A construction project can involve an owner, a construction manager, architects, engineers, contractors, and dozens of suppliers—all working toward the same finished building. A construction management agreement helps define how those parties will work together, what the construction manager is responsible for, how fees and costs are handled, and what happens when plans change.
A template can be a useful starting point, especially for identifying the topics a contract should cover. But construction agreements are not one-size-fits-all: the right terms depend on the project, the construction manager’s role, local law, and the parties’ risk allocation. Use a template as a checklist and drafting aid—not as a substitute for project-specific legal and professional advice.
Note: This article is general information, not legal advice. Have qualified construction counsel review the agreement before signing.
What Is a Construction Management Agreement?
A construction management agreement is a contract between a project owner and a construction manager (CM). It sets out the CM’s services, authority, compensation, reporting obligations, and relationship with other project participants.
The term can describe different arrangements. Two common models are:
Construction manager as adviser
In an agency or CM-as-adviser arrangement, the CM generally advises and coordinates on the owner’s behalf. The owner may contract directly with the trade contractors and retain responsibility for paying them. The agreement should clearly state the limits of the CM’s authority: for example, whether the CM may issue instructions, approve invoices, or negotiate changes.
Construction manager at risk
In a CM-at-risk arrangement, the CM may hold contracts with trade contractors and take on additional responsibility for delivering the work. The contract might include a guaranteed maximum price (GMP), subject to defined assumptions, exclusions, and adjustment procedures.
These labels are not enough to determine a party’s actual obligations. The signed agreement—and the applicable law—control. The American Institute of Architects (AIA), for example, publishes distinct contract families for construction management services and for owner–construction manager relationships. That separation reflects how different the roles and risk structures can be.[1]
Why Use a Template?
A well-organized template can help the parties:
- Identify the services the CM will and will not provide.
- Clarify who can make decisions and commit the owner to costs.
- Establish a process for budgets, schedules, changes, and payments.
- Allocate responsibility for insurance, safety, claims, and records.
- Reduce misunderstandings by documenting expectations before work begins.
A template is most useful when it prompts a detailed discussion. It is risky when the parties treat generic wording as a complete agreement without checking whether it matches the project.
Key Sections to Include in a Construction Management Agreement
1. Parties, project, and contract documents
Identify the owner and CM by their full legal names and addresses. Describe the project precisely, including its location, general scope, and any relevant phases.
List the contract documents and explain how conflicts between them will be resolved. These documents may include:
- The agreement and its exhibits.
- A scope-of-services schedule.
- Drawings and specifications.
- The project schedule.
- A budget or GMP exhibit.
- Insurance and bonding requirements.
- Change-order forms and reporting requirements.
If the agreement refers to documents that are still being developed, state how and when they will be completed and approved.
2. Scope of services
Describe the CM’s responsibilities by project phase. Depending on the arrangement, services may include:
- Preconstruction: constructability reviews, cost estimates, procurement planning, schedule development, and coordination with the design team.
- Procurement: preparing bid packages, soliciting proposals, reviewing bids, and making recommendations.
- Construction: site coordination, progress reporting, schedule monitoring, payment review, and coordination of inspections.
- Closeout: tracking punch-list work, collecting warranties and operation manuals, and helping coordinate final completion.
Be specific about what is excluded. For example, does the CM provide design services, conduct destructive testing, perform inspections, or guarantee that the work complies with every code? If the CM is expected to undertake any of these functions, the agreement should define the scope and qualifications involved.
3. Authority and decision-making
A central question is what the CM can do without the owner’s approval. The agreement should identify who may:
- Sign contracts or purchase orders.
- Select or reject trade contractors.
- Approve invoices and payment applications.
- Direct work or issue site instructions.
- Approve substitutions or changes.
- Commit the owner to additional costs or schedule extensions.
Set approval thresholds, response times, and an escalation path for urgent decisions. In an agency arrangement, make clear whether the CM is only recommending a decision or has authority to make it.
4. Compensation, reimbursable costs, and payment
Explain how the CM will be paid. Common structures include a fixed fee, an hourly or time-based fee, a percentage of project cost, or a combination. For a CM-at-risk project, compensation may be tied to a GMP or another pricing structure.
The agreement should address:
- When invoices are submitted and when they are due.
- What backup documentation is required.
- Which expenses are reimbursable.
- Whether travel, printing, software, or field-office costs are included.
- How disputed amounts are handled.
- Whether retainage applies.
- How taxes and late payments are treated.
Define “cost of the work” carefully. If the fee is calculated as a percentage of cost, specify whether items such as insurance, allowances, contingency, owner-supplied materials, and change orders are included.
5. Budget, GMP, and cost control
If the project includes a target budget or GMP, attach a clear cost breakdown. State what the figure includes and excludes, how allowances are managed, and what assumptions it relies on.
A GMP is not meaningful unless the agreement also explains how it can change. Address adjustments for owner-directed changes, design development, unforeseen conditions, delays outside the CM’s control, and other specified events. Clarify how unused contingency is treated and who controls its use.
The contract should also define the CM’s cost-reporting duties. For example, it may require regular forecasts showing commitments, pending changes, approved changes, and projected final cost—not just amounts already paid.
6. Schedule and delay procedures
Attach or identify the baseline schedule and set expectations for updates. Define key milestones, such as mobilization, substantial completion, and final completion.
The agreement should explain:
- Who prepares and updates the schedule.
- How the parties document schedule impacts.
- How delays are reported and mitigated.
- Which events may justify an extension of time.
- Whether any liquidated damages or bonuses apply.
- How the CM’s fee or other costs change when the schedule is extended.
Avoid relying on vague promises such as “complete as soon as possible.” Use measurable milestones and a process for addressing changes.
7. Change orders and unforeseen conditions
Construction plans often change. The agreement should require written authorization for changes that affect scope, cost, or time. It should describe how proposed changes are priced and what supporting information must be provided.
Also establish a procedure for unexpected site conditions, concealed conditions, differing conditions, and emergencies. Specify who must be notified, what work may proceed immediately, and how costs and schedule effects will be recorded. The parties should check whether related provisions in the prime contract, trade contracts, and insurance policies are consistent.
8. Subcontractors and procurement
Clarify who selects and contracts with trade contractors and suppliers. The agreement should address competition and transparency—for example, the number of bids sought, how bid qualifications are reviewed, and whether the owner may reject a recommendation.
If the CM holds trade contracts, consider provisions covering:
- Required contract terms and flow-down obligations.
- Payment and lien-waiver procedures.
- Performance and payment bonds, where appropriate.
- Subcontractor default and replacement.
- Conflicts of interest, rebates, and discounts.
- Coordination of warranties and closeout documents.
Procurement requirements may also be affected by public funding, lender conditions, or local law.
9. Insurance, bonding, and risk allocation
Specify the insurance each party must maintain and the evidence required. Depending on the project, this may include commercial general liability, workers’ compensation, automobile liability, professional liability, builder’s risk, and umbrella coverage. Confirm policy limits, additional-insured requirements, notice obligations, and who bears deductibles.
Bonding requirements may apply to the CM or trade contractors. The agreement should also coordinate its indemnity language with insurance coverage and the law governing the project. Broad indemnity provisions can be restricted by statute, so they should be reviewed locally.
10. Site safety and regulatory compliance
Construction site safety responsibilities should be addressed expressly. Identify each party’s contractual duties, reporting obligations, and authority to respond to unsafe conditions. Avoid ambiguous language that suggests one party has responsibility for every aspect of site safety when that is not the intended arrangement.
OSHA rules may impose obligations on employers and, in some circumstances, other parties with relevant authority or control. Contract language does not necessarily remove duties imposed by law.[2] The agreement should therefore be reviewed alongside the project’s safety plan and applicable regulations.
11. Records, reporting, and communication
Set expectations for meeting frequency, written reports, and document retention. Useful reporting can include:
- Progress against schedule.
- Budget and forecast updates.
- Change-order status.
- Procurement and submittal logs.
- Safety incidents and corrective actions.
- Risks, delays, and decisions needed from the owner.
Identify the parties’ authorized representatives and agree on how formal notices must be delivered. Define how project records will be stored and who can access them, including after termination.
12. Disputes, suspension, and termination
Establish a practical sequence for resolving disagreements. The contract might require senior-level discussions, followed by mediation, arbitration, or litigation. State the governing law, venue, and any applicable deadlines, subject to local legal requirements.
Include termination provisions for cause and for convenience. Explain:
- What qualifies as a material breach.
- Whether a notice-and-cure period applies.
- What happens to ongoing work and project records.
- How the CM will be paid for services performed and authorized costs incurred.
- How the owner will transition to a replacement CM.
- Whether the CM must assist with an orderly handover.
Also address suspension of work, including how a prolonged suspension affects fees, schedule, site protection, and termination rights.
A Practical Checklist for Reviewing a Template
Before signing, confirm that the agreement:
- Matches the intended CM role—adviser, agent, or at-risk manager.
- Defines services, exclusions, deliverables, and project phases.
- Sets clear limits on the CM’s authority.
- Explains fees, reimbursable costs, and payment timing.
- Defines the budget or GMP, including assumptions and adjustment rules.
- Establishes procedures for schedule updates, delays, and changes.
- Allocates responsibility for subcontracting, insurance, safety, and records.
- Includes workable dispute and termination procedures.
- Consistently aligns with the design agreement, trade contracts, loan documents, and insurance program.
- Has been reviewed for the project’s jurisdiction and funding requirements.
Common Template Mistakes
Using a form designed for a different delivery method
A template for a CM serving only as an adviser may not work for a CM that holds trade contracts and accepts cost or schedule risk. Choose a form that reflects the actual arrangement.
Leaving important terms to “mutual agreement later”
Unresolved fee terms, approval authority, change procedures, and schedule obligations can create disputes precisely when the project is under pressure. Fill in the key details before work starts.
Treating a budget estimate as a guarantee
An estimate, target budget, and GMP are different concepts. The agreement should say which one applies, how it was developed, and what events permit adjustments.
Failing to coordinate related documents
The management agreement should not contradict the owner–architect agreement, general conditions, subcontract forms, insurance requirements, or lender documents. Inconsistencies can leave responsibilities unclear.
Copying legal language without jurisdictional review
Rules about indemnity, payment timing, retainage, licensing, lien rights, and dispute resolution vary. A clause that is common in one location may be limited or ineffective in another.
How to Customize a Construction Management Agreement Template
Start by defining the project’s delivery method, the CM’s role, and the owner’s desired level of involvement. Then build a project-specific scope and attach a realistic budget and schedule. Confirm the intended approval process and identify who bears each major risk.
Next, compare the agreement with related project documents. Ask construction counsel to review legal and risk-allocation terms, and ask the project’s design and insurance professionals to check technical and coverage assumptions. Finally, make sure all exhibits are complete, consistent, and incorporated into the signed agreement.
Sources
- The American Institute of Architects (AIA), Contract Documents. AIA’s contract resources include separate documents for construction management services and owner–construction manager relationships, illustrating the importance of selecting a form that matches the delivery arrangement. AIA Contract Documents
- Occupational Safety and Health Administration (OSHA), Multi-Employer Citation Policy. OSHA explains circumstances in which more than one employer may have responsibilities at a worksite. OSHA Directive CPL 02-00-124
- Federal Acquisition Regulation (FAR), Part 36—Construction and Architect-Engineer Contracts. FAR Part 36 provides federal procurement rules relevant to certain U.S. government construction projects; private projects may be governed by different requirements. FAR Part 36
Conclusion
A construction management agreement is more than a statement of services: it is the operating framework for project decisions, cost control, coordination, and risk allocation. A good template helps the parties spot the issues that need answers, but the final contract should reflect the project’s delivery method, scope, jurisdiction, and commercial priorities.
Before signing, make sure the agreement clearly defines authority, compensation, schedule and change procedures, safety and insurance responsibilities, and how disputes or termination will be handled. When the documents align and expectations are explicit, the project team has a stronger foundation for working through the inevitable challenges of construction.