This form of construction management is also known as a CM at Risk inasmuch as the CM will be guaranteeing a contract sum, whether it be a Lump Sum or a GMP-type contract.
Opponents of this form of CM argue that the construction manager is serving two masters—the owner and themselves since they have assumed a risk in guaranteeing the final contract sum. Critics state that the CM could weigh judgments on certain matters nonobjectively if these matters would impact its fee. While this may be true, a CM not acting strictly in the owner’s risk will tarnish its reputation and make it more difficult to obtain new work.
Although this type of construction manager again performs the same functions, the CM now contracts directly with and is ultimately responsible for the performance of each respective subtrade. The contract and subtrade relationships in the CM w/GMP format are in fact identical to those shown in Section 3.2.9, Lump Sum, General Contracting. In practice, therefore, the construction manager in the Guaranteed Maximum Price context actually appears to become a general contractor—with the dubious distinction that it does so with a set of contract documents that all parties—the owner, design professionals, and construction manager—agree are substantially incomplete.
It is this fundamental nature of CM w/GMP contracts that is the genesis of most of the misunderstandings—and serious problems—that can and do occur much too often in this type of arrangement. Because of the words “Guaranteed” and “Maximum” into GMP designation, the owner is often under the misconception that little to nothing can occur contractually that will cause the cost of the project to exceed its budget. After all, the price is “guaranteed.” Problems, however, are “guaranteed” to occur because the “Guaranteed” Maximum Price is prepared with the knowledge and acceptance by all parties that the contract documents are indeed substantially incomplete.
How, for example, could it be possible for a construction manager (or anyone else, for that matter) to prepare a “maximum” price for a “100%” completed project—when everyone is well aware that the design is not yet complete? It should be clear that the only way such a price can be prepared is for the construction manager to “reasonably” assume the manner in which the remaining (as of yet undesigned) portion of the project will eventually be completed. A long list of such assumptions becomes necessary in order to define the manner in which the construction management firm “anticipates” that the remaining design will be completed. And so the “Guarantee” of the Guaranteed Maximum Price is simply a guarantee of the total cost if the project is built precisely in the manner that the construction manager has anticipated that design would eventually be completed. Thus, each Guaranteed Maximum Price proposal carries with it some mechanism by which the construction manager has explained to the owner and design professionals its list of assumptions and anticipations. It may be called something like “Basis of Estimate,” “Qualifications and Assumptions,” or something very similar, but in every case it is the specific list of the manner in which the construction manager has essentially “completed” that 40% or so of the design that has yet to be done as of the time the Guaranteed Maximum Price is prepared.
This is the area that becomes the fundamental point of misunderstandings and disagreements among the construction manager, owner, and design professionals. When the design professionals eventually complete the designs, any departure from the assumptions made by the construction manager in the complete Guaranteed Maximum Price portion of the agreement becomes a source of added costs—and possibly associated delays and disputes.
The American Institute of Architects (AIA) has a number of contracts specifically devoted to construction management.
The Construction Management Association of America (CMAA), in 2005, revised its basic contract format and offers the following CM contracts:
A-1: Owner and Construction Manager contract
A-2: Owner and Contractor contract where the CM represents the Owner’s interest
A-3: General Conditions document, a companion to the base contract
A-4: Owner and Design Consultant contract
Defining the Responsibilities of a Construction Manager. A review of CMAA’s A-1 document reveals the basic responsibilities of a construction manager and sums up the most common activities an owner expects of his or her CM:
Predesign Phase
- Prepare a Construction Management Plan (the Plan) taking into consideration the owner’s schedule, budget, and general design requirements.
- Assist the owner in the selection of an architect.
- Assist the owner in the review and preparation of a contract with the architect.
- Assist the owner in conducting a Designer Orientation Session regarding the project scope, schedule, and budget.
Time Management
- Prepare a Master Schedule for the project.
- Prepare a Milestone Schedule for the Design Phase.
Cost Management
- Conduct a market survey to provide the owner and design team with current information about labor, materials, and equipment costs and availability.
- Prepare a Project and Construction Budget based upon the Construction Specifications Institute’s (CSI) divisions of work and identify any contingencies for either design or construction, or both.
- Report to the owner and designer the estimated cost of various design and construction alternatives, recommendations to the budget, costs relating to efficiency, usable life, maintenance, energy, and operational costs of the building’s components.
Management Information Systems (MIS)
- Develop a management information system between the owner, CM, and designers as well as other parties to the project.
- The MIS shall include procedures for reporting and communication during the design phase.
Project Management—Design Phase
- Provide the owner with potential bid packages.
- Conduct an initial Project Conference, and conduct progress meetings with the owner and designers to review the Plan, schedule, design phase schedule, budget, and MIS.
- Monitor the design to ensure compliance with the Plan, and coordinate the flow of information between the owner, designers, and others as required.
- Review the design documents, and make recommendations on constructability, scheduling, clarity, consistency, and coordination of the design documents.
- Facilitate the owner’s review of the contract documents.
- Coordinate the transmittal of design documents to the various regulatory agencies.
- Revise the Master Schedule as required, and monitor the Design Phase Milestone Schedule.
- For cost management, prepare an estimate for each submittal of the design development drawings and facilitate decisions by the owner when changes are required to the program. Provide value engineering recommendations to the owner.
- Prepare and distribute schedule maintenance reports and project cost reports that compare actual and estimated costs.
Procurement Phase
- Prequalify bidders, and assist the owner in preparing and placing notices to solicit bids.
- Expedite bid documents to all bidders.
- Conduct a prebid conference and coordinate procedures to disseminate questions and answers resulting from that conference.
- Assist the owner in opening and evaluating bids, and make recommendations regarding the acceptance or rejection of bids.
- Assist the owner in preparing construction contract documents.
Construction Phase
- Conduct a preconstruction conference in consultation with the owner and designers, and verify that the contractor has provided all permits, bonds, and insurance as required.
- Provide an on-site management team to implement contract administration as an agent of the owner.
- Establish and implement procedures for reviewing and processing RFIs, RFCs, shop drawings, samples, proposals for substitutions, change orders, payment applications, and logs.
- Review RFIs, RFCs, shop drawings, and other submittals and make recommendations before passing them on to the appropriate party, that is, architect, engineer, inspector, or owner.
- Conduct project site meetings, and prepare meeting minutes and distribute to all concerned parties.
- Review the contents of all change orders, whether generated by the owner, designers, general contractor, or subcontractor, and make the necessary recommendations to the owner.
- Establish a program to monitor the quality of the project.
- Require the contractor to prepare a Safety Program and submit it for review and approval or comment.
- Render to the owner decisions involving any disputes arising between the contractor and owner.
- Receive all Operation and Maintenance manuals and warranties, and deliver to the owner and designer.
- Determine when the project has reached substantial completion, in conjunction with the designers, and prepare a list of incomplete work or work that does not conform to the contract documents.
- After consulting with the designers, determine when the project has attained final completion.
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