How And When To Engage a Contractor
By William Henry PhD
History of ‘At Risk Construction Management’ aka ‘CM at Risk’ in the State of Florida
In the late 1970’s a major public project went so poorly for the State University System that the two agencies responsible for major project administration for the State of Florida determined that they would try a new project delivery system for the first time. The project that caused both the State of Florida Department of Management Services and the Board of Regents to consider a new approach was the University of South Florida ‘Sun-Dome’ project with its inflatable fabric covering over a basketball court at the USF campus. The fabric dome propped into position by giant blowers was advertised by the designers to produce a cost savings advantage over more traditional steel construction approaches like for instance that found at Tropicana Field baseball stadium. However when the design was ‘bid out’ amongst several contractors the cost savings was less than was expected. Further, during construction, the unexpected cost over runs known as additive change orders began to pile up. USF’s capital improvement division refused to pay some of these blaming the contractor. The contractor in turn refused to pay some of its sub- contractors and mechanics liens and/or claims against the contractor were filed.
After this unhappy episode the State began to entertain the idea of a different approach to project delivery. State officials lacked confidence in the design community to predict the final costs of complex new projects. Rather than await the results of a public bid to arrive at a cost and schedule the State determined that it would ‘hire’ a so called ‘construction manager’ to control the designer’s creative but costly design impulses, and to keep the project on schedule. But rather than hire a ‘professional manager’ or consultant to help the designer with estimating and scheduling the State listened to a growing contingency of larger contractors to let them fulfill this role. Rather they reasoned than let so called ‘irresponsible designers’ and their professional consultants continue to perpetuate these unpredictable consequences it would be best to have the ultimate contractor aboard to guarantee the costs early on to eliminate surprises. At this point ‘construction management at risk’ gained traction in the State. This movement was initially opposed by most smaller general contractors who rightly viewed ‘CM at risk’ as a threat to their way of doing business. They foresaw the larger contractors gaining most of the CM opportunities and their share of Work limited to the smaller bid Work that was let the old fashioned way -by the result of the lowest responsible bid.
The State decided to pursue Construction Management utilizing a general contractor on its next large project which was a major expansion of the Shands Teaching Hospital on the University of Florida Campus. How the selection was made is detailed in a white paper that is posted on our company web site www.rga-design.com [1]. The result of this project, along with many others, expose the flaws of this delivery system which turn out to be at least as great as those associated with the traditional lump sum bid approach that officials mostly abandoned in favor of the CM approach. However the problems are different and not as noticeable by governing officials and the public at large. These problems are as follows;
Downsides of ‘CM at Risk’
1) The Contractor/ CM have often created more contingency then necessary thus eliminating any ‘risk’ to them and increasing the price.
2) With no competition the Contractor/CM often only selects the largest most costly sub-contractors to complete the Work further mitigating risk to them but again increasing cost to the Owner.
3) Some Contractor CM’s bury profit in what is known as the general conditions of the Work often overcharging for onsite supervision and charging home office expense to the cost of the Work.
4) By delaying providing a guaranteed maximum price ‘GMP’ until the architect’s drawings are almost complete the risk factors are almost eliminated and the price to the Owner again increases due to lack of competition. If the GMP is delayed why not pay the CM for his estimating and scheduling Services and bid the project with other contractors in lieu of a sole source approach?
5) Finally the CM/Contractor is often incentive-ized to challenge the architects’ drawings to create additive change orders which again increase the price. This process pits the Architect against the CM/Contractor placing the client/owner in the uncomfortable position of having to arbitrate. This becomes a lose/ lose proposition.
Though state agency employees have embraced ‘CM at risk’ because it removes much accountability from their sphere, the taxpayers foot the bill for their comfort and protection. There is a superior approach to letting construction Work. That process is as follows;
Alternative Approaches to ‘CM at Risk’ – Designer led Design-Build
Having been involved in the ‘CM at risk’ project delivery system since its inception in State governmental Work as the contract manager for the Shands project case history described above, I will offer some refinements that will address some of the inherent flaws noted therein. I will term this revised approach as ‘Designer Led Design-Build’. The following traits describe how this approach differs fundamentally from the Contractor led ‘CM at risk’ approach;
1. Smaller Projects
If the project is smaller, say less than $1 to $3 million in value, then it is most cost effective to hire a criteria design architect to set forth the preliminary project program (list of project objectives and spatial requirements) then prepare a very preliminary design. This will identify and describe in detail the scope of Work. Armed with this information the project Owner/ Client can solicit competitive proposals to design/ build teams to both complete the design construction documents and to build the project for a firm fixed price. The proposals can be evaluated BOTH for design thoroughness and quality as well as the cost to construct and time frame to complete the Work. The advantage is that the owner is not placed between the architect/designer and builder but can look to one entity (the design/ builder) for accountability both in terms of quality and cost.
2. Larger, More Complex Projects
If the project is larger and/or more complex, then the process begins the same but the initial design team remains longer to better define the project. The designer/ architect is joined at the beginning of the process by a cost/ scheduling consultant. This consultant helps the designer estimate costs, predict a schedule, and identify likely sub-contractors to perform the Work. During this process these specialized contracting entities may offer suggestions for saving time and money. After the construction drawings are approximately 80% complete the owner and architect can solicit proposals from general contractors to help complete the construction documents and construct the project. Rather than submit a bid based on the incomplete drawings the Contractors offer only a price to conduct the field Work aka the ‘general conditions’ and a fixed fee for overhead and profit. All subcontractors are identified by BOTH the owner/ architect AND the contractor and their costs are known to the Owner early on-prior to the start of construction. This places the entire team on the same side of the negotiating table and ensures competitive pricing throughout.
In sum, both approaches eliminate the ‘sole source aspect’ of the ‘CM at risk’ approach now in favor with government bureaucracies. Prior to hiring a contractor, it makes sense to consider several options prior to falling for convincing sales lines from various contractors.
[2]Reliable Group, LLC Architects AA# 0003523 is a well-known architectural and construction management firm based in Tampa, Florida. RGA is headed by Dr. William Henry, both an architect and certified expert witness who issues opinions and testimony concerning design and construction related matters. Having designed over 250 landmark buildings in the state of Florida, he has represented and testified for both plaintiffs and defendants in cases involving code violations such as associated with design and construction defects as well as American Disabilities Act – ‘ADA’ violations. William Henry, PhD (Bill) may be reached at (813) 226.2220 or bhenry@rga-design.com [3].
Copyright © 2012 REAL Magazine
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