Commercial Management – A Boost to the Construction Industry

Commercial Management – A Boost to the Construction Industry

INTRODUCTION:

Commercial and Financial success of a construction project heavily relies on a commercial management functions performed by a commercial manager. A successful project demands strong commercial management, strategic procurement advise and sound administration. In simple terms commercial management is looking after the profits of an organization by managing the risk and coordinating with various stakeholders from inception till close out of the project.

The success of a projects depends on three key major drivers -time, cost, and quality. A commercial manager not only balances these key drivers against the client/organization requirements, but also ensure that relationship and reputation is maintained for the successful outcome of the project.

ROLE OF A COMMERCIAL MANAGER IN CONSTRUCTION PROJECTS:

So, what a commercial manager can do and what it really brings to an organization?

Commercial manager should be able to understand the core skills of a quantity surveyor and integrate those skills to oversee and manage the construction project. Engagement of commercial manager at an early stage provides value to money wherein commercial manager acts as an advisor by understanding stakeholder requirements/objectives and help them transform these requirements into a successful project by providing in-depth analysis. A commercial manager shall be engaged from the inception of a project throughout the project life cycle; Inception, Feasibility, Procurement Strategy, Tender, Contract, Construction, Operation & Maintenance.

Every stage in project development requires strategic decisions and robust commercial strategy to achieve client/organization objective. Below are key roles and responsibilities of a commercial manager engaged with different stakeholders (Client, Consultant and Contractor):

Pre-Contract Commercial Management:

1. Understanding Project and Client requirements: It is important for a commercial manager to understand client requirements, project requirements by considering the below:
   1. Status of initial study and feasibility study
   2. Client requirements – identification of scope, location
   3. Project viability
   4. Programme and timeline
   5. Stakeholder involvements
   6. Risk assessment
   7. Operation and maintenance requirements
   8. Project finance and funding
2. Development of a Cost Plan: Cost plan is necessary in the construction project. This provides an early estimate which assists our client in determining whether a project is feasible within their time and budget. A commercial manager will consider current market rates and previously completed projects to develop a realistic cost plan and establish a cost planning process for establishing a budget for design, construction, and operation & maintenance of a project. A commercial manager will provide a cost estimate at various design development stage (i.e. concept, preliminary and detailed design) and will further undertake the value engineering exercise in line with client priorities and value.
3. Advising on Procurement Strategy: A commercial manager should advise and develop procurement strategy. A procurement strategy for a project will depend on various criteria. Client generally looks for (a) defect free project (b) fit for purpose (c) completed within budget and time and (d) life cycle costing. The suitable procurement strategy will create a balance between numerous interests (time, cost, quality, stakeholder requirements) which is possible conflicting. Commercial manager shall consider below criteria before developing a procurement strategy:
   • Project finance
   • Contract packaging – complexity of the project
   • Programme – time
   • Budget and estimate
   • Design responsibility
   • Operation and maintenance requirements
   • Role of Client, Engineer and Contractor during implementation stage
   • Management of risk
   • Post contract flexibility
   • Form of contract
   • Contract price and payment
4. Advising on Tendering Strategy and Contract Award: A good tendering strategy by a commercial manager shall ensure transparency, sound, and competitive tenders, minimize the cost of tender and provide fair and equal opportunities. Commercial manager shall advise client/organization on various tendering strategy, robust tender document, methods of selection of tenderers, commercial evaluation of a tender by safeguarding client’s interest

Post-Contract Commercial Management –

An ongoing post award commercial management is required to ensure contract compliance and to identify opportunities for further improvement and value addition.

1. Contract Administration: Commercial manager, having a better understanding of contract terms and conditions, responsibilities & obligations of parties, contractual mechanism, contractual requirements (Bonds and Guarantees), ensures that contractual compliance are met during the project execution.
2. Valuation of works: Construction progress usually valued monthly. Commercial manager will assess the value of works and certify the payment for organization on interim basis. Commercial manager will also monitor the cash flow (planned vs actual) and provide cost at completion (forecast budget). Commercial manager, in an event of cost overrun, will advise on the mitigation measures
3. Change Management Procedure: Change is inevitable in the construction industry. Managing change is the key aspect of a commercial management. Commercial manager will be responsible for developing a change management procedure and dealing with the change in real time as the works proceed. As part of the change management, commercial manager shall assess client requirements, design requirements, preparing initial budget for approval
4. Programme: Though the organization will appoint an experienced planner, commercial manager will understand the challenges and its impact because of programme.
5. Cost Reporting: Cost reporting is one of the key tasks performed by a commercial manager which provides cost information to the client/management. The report will be prepared monthly and generally includes the cost incurred to date and the cost likely to be incurred during the rest of the project for the purpose of cost control. A poor cost reporting will lead to project overruns and loss to the organization. A commercial manager will include the below information as part of the cost report:
   • Value of works done
   • Cost incurred to date
   • Approved Variation Order(s)
   • Potential Variations
   • Approved Claims
   • Potential claims
   • Cost associated with Prime Cost and Provisional Sums
   • Cash Flow
   • Progress (Planned vs Actual)
   • Estimate at completion
6. Claim Management and Dispute Resolution: Even though the projects are planned carefully, claim and dispute arises. A commercial manager will evaluate the cause of affect of the event giving rise to a claim, demonstrates organization’s entitlement of a claim and will also prepare a defence strategy. A commercial manager will also advise on the dispute avoidance strategy by advising client/management of early discussions with the stakeholders and shorting the issues before a dispute arises.

The commercial manager, accordingly, provides commercial leadership throughout the entire lifecycle of project by operating at the highest level of the project decision making process and advising on the commercial issues. Overall, it is the commercial strategy, commercial process, commercial controls, and commercial decisions which makes a project profitable and successful