That Informal Agreement Will Cost You (Client/Owner) A LOT

If you are starting a construction project with a handshake deal or informal email agreement with your Construction Manager (CM), you are walking into a minefield. Here's what is at stake:

What You Think You are Getting:

• A simple, friendly arrangement.

• Lower costs by "skipping the legal fees".

• Flexibility to adjust as you go.

• Trust-based collaboration.

What You are Actually Getting:

Zero Recourse When Things Go Wrong. In construction, things really do go WRONG. When your CM fails to coordinate properly, causes delays or makes costly errors, you have no enforceable contract to fall back on. No defined standard of care. No liability provisions. No performance benchmarks.

The Domino Effect. Without contract requirements, your CM likely won't bond the subtrades. If the mechanical contractor goes bankrupt mid-project, you are paying twice. When quality issues emerge, there is no clear accountability. When the schedule slips, there is no remedy clause.

Here's the Bigger Risk You Are Not Seeing. When your CM operates without clear contractual responsibilities, the entire project team is compromised. Your architects, engineers, and specialists are counting on professional construction management to succeed.

What Happens To Your Design Team

Your architect issues construction documents based on the assumption that a competent CM will provide iterative budget feedback, constructability reviews, and coordinated construction administration. Without a contract defining these services the CM doesn't deliver them. Or delivers them inconsistently.

The result? Your architect gets blindsided by budget overruns they could have prevented with proper CM input during design. They are pulled into construction administration chaos because the CM's role is undefined. They face potential liability claims for "design errors" that were actually constructability issues the CM should have flagged. Their fee gets consumed managing problems that proper construction management should have identified and prevented.

Your engineers are exposed. Your mechanical, electrical, structural, and civil engineers design systems assuming professional coordination and oversight during construction. When the CM operates without clear contractual obligations:

• Coordination issues between trades aren't caught early, leading to expensive RFIs and changes that could implicate engineering design.

• Value engineering happens reactively (or not at all), forcing engineers to redesign under time pressure, without proper analysis.

• Site conditions and construction sequencing issues aren't properly communicated, creating potential engineering liability.

• Quality control failures during construction may be incorrectly attributed to design deficiencies.

Professional Liability: Every consultant on your team carries professional liability insurance. When construction goes wrong due to poor or undefined construction management, the finger-pointing commences.

Insurance claims drive up premiums. Consultants WILL refuse to work on projects without professional construction management.

Collaboration Breaks Down: Construction projects require seamless collaboration between owner, CM, architects, and engineers. This collaboration depends on clearly defined roles, responsibilities, communication protocols, and decision-making authority. All established in the construction management contract. Without it you get:

• Duplicated effort and gaps in responsibility.

• Miscommunication and missed coordination.

• Unclear authority for critical decisions.

• Adversarial relationships instead of collaborative problem-solving.

• Consultants working defensively.

Your architects and engineers cannot do their best work when the construction management function is undefined, under resourced, or operating without professional standards.

The Real Numbers

That (say) $15,000 you "saved" on legal fees to draft a proper contract? It could (and likely would) cost owners multiple times that in:

• Duplicate payments for failed subcontractor work.

• Legal fees fighting liens and disputes.

• Lost revenue from project delays.

• Settlement payments just to move forward.

• Stress, damaged relationships, and reputational harm.

What Happens in the Case of a Dispute

Without a formal contract, every disagreement becomes "he said, she said". The only parties to benefit are lawyers.

The Professional Perspective

Any CM willing to work without a formal contract should be a red flag. It signals either inexperience or a lack of professional standards. Established, reputable companies insist on proper contracts. Not because they don't trust you, but because they're professional enough to know that clear expectations protect everyone.

Those "Free" Pre-Construction Services

The Scenario: An owner brings a CM onto the project during pre-construction and design without a contract and without paying fees. Possibly thinking "we'll get free advice during design, then formalize the contract when we're ready to build."

What's Actually Happening

The CM is doing the absolute bare minimum during the most critical phase of your project. Without a contract and fees, every hour invested is uncompensated risk. So they rationally protect themselves by doing just enough to stay in the conversation:

• No iterative budget updates tracking costs tracking costs through schematic design and design development. You get vague ballpark numbers while design locks in budget unfriendly decisions before construction documents even start.

• No constructability reviews during design. Coordination issues, sequencing problems, and buildability challenges get embedded into the documents.

• No subcontractor pre-construction engagement which means no preliminary pricing, no long-lead item identification, no market research on availability and costs.

• No value engineering during design. When costs escalate in early phases, there will be no analysis to find savings while options are still flexible.

• No pre-construction risk assessment. Site conditions, regulatory issues, procurement challenges will not be identified when they are easiest to address.

The CM attends design meetings, offer surface-level comments when asked, and then disappears until the next one.

Why Pre-Construction Matters Most

Decisions made during schematic design and design development lock in the majority of project costs. This is when you have maximum flexibility to adjust the design for budget, constructability, and risk. This is when subcontractors input on systems, materials, and methods has the greatest value. This is when a competent CM saves you the most money.

The Result: You reach construction documents or bidding with:

• No reliable budget, or worse, discovering that you are substantially over budget after spending hundreds of thousands of dollars on design fees.

• Constructability issues are embedded into the documents requiring expensive changes or change orders.

• No subcontractor relationships or realistic pricing research.

• No value engineering options that don't require redesign or program reductions.

• Decisions made during design that could have been optimized with proper pre-construction input.

What Pre-Construction Services Actually Include

Professional pre-construction management means iterative budget, comprehensive constructability reviews identifying issues while design is flexible, subcontractor engagement for preliminary pricing and market research, value engineering analysis maintaining budget without compromising program, procurement planning for long-lead items and specialty systems, and complete pre-construction risk assessment addressing challenges before they become expensive problems.

But you get none of this without a contract and fees during pre-construction. By the time you formalize the relationship, the most valuable phase is over and your options are limited.

What You Should Demand

A formal construction contract (ideally CCDC 5B) that defines:

• Complete scope of full services. Including iterative budgeting, value engineering, constructability review, procurement, contract administration, and completion.

• Exact scope of services and exclusions for each construction phase.

• Fee structure and reimbursable expenses definitions.

• Performance standards and deliverables with measurable benchmarks

• Insurance and bonding requirements for both CM and subtrades

• Schedule, delay provisions, and remedies.

• Liability limitations and dispute resolution processes

• Clear termination provisions.

• Reporting requirements and decision-making protocols

Construction projects are complex, high-stakes, and full of risk. The contract isn't "red-tape", it's the foundation of a professional relationship. It protects your investment, ensures that your CM has the contractual boundaries needed to deliver quality work, and transforms ambiguity into clarity.

You cannot afford to proceed without a formal contract with your construction manager.