Construction Manager at Risk: Separating Fiction From Fact

byHeith Carver inInsight posted20 October, 2020
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Construction Manager at Risk: Separating Fiction From Fact

Developed to its current state in the 90s and 2000s, Construction Manager at Risk (CMAR) is the newest major project delivery method. As one of the so-called “alternative” methods along with Design-Build, it continues to gain popularity in the US. Also known as CM/GC or CMc, CMAR is now widely practiced, most typically on complex institutional projects. 

As with anything that challenges tradition, many Owners are hesitant to embrace CMAR, even when massive budgets or extreme project challenges demand it. We tackled three common critiques of CMAR to explain why they’re often misguided. 

Misconception 1: CMAR Costs More 

As an “integrated” or “collaborative” delivery method, CMAR positions the general contractor as the Owner’s agent through design, typically providing a host of consulting and procurement services aimed at decreasing risk and bridging the gap between design and construction. This method contrasts with Design-Bid-Build, where design and construction are linear processes, with construction procured only after design is 100% complete. 

A common reason for sticking with traditional Design-Bid-Build is the belief that it drives down cost by encouraging price competition between contractors. As the thinking goes, the competitive bidding of construction documents is the best way to drive down prices from suppliers, trade contractors, and ultimately general contractors. While this philosophy can prove true, particularly for smaller projects, it rarely stands up the rigors of the real world. 

While Owners hope Design-Bid-Build (DBB) will drive down the cost at bidding time, they take on significantly greater cost risk. This risk comes in a variety of forms: 

  1. Potential for overdesign. Competitive bidding can result in a “bid day surprise,” where all bids are over the Owner’s budget for the project. From there, Owner options to bring the project back into budget can be costly and time-consuming. CMAR, on the other hand, provides cost certainty through collaborative budget development, the early consultation of construction experts, and the use of a Guaranteed Maximum Price (GMP), which transfers the risk of cost overruns to the builder. GMP can even be negotiated before the full completion of construction documents, creating early budget certainty for all participants.  
  2. Greater potential for change orders. Design-Bid-Build Owners are heavily reliant on the quality and accuracy of the designer-produced construction documents. Errors or omissions in any of the drawings, even small details, leave the Owner exposed to additional cost in the form of change orders. Conversely, CMAR incentivizes trade experts to contribute to the constructability of the building, clarity of the drawings, and even the longevity of the materials and methods used. Design-phase teamwork also allows project teams to tackle critical Owner challenges—think tight move-in deadlines or construction phasing—as a single, highly connected group.  
  3. Increased likelihood of disconnect or dispute. DBB establishes a well-documented tripartite relationship between Owner, Designer, and Contractor. This underlying contract structure can set up adversarial positions out of the gate, with each group vying to protect itself while keeping other stakeholders in check. CMAR turns this relationship around, especially during the design phase. As consultant and advocate for the Owner, the CMAR is incentivized to establish strong working relationships between Owner, Designer, and the rest of the construction workforce. Finger-pointing for “bad design,” which is all-too-common in DBB, is eliminated.  
  4. Loss of time. All of the above risks can, and often do, result in delay to the project schedule. Owners bear the cost of this lost time through a delayed payoff associated with new facilities, continued cost from maintaining current facilities, and other operational or reputational impacts. Using CMAR is one of the best ways to eliminate these risks. Opportunities to package overlapping scopes of work can allow construction to start early and compress the overall delivery timeline.  

Misconception 2: It’s Difficult for Owners to Evaluate the Price  

A widely used justification for not using CMAR is also related to cost: some Owners believe that costs, including the final GMP, can be difficult to independently verify. It’s true; the cost of completing a complex construction project is difficult to model. A multitude of competing factors, most outside Owner control, influence the final price. As a result, it can be challenging to verify that you’re receiving a fair market price. A CMAR that says “trust me” isn’t exactly reassuring.  

In response to this challenge, Owners must seek out CMARs who are experienced with the method and demonstrate transparency beyond lip service. Critically, CMARs must have the both the disposition and the ability to:  

  • Maintain an open book budget with complete documentation of all project costs.  
  • Generate competitive, best value bids from qualified subcontractors.  
  • Organize and transparently share all subcontractor bids.  

Misconception 3: Any General Contractor Can Provide CMAR Services  

During its early adoption, some regarded CMAR as “general contracting while wearing a tie,” an effort to expand the role of the general contractor while providing trivial value. However, Owners who have used CMAR effectively know it’s far more than just a dressed-up contractor.  

As consultant and advocate to the Owner throughout design, the CMAR should provide comprehensive design support, budget leadership, constructability analysis, and site planning. Those who lack the skills and resources to lead the project budget or provide creative design alternatives will fail to produce critical benefits. Accordingly, it’s critical to select a CMAR with experience and well-established preconstruction services. 

Timing is also vital to CMAR delivery success. We’ve seen Owners who procure a CMAR at 95% or 100% of Construction Document production, using them only to verify cost or provide Value Engineering for an overbudget project. This approach overlooks the planning and site investigation advantages of CMAR. Procuring a CMAR as early in design as possible opens up the following benefits:  

  • Ability to package work, compress the project delivery timeline, and save money for all stakeholders.  
  • Stewardship of the project budget in service of Owner goals and the tethering of design to real-world pricing and construction methods.  
  • Ability to effectively incorporate real-world trade contractor and supplier perspectives, even going so far as to use Design-Assist subcontractors to further expedite design and alleviate risk.  
  • Early use of Building Information Model (BIM) for both conceptual estimating and constructability analysis. BIM is also a powerful tool for the visualization of the design and fine-tuning the facility user/operator experience. 
  • Use of a CMAR that can help fully verify site conditions, using tools like 3D scanning to ensure a real-world baseline for design and phasing.

In Closing  

It can be daunting to select a project delivery method. For institutional owners who are comfortable with Design-Bid-Build, alternatives methods present a new contractual frontier. For some, DBB may even still be the right answer. Yet it’s essential to clearly understand the tradeoffs between these starkly contrasting methods. For an increasing number of Owners, CMAR is the choice that creates true balance between cost and risk mitigation.