Construction Management
Construction Management is also a very popular delivery method. It generally takes two forms, construction management agency and construction management at-risk. In the construction management agency relationship, the construction manager is essentially an advisor to the owner but does not have direct responsibility for the construction, or any real risk or exposure.
With construction management at-risk, however, the CM actually holds the contracts with the various subcontractors and in some instances with a general contractor or multiple general contractors, depending upon the size and scope of the project. Typically in this arrangement, the CM has guaranteed the price otherwise known as a guaranteed maximum price, or GMP, and has typically assumed greater responsibility than a contractor under the traditional design bid-build equation. Like design-build, CM at-risk can proceed without final drawings. Typically in this situation, the CM will give the owner a contingency as part of the costs of the work and depending upon the status of the documents, a contingency will be larger or smaller. Obviously, the more complete the documents, the smaller the contingency. The advantage of this approach, as with design build, is that the contractor can proceed with site work and other preliminary matters prior to receiving final drawings.
One of the distinct advantages of the CM process is the involvement of the CM at an early state and input into determining the budget and schedules. The CM at-risk contract generally includes a guarantee maximum price which is the sum of costs of the work, general conditions, CM's fee and contingency. Generally, these contracts contain a cost savings provision where the owner and a CM will share any savings, i.e., any sums less than the overall GMP. In some contacts, the owner will require a GMP for different phases, for example if multiple buildings are being constructed, this owner may require separate GMPs for each building.
Additionally, some owners take the position that if there is any savings at all, it belongs to the owner and they will not share that with the CM. Some owners also believe that sharing the savings provides an incentive for the CM to cut corners.
The CM contract is usually done in two phases. The initial phase includes the base contract and general conditions. It contemplates a GMP amendment which will be added once the parties agree on a GMP. To get to the second phase, the CM will propose a GMP which is backed by a detailed breakdown of the cost items included in the GMP. It also includes numerous assumptions and conditions. The assumptions and conditions will allow the CM to increase the GMP if these assumptions do not hold. Typically they address such issues like an increase in commodities beyond a certain threshold. As noted, the stage of completion of the documents will determine the size of the contingency. Some CMs will give a GMP as early as 70% complete drawings. Most GMP projects are done on an "open book" basis which means all the figures are transparent and subject to audit. Typically, if a discrepancy is found beyond a certain percentage, the contractor is required to not only pay the difference but pay for the audit. If the discrepancy is within the stated percentage they merely have to pay the difference.
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