Board Reflections: Challenges in CM-at-Risk Contracts

The CM-at-Risk project delivery process, also known as CM/GC (construction manager/general contractor), is often used in place of design-build. CM/GC is thought to give the owner better control over design than design-build, while still providing the benefit of early cost information. This method is edging out design-build in many parts of the country as owners seek greater influence in their projects. However, CM/GC poses hidden risks to many, including owners, subcontractors, and design professionals.

In the CM/GC process, the owner hires the A/E team, giving the owner direct control over the design process. The general contractor is brought on early in the project to act as construction manager and to provide cost information and constructability reviews throughout design. The CM/GC often sets a guaranteed maximum price (GMP) well before design is complete, usually after design development drawings are issued. Both the CM/GC and the A/E team advise the owner on design, cost, quality, and schedule issues, but without a contractual tie between them, the two parties may fail to work closely enough together to produce the desired results. From the trades’ perspectives, working under the CM may seem much the same as traditional design-bid-build, except they are frequently asked to price their work multiple times during the project, most often without compensation.

Problems can also arise when both entities try to please the owner without coordinating their efforts. For example, the owners may ask the A/E team to design more scope than the budget may allow. What owner wouldn’t try to stretch the budget and see if they can afford a larger scope? Design moves toward completion with excessive scope and crossed fingers, even though the CM/GC may alert the owner the project risks going over budget. Invariably, subcontractor bids confirm the budget is indeed overrun. When this happens very late in the design effort, the design team faces extensive redesign to bring the project back in budget, often without compensation. The design team may be perceived to be at fault, even though they faithfully followed the owner’s direction. All in all, the process can become a trial and error scope and pricing exercise, resulting in excessive design costs and schedule delays.

Another problem can arise when the CM/GC bids drawings at design development (DD) or some other early stage of completion and selects subcontractors based on these bids. The advantage of bringing subs on early is that they can assist with constructability reviews and provide value engineering. The disadvantage is with pricing. At only 35 to 40 percent complete, DD drawings can’t convey the level of detail necessary for good pricing. Subcontractors bidding these documents may price only what they can observe, not what they think it will take to complete the project. When pricing is updated at 100 percent design completion, the project may suddenly be in the red after being on budget at design development. The contractors and design team point at each other, one claiming the DD documents were incomplete (the very nature of DDs!), and the other saying the DD pricing was inaccurate or the CM/GC’s contingency was insufficient. The owner is left to reconcile the differences while wondering who didn’t do their job.

CM/GC can be a good delivery method when all parties work closely together with trust and honesty. The closer the parties work together, the more CM/GC starts to look like design-build. While either method can produce good results, design-build can often save the owner from many of the issues they may face in CM/GC. The most important success factor is not necessarily the delivery method, but how well the entire project team works together. A shared vision, mutual confidence and trust, and open and constructive communication are all critical to a well-delivered project.