Owner's Representatives are a new category that is increasingly common within the construction industry, but it is also quite common to hear some perplexity from owners when they are asked about the real benefits.
First and foremost, let’s set the stage and establish how much an Owner's Representative (OR) usually charges for their services; the on-going rate is about 4% of the hard construction cost, spread along the project schedule timeline. If we translate this in actual numbers, for example, on a residence with a 15M construction cost, an OR will charge the owner around $600,000 spread into the duration of the foreseen schedule, which is "conveniently" drafted by the OR together with the GC. Now, if we consider a 24months schedule on this sample project, the OR will receive a $25,000 per month flat fee, regardless of the involvement into the project, which could be high in certain months and close to null in others.
Now that we have understood the cost of the OR, lets dive into the actual scope of work and define what is the broad function of this individual into a project.
The term Owner's Representative explains the role, which is to be the full capacity Agent for the Owner. The OR is expected to be a construction expert who manages and oversees the project, reports to the Owner about the progress and issues encountered, forecasts upcoming hurdles, and gives guidance to the Owner who is otherwise inexperienced about the overall process. Furthermore, the OR often has a power of attorney from the Owners and is authorized to even write checks from the Owner's bank account; it is therefore clear that there must be a relationship of trust between the Owner and the OR.
In a project we have few critical figures and each ne has its specific role. Usually there are 3 main individuals: The Owner, The General Contractor, and the Architect.
The General Contractor supervises his/her own trades and the self-performed work and has the duty to build the project on time and generally at a pre-established cost, furthermore, has the obligation to build meeting all the specifications that are requested per Contract Documents which are prepared by the Architect.
The Architect is also an Owner's Agent and during the construction process has the duty to assure that the design intent is maintained and that all the specifications and details that are outlined in the Contract Documents are being implemented. The Architect, as Owner’s Agent and contractually has the authority to reject work done by the General Contractor and to reject payment applications either partially or in full, if the work has been partially completed, not completed, or not completed per Contract Documents. In other words, the Architect, as an Owner's agent, has authority over the GC and over finances of the project.
Shifting back to the OR, he/she does NOT have the same authority that the Architect have over the GC. As an example, the OR cannot arbitrarily reject the work of a GC without the Architect's approval because it would be a conflict of interest; furthermore a OR cannot issue a Change Order Directive as the Architect does because it would be also a conflict of interest; plainly, the Owner cannot impose a GC to do some work without a financial agreement in place, because it would be for the Owner's benefit, while the Architect does since he/she has some ethical conduct obligations enforced by the licensing authorities. Owners Representative are NOT licensed professionals’ category and under no control from any agency who could impose any disciplinary action.
It is quite clear that there is a huge overlap between the position of the OR and the Architect; now let’s look at the overlap between the OR ad the GC.
The OR is often asked to oversee the schedule that the GC is proposing, to level bids and to provide site visits reports to document the project. These 3 critical items can be handled as follows:
Contractually, the GC is requested to provide a schedule every 2 weeks with let’s say 3 weeks look ahead. The schedule can be analyzed through weekly meetings where the Architect can ask clarifications for the schedule changes and delays. The architect asking for these questions and second guess the GC is a perfect fit, because the Architect has the highest familiarity with the project, the design the Change orders and the details of any work that needs to be completed or remedied. On the other end, the OR does not have the same familiarity with the project nor is an expert at the same level as the Architect.
Furthermore, the OC cannot get the GC to speed up the works or to finish faster; the ONLY solution to maintain a schedule is to either financially reward the GC for completing the project earlier or to have liquidated damages clause into the contract. That will keep the GC going.
Bids leveling is an industry term to plainly describe the simple concept that we must compare oranges with oranges. The OR is generally asked to provide bids for the Owner/GC to assure that all the costs are aligned per budget and monitored. Well, this task also seems to be an overlap and borderline an overkill. The GC is usually aske to provide a minimum of 3 bids to assure the Owner that the best price is achieved, but why asking the OR to do it again or to provide more? Is that cost of the OR justifiable to save few bucks here and there? The solution to this question is very simple, and it is accomplished by offering a GC a reward on the savings: plainly explained, contractually the GC and Owner could split 25%-75% of the savings giving the GC an opportunity for a bonus and therefore an incentive.
This is an easy one; we do not really need a third party to go see the site and write a report to the owner?
The GC can be contractually requested to provide a weekly detailed report with as many pictures as possible etcetera. The same can be also done for the Architect who could provide a detailed weekly report. The reports provided by both parties can be therefore compared if/when problems arise.
In conclusion, we all understand that the position of the OR has a lot of overlaps with the base scope of work of the GC and the Architect; now the question is: do you really need one?
It seems to make the most sense to slightly increase the scope of work of the Architect in his/her Construction Administration phase by adding more site visits and attendance to all the weekly meetings scheduled by the GC. On the other end pay a little more the GC for his project management and documentation. This additional cost, even if it adds up to 4% of the project hard cost, to match the cost of an OR, it will still produce a better result because the two positions involved, GC and Architect have the most familiarity with the project design and day to day operations, are experts, and more than anything else, they are professionally liable for their shortcomings that could be enforced by their respective licensing authorities.
On the other end, if the Owner's Representative screws up, there is not much that can be done.
Another very critical aspect of this picture is that the OR could get kickbacks, referral fees or gifts from the trades/ brands he/she select and if caught that will just stain the reputation, while an Architect, if caught in the same cookies jar would lose his/her license for life. This is another assurance to the Owner that nothing sketchy will ever happen.
So, going back to the original question, do you really need an Owner's representative in your project?
Anyone can reach to their own conclusion.