Construction Contracts: How Risky Is "At Risk"?
A thumbnail sketch of the distinctions between contracts for construction managers
Here's a summary of the two distinct forms of construction management:
Under a "CM-A" arrangement, as set forth in the state's Local Government Code, a county may select a construction manager based solely on the company's qualifications and experience with similar jobs and without publicly advertising the job or issuing a request for proposals. Once selected, a CM-A provides daily management of the project for a fee -- typically a percentage of the project's total budget. The CM-A acts as the "agent" of the county (ensuring that the county's interests are protected during the project), but the county solicits the bids from all of the subcontractors and must abide by confidential bidding requirements. In this arrangement, the county, as the project owner, retains financial responsibility for cost overruns.
In contrast, in a "CM-R" relationship, the county issues a request for proposals, soliciting bidders for the construction-manager job and awarding the contract to a CM that will represent the county's interests throughout the project design process ("the preconstruction phase"). Once the project is ready to move into construction, however, the CM-R is responsible for soliciting and evaluating bids for the project's subcontract work and is allowed to bid on the subcontract work, provided its bids are entered at the same time and under the same confidential process as the other bidders -- a requirement intended to ensure that the CM-R doesn't have an unfair advantage.
Construction Manager-At Risk
The subcontractor bidding process is supposed to be conducted in conjunction with a county representative. Once the bids are in and evaluated, the CM-R is responsible for proposing a guaranteed maximum price for project construction, based on the CM-R's choice of subcontractors, with either a flat fee or percentage of the price designated for the CM-R's compensation. In offering the project owner a GMP, the CM-R is guaranteeing the project will come in at or under that price. In the event that the project costs more, the CM-R is responsible for absorbing the additional costs -- a relationship of increased liability ("at risk") for the CM-R.
For more on government procurement and the CM-A and CM-R relationships, see www.capitol.state.tx.us/statutes/lgtoc.html.