Deciding whether to in-house or outsource project management is a no brainer from my point of view. Just don’t outsource! The cost is irrelevant (although outsourcing is likely to be more expensive). This is where I stop even pretending to be objective. Really —don’t do it. I’ll tell you why.
We should probably take a step back and define what I call ‘project management’. The project manager is the person responsible for the coordination between the main building contractor, the civil contractor, the architect, the engineers, the cost estimators and all the other design and construction related consultants. Sometimes on complicated projects it may be just the design aspects — and that person might be called the design manager.
A project manager who also looks after marketing, sales and leasing, overall budgets and feasibilities and directly reports to the developer is usually called a development manager or a project director. Occasionally if there are multiple projects, they might be called a program director. For the purposes of this discussion, whether it’s a project manager, design manager, development manager, project director or program director it all means ‘project management’ to me and I have the same narrow point of view: in-house it.
To explain my vehement position a little more, let me take you through a couple of very personal real-life examples. A little bit of background. I have hired, worked with and fired numerous project management companies on residential and commercial projects. I have also been hired to replace external project/development managers.
In one example, the key problem that existed with the external project management company was a lack of communication. The developer client, my employer, liked to challenge people on their work — both the what and how it was being done. Relaying bad news was not easy. For an external company, bringing the bad news was next to impossible. Their reporting glossed over important risks and the true financial situation had not been uncovered by the external project management company. They themselves had relied too much on the advice of their consultants. So poor communication, relying on advice at face value and a lack of uncovering the real situation brought together their demise. To be fair, that project management company did do some good work, but their job was made untenable by being on the outside.
Early on in my career, I was the developer’s representative for two commercial office projects. As an in-house developer rep, my job was to make sure the tenants, who had agreed to take on leasable space, got what they had signed up to. So I started out by attending project control group meetings ran by an external project management company. Over the next few months I learned that, essentially, all the project management company would do is push paper.[1] They would receive variation claims from the contractor, send them to me to approve, then write them up and send back to the contractor. I had to either make the decisions or get my boss to. Then the project management company carefully disclaimed who made the decisions in their reports. It got ridiculous; they couldn’t make a decision on anything. But we were paying them for expert decision-making advice! It was even a struggle to get them to query variations and contest them with the contractor. Look, not all project management companies are this complacent, but this was a big company in a busy market. They had juniors at the coal face who frankly had no right to be there. To improve the situation we asked for seniors to be present. The occasional visit from a senior, often a different person didn’t work out much better. At the time we persisted with the project management agreement, but in retrospect I would have removed them and done it myself. I practically was anyway.
Fast forward 15 years and, once again, I am attending a project control group meeting with (someone help me!) two project managers from different project management companies. There was one solely managing the civil construction and one managing the overall build, including the other project manager. This project was a failed 100-plus home development, already once resurrected and unfortunately failing again. Some of the situations were farcical.
One of the first issues arose when the project manager responsible for the overall build told me in no uncertain terms that he couldn’t get the other project manager (managing the civil works) to do what he needed. The project needed close civil and house build coordination. Their relationship (and therefore communication) with each other had broken down and neither took responsibility for decisions. Thus, I wound back the project manager’s role to just concentrate on the house build. As the newly appointed internal client-side development manager, I would sort out the coordination.
Then, on the house build, which was delayed, the project manager showed me a trail of paper without clear decisions regarding builders’ time extension requests that had caused further delays. He blamed lack of response from the developer (my boss). I investigated and found the project manager had failed to adequately describe the reasons for any time extension. The developer has not been presented with the right information to make the decision. And the project manager had not taken it upon themselves to make a recommendation nor issue a formal instruction. They said the usual things like “that’s not my role”. Thus, I immediately made it clear it was their role. As developer we would abide by the project managers’ decisions and we gave them our full trust and contractual commitment. That still didn’t work. To top it off, the project manager said they were spending more than the hourly time amount allotted to this job and needed more money. That’s the last thing you want to hear. A useless project manager is now going to cost you more money because they couldn’t budget for your project correctly! I instantly removed a whole heap of duties from the project manager.[2] They eventually quit, and we dealt with the builder direct. It was initially painful, as the project and the builder were haemorrhaging money, but necessary. Eventually it was worthwhile.
Later, on the civil infrastructure build, the meetings got really interesting. Every two weeks there was a new project manager! This civil project management company had massive staffing issues. I requested the that the director of the company send their most senior project manager[3] to attend all meetings to at least provide some consistency. That only partially helped the issue as the juniors kept coming and going. A consistent approach was never achieved. And then it got worse. When looking at a monthly progress claim from the civil contractor, my heart began to flutter. There had been a whole heap of urgent variations approved, by me on the spot, in the last few meetings. These were shown on the monthly progress claim but the cost to complete had not changed. Something seemed wrong. However, I wasn’t qualified to figure it out.[4] Weeks later, after relentlessly querying the bank’s quantity surveyor (who signed everything off before the bank would lend us the money each month to pay the contractor), the project management company, the civil contractor, applying financial forensics and compiling a report as big as this book, I had it sorted. On a $5 million civil construction contract we were $3 million over budget. It had accumulated over time and the developer and bank were none the wiser. I disclosed the situation and some arduous bank meetings ensued. It was grim.
In the end I had to retain the project management company as the specialist engineering they were also contracted for was too far through to replace them. But, to help clean up, I hired another project manager to look after that project manager. Yes, he was external, but in this situation, I told everyone that if he made a call, assume that I had said it. Basically, I absolved the project manager of all liability, just to get things double checked and done. It was a short-term fix. It worked, at a financial cost, to get this project completed without further financial deterioration.
On another development, the developer was sold the services of a senior project manager. When I arrived to take overall control, it was juniors doing the work. I had learned so much about gaining the final council signoff (not because I wanted to but because that project manager was also no good) that I essentially became this junior project manager’s teacher. They were fresh from overseas and their superiors did not have enough oversight. My words of warning: in a resource constrained market you might not be getting the service you are paying for and not know until it is too late.
And on yet another project I discovered the project manager had a conflict of interest. We were struggling to get our final council sign off, so I told them to pressure the local authority. To us we couldn’t settle millions of dollars’ worth of completed sections. Some had sunset dates[5] expiring very soon, meaning we were close to losing those sales altogether. The project manager though believed any pressure they applied would hurt their relationship with council and would affect their ability to get things done with their other clients. A developer typically does not care about the project manager’s other clients! I had to take on that part of the project manager’s role: influencing council to deliver our consents. I also had other projects that I did not want council turning a blind eye to should I pressure them too hard. So I just pressured them politely, but every single day for about two months. This simply demonstrates when project management is in-house, people naturally act more in the client’s (their employer’s) interest.
All those and I still have plenty more for another book. The fundamental reason why you shouldn’t outsource project management is that many developers, like me, are not typically good clients. Communicating risk is difficult and if something goes wrong the project manager is always running scared of being the scapegoat. That means external project managers are reluctant to make decisions. But it’s decisions that the developer is hiring them to do. Therefore, hiring internally (in-housing project management) at least breaks down those barriers. An employee should be better at full disclosure of the potential issues than an external project management company will be (as the employee has typically less chance of being replaced). Although this gets harder in larger organizations with hierarchical management levels.[6] Things change in the development world, and it’s easy for the developer to be thinking in one direction and the project manager moving off into another, especially at the design stage. Internalization improves control, understanding and is more elastic to change.
I might be persuaded otherwise on the occasion where a project that has failed needs specialized expertise that cannot be hired in-house. Then you might be forced to use an external project management company. The advice in this case is that you still manage them more closely than you would normally think necessary.
If you simply can’t directly employ project management, then an independent contractor who is working exclusively for you is the next best solution. So long as they have a direct line to the final decision makers, without contractual issues confusing the scene.
The more times I re-read and edit this chapter the more it sounds like there is a market gap for a decent project management company! The decision between in-housing or outsourcing project management is really a risk adjusted one. Err on the side of caution and what gives you maximum control with minimum risk. Double down on the caution if your project still has very curly aspects to navigate.
Henry Ford is often quoted as
saying, “Nothing is particularly hard if you
divide it into small jobs.” This
is the key when deciding to bring functions inside or keep external. Understand
what is currently being delivered in its entirety, price each individual piece,
price the management of those pieces and consider the risks along the way. Then
you can make an inhouse or outsource decision.
[1] I’m sure they would say otherwise.
[2] There are always two sides to a story. If I was to generously oblige them with a defence, the construction contract wasn’t set up correctly in the first place, before they were engaged.
[3] I threatened it had to be the director, but he managed to twist out of that one.
[4] At least when I first encountered the problem. I was an expert by the end!
[5] A sunset date is a date in the contract which the developer commits to having a milestone complete, in this case, title to the land. If the sunset date is missed, then the purchaser has the option to cancel the contract — not particularly great in a declining market.
[6] Especially if there is a poor culture where upper management seeks to absolve themselves of responsibility.

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