A comparison of general contracting, construction manager at risk and construction manager as agent
This article comes from our Summer 2016 Bricker Construction Law newsletter.
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With the passage of construction reform legislation, public owners now have the ability to use the general contracting and construction manager at risk (CMAR) procurement models. In addition to these two new procurement models, public owners can also use the services of a construction manager as agent (CMa) on construction projects. This article discusses the differences between CMa, general contracting and CMAR.
Similar to a design professional or an owner’s representative, a CMa has a contract only with the owner. The role of the CMa is to assist the owner with scheduling and coordination, constructability review of the design, nonbinding estimating, value engineering recommendations, observation of the work for conformance with the contract, project documentation and similar activities. However, unlike the general contracting and CMAR models, a CMa does not perform any construction and does not hold and cannot directly enforce the contracts of the contractors performing the work. Also, any action on the construction contracts must be taken by the owner.
The CMa can assist the owner with complex projects when the owner opts for a multiple prime construction delivery model. Although public owners have the ability to hire a single general contractor (discussed below), public owners still have the option to hire multiple prime contractors. If a public owner selects a multiple prime contract option, the CMa can assist the owner with preparing and managing the various trade packages. However, it should be noted that the CMa’s fee typically offsets some of the upfront savings associated with multiple prime contractors on a project, and the owner still has the risk of having to sue or being sued by the multiple contractors.
A CMa is selected through a qualification-based selection process (ORC 9.33-9.334). Under this process, a public owner is required to advertise for the CMa services and invite interested parties to submit proposals. Upon receipt of the proposals, the public owner selects a CMa through a qualification-based selection process. Unlike public bidding, this process gives the owner more control over the firm that provides CMa services for the project.
There are no restrictions on when a public owner can engage a CMa for a project. Ideally, a public owner would want to engage a CMa during the design phase to benefit from the CMa’s ability to provide estimating, constructability review and other prebid services.
As noted above, public owners have the ability to use multiple prime contractors or a single prime contractor on public projects. The single prime contracting model is often referred to as general contracting. The procurement process for general contracting requires the general contractor to bid on a complete set of construction documents, incorporating all trades, provided by the owner. Because general contractors submit a bid after the contract documents are complete, there is no opportunity for the general contractor to perform constructability reviews, estimating and other preconstruction services. If there are issues with the design, they may not arise until after the award of the contract, and often result in disputes between the owner and the general contractor.
General contractors submit a lump sum, hard bid for the project based on the contract documents prepared by the owner. That price is subject to change based on some design issues, unforeseen conditions and/or delays outside the general contractor’s control. Additionally, general contractors are typically not required to include a contingency in their bid for a project. As will be discussed below, the fee for a CMAR is required to include a contingency, which can be used for cost overruns on a project.
The general contractor holds all of the subcontractor contracts and is responsible for scheduling and coordinating their work and their work quality, assuming the contracts are properly drafted. This arrangement is different than a multiple prime contracting model using a CMa in which many of the trades would be prime contractors, each with separate contracts with the owner requiring coordination and enforcement.
CMAR has a contractual arrangement similar to general contracting. Under the CMAR model, the owner has a single prime contract with the CMAR, and the CMAR holds all of the subcontracts. By holding all of the construction contracts, the CMAR can enforce scheduling and coordination obligations directly with regard to the subcontractors.
Similar to a CMa, there are no restrictions on when an owner can engage a CMAR. However, it is preferable to engage a CMAR at the very beginning of a project. Depending on the terms of the contract, CMARs typically participate in the design process to identify constructability problems, budgetary concerns, material availability issues, schedule concerns, etc. These preconstruction services, combined with the CMAR’s familiarity with the project at the time construction begins, can reduce and/or eliminate problems during a project. Although a CMAR is not responsible for design aspects that are unique to design professionals’ obligations, the CMAR may be responsible for design issues that should have reasonably been identified as part of their preconstruction services.
The selection process for a CMAR is substantially different than the selection process for a CMa or general contractor. First, the selection process for a CMAR is a two-step process involving a request for qualifications phase and a request for proposals phase. Second, the award standard for a CMAR is “best value.” Under this standard, the owner can award the contract for CMAR services to the firm that provides the best value to the public entity based not only on price, but also on the firm’s technical proposal.
Another difference between a CMAR and a general contractor is the fee arrangement. Unlike a general contractor, a CMAR provides a guaranteed maximum price (GMP) for a project. The GMP can be provided either with the proposals or it can be provided at a predetermined time after the CMAR contract is awarded. If a public owner decides to get a CMAR involved in the early stages of a project, there is typically not enough information for the CMAR to provide an accurate GMP. Under this scenario, the parties could agree that the CMAR would then provide a GMP when the drawings are further developed, such as at 80 or 90 percent complete. All of the CMAR’s costs are subject to open-book pricing, which gives the owner the ability to audit the CMAR’s costs and verify that the proper costs are being charged against the GMP. If the project is completed for less than the GMP, the CMAR contract can include a provision that allows the owner and the CMAR to share the savings, although owners are permitted to retain all of the savings if they wish.
In addition to providing a GMP for the project, the CMAR is required to set its fees for providing CMAR services at the time the proposal is provided. The CMAR’s fee is required to include a contingency for the project. The amount of the contingency, how the contingency is assessed and the approved uses of the contingency funds are not fixed by statute and must be carefully addressed in the contract.Download PDF