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The way major construction projects are done continues to evolve. Public projects used to go through traditional design-bid-build, but today, many states and jurisdictions are increasingly allowing a variety of delivery methods, such as the construction manager at risk.
This flexibility brings benefits and potential dangers for contractors.
Unlike traditional design-bid-build, where the design and construction processes are separate and sequential, the CMAR method requires the construction manager and design team to work simultaneously and collaborate early in the design process.
Once the design is ready for bids, the owner and the construction team, often the construction manager himself, enter into a contract, which usually sets a maximum cost for the project and puts much of the risk on the construction manager. construction, said James Strommen. attorney at the Minneapolis-based law firm of Kennedy & Graven.
James Strommen
Permission granted by James Strommen
“I think the belief comes from the construction manager, that they have a lot more control over their subcontractors and they can, because they’ve taken the CM risk, really watch and monitor their subcontractors to keep the price at the guaranteed maximum price, which of course, then it benefits the owner [because] there are no standing change orders,” Strommen said.
The federal government began using CMAR and states followed suit to speed up projects and more effectively manage complex construction, said David Pugh, a partner at the Birmingham, Ala.-based law firm Bradley.
Today, private entities are increasingly financing public infrastructure, and states that are most liberal in using alternative delivery methods also tend to be those that aggressively pursue public-private partnerships, Pugh said.
“In order for these projects to work, to be able to attract private capital to these projects, you have to have alternative delivery methods available,” Pugh said. “Private capital doesn’t want to use the traditional design-bid-build method: too slow, too expensive, too little control.”
There are many different ways to set up CMAR contracts, from different fee structures to the number of GMPs associated with the project, said Mark Evans, partner at Bricker Graydon law firm in Columbus, Ohio. For example, sometimes it makes sense to add a GMP early site package so that groundwork and utilities can begin while the design is being finalized.
David Pugh
Courtesy of Associated Builders and Contractors
“[CMAR] It’s definitely not one-size-fits-all, which is also good for the homeowner, because they can customize it to fit their project and needs. Whereas a hard bid, it’s just a straightforward mechanical process,” Evans said.
Fewer conflicts
This shift from the traditional design-bid-build method has apparently contributed to fewer claims from rejected bidders, as owners have a lot of discretion in choosing their team, Evans said.
“In a bidding context, we used to have a lot of challenges to the award, where, you know, a bitter, disgruntled seller, who was maybe the second lowest bidder, would challenge the award of the debt and try to get it back. I have seen very few, if any, challenges to an award in a CMAR or design-build context,” Evans said.
According to Strommen, this increased level of communication about CMAR projects can also help reduce conflict between project parties.
“The argument about whether you should have seen it in the design or not, it’s going to cost more now — I think ideally they’re dramatically reduced in the CM at risk,” Strommen said. “Every owner would like that, because they’re on a budget and they want to stay on budget.”
No project is without challenges, but the CMAR process opens up opportunities to avoid potential conflicts and ensure that the project will be carried out in a mutually beneficial manner. Typically, contractors can submit proposed changes to the agreement and negotiate with the owner, according to Evans. This is a key window for contractors to develop a contract that works well for them.
“Contractors really want to be very active on the front end and really dive into those terms of the contract, in the procurement phase if they have that opportunity, and really make sure the terms don’t change too much risk for them,” he said. Evans.
CMAR contractual strategies
One area that contractors must negotiate is the contingency, a bucket of money set aside to correct unforeseen problems that arise on the job. The contract defines what it can be used for and when it can be accessed. For example, CMARs may want to push to be able to use that money to fix a problem they are at fault for, rather than correcting a third party’s damage.
“Another use of contingency that contractors would typically want to have access to is that if they’re running behind schedule, they can use contingency to speed up the work to get back on schedule,” Evans said. “What that would look like is bringing in extra manpower or paying overtime to the guys that are already on site.”
Although price volatility has greatly reduced, the lingering impacts of COVID-19 are creating extremely long lead times for switchgear for electrical systems, generators, some HVAC equipment and heat exchangers, according to Evans.
Given these supply chain difficulties, CMARs would like to push for an extension for unforeseeable material delays in their contract’s excusable delay provisions, Evans said. A property owner may agree to pre-order materials before the main CMAR is ready, a practice that, while common, means they run out of that money if the project falls apart later.
“It’s a risk to the owner, but I think it’s pretty unavoidable at this point just based on the current state of the supply chain issues,” Evans said.
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