Construction Contracts: How Risky Is "At Risk"?

One of the controversies surrounding Williamson County's construction contracts with FT Woods has to do with the difference between two types of contracts that local governments are authorized by state law to make for such services. The first FT Woods contract for the Juvenile Justice Center was rejected after county auditors determined it inappropriately mixed elements of the two types of contracts (one of which, at that time, had yet to be officially enshrined in state law); however, the current contract and the subsequent agreement for the Special Events Center likewise include provisions that seem to deviate from what state law suggests is appropriate, and which experts contacted by the Chronicle describe as "unusual."

Here's a summary of the two distinct forms of construction management:

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Construction Manager-Agent

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.

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Construction Manager-At Risk

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.

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.