Jim explains that when contracts for pre-construction services, design assist services, and construction work are awarded based on either a guaranteed maximum price (GMP) or on a cost plus or reimbursable basis, the contractor or builder will be expected to have systems in place to provide some level of transparency in the tracking and reporting of costs.
- In addition to adapting to changes and how we get chosen as a contractor, some of these project delivery methods will change the way we get paid. Design-bid-build and design-build tend to be fairly straight forward and based on a fixed price. That fixed price might be a lump sum for all services or it might be based on unit prices, like the street improvement work I did, where our bid consisted of unit prices for each element, paving, sidewalk, curb, traffic signals, et cetera. Prices are agreed upon, they're listed in the contract documents and then work is build as construction progresses.
The CMAR method can change things a little. For one thing, you need to be paid for preconstruction services, those design assist services. This is great, it's more billable work for the contractor and I for one, would much rather be billing for services the owner expects and wanted than billing for change orders that I'm having to fight to get but as a contractor, these preconstruction services do represent a new task that you'll have to estimate and price. Any of the payment methods I discussed early on in this course are applicable here as well.
The owner may want a fixed price for preconstruction services. They may request a cost plus proposal, or they might ask for a guaranteed maximum price for preconstruction services. If a fixed price is required, you do what we do everyday as contractors, you estimate. Your team's going to have to sit down. Your going to have to determine the time and the cost that'll go into these preconstruction design assist services and you'll have to come up with a price. I think that this can be a difficult task if this is your first CMAR project and you don't know exactly what to expect.
My suggestion would be to go seek some outside guidance on this. Just like I would look for a consultant to prepare my team for that interview process. The other two methods of payment, cost plus mark up and guaranteed maximum price are going to require some form of transparency in the financial accounting for the project costs. Again, if this is your first project of this type, you're probably going to need to think about the process. The project documents may give you some guidance as to what's to be included where and it may break it down into categories like direct cost of work, general condition costs, and construction fees.
Just remember that if the project does include provisions for not to exceed or reimbursable costs, the owner is going to require some transparency in the financial accounting and records, and I'll tell you that this is the case on the majority of CM at risk projects. Remember, that in a CMAR project, the contractor is going to end up with two different contracts, that agency based contract that I've been talking about so far for preconstruction and design assist services, and then that general contractor contract for construction.
Now that construction contract under CMAR, is typically a guaranteed maximum price, or GMAX price, type of contract, and it'll be based on the portion of the plans that are completed when the owner asks for the price, plus a reasonable allowance for the work that the contractor expects to be added based on what they believes going to be added as the designer finishes the construction plans and specs. Be diligent in allocating these costs and document what you're including in that allowance for work still under design.
If you're giving a GMAX price using 75% complete construction drawings, make sure you're accurate in documenting how you arrive at your cost for work not yet designed. For example, if you're putting money in for finishes and trim work that's not yet shown on the plans, but you already know what that work is going to consist of, that's good, just make sure that you put all of these costs over in the allowance for work not yet designed category. This way, as the drawings move from 75% complete to 90% complete and you're asked to submit an updated price, you should be able to show very clearly these costs moving from the allowance column over to the fixed price column based on the new information in the drawings.
Remember that as the CMAR, you have been intimately involved in the design, so the owner expects you to be accurate in your determination of additional work. If you go over your allowance for finishes because the architect changed the finish materials, that's probably a legitimate claim, but if you go over your allowances because the works more difficult than you anticipated, that's going to be a tough sell to the owner. After all, that's why they selected the CMAR delivery method and that's why they're paying for your preconstruction services.
They do expect you to be on top of this sort of thing. That brings me to the next topic of a shift in risk. Let's move forward and expand on that topic a little bit.
- Payment and procurement methods
- The design-bid-build method
- The design-build method
- Construction manager at risk (CMAR)
- Integrated project delivery (IPD)
- Selecting a project delivery method
- Procurement laws
- Delivering the best value to the owner
- Qualifications-based selection
- Changes in the way you are paid