Source: Constructor, January/February 2017
By: Debra Wood

BENEFITS AND WORDS TO THE WISE

AS MANY OWNERS AND contractors seek to enhance the construction experience by considering different project-delivery methods, they are opting for construction manager at risk (CMAR), which provides opportunities for improved collaboration, but, as the name states, also comes with risks to be managed.
“There are a lot of pros [regard­ing] construction manager at risk,” says James Apodaca, senior project manager with Commodore Builders of Waltham, Massachusetts, a member of AGC of Massachusetts and chair of Project Delivery for AGC of America. “You have an ability to assist the team and come up with the most effective solutions.”
Brian Perlberg, senior counsel for con­struction law at AGC of America and execu­tive director of ConsensusDocs, reported a national trend toward the CMAR method and early involvement by general contrac­tors in projects.
The CMAR method may entail a qual­ification-based selection or a best value, which includes qualifications and a price component, says Eric Hedlund, senior vice president and Texas district manager in San Antonio for Sundt Construction, a mem­ber of multiple AGC chapters. Most of the company’s work is performed as a CMAR.
“As a CMAR, you are providing a pro­fessional service during preconstruction,” Hedlund says. “You have to think and act differently than on a hard-bid project.”
BENEFITS
Collaboration, a better understand­ing of the project and the design, and the opportunity to be involved in pre-construction, constructability reviews and value engineering are the greatest benefits associated with CMAR.
“It gives great transparency,” says Blair Lavoie, president of MWH Constructors in Broomfield, Colorado, a member of the Colorado Contractors Association and other AGC chapters. “Many clients want to know where the cost is going versus getting one single number, especially on complicated jobs.”
Lavoie describes involving construc­tion professionals in design earlier as a “left-shift,” which helps produce more accurate estimates and schedules. He suggests using it for larger and more complex projects, such as renovations, where many unknowns exist. MWH Constructors is the CMAR on the $100 million Hillcrest Reservoir Tank and Pump Station Replacement near Denver. The Denver Water potable water proj­ect consists of removing two existing concrete storage basins and replacing them with three new basins with a combined capacity of approximately 45 million gallons, as well as replacing the existing pump station, all while the facility remains operational.
“The more complicated [the project], you want to find someone who can coordinate a tough job,” Lavoie says. “You want a trusted construction partner and a trusted design partner.”
Apodaca agrees that complex projects lend themselves to CMAR, especially those with small sites and logistical issues — or any time there are a lot of questions about how to get things done.
Commodore recently completed, on time and on budget, the new Malden Police Station for the city of Malden, Massachusetts, built under a CMAR con­tract. The police headquarters is the first phase of a central commercial district redevelopment initiative.
“I believe the CMAR process allowed us to effectively collaborate with all stakeholders at critical moments to deliver the project as the city had envi­sioned, and provided a facility that the police department, the city and its resi­dents can be proud of,” Apodaca says.
CMAR reduces the number of change orders, because issues are worked out ahead of construction.
“You add value to the process,” Hedlund says. “You are helping the owner find the best value.”
Savings typically flow to the owner, but some owners offer shared savings.
Another advantage to the contractor, Hedlund says, is the relatively low cost of pursuit compared to bidding a project, where a lot of time and energy is devoted to putting the price together.
MANAGING RISK
“Everything has a small degree of risk,” Apodaca says. “It’s all about how we are managing the risk.”
With CMAR for private entities, Hedlund and Apodaca say the contrac­tor often has the opportunity to discuss and negotiate contract terms. CMAR contracts have varying degrees of risk, Hedlund says. You have to be careful reviewing the contract.
“You can manage the project risk better with CMAR,” Hedlund says, adding that it allows for thorough planning during the preconstruction phase.
When Sundt has the opportunity to rec­ommend a contract, it uses ConsensusDocs, developed by AGC.
“They have had input from all parties and stakeholder groups,” Hedlund says.
ConsensusDocs offers documents such as 500 – Agreement and General Conditions Between Owner and Construction Manager (Where the CM is At-Risk), an integrated agreement and general conditions document; 500.1 – GMP and Completion Dates, an amendment to the original contract; 510 – Agreement and General Conditions Between Owner and Construction Manager (Cost of Work with Option for Preconstruction Services); and 525 ­Change Order/Construction Manager Fee Adjustment.
The documents are written clearly, encourage direct party communica­tion and minimize risk by discussing issues. They address the cost of work and overhead and are updated on a five-year cycle and reflect current industry standards. The new CMAR documents will be released in March 2017.
“ConsensusDocs provide best-practice standard documents that have fair risk allocation for all of the parties,” Perlberg says. “The documents create a founda­tional relationship that assigns liability and responsibility for the different actors. They are aligned with overall project success.”
Apodaca says he considers Commodore lucky when it gets to work under a ConsensusDoc contract. “ConsensusDocs are most fair,” he says.
Perlberg says ConsensusDocs are written to drive positive performance and incentives for better project results. “When you start making steps to work together, you are less likely to end up in litigation,” he says. “People who treat you fairly are more likely to give you a fair contract. People who say they are fair but give you a contract protective of their side create an imbalance.”
Public work usually entails a “boiler­plate contract,” Apodaca says. He recom­mends reading those extremely carefully, while still in the request-for-proposal (RPP) stage, to ensure the contractor can deliver on specifics and to identify any issues with the contract, particularly preconstruction expectations and defini­tions and terms of the contract.
“It’s good to have a lawyer, who understands your risks, review before you sign it rather than after you signed it and are getting into litigation,” Apodaca says.
Regardless of where the contract orig­inates, the contractor must understand what is in it and the requirements.
A potential risk is design liability, Hedlund says. If the contractor signs off, deeming a project constructible, and in the field it turns out not to be, a risk is created.
Michael Kennedy, general counsel for AGC of America, described this as a gray area that may put the contractor at risk for liability associated with professional ser­vices. He described it as a scenario where someone else’s mistake may become your mistake, because you failed to detect it.
“The standard of care is higher,” Hedlund says. “The ‘should-have known’ has more bandwidth. You have to not allow yourself to take on risk due to site condi­tions. You have to have the discipline to investigate the site and understand it. You have to educate yourself in ways you may not during a bid process.”
Apodaca and Kennedy suggested con­tractors keep good records. Professional liability insurance for errors and omissions is available, albeit expensive.
In a recent case, Coghlin Electrical Contractors v. Gilbane Building Co., the Massachusetts Supreme Judicial Court held that the owner was responsible for the adequacy of the design, even with a CMAR contract. Again, care is needed while negotiating the contract to avoid taking on too much design responsibility.
CMAR contracts typically include cost plus an agreed-upon fee with a guar­anteed maximum price (GMP). Both can present issues. Lavoie warned that some clients are bidding out the fee.
“Owners are not happy with what they are getting by making it a low-bid game and defeating the purpose of the CMAR,” Lavoie says. “When price becomes the overwhelming factor, you have a lot of gamesmanship happening.”
Declaring the GMP before the design is complete — during conceptual estimat­ing — presents another risk with CMAR contracts, Hedlund says.
“We have to have a crystal ball,” Hedlund adds. “You should anticipate cost, but because you are giving early pricing, there’s a contingency buffer. It is important for the contractor to evaluate the scope of the project adequately and have enough contingency in the GMP, for things not on the paper yet.”
Sundt tries to engage key subcontrac­tors, such as mechanical, electrical and glass, early in the process, bringing them on as partners.
“They help you read between the lines and fill in the gaps of what is not on the drawings,” Hedlund says. “Then they build the job with you.”
In some instances, the construction manager can hire subcontractors the company has worked with and had good results with in the past. But some owners require that subcontractor contracts be competitively bid in hope of securing a lower price, Hedlund says.
“The smart ones are not just after the lowest price but the best value,” Hedlund adds.
Subcontractor default remains a risk with CMAR. The subcontractor may go broke or out of business, which Hedlund says has happened more frequently since the Great Recession.
WORDS TO THE WISE
While CMAR has its benefits and man­ageable risks, no single delivery method is right for all projects, Lavoie says, adding that clients may suggest CMAR or the con­tractor may recommend it to the potential client.
“We are often asked how a job should be delivered,” Lavoie adds.
According to Lavoie, there are “thick” and “thin” versions of CMAR. “Thick” is used to describe situations where the CMAR acts as the general contractor with several subcontractors, and “thin” is when the work is broken into three or four companies managing the jobsite. He warns that not all CMAR RFPs are written with the contractor in mind and may not describe the participation. An RFP should include goals for minority or local partici­pation and indicate whether the CMAR can self-perform the construction. Some clients consider that a conflict of interest.
During construction and after comple­tion of the project, CMAR contracts are open-book and subject to audit to ensure charges are in accordance with the contract.
“You have to be prepared to document your costs,” Hedlund says. “You need an accounting system set up in a way to docu­ment those costs adequately.”
Lavoie encourages AGC members who have not performed CMAR to talk with colleagues who have done so and learn from them.
“Good contractors want to talk about their lessons learned,” Lavoie adds.
Hedlund considered the $122 million Arizona State University Interdisciplinary Science & Technology Building 4 in Tempe one of the company’s most successful CMAR projects. He credited the architects and the Sundt team co-locating during preconstruction and construction to fos­ter better collaboration with ensuring the project progressed smoothly.
The project managers’ and superinten­dents’ ability to communicate and collabo­rate are paramount to a successful CMAR project, Apodaca says.
“They need to work with the team early on, so there are not any change orders, except from the owner,” Apodaca says. “It’s a different set of soft skills. It always comes down to communication, openness and collaboration. It’s that team effort that makes it so beneficial.”
Perlberg added that contractors who truly collaborate get better results.
Because CMAR requires collabora­tion, “you need to be a good teammate,” Hedlund says. “It’s not all about you.