Construction Management @ Risk

Organization of Primary Entities Traditional Design/Bid Build Organization CM@ Risk Delivery Organization Pricing Competition

Delivery Method Schedule Comparison Design/Bid/Build Approach Planning Design Bid Construction Jan Feb Mar Apr May Jun July Sep Oct Nov Dec Firm Price & Schedule Established Construction Management @ Risk Approach Planning Design Bid Trade Packages Time Saving – as much as 50% Construction Jan Feb Mar Apr May Jun July Sep Oct Nov Dec Firm Price & Schedule Established

Design/Bid/Build vs. CM @ Risk - Attributes Construction Manager (CM) part of selected project team Construction Manager is at Risk to perform the project within the Guaranteed Maximum Price (GMP) CM’s Cost Accounting is OPEN BOOK for Owner & Architect. Industry consensus is the quality level of workmanship is higher Trade Contractors are pre-qualified and low bid competition takes place at Trade Contractor level No need for Separate Cost Estimator as CM provides this as part of preconstruction services (This pricing is also based upon real-world trade contractor input versus standard cost analysis which is typically not suited for the specific project) GMP determined at early stage of Construction Document Completion (Reduces architectural fees resulting from drawing rework and lessens impact to overall project schedule) Project can be fast tracked (see following slide) to minimize overall project duration Construction Manager reviews Construction Documents for errors and omissions such that cost for necessary work is included in the GMP as the documents are being completed Reduces the risk of claims and change orders Design/Bid/Build Traditional contract procurement method Can work well with an excellent set of construction documents and experienced Owner, and even better with pre-qualification of the general contractors and major scope trade contractors Competition of general contractors based upon “completed” construction documents Firm price determined at selection of general contractor Owner retains selection leverage until “complete and enforceable” Contract Documents are completed Owner can “control” the general contractor’s quality and action through a highly enforceable contract

Design/Bid/Build vs. CM @ Risk - Challenges Potential for change orders is maximized due to inevitable errors and omissions in the Contract Documents (drawings) (11% to 15% typical on state D/B/B projects) Document rework typically necessary to bring project within budget Without prequalification – risk of unqualified general contractor providing low bid. (potential for schedule over-runs or default – State D/B/B projects average 3 to 6 month schedule over original duration Trade contractors selected on bid day based upon low bid price ONLY. Typically leads to forced selection of at least several unqualified trade contractors and unforeseen costs to general contractor Adversarial relationship typically develops between general contractor, architect and Owner regarding change orders and incomplete Construction Documents Low price at bid day may not be low price and will certainly not be final cost Quality is typically lower than other delivery methods Assumes that architects, engineers and cost consultants have the best knowledge of construction technology and cost effective construction methods. Yet this is not true. CM @ Risk Owner will most likely pay a little more for the initial cost of construction management services when compared to a low bid scenario (However typically these additional costs are recouped through change orders) To obtain the best pricing, the Owner and/or architect must ensure that Construction Manager is providing a competitively bid atmosphere for the trade contract competition Owner must be comfortable with a “Team” procurement approach

Findings from the Construction Industry Institute Design/Bid/Build systems have the greatest design and construction schedule growth. Any Design/Bid/Build project has a 50% likelihood of realizing cost growth between 2% and 11% 0% and 8% cost growth for CM @ Risk Projects Nearly half of all Design/Bid/Build projects experience cost growth of greater than 5% Survey and analysis proved that Design/Bid/Build provided the lowest quality level.

Industry Information on CM @ Risk Construction Management becomes “mainstream” in ENR’s (Engineering News Record) assessment of top design-build, Construction Management firms Construction and Program Management have made a strong move into the construction industry’s mainstream in the last year, reports Engineering News-Record in its annual compilation of top CM, PM and design-build firms.    The “management precepts underlying CM and Program Management have become pervasive in the industry,” ENR said in its June 14 issue. “As construction firms became more sophisticated and clients increasingly looked outside their own staffs to plan and oversee large construction programs, the concept of program management took off.” CMs are also being involved earlier in projects. Joseph Seibold, vice president of construction management for CMAA member Carter & Burgess, is quoted in the magazine saying “Once, owners thought that they needed a CM firm but waited until the contracting phase to hire one. This prevented the CM from helping oversee planning and design.” A large part of the momentum behind Program Management is coming from school systems that have received large bond issue revenues and are pressed to spend the money wisely. “I continue to be impressed by the level of confidence the public has in passing these bond issues,” says James Moynihan, CEO of Heery International, another CMAA member. Seibold notes, though, that “public agencies generally aren’t staffed to handle a sudden surge in capital spending authorizations,” and this is another reason why Construction and Program Management have come so strongly to the forefront of the industry recently.