus on delivering the original service and commitment, resulting in better value for the owner.

Team – A slightly higher fee allows us to appropriately fill your project with team members who bring specialized skills and expertise to ensure your project is completed efficiently and to the highest standards.

Innovative Solutions – A larger budget can promote innovation and creativity, as well as provide for alternative construction methods, practices, and technologies.

Values

A perceived benefit or worth a client receives from a high-quality construction project. Typically extends beyond the monetary value and encompasses elements like functionality, durability, aesthetics, long-term benefits, etc.

Differences in Terms of Values

Value should be thought of in terms of impact. The impact can come in the forms of:

Schedule Adherence – Ensuring on-time project completion is crucial for minimal disruptions, meeting milestones, and overall project momentum.

Cost Controls – Allows for projects to avoid overspending, optimize resources, and enhance financial sustainability.

Transparency – Clear communication and transparency builds trust and accountability among clients and owners, while also providing for early identification and resolution of issues.

Real-life Example

A Project Owner sends out an RFP for CMAR services on a public project. The Owner receives multiple proposals and includes in the proposals is each firm’s percentage fee. CM-1 proposed a fee of 1% lower than Journey and a few other firms. The Owner elects to hire the CMAR without interviews and chooses to proceed with CM-1.

Months into the Design and Preconstruction process, CM-1 send out Bid Package #1 for early procurement of portions of the work that would commence construction while other portions of the building’s design have not yet been finalized. Bids are received by CM-1 and presented to the Owner.

The result was disappointing. Of the five areas bid, they were millions over budget on those five categories alone. In some cases, CM-1 was the only bidder in those categories resulting in no competitive bids and the only bid being hundreds of thousands over the CM-1’s own budget estimate. The Owner was not happy and after much deliberation chose to terminate the contract.

Journey Construction was given an opportunity to step in and take over the project. With little influence on the final design, the project was sent out for bids again. This time, with Journey Construction’s influence in the market and hard work soliciting subcontractors and suppliers to bid on the project, there was a dramatically different outcome.

In one bid category alone, the savings generated by Journey Construction saved the Owner nearly two times the difference in the 1% higher fee from CM-1 to Journey Construction. Value was achieved and the project was salvaged. The result was a project that came in on the Owner’s established budget and even allowed the Owner to select alternates on their wish list.

If you think in terms of value opportunity by the direct influence that the Construction Manager has over about 95% of the cost of the project, Journey Construction has a proven record of lower project cost at the end of the project and our dedication to service along the way.That is the win that we seek for every project and every Owner.

In conclusion, the relationship between fees and value in construction projects is multifaceted. While fees represent the financial investment required for project execution, value is derived from the impact that investment has on project outcomes.

Understanding the importance of these elements allows stakeholders to approach project procurement and management with a holistic perspective, focusing not only on minimizing expenses but also on maximizing the overall impact and return on investment. By aligning fees with value-driven principles, organizations can achieve greater efficiency, effectiveness, and stakeholder satisfaction throughout the project lifecycle.

Reference Guide to Fees and Values



For a PDF version of this whitepaper, please click here to download.

To learn more information about Journey’s project delivery approach, please visit the Journey website or call 605-332-5968.


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