Sometimes, project owners have a clear vision that they want to keep control over throughout the life of a project. In other cases, they may want to leave most of the decision-making power in a construction professional’s hands. In cases like these, the owner might opt to bring on a construction manager (CM) to oversee a job from start to finish. This arrangement is called Construction Manager at Risk, and it’s one of the many project delivery methods you’ll encounter as a contractor.
Key Takeaways
- In Construction Manager at Risk jobs, the owner brings on a construction manager to oversee a project from design to closeout.
- CMAR with GMP can be a lucrative project delivery method for contractors who are able to deliver a high-quality finished product on schedule.
- When taking on CMAR work, contractors should make sure the wording of the construction contract clearly states that the price you provide for the scope of work is based on the current set of construction drawings and contract documents.
A Quick Overview of the Construction Manager at Risk Method
Put simply, Construction Manager At Risk (CMAR) is a project delivery method in which an owner hires a construction manager (CM) to oversee the entirety of a project. From the initial project design through the construction phase and close-out, the CM is responsible for closely monitoring the schedule and project budget to make sure the job stays within the contract price. Under this project delivery method, any construction costs that exceed the Guaranteed Maximum Price (GMP) that aren’t change orders become the responsibility of the CM.
One unique aspect of CMAR is that the construction manager acts as the primary go-between for all project stakeholders. From the design team to the general contractor and owner, the CM is in constant communication with everyone, and is ultimately responsible for project success.
This type of project delivery method can be structured around multiple contract types, including lump sum, guaranteed maximum price (GMP), cost-plus and others. Generally speaking though, CMAR projects follow a GMP, which is established before the bidding stage. The CM will provide the owner with pricing for the scope of work, with contingency line items that can be addressed later on for construction-related issues. The CMAR will also set the guidelines for how to manage change orders and what project delivery method to follow.
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While a CMAR has a few similarities to a design-bid-build and a construction manager/general contractor delivery method, the responsibilities of the design team and general contractor are separate, instead of combined into one contract.
Projects best suited for CMAR include:
- Projects where the owner wants to take a back-seat approach
- Projects with designs that are subject to changes
- Projects that have a strict schedule requirement
When to avoid CMAR:
- Simple and straightforward projects
- Projects in which the owner wants to always choose the lowest bidder
- If the owner is too passive and won’t provide direction to the CM
CMAR Benefits for Contractors
One big benefit of Construction Manager at Risk projects is that they don’t always follow the lowest bid. Under this delivery method, CMs look for contractors who can meet a strict prequalification process and produce high-quality work. General contractors who continually provide top-of-the-line workmanship, show dedication, and provide transparent/detailed budgets will have a higher chance of being brought onto CMAR projects, and the rewards.
Another important benefit for contractors hired for CMAR projects is the pre-agreed-upon fee of profits under a GMP, along with cost escalation clauses. Under a CMAR, a contractor will provide a full breakdown of costs for the construction project, including line items for overhead & profit. The profit is set at an agreed-upon percentage of construction (let’s say 2.5% of $10m as an example) and the actual percentage can’t be lowered throughout construction.
The only way that you might not get the full 2.5%, or $250,000 is if the project scope (and therefore the total price) is reduced. The profit percentage will remain constant, but the total sum of the project might be lowered. On the other side, when changes are made by the owner throughout the project, you as a contractor will make the same markup above the GMP.
Pros of the CMAR method for contractors
- The CM is involved from the onset of the project and provides a link between all project stakeholders
- CMs act as the owner’s representative and can help both limit delays and provide answers through the project
- A GMP is provided early on in the project, which means owners can quickly greenlight a contractor if they fall within the GMP.
Cons of CMAR for contractors
- Typically, a GMP is put together prior to a final design set. This can lead to gaps in budgets with allowances and potential unforeseen issues.
- Instead of a shared risk allotment, there is a single point of failure. The CM is responsible for both project failure and budget overruns.
🔎 Dive Deeper: Read the full guide to construction project management
Risks for Contractors
Because the primary risk of the project falls on the CM, CMAR is less risky for contractors. Still, one of the main risks of CMAR for contractors involves the language/agreement that you have in your contract with the CM. You want to be intentional in your wording of the contract to make sure that the price you provide for the scope of work is based on the current set of construction drawings and contract documents.
Best Practices When Working CMAR Jobs
One of our biggest recommendations when taking on CMAR jobs is to make sure your pre-construction work is thorough. For example, you want to leave appropriate allowances for unknown items early in the design phase. Also, allocate your costs accordingly and take the time to ask the CM any questions you may have about the drawings or contract documents.
The CM is your best advocate here, so transparency is key. If you can maintain a consistent and honest line of communication with the CM, you’ll be in a good position to succeed.
Navigating Costs With Construction Manager at Risk
Before the GMP contract is issued, the construction manager will communicate with you as the contractor to get cost estimates. This way, they’ll be able to understand the full monetary cost of the project. While it’s up to you to effectively manage cost controls to the best of your ability throughout the job, the CM is ultimately responsible for the overall project costs. When you’re creating those initial cost estimates, don’t forget to allocate allowances for drawings that are missing details, and make sure any potential unknowns are thought of beforehand.
Like all jobs in the construction industry, Construction Manager at Risk requires consistent, transparent communication to take a project from design to successful completion. Learn how to avoid the most common construction communication mistakes.