Construction Management Agreement Template

In plain language: Identifies the owner and the construction manager as legal entities, describes the project by address and scope, and states the intent of the agreement.

Common mistake: Using trade names instead of registered legal entity names. If the CM operates under a DBA, the registered entity must appear in the contract — mismatched names complicate lien rights and insurance claims.

In plain language: Enumerates every service the CM is obligated to perform — from preconstruction budgeting through punch-list closeout — and explicitly excludes services not covered.

Common mistake: Describing scope in vague terms like 'manage the project.' Ambiguous scope is the single most common source of fee disputes — every material service must be enumerated or excluded in writing.

In plain language: States how the CM is paid — fixed fee, percentage of cost, or fee-plus-cost — and sets out the billing cycle, payment terms, and any performance incentives.

Common mistake: Failing to define 'Cost of the Work' in the compensation clause. Without a precise definition, the CM and owner will disagree on which expenses are reimbursable, creating invoice disputes on every payment cycle.

In plain language: Sets the project start date, substantial completion date, and key milestones, along with the CM's obligation to maintain and update the schedule.

Common mistake: Setting only a final completion date without intermediate milestones. Without milestones, the owner has no early-warning mechanism to detect schedule slippage before it becomes a costly delay.

In plain language: Defines the CM's authority to bind the owner (or the CM itself) to subcontracts and purchase orders, including per-transaction and aggregate spending limits.

Common mistake: Granting unlimited procurement authority. A CM with no spending ceiling can commit the owner to subcontract costs that far exceed the approved budget, creating significant financial exposure.

In plain language: Specifies the types and minimum limits of insurance the CM must maintain — general liability, professional liability, workers' compensation, and builder's risk — and requires the owner to be named as an additional insured.

Common mistake: Omitting professional liability (E&O) coverage from the insurance requirements. General liability does not cover errors in scheduling, budgeting, or CM decision-making — the most likely sources of construction management claims.

In plain language: Establishes the formal process for modifying scope, cost, or schedule, requiring written authorization from the owner before the CM proceeds with any change.

Common mistake: Allowing verbal change order approvals as a matter of practice. Undocumented changes are the leading cause of construction disputes — even a single large verbal approval can invalidate the entire fixed-fee or GMP structure.

In plain language: Allocates responsibility for losses, personal injury, property damage, and third-party claims between the owner and CM, and typically caps the CM's aggregate liability at the fee amount or a defined multiplier.

Common mistake: Using a broad mutual indemnification without carving out the indemnifying party's own negligence. Several US states (anti-indemnity statutes) prohibit clauses that require a party to indemnify another for that other party's own negligence — overly broad language can void the entire indemnification clause.

In plain language: Grants each party the right to end the agreement under defined conditions, and specifies the cost-settlement process — including work in place, committed costs, and fee earned — upon termination.

Common mistake: No termination-for-convenience clause at all. Without one, an owner who needs to pause or cancel the project for business reasons — not breach — may have no contractual right to terminate without paying the full remaining fee.

In plain language: Specifies which jurisdiction's law governs the contract and whether disputes go to arbitration, mediation, or litigation — including the venue and any mandatory pre-litigation mediation step.

Common mistake: Specifying a governing law jurisdiction that differs from the project location. Construction law — including lien rights, licensing requirements, and statutory warranties — is location-specific, and a governing-law clause cannot override mandatory local statutes.

A construction management agreement is a legally binding contract between a property owner and a professional construction manager that defines the services the CM will provide, how they will be compensated, the project schedule, and each party's rights and responsibilities. It is the primary governing document for the CM relationship and replaces informal arrangements or simple letters of intent before any project costs are committed.

Under a general contractor agreement, the GC takes on the financial risk of the project — typically at a fixed price or GMP — and is responsible for delivering the completed scope. Under a construction management agreement, the CM typically acts as the owner's agent, coordinating subcontractors and managing the budget without bearing the full cost risk. The CM is usually compensated by a management fee rather than a markup on subcontract costs, and trade contracts may be held directly by the owner.

Two primary delivery methods use a CM agreement: Construction Management as Agent (CM-Agency), where the CM acts purely as the owner's representative with no financial risk, and Construction Management at Risk (CMAR), where the CM provides a GMP and absorbs overruns. A third variant, the Owner's Representative Agreement, is used when the CM oversees the design phase as well. The appropriate variant depends on how much cost risk the owner is willing to transfer.

The agreement must be executed before the CM incurs any project costs, enters any subcontract on the owner's behalf, or begins preconstruction services. Allowing the CM to start work before execution eliminates the owner's ability to negotiate scope limitations, fee caps, and liability provisions — courts will imply reasonable compensation for work already performed even without a written contract.

At minimum, a CM should carry Commercial General Liability (typically $2M–$5M per occurrence on mid-scale projects), Professional Liability (Errors & Omissions) covering scheduling and cost management decisions, Workers' Compensation at statutory limits, and Commercial Auto. The owner should also require the CM to maintain or coordinate a Builder's Risk policy covering the project itself. Coverage limits should scale with project value — a $50M project warrants higher limits than a $5M project.

A GMP is a contractual ceiling on the total cost of the work, above which the CM absorbs overruns rather than passing them to the owner. It converts a cost-plus arrangement into a cost-certain delivery model. The GMP is typically established during preconstruction once design documents are sufficiently complete to price. Savings below the GMP are shared between the owner and CM under a formula negotiated in the agreement.

Yes, if the agreement includes a termination-for-convenience clause — which all well-drafted CM agreements should. On termination for convenience, the owner typically pays the CM for all costs incurred, committed subcontract obligations, the earned portion of the management fee, and agreed demobilization costs. Termination for cause — arising from the CM's material breach — typically allows the owner to complete the project using others and back-charge any excess completion cost against the CM.

A well-drafted template is generally enforceable when properly executed for straightforward projects. However, construction management agreements involve complex risk allocation — GMP exposure, lien rights, delay liability, and professional negligence — that varies significantly by jurisdiction and project type. Legal review is strongly recommended for any project above $500K, any CM arrangement involving a GMP, or any project in a jurisdiction with strict contractor licensing or lien laws.

Without a written agreement, courts impose an implied contract based on the parties' conduct and industry custom — almost always less favorable to the owner than a well-drafted written contract. The CM may claim quantum meruit compensation at market rates for all services rendered, the owner has no contractual basis for liquidated damages or lien protection, and disputes over scope and cost become credibility contests rather than contract interpretation exercises.