The Owner's rep basics

The reasons for increased use of third-party owner’s representatives are likely driven by a combination of the growing technical complexity and economic risk associated with modern construction projects, the evolution of new and more complex project delivery methods, and increased specialization of design professionals who have historically served the role of owner’s representative. Both private owners and public-sector awarding authorities are retaining project advisors to supplement their internal management and administrative capabilities and address gaps in services rendered by various investment, legal, and other technical professionals.

Some of the spheres of activity require the use of owner’s representatives , but where it remains discretionary, owners should consider whether they have the internal capabilities and resources to successfully manage the construction process and whether the additional expense of the owner’s representative will have a positive impact on the schedule, cost, and/or quality of the project.

When evaluating the role of owner’s representatives, it’s important to understand the range of terminology used to describe these consultants. Owner’s representative, project manager, program manager, commercial representative, and project manager agent/advisor are used seemingly interchangeably to refer to the individual or firm tasked with representing the interests of the owner throughout the duration of the project. This terminology is not only confusing but lends itself to misunderstandings about the scope of authority held by these consultants and their scope of services—both of which may vary significantly from project to project.

This lack of consistency in scope, terminology, and authority can create significant risk for the owner and the owner’s representative. Historically, services undertaken by owner’s representatives were thought to present little in the way of professional liability or contract performance risk. However, as owner’s representatives have become more commonplace, and their impact on project administration, performance, quality, budgeting, and scheduling has become better understood, their roles have garnered more attention when things go wrong. Additionally, owner’s representatives have largely been successful in expanding their scope of services to sell more services to their clients, which has exposed them to additional risk and liability.

Range of Services

The ‘basic’ scope of services assigned to the owner’s representative is centered on project management, coordination, facilitation, oversight, and monitoring during the initiation, procurement, and completion phases of a project, including its valuation, acquisition, participation in the day-to-day work in the advisory boards and more.  

Despite the owner's rep advisor’s expanded obligations, such advisor does not ultimately guarantee the outcome of the project, while the amount of his remuneration may and probably should depend on the results of the investment at least to some extent. The advisor is obligated to “endeavor to obtain satisfactory performance” from each of the contractors hired by the owner. Notably, the advisor should have the authority to reject work not conforming with requirements agreed with the owner.

Given the wide spectrum of services that may be provided by an owner’s representative, what are the important considerations for owners when retaining these consultants and structuring their contracts? Here are several important considerations:

(i) Professional Services. Many owner’s representatives, particularly those coming into the business from other segments of the investment industry (either management, finance or even legal backgrounds) sometimes fail to recognize that owner’s representatives provides professional services—in other words those services requiring specialized knowledge, judgement and skill. Accordingly, the owner’s representative must render their professional services in conformance with the applicable standard of care.

(ii) Adequate Qualified Staff. Because owner’s representatives are generally tasked with tracking, monitoring, and evaluating every aspect of the project and project team, a successful owner’s representative should have a thorough understanding of a broad range of technical, administrative, and contractual issues—as well as an effective communication style therefore a fee which does not reasonably includes the compensation for the work of such team of professionals will be at beast a lesson for which the owner shall pay dearly in the investment decisions at best.

(iii) Scope and Authority. Crafting the appropriate scope of services to meet the needs of the owner and align with the professional and technical skill of the owner’s representative is critical to success. Allowing an owner’s representative to perform services that they are not “best positioned” to perform exposes the owner to unnecessary risk, particularly if the owner’s representative undertakes services beyond its contract . Similarly, all project participants should have a clear understanding of the owner’s representative’s authority to act on behalf of the owner and bind the owner with regard to actions and decisions within the agreed scope of authority. The limits of authority should be clearly defined in the contract and consistently implemented in practice.

(iv) Alignment of Dispute Resolution Mechanisms. When contracting with the owner’s representative, it is prudent to ensure that forum and venue selection clauses in the contract are consistent with other owner-held agreements with other professionals being involved in the project. This rule, albeit simple and understandable, is quite often being ignored by the owners. In the end, the main purpose of the owner's rep is to fulfill the task exactly as agreed so this should be in the interest of both of the parties.  

The role of the owner’s representative has grown in prominence and has become an important factor in the success of many projects. Properly structuring the scope of services to be rendered by the owner’s representative, careful vetting of qualifications, capabilities, and experience, and crafting well-structured contracts that acknowledge the increasing performance risks of these consultants can make the difference between a successful or a difficult project.