School districts often choose the CM or CM at-Risk delivery method in hopes that district staff will have greater control over a construction project, and will be able to save on costs. In fact, a 2000 survey by the Construction Financial Management Association found that there were no systematic differences in the fees charged for CM At-Risk versus General Contracting services. If you are looking to the CM delivery method as a way to solve budget problems, make sure you know about all of the potential pitfalls. In practice, the CM method can lead to delays, mismanagement, unnecessary costs, and litigation. Use a Careful Selection Process The California State Allocation Board recommends using a formal selection process for hiring any consultant on a school construction project, including Construction Managers. In its “Cost Reduction Guidelines” for public school construction, the Allocation Board suggests that school districts advertise for the services, review written statements of qualification, and interview at least three firms before selecting a consultant. Although the Public Contract Code does not require a competitive bid process for professional services, awarding agencies should not let their guard down when hiring a Construction Management firm. If you choose the CM delivery method, you will be relying on the Construction Management firm to advise you on major decisions that can have an enormous impact on your project. You need to be sure that the firm is fully qualified, with a clean record, and will have your project’s best interest at heart. Increased Liability Traditionally, general contractors assume liability for construction projects during the construction phase, and for any construction defects that may arise after completion of the project. Construction Managers typically don’t assume any risk during construction or after completion, other than guaranteeing a maximum price (GMP) in a CM at-Risk scenario. The Construction Manager is making major decisions, but has no liability when it comes to construction defects. Since a CM at-Risk will have to pay for construction costs that exceed a project’s GMP, the CM may make cost-saving decisions without considering the future costs to the owner that may arise from construction defects. Without a general contractor to assume liability for an entire project, the building owner must either purchase a “wrap-up” policy to cover the project, or require each trade contractor to be covered for their work. In the latter case, building owners will end up paying the cost of insurance coverage, because it will be built into the bids from trade contractors. Extra Work for Building Owner and Designer A building owner who chooses the CM at-Risk delivery method should be prepared to dedicate trained staff to oversee the project. Staff must be able to perform many of the duties that would otherwise be taken care of by a general contractor. The owner must have the time and expertise to coordinate multiple bid packages and carefully define the scope of each trade contract. The design consultant must also produce different sets of drawings and specs for each bid package, and will charge the building owner for that extra work. One of the most valuable things that a general contractor contributes to a project is knowing when the scope of one subcontractor may overlap with that of another, or where there may be gaps in the scope of work assigned to each subcontractor. An experienced general contractor will identify those areas ahead of time and make sure that the work is done efficiently. In addition, the Construction Management Association (CMAA) cautions building owners about fees charged by construction managers, and recommends that building owners get professional advice before entering into an agreement with a CM. “If the fee that is quoted is to be part of the selection, you can be sure that it will be only a small part of the final gross margin to the Construction Manager. An owner, in order not to be misled, needs a close advisor…” The CMAA is suggesting that school districts hire professional consultants to help them monitor the CMs, who themselves are supposed to be monitoring other contractors. Where does it stop? Shrinking the Pool of Available Contractors The Construction Management delivery method requires specialty trade contractors to contract directly with the building owner, and not all trade contractors have the ability to do that. Many quality trade contractors are not set up to act as prime contractors—they may be accustomed to relying on working with general contractors who are bonded and insured for the entire project, and they may need the general contractor’s expertise in managing the job day-to-day. This is especially true of the companies who have the lowest overhead and are most competitive. Multiple prime contracting shrinks the pool of qualified trade contractors, resulting in less competitive bids. Less competitive bids can raise the cost of the project overall. Adversarial Relationships Often, awarding agencies turn to CM delivery method because they are seeking a less adversarial process than the traditional lump-sum general contracting method. In theory, a CM firm is supposed to have the building owner’s interests at heart, but a look at Douglas E Barnhart’s history of frequent litigation suggests that this is not the case. When utilizing a CM multi-prime delivery method, whereby the building owner contracts directly with trade contractors, building owners miss out on one of the most valuable things a general contractor can bring to a project: long-standing, positive business relationships with subcontractors. When subcontractors are hired by general contractors, they know that their performance will determine future work opportunities. General contractors who have a large volume of work to offer to trade contractors are more likely to get the best performance from subcontractors, since they rely on repeat business from the general contractors. School districts who use Construction Managers miss the opportunity to take advantage of those relationships. For more information contact us at (209) 239-3528 or local25@nccrc.org.