A lot of the problem with this construction manager – agent (not at risk) method is that
The more I study this and look at court cases, the more concerned I become. I shudder to think about the potential liability that school districts are taking on by doing this. If a child crawls under a construction fence and is injured or killed, or there is a fire which begins on the construction site that injures 10 students, the school district has just become a major litigant in a very complex legal case, and the CM has no liability.
I participated in a seminar for the Council of School Attorneys to try to flag some of these issues for attorneys who do not normally deal with construction issues. In at least one case, I suspect that the administrator on the last project signed the contract presented by the CM without ever having it reviewed by the school’s attorney. That contract was very simplistic and one-sided. I am not an attorney, but I believe a thorough review of the documents, including the legal and insurance obligations related to the school districts acting as their own general contractors, would be frightening. I really wonder what the schools’ liability carriers think of this, or if they are even notified when a construction project begins.
Most school administrators truly believe that a construction manager and a general contractor are the same, but that by hiring a CM, they get to choose their firm and pay less. They do not really know what each does, what services each provides, nor the real fees that are charged. Most administrators and board members think of construction in terms of building a house, and do not know the many complexities and legal issues in institutional and industrial construction. They have no idea what an architectural firm does except drawing plans for a building, know almost nothing about the engineering, the various building codes, the liability issues, etc.
In my opinion, the problem is not the firms involved, but this process. Overruns and excess charges occur for several reasons, not the least of which is that administrators think they can use the system to change and redesign as they go along, rather than committing to a complete and thorough up-front design. This leads to misunderstandings and dissatisfaction about what was promised and what was actually built by the employees of the district and the public. Disagreements and misunderstandings are common in construction, and occur frequently if communication processes are not well-managed by all sides. Without a thorough planning and design process, cost overruns are inevitable.
When the State decided to write this law, it opened the door for “super salesmen” to take advantage of public money. Construction management at risk has always been an option in the private sector, with both parties hopefully fully aware of their risks. The problems arise as more and more public owners fall for the line about advantages of the method in the private sector, not realizing that those advantages do not hold true for public work. As school work by competitive bid dries up, it forces more general contractors to turn to construction management-agent proposals even though they know it is not advantageous for the school district. That is one of the reasons that the up-front fee quoted by CMs to school districts has started to drop from 4.5% and up to as low as 1%. They have all figured out how to get the job first, and then collect by “reimbursables” and change order percentages. The CM benefits under this method by having less complete drawings, etc. Trade contractors, too, have figured out how to game the system. Trade bids are made through manufacturers when the trade contractors cannot be bonded, bids are made by a firm willing to front the bonds for a fee; high dummy bids are solicited and bid to cover up that only one authentic trade bid will be in a category, etc.
It is a big and complex issue, which very few people want to take the time to understand, but it is costing the taxpayer big bucks and public owners' money that is needed for other purposes. School districts aren't the only public bodies being taken. In our area, a county commission and a county hospital have been "sold." Many contractors and architects are afraid to speak up for fear it will cost them jobs. There are contractors out there who are trying to get around this by bidding ALL the work packages at once, effectively turning a project into a general contracting job. One administrator wondered why he was now paying twice for the same work, since he had both a CM-agent and a general contractor on his project. Actually, he didn't, as the CM could not do any work. The problem was, he was paying the CM in the manner normally used to pay a general contractor, as a percentage of the contract amount, rather than having a fee structure in which cost overruns and change orders did not benefit the CM. By having a flat fee or sliding scale without reimbursables and percentages tied to the contract amount, the owner could have required the CM to actually represent the public owner's interest and would have known up front what the total expected cost of the project would be.
