What Is Development Management?
Project Development Management
Development management is the strategic planning, administration and controlling of a project during its development life cycle, from project planning through to construction completion and project exit. It is performed to minimize project and financial risk while maximizing profit for the developer.
A development manager (DM) is the project developer's agent and construction manager. The development manager is assigned overall responsibility for project planning, project management, financial management, and project delivery through all development phases, until project exit.
Development managers are commonly appointed to identify and acquire suitable sites, inspect and appraise new land opportunities, review and advise on redundant land, and complete land acquisitions. They also liaise with local authorities to obtain permits and authority approvals.
The development manager undertakes the feasibility analysis of the project and provides the business plan, budget plan, and schedule of works. They are responsible for progress through the legal, technical and financial stages of development projects and monitor progress to project completion.
Development managers are responsible for overall project delivery, contractor tendering, and design management. They work closely with the architects, engineers, interior designers and general contractors to ensure that all the specific requirements (specs) of the project are met and represent the developer on-site towards construction and operator personnel.
Development managers evaluate and manage the budget and ensure that the correct financing is in place. They are responsible for completing the project according to budget and the development program.
Development managers also coordinate the marketing, leasing or sale of the developed properties and are often responsible for facilities and asset management post-construction. They collaborate with the developers to scope services, create proposals, and close opportunities.
The roles, responsibilities and expectations of development managers vary according to each project's organizational structure, project and exit strategy, complexity and size. These issues are defined for each project in the development management agreement (DMA).
Development Management Agreement (DMA)
A development management agreement (DMA) assigns overall management responsibility for a development project to an independent development manager as the developer's agent. Through the DMA, the development manager assumes responsibility on the developer's behalf for the management and administration of the project.
The development manager is engaged for the planning of the project's strategic planning until construction completion and the developer exits from the project. A detailed scope of services is usually included as a schedule or an appendix to the DMA.
The DMA sets out the development manager's role, responsibilities and obligations, the services to be provided, contract suspension and termination, including reporting obligations. The DMA also provides for a business plan, budget plan and the schedule of works.
A DMA will usually provide for the development manager to represent the developer toward the project team in all project meetings and negotiate contracts on the developer's behalf. Developers usually retain an element of control over their projects by requiring DMs to obtain consent or approval for important decisions, processes and procurement.
Developer consent will also be required where services would cause a financial threshold of a certain value to be exceeded. However, contracts below the threshold can be entered into directly by the manager through delegated authority.
A development management fee is paid to DMs commonly based on a percentage of the project's total development cost and capital expenditure. Alternatives fee models are common.
A DMA may also be subject to construction KPIs. Meeting the KPIs of construction may entitle the development manager to a success fee, while failure to meet them may trigger DMA termination.
The DMA will effectively govern the relationship between the parties, minimize the risk, and increase the efficiency and quality of the project. It should identify project risk exposures and call for risk management and contingency plans to reduce and/or eliminate the risks.
Costs and Fees in the DMA
The development management agreement (DMA) clarifies what constitutes development costs and assigns responsibility for incurring them. Total development costs, which are borne by the developer, include construction costs and other development/project costs.
Broadly, construction costs are those costs incurred through the actual construction of a built asset, including building design and construction fees. The costs are often determined by the value established in the construction contract.
Other development/project costs are those costs not directly associated with constructing but form part of the total development cost. Examples of such costs incurred for land acquisition, marketing, and planning permits.
The calculation of the development management fee is one of the most important DMA provisions. The development management fee can be calculated in various ways, including:
- Percentage of development costs - A percentage of the actual costs incurred in the development project;
- Fixed fee - A lump sum fee payable on key dates or upon completion of construction milestones;
- Percentage of development income - A proportion of the proceeds of sale and/or other sums of the capital or income received by the developer from the project; or
- Success fee - An amount of construction KPIs, usually only when a certain threshold or hurdle rate has been achieved.
Development managers may undertake the construction themselves or appoint contractors to carry out the works. When acting as contractor, the development manager earns the respective fee.
Profit sharing programs may be used to incentivized the development managers and the developer's management team, including the CEO, CFO and chief estimator. External project managers and contractor's would only profit from the process of carrying out the works, not from the project itself.
To achieve the maximum sustainability of development projects, knowledgeable and experienced development managers must be engaged and paid a commensurate development management fee. Their managerial skills greatly influence the success of sustainable development projects.
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