In a recent Construction Corner post, we discussed Design-Bid-Build (“DBB”) project delivery. In this post we will compare and contrast Design-Bid-Build and Construction Manager at Risk project delivery methods.
As discussed in a previous post, if a construction manager has advisory responsibilities as well as responsibility for the timely completion of the project, the construction manager (and the method of project delivery) is referred to as a Construction Manager at Risk. Unlike DBB, Construction Manager at Risk project delivery utilizes the services of the construction manager (the “CMR”) during the design phase of the project. Although the design professional is usually selected first, the CMR is procured soon thereafter so that the CMR can assist the designer and the owner in areas such as constructability, cost estimating and value engineering. The CMR is generally paid a separate fee for these pre-construction services. Once the construction documents are complete, the CMR prepares a proposal for a contract price and construction schedule for the completion of the project and presents the proposal to the owner.
Unlike most GCs bidding on a DBB projects, a CMR generally has a great deal of familiarity with the project and the construction documents at the time of the pricing of the work which facilitates the cost estimating process. In many cases, the contract between the owner and the CMR will require that the contract price be subject to a guaranteed maximum price (“GMP”). The GMP traditionally includes:
- The cost of the work (primarily subcontract costs),
- A construction contingency (usually a negotiated percentage or amount), and
- A fee based on a predetermined percentage of the cost of the work (represents the CMR’s profit).
Once the GMP and the construction schedule are mutually agreed upon, the contract between the owner and the CMR will be amended to reflect the agreed GMP and construction schedule. The compensation to which the CMR will be entitled for the work is referred to as the “Contract Sum” which is the sum of the actual cost of the work, the portion of the construction contingency utilized in accordance with the contract, and the CM fee provided that the Contract Sum may not exceed the GMP. Generally speaking, except where the GMP is exceeded due to an owner requested change in the work which is not due to the fault of the CMR or its subcontractors, or due to a force majeure event, the CMR must bear all costs and expenses in excess of the GMP.
For state assisted public school construction projects, the procurement process for the CMR is the same quality based selection process we described in a prior post for procurement of the architect. Although there are no statutory or regulatory requirements that specifically address CM at Risk project delivery, CGS §10-287(b)(1) has been interpreted by the administrator of Connecticut’s school construction grant program (the Connecticut Department of Administrative Services) and others to require that the CM at Risk publicly bid each element of the work for the project and award contracts to subcontractors and suppliers that are the lowest responsible qualified bidders.
In a future Construction Corner post, we will explore the Design-Build Project delivery method.