General contractor v. CM, page 4

Sunday, March 11, 2007 at 4:02 PM EDT

How subcontractors view and bid – general v. const. manager

REMINDER: all these blogs' references to construction manager are to the particular form of construction management services being used on public school building construction in which the work of the project is bid by “work packages” directly to the school district.

Subcontractors bidding work packages must provide performance and payment bonds to the school district. Since most subcontractors do not provide bonds when bidding to a general contractor, the cost for such bonds tend to be 2 to 3 times higher than that of the general contractor. The extra paperwork and fees for such bonds also tend to limit the pool of subcontractors bidding the project. Only the very largest subcontractors work with a bonding agent on a regular basis and have the necessary paperwork to get bonds quickly. Also, the work of most rural school districts tends not to be all that attractive to the larger subcontractors, and they don’t like the headaches of dealing with multiple small contractors under this CM type of contracting.

When bidding to a general contractor, subcontractors do not typically bid their work by covering a complete specification section, because various work items overlap sections. They do not have the expertise to evaluate the complete plans and specifications for problems; they rely on the general contractor to do so. A material supplier may quote a complete price for his item for the entire project. [For example, reinforcing steel is used in various items of work, but the reinforcing suppliers typically quote to a general contractor all the reinforcing steel for the project as one lump sum item, and expect to deliver it accordingly; the concrete section will be used by the contractor doing the concrete work, the masonry reinforcing will be used by the masonry contractor, etc. but the general contractor will purchase and supply it where it is to be used]. In bidding work packages, the material supplier must determine which portions of his supply will be used by which contractor, and how many separate deliveries he must make. He must assess whether each subcontractor will pay on time or if he may not get paid until the end of the project. Subcontractors must include money in their bid for such items as on-site electricity, water, waste hauling, lifting, and so on which are often provided by the general contractor on typical jobs.

With all these different problems, a subcontractor will add to his price a substantial sum to cover the extra costs. This is also true for a variety of material suppliers who are used to quoting a general contractor; they do not have a track record with the subcontractors, so price accordingly. Therefore, the extra costs are piled up and the school district is the loser.

Next blog: The actual bidding and opening of bids

General contractor v. CM, page 3

Sunday, March 11, 2007 at 3:54 PM EDT

Many school boards are told that the construction manager is comparable to a general contractor, that the fee of the CM will be less than that of a general contractor, and that the CM replaces the general contractor. The fallacy here is that such comparisons don’t work when the type of work and responsibilities are compared. The differences between the two systems are significant.

Let’s compare just the bidding process of the two methods.

The general contractor receives a set of plans and specifications for the project which has been advertised for bid. He reviews the documents, decides that he wishes to bid the project, calls his bonding agent for a bid bond, and assigns an estimator to do material and labor takeoffs on the project. He solicits subcontractors and material suppliers to bid various, but not all, items of work within the documents. After a thorough review of the documents, he may ask questions of the design team, determine whether there may be a delivery problem with certain material items, or find other discrepancies which may affect the completion of the project. He then puts together a complete price, including all labor, material, equipment, storage, insurances, bonds, supervision, waste management, and any requirements that may be needed to complete the work. He will receive subcontractor bids that typically contain only parts of specification sections, list several inclusions or exclusions, and require certain services be provided by the general contractor. The general contractor will question subcontractors about their bids, determine whether there are overlapping or missing items, whether the subcontractor has the ability to complete the project within the parameters of the job, whether any particular items are critical to the schedule of completion and so forth. He may even ask a subcontractor to remove certain critical items from the subbid and buy them himself to insure that the job will not be delayed. He must make sure that every aspect of the construction project is covered, and comply with all laws of the state regarding public construction, including workers’ compensation and prevailing wage laws. His fee after all the costs are covered, including overhead, is minimal, since he will be competing against other general contractors to get the job.

The construction manager typically reviews the plans and specifications and splits the various specification divisions into “work packages” for bidding by subcontractors. Each subcontractor will have certain specification sections that they are expected to bid, plus any items covered in the general and special conditions that apply. The CM is only the administrator on the project, so can do none of the various support items of the general and special conditions which would be supplied by a general contractor.

The construction manager will often quote a ridiculously low fee, even as low as one percent; proposing in his contract terms a long list of items which the school district must fund. The “reimbursable” amounts are sometimes tied to cost data publications. These publications list national costs estimates compiled by journalists, and are useful to the industry, but must be adjusted to the area true costs, sometimes thirty-five to forty percent less than the book figures. In addition, some CM contracts may allow a percentage over the particular Cost Data source chosen for “overhead and profit” paid to the CM. These items in the aggregate would likely fall under the Missouri statute restriction on competitive bidding over $15,000., but by billing in small invoices, the CM manages to avoid the intent of the law.

The general contractor must include in his cost for the total work all the necessary peripherals to complete the project. He cannot charge extra for “reimbursables,” - i.e., the job site management trailer office, the personnel he uses on the site, the trash dumpsters, travel to multiple sites, etc.

Next blog: subcontractor bids to generals v. CMs.

Missouri school construction, p. 2

Thursday, March 08, 2007 at 2:52 PM EST

REMINDER: all these blogs' references to construction manager are to the particular form of construction management services being used on public school building construction in which the work of the project is bid by “work packages” directly to the school district.

Construction Management is a type of contracting typically used by private firms, in which a private owner chooses a firm to build its facilities. The CM firm may also employ the design team, and/or may be employed prior to the design process. A fee structure is negotiated and pricing is established, which may be a guaranteed maximum price or several other arrangements. The CM firm solicits quotes for subcontracting and other work by several methods. In private work, the CM firm will do certain types of the construction on the project with its own forces. Often, the CM starts work before the design is complete in order to do the project in the least amount of time possible. Private firms whose business income is tied to the date the facility is ready often use this type of contracting, because the savings in time actually offset any additional cost it may incur. The Construction Manager is “at-risk” in this type of contracting agreement, meaning that he actually does work and is responsible for the work he does. He is subject to various kinds of liability, builders' risk and employment law, and may be subject to actual damage penalties if he does not finish in the agreed-upon time.

In the state of Missouri, "construction manager at-risk" contracting agreements are illegal under current law for public construction. The reason for this is obvious, as the potential for conflict of interest, bribery, etc. rises where there are few or no objective criteria to select the firm to be used.

To get around the Missouri law on these agreements, some school districts have hired a "construction manager" to do paperwork and oversee their construction projects, but not do any actual construction work on the project. The CM firm is chosen based on various criteria. The selection criteria tend to be short and subjective, and leave plenty of room for interpretation. In some cases, the CM may even be involved in preparing the criteria before selection, and may be brought in early to help select the design team.

These CM firms review the plans and specifications and then separate the construction work into "work packages" for public bidding by subcontractors, rather than bidding the project to general contractors. The CM firm solicits bids for the school district, and helps prepare contracts between the school district and the various subcontractors. This process often results in the school district having contracts with 15-20 subcontracting firms. The CM firm then provides a "manager" on site to track the work and see that each subcontractor arrives to do his work according to the work package bid. If there is a discrepancy between work packages or a dispute as to the meaning of some instruction, the CM acts as mediator to solve the problem. However, the CM has no contract with the school district for any of the construction work, and under state law, CANNOT actually do such work. The CM does not provide a bond, nor can he be held responsible for errors and omissions on the project.

My next blog will discuss pros and cons of these methods.

General Contractor v Construction Manager

Sunday, March 04, 2007 at 1:37 PM EST

As a retired building subcontractor, I have been asked to do this blog to educate as many people as possible about the differences in contracting methods being used by Missouri public school districts. I am biased toward the general contracting method, as I believe that any public school board has the responsibility to act with total transparency and to avoid at all costs the appearance of impropriety.

Public school boards in Missouri are required to competitively bid for purchases, including facilities that exceed $15,000.00. When a new, remodel, or repair project is to be done, school districts hire an architectural or other design team to prepare detailed plans and specifications that meets the school's needs and budget. The architectural firm prepares the bid documents, an estimate of the cost of the work, and conducts the opening of the bids on behalf of the school board. Typically, when plans are complete, the project is advertised for bids, contractors summit bids to the school district, the bids are read in public, and, if there are no errors, the lowest bidder is awarded the contract.

Only one contractor, usually a general contractor, is employed for the work, and he is required to provide performance and payment bonds to guarantee that he completes the work for the price and time stated in the documents. The architectural firm includes in its fee the overseeing of the project, reviewing shop drawings and submittals, approving materials, inspecting the project periodically to be sure that the plans and specifications are being met, and all other details involved in managing the project.

Since the school board has already defined its needs by approving the architect's plans and specifications, the superintendent and/or the school board only needs to get involved when changes are proposed, and to make percentage of completion payments which are approved by the architect.