Linking Construction Manager’s Payment to Main Contractor progress. A good Idea?

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There appears to be a growing trend by Employers (Clients) in Indonesia to link Construction Manager’s payment to the Main Contractor’s progress. This practice is at best worrysome however could be potentially disasterous for the Employer. The reasons for this will soon become apparent. Those that propose linking the Construction Manager’s (CM) payment to Contractor’s progress usually insist “We want to ensure the CM pushes the Main Contractor” however let us  step back and review this in the light of construction practices and reality in Indonesia.


In 2002 The Indonesian government introduced Law No 28 “Concerning Building” This law embedded international regulations such as National Fire Protection Association of the US (NFPA) into Indonesian national standards (SNI). Prior to the enactment of this law Developers and Contractors pretty much did what they pleased, resulting in building failures such as we see today in less advanced countries ie factory fires in buildings with no escape routes, or building collapses etc. Under law No 28 All buildings in Indonesia must be designed and constructed to comply with the relevant regulations such as NFPA. Upon completion of construction the buildings are supposed to be checked by Government bodies such as DAMKAR (Fire life safety) and DEPNAKER (Lifts) and approved for compliance before a Building function  certificate is issued (SLF) and the building is approved for occupation. Unfortunately whilst architects and designers may design their buildings to comply with this law the application by contractors, the subsequent monitoring and enforcement of the law by government bodies especially outside of Jakarta (DKI) is poorly conducted and subject to abuse in the traditional  manner. Only a professional Project / Construction manager understands this situation and will exercise due diligence in supervision and oversight of construction and instalations to ensure the laws and regulations are adhered to and that the building is handed over in a fit and fully compliant condition.

The Construction Manager’s rai·son d’ê·tre (Primary Focus) is Control. Not only Quality but the Safety of building systems.

The Contractor

Now let us consider the Contractor and in doing so I will apologise in advance to those Indonesian Contractors who are truly diligent in their approach to achieving sound, properly constructed projects that are fully compliant with Law no 28/2002 Unfortunately you are in the minority. So please bear with me. Typically Contractors in Indonesia are selected and shortlisted by persons with limited knowledge of Construction and the prevailing laws or regulations that apply. Typically this is an accountant or procurement department whose focus is most likely to be on cost and securing the best price. Thus Quality concerns are seldom addressed as they should be. Once shortlisted the Contractor will be invited to tender against four or five other Contractors and invariably the cheapest price will again prevail, although some deference may be shown towards experience, recommendations, or other such factors. It is the writer’s experience he will rarely be challenged at this stage on his knowledge of the various regulations that apply to Buildings. So let’s recap where we are,

  • A Contractor has pulled out all stops to reduce his price to a level that wins him a Contract.
  • A contract that, incidently, may be weak or taylored to his disadvantage.
  • At this stage no one knows his capabilities or has tested his knowledge on Contruction regulations.
  • He was the cheapest Contractor.
  • The deal is done his Fee is set.
  • He has only one way to make money out of this situation. He has to work fast, He has to beat the schedule, complete the project in the shortest possible time and pocket any savings he can make on the rates and prelim costs.


  1. A contractor will never willingly or intentionally slow the project, He cannot afford to. A quickly completed project is how he makes his money.
  2. The notion that the Contractor somehow needs to be pushed by the Construction Manager or anyone else for that matter is quite absurd.

Enter …….

The Construction Manager

So things are moving forward a Contractor has been appointed who’s sole aim is to charge ahead and complete the project in record time. That done now it is time to appoint the Construction Manager but he is late to the party and has a very steep learning curve ahead of him.

  • Who is this Contractor?
  • Do they have a Quality / Safety Plan and a responsible persons to oversee their implementation?
  • Are they responsive? Are they familiar with Law 28 of 2002?
  • Do they understand basic QA procedure, hold points, witness points, First Fix, Second Fix?
  • Do they understand fire, life safety requirements, passive and active fire protection, stairwell pressurization, fire walls, smoke control or how to achieve compliance?
  • Do they understand sequential work practices and the perils of working out of sequence?

If the answer to any of these questions is No the CM will have a very hard road ahead. Not only does he have to explain and lay out the Plan for controling quality and building safety issues he has to do this with a Contractor who already has a signed contract, is commited to the fastest possible completion and is reluctant to add further controls / cost to his already rock bottom price. Thus the hapless Construction Manager is the only person who is really committed to Quality and control of fire-life safety instalations. This is OK though. This is normal for Indonesia the CM expects this but consider this. Once the Contractor realizes he will be held to account and potentially slowed down by the Construction Manager he may consider some means of winning over or purchasing a “blind eye” from the CM or more likely his staff. Under these circumstances is it really a good idea to link the CMs payment with the Contractor’s progress when they have such conflicting goals ie Acheivement of Quality and Safety v’s Fastest possible build time? You don’t need to be an Einstien to see where this could go wrong. There could come a point when the CM will see no benefit in pressing for quality / safety outcomes only to see his payments held up pending a “fast build” Easier of course to work with the Contractor, sign off unfinished, untested work, cover it up and move on “come on lads, we’re chasing progress now ” Where is the benefit to the Employer under this scenario?


An astute Employer will understand the following

  1. The role of the Construction Manager. The CM is the Employer’s agent, he is his eyes and ears, he is dedicated to controling the execution of the project to achieve completion in compliance with regulations and in an orderly, safe and timely manner. This is his focus. He must be trusted. He cannot be conflicted or put in a position that could detract from his focus.
  2. Early Appointment. Understand the benefit of appointing or at least involving the Construction Manager before the Main Contract is let. a. The CM has years of experience, he knows very well the problems he will encounter, he can evaluate the Contractor and his likely shortcomings. He knows the right questions to ask at an early stage. He can ensure that the Contractor has the appropriate systems in place to ensure not only speedy construction but also that a safe, high quality build is in focus. b. Early appointment of the CM will enable a fast project start up with everyone on the team clearly focussed, “on the same page” and ready for action from day 1.
  3. Contractor does not need to be “pushed” The Contractor’s primary focus is speed. It is what he does best, It is what he must do to make his money.
  4. Keep your Construction Manager Independent Linking the CM’s payments to “speed” when he may be required to slow or even stop the project to maintain standards is an absolute conflict of interest. To be avoided at all costs for the reasons indicated above.

We hope these few pages will help you steer clear of potential conflict pitfalls on your next project. Andrew Slatter Projects Director PT Kandu

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