Construction Management from an Owner’s Point of View, Part 2

by  Girard R. Visconti, Esquire

 

A CM can advise the owner as to the project site, alternate designs, sequencing of construction, materials, scheduling, cost analysis and budgets, long-lead procurement items, recommendations as to construction, labor matters, value engineering (cost savings), accounting systems, contract document input, review of design and scope divisions with the architect, bid package identification, bidding negotiation, contract award, inspection of work, review of progress payments, change orders (vs. in scope work), project close-out services, coordination of owner-purchased materials, etc.

Unless there is no time for the traditional architectural design of specs and drawings, an owner should not retain a CM to actually build the project, but should rely on the traditional concept of construction by retaining an architect and placing the project out for bid to several contractors. (A suggestion: An owner hires a CM for preconstruction services. Thereafter, the CM gives the owner a guaranteed maximum price with the owner bidding out the project to other contractors to compare the lump sum versus the guaranteed maximum price.)

In the event that the CM is used as the exception rather than the rule, this author has several suggestions:  

 

1. All subtrade items, including self-performed work by the CM, should be competitively bid by the CM, with sealed file bids being opened in the presence of the CM, the architect, and the owner.
2. An audit provision should be inserted in the contract between the owner and the CM. A CM contract with a GMP is nothing more than a cost-plus contract not to exceed a certain price (GMP). At the end of the project, the owner is entitled to an audit of all costs and expenses, which should include general conditions of the CM and any and all costs expended by the CM under the contract. The CM submits applications for payments to the owner based on the cost of the work performed on a monthly basis. The CM submits its costs for that period, plus a fee.
3. The owner should not agree to a contingency fund as requested by CMs. Many contracts have no definitions of contingency funds, and most CMs take the position that contingency funds are for the contractor’s use. If the contingency fund is utilized, there must be a well-defined “definition” of the use of the monies. Any “contingency issue” can be treated as a change order request.
4. Cost of the work in a CM contract should be clearly defined, and costs not to be reimbursed should likewise be defined.
5. A CM contract should always be based on drawings that are at least 80% complete, if practical. It is imperative that the owner, with the assistance of its architect and other consultants, determine whether or not a requested change order is in scope or out of scope. If the requested extra is within scope, a change order should not be approved by the owner since the CM (“CM at risk”) guarantees its price based on incomplete drawings and should know that certain items are included in the traditional scope of work for a certain project. Authorized change orders should either increase the GMP when there is an additional scope, or decrease the GMP when there is a deduction in scope.
6. General conditions may be subject to audit or could be agreed upon in a lump sum or percentage without audit (for example, 3% to 4% of construction costs to be paid to the CM for general conditions not subject to audit.) (A “matrix” should be used to define General Conditions to avoid overlapping with direct costs).

Conclusion

It is this author’s recommendation that an owner should not utilize the CM method to build a project except where there is no time to develop plans and specifications by an architect and place the project out to bid or as a construction consultant to the owner. With today’s state of the art, an architect can be retained by an owner, and 100% of construction drawings and specifications can be developed in four months, providing the owner has a construction program and budget. At the end of the four-month period, plans and specifications can be advertised for bid and a contract awarded to the lowest, responsible, qualified bidder within four to six weeks from the completion of contract documents and bid package preparation by the architect.

Girard R. Visconti is a partner of Shechtman Halperin Savage, LLP of Pawtucket, R.I.