General Contractor v Construction Manager, p 11

A contractor writing about construction manager–agent recently defined the method correctly as a “management method,” not a delivery method. This is a much better description because the CM-agent is acting as the owner’s representative. The CM-agent essentially becomes a “contracted” employee of the public owner. Depending on how the contract with the CM is written, the public owner pays a guaranteed percentage fee plus the actual costs of the CM services on the project.

One of the projects I analyzed called for the CM to be paid a fee equal to 4.5% of the cost of the project plus the cost of all “reimbursables,” which included the cost of personnel and support services on site. The project total budgeted cost was approximately $3 million. The CM-agent was paid $325,000 plus to manage the project. Assuming that the various trade contractors averaged an increase in price of only 15% over their normal bid numbers on the remaining $2.675 million, the extra monies paid on these contracts would be approximately $400,000. That is a total of $725,000 of the available $3 million. The school district could have hired a project engineer or construction expert and put them on salary full time for much less than that amount. In fact, in most cases, retired construction personnel would be available to act as inspector for the district on such projects.

As I have noted in earlier blogs construction manager-at-risk contracts on private work is common and is similar in many ways to general contracting. The primary advantage for private owners is that they are able to begin construction before design is complete and work with the design team to provide the owner with a personalized project at a negotiated price. Since design is not finished when work begins, the price is usually some sort of guaranteed maximum price, often with a clause to share in the savings if the project is completed for less than that GMP. The CM-at-risk has essentially the same responsibilities and liabilities as a general contractor. He contracts with the subcontractors and directs all the construction work on the project. These types of arrangements are not legal for public owners. However, the benefits of these types of arrangements are often touted as advantages to sell the public owner on construction manager-as-agent, and the public owner is taken in because he doesn’t know the difference.

One of the major points the firms selling these services use is that they can fast-track the project. This is true for CM-at-risk projects with private owners, where construction work can begin while design is still being finalized. Under Missouri law, the public owner must competitively bid all construction work, therefore, design must be complete before bidding and there is no time saving. In fact, the process of separating the work into separate bid packages under a CM-agent method takes even more time up front and the design must be extremely detailed and complete in order to avoid excessive change orders, errors and omissions.

A school board member told me recently that his district saved money on their construction work with the CM because the CM brought in a firm for one of the packages from a neighboring state where they didn’t have to pay prevailing wage. I explained that, under Missouri law, that could not happen, that the contractor from the neighboring state was required to pay prevailing wage in Missouri, and that, if he reviewed the bidding documents for the bid packages, he would see that every bidder was required to certify and submit prevailing wage documentation. If the CM allowed any of the contractors to pay less than the prevailing wage, it is possible that the school district could be held legally responsible for these violations.

Missouri public boards other than school districts have now fallen victim to the sales pitch for this construction manager-agent method. My next blog will address these issues.