Project management consultants, overkill or a necessity?

Engaging a PM for luxury residential projects is not a luxury but a cost saving necessity writes Lorenzo Candelpergher, CEO of LC&Partners

If there is an asset class in the real estate market that has not suffered any crisis as a result of the COVID-19 pandemic, it’s that of luxury residential properties. Across the GCC and especially in the UAE, as confirmed by multiple studies and statistics, the years 2020 and even more, 2021, have witnessed a significant surge in real estate transactions for prime luxury residential properties.

In a recent article published by Knight Frank, transactions for prime properties in Dubai recorded in May 2021 hit the third highest monthly total ever recorded, getting very close to the golden days of 2009. The rebounding of Dubai’s prime market echoes a wider global trend, signalling the start of a potential ‘Roaring Twenties’ for global real estate.

Associated with such transactions comes an equally significant positive trend for related construction activities, mostly renovation/refurbishment or complete strip-out and new fit-out projects and, to a minor extent, green field construction. All extremely capital-intense projects, where the mark of $3000 per sqm is not uncommon to see.

And yet, what is uncommon to see, are professional project management consultants (PMCs) hired for such high-end luxury residential projects. There is, in fact, a general misconception, in this niche market, that PMCs should only be retained for large and complex projects and that the cost of their fees, in a private residential construction project, would be an unjustified extra cost, eroding precious funds from the overall allocated budget.

Luxury Means Complexity

The ugly truth, however, is that high-end luxury residential projects are among the most time and cost inefficient ones in the construction industry. It isn’t uncommon to hear about projects lasting as much as twice the original planned time and costing 50% more than the original contract price.

Luxury residential projects are intrinsically complex for a variety of reasons: they often entail highly sophisticated technical solutions, with prime materials, finishes and technologies, difficult to procure, often coming from overseas; they are often designed by international interior designers, working from overseas and then supervised by local consultants who need to work in tight cooperation; they are executed by a number of different specialist contractors/suppliers, which require high coordination and interfacing; and, most importantly, they are commissioned by clients that often do not have any construction background, frequently have no idea of the typical bargaining/negotiating common practices in the Gulf Region but have, on the opposite, a very significant emotional involvement in the project, which often leads them to impulsive decisions and changes of heart.

These are only some of the most dangerous factors of complexity that have the potential to totally derail a high-end luxury residential construction project, causing great deals of frustration for endless misunderstandings and variations resulting in abortive works and re-works and associated claims, with substantial time and cost overruns, which is where many consultants and contractors thrive, to the detriment of their clients.

Complexity Calls for Project Management

It is in this context of complexity where a professional PMC can play a decisive role in protecting the client’s interests in a high-end luxury residential project.

From the definition of a proper project brief to the selection and appointment, with an comprehensive scope of services, of the team of design and works supervision consultants, the coordination of the design activities, the management of the tendering process, the negotiation of contracts, the overall coordination of the construction work, the timely and effective administration of the contractual matters, variations and claims, the stringent verification of the testing and commissioning and handover process, the thorough follow up of the snagging activities during defect liability period, a professional PMC can have a decisive impact on the trajectory of the project.

Not only by implementing efficient project control (time/cost management), risk management, document/communication management, contract management, variations/claims management procedures as an independent party with no vested or conflicting interests with any of the other stakeholders involved in the project, but also resolving conflicts, negotiating, mediating and often effectively bridging those cultural gaps between stakeholders that are unavoidably one of the most significant challenges in high-end luxury residential projects.

Project Management, a 200% ROI investment

On average, a properly delivered PMC could save a client easily 2x to 5x its cost. It may sound a bold statement but it is a consistently measurable and therefore verifiable recurrent fact that, wherever thoroughly involved, PMCs can achieve substantial savings for their clients, which are far in excess of the project management fees.

Some of the most common measurable savings may include, for example:

  • Opportunities for value engineering where the intended scope is achieved for a lower cost with reference to the original pricing presented by the contractor or the cost is maintained the same but higher specifications or additional scope is obtained for the same cost, with reference to the original pricing presented by the contractor
  • Reduced extra costs where the main design/works supervision and construction/installation/supply contracts are negotiated and reduced prior to awarding, with reference to the original pricing presented by the counterparts
  • Claims for time extensions presented by the contractor are avoided or reduced with reference to the original pricing presented by the contractor
  • Claims for additional works or extra-compensation for whatever reason presented by the contractor are avoided or reduced with reference to the original pricing presented by the contractor
  • Quotations for variations required by the project or specifically requested/instructed by the client for whatever reason are negotiated and reduced with reference to the original pricing presented by the contractor
  • Additional services, supplies, specialist sub-contracts, etc. specifically requested/instructed by the client for whatever reason are negotiated or reduced with reference to the original pricing presented by the relevant counterpart
  • Deductions/compensations negotiated with the contractor during or at the end of the contract for adjustments against incomplete or non-executed works, defective or rejected works are applied

These savings can be so significant and beneficial for the client that the best PMCs do not hesitate to discount their ordinary fees in exchange of bonuses on the savings. And the best part of it, is that clients end up happily paying for such bonuses, as their investment in a professional PMC yields a 200% (or more) return!

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