Construction at Risk
What is Construction at Risk?
Construction at Risk, most commonly embodied by the Construction Management at Risk (CMAR) delivery method, is a contractual arrangement where a construction manager (CM) acts as a consultant to the owner during the design phase and then as the general contractor during the construction phase. A defining characteristic of CMAR is the commitment by the CM to deliver the project for a Guaranteed Maximum Price (GMP), thereby assuming the financial risk for any costs exceeding this agreed-upon ceiling, barring owner-initiated changes or unforeseen conditions explicitly excluded from the GMP.
This method emerged as an evolution from traditional Design-Bid-Build approaches, which often led to adversarial relationships between designers, owners, and contractors, as well as frequent cost overruns and schedule delays. The history of CMAR reflects a desire for greater collaboration, transparency, and accountability in complex construction projects. It gained prominence in the late 20th century as projects became more intricate and owners sought more predictable outcomes.
The primary purpose of Construction at Risk is to provide owners with a higher degree of cost and schedule certainty early in the project lifecycle. By involving the construction manager during the design phase, their practical construction expertise can be leveraged to inform design decisions, identify potential constructability issues, and optimize material selections. This early involvement, known as pre-construction services, is critical for value engineering and accurate cost estimation, ultimately leading to a more efficient and cost-effective project.
For homeowners, particularly those embarking on significant custom home builds, large-scale additions, or complex renovations, understanding CMAR is of paramount importance. It offers an alternative to the traditional general contractor model, where the owner often bears more risk for cost fluctuations. With CMAR, the construction manager is incentivized to manage costs effectively because they are responsible for any overruns beyond the GMP. This aligns the CM's interests with the owner's, fostering a partnership approach rather than a purely transactional one.
Construction at Risk fits within the wider knowledge graph of project delivery methods, alongside Design-Bid-Build and Design-Build. While Design-Bid-Build separates design and construction, and Design-Build integrates them under a single entity, CMAR offers a hybrid model. It maintains separate design and construction contracts but brings the construction expertise into the design process. This distinction is crucial for owners to select the method that best suits their project's complexity, risk tolerance, and desired level of involvement.
The importance of CMAR extends beyond just cost control. It promotes better communication, reduces the likelihood of disputes, and often results in higher quality outcomes due to the collaborative problem-solving inherent in the process. The construction manager's early input can help prevent costly redesigns or construction errors, ensuring that the project aligns with the owner's vision and budget from the outset. It is a sophisticated approach to Construction Management that prioritizes proactive risk mitigation and integrated project delivery.
How It Works
The Construction at Risk (CMAR) process typically unfolds in two main phases: pre-construction and construction. This structured workflow ensures that potential issues are addressed early, and the project benefits from integrated expertise.
Pre-Construction Phase
During this initial phase, the owner contracts with a Construction Manager at Risk (CMAR) firm. Unlike a traditional general contractor who is brought in after designs are complete, the CMAR is engaged early, often concurrently with the architect or designer. The CMAR's role here is advisory, providing critical input on:
- Cost Estimation: Developing detailed cost models and budgets as the design progresses, offering realistic projections.
- Value Engineering: Collaborating with the design team to identify alternative materials, systems, or construction methods that can reduce costs without compromising quality or functionality. This is a key benefit for Budgeting (Construction).
- Scheduling: Creating comprehensive project schedules, identifying critical path activities, and optimizing timelines.
- Constructability Reviews: Analyzing design documents to ensure they are practical, efficient, and free of potential construction challenges.
- Risk Assessment: Identifying potential risks related to site conditions, materials, labor, or regulatory compliance, and developing mitigation strategies.
- Subcontractor Prequalification: Assisting the owner in vetting and selecting qualified subcontractors.
This collaborative period culminates in the CMAR proposing a Guaranteed Maximum Price (GMP) for the project. The GMP is a firm commitment from the CMAR that the total cost of construction will not exceed this amount, provided the scope remains as defined. This price is typically based on a well-developed set of design documents (often 60-90% complete) and includes the CMAR's fee, general conditions, and a contingency for unforeseen issues within their scope.
Construction Phase
Once the GMP is agreed upon and the design is finalized, the CMAR transitions into the role of the General Contractor. They then manage all aspects of the physical construction, including:
- Subcontractor Management: Soliciting bids from prequalified subcontractors, awarding contracts, and overseeing their work. The CMAR often uses an "open book" approach, allowing the owner to see all subcontractor bids and costs.
- Project Management: Overseeing daily operations, ensuring adherence to the schedule, budget, and quality standards. This involves robust Project Management (Construction) practices.
- Quality Control: Implementing measures to ensure that all work meets specified standards and building codes.
- Safety Management: Maintaining a safe work environment in accordance with all regulations.
- Cost Control: Actively managing project expenditures to stay within the GMP. Any savings achieved below the GMP are typically shared between the owner and the CMAR, as defined in the contract.
- Change Order Management: Processing and negotiating any necessary changes to the project scope, which would adjust the GMP accordingly.
Throughout both phases, communication and transparency are paramount. The CMAR provides regular reports to the owner on progress, costs, and any potential issues, ensuring the owner is fully informed and involved in key decisions. This integrated approach aims to deliver a high-quality project efficiently and within a predictable budget.
Key Concepts
Guaranteed Maximum Price (GMP)
The GMP is a cornerstone of Construction at Risk. It is the maximum cost the owner will pay for the project, excluding owner-directed changes. The CMAR assumes responsibility for any costs exceeding this amount. This provides the owner with significant cost certainty and incentivizes the CMAR to manage the budget diligently.
Pre-Construction Services
These are the advisory services provided by the CMAR during the design phase. They include cost estimating, scheduling, constructability reviews, value engineering, and risk assessment. Early involvement of construction expertise helps optimize the design for efficiency, cost-effectiveness, and buildability before physical work begins.
Value Engineering
A systematic process, often conducted during pre-construction, to analyze project functions and identify alternative solutions that achieve the same performance at a lower cost or with improved value. The CMAR's input is invaluable here, suggesting materials or methods that maintain quality while reducing overall project expenses.
Open Book Accounting
This principle dictates that the CMAR provides the owner with full transparency regarding all project costs, including subcontractor bids, material purchases, and labor expenses. This fosters trust and allows the owner to verify that costs are fair and reasonable, reinforcing the collaborative nature of the CMAR relationship.
Contingency
A sum of money included in the project budget to cover unforeseen costs or scope changes. In a CMAR contract, there's often an owner's contingency and a CMAR's contingency. The CMAR's contingency covers risks they assume under the GMP, while the owner's contingency covers owner-directed changes or risks explicitly excluded from the GMP.
Risk Allocation
A fundamental aspect of any construction contract, defining which party is responsible for specific project risks (e.g., cost overruns, schedule delays, design errors). In CMAR, the GMP shifts a significant portion of cost risk to the CMAR, promoting proactive risk management and mitigation strategies.
Early Contractor Involvement (ECI)
This refers to bringing the construction manager or contractor into the project team during the early design stages. ECI is a core benefit of CMAR, allowing practical construction knowledge to influence design decisions, improve constructability, and enhance cost predictability before construction even begins.
Practical Considerations
Benefits
- Cost Certainty: The Guaranteed Maximum Price (GMP) provides owners with a clear upper limit on project costs, making Budgeting (Construction) more predictable.
- Early Contractor Involvement: The CMAR's expertise during design leads to better constructability, value engineering, and fewer design errors, potentially saving time and money.
- Improved Collaboration: Fosters a team-oriented approach between the owner, designer, and CMAR, reducing adversarial relationships common in other delivery methods.
- Reduced Change Orders: Thorough pre-construction planning and constructability reviews minimize unforeseen issues during construction, leading to fewer costly change orders.
- Faster Project Delivery: Overlapping design and construction phases (fast-tracking) can accelerate the overall project schedule, though this requires careful management.
- Higher Quality: The CMAR's early input can help ensure that design decisions are practical and lead to a high-quality finished product.
Limitations
- Higher Initial Fees: CMAR services, especially pre-construction, can have higher upfront costs compared to simply bidding out a fully designed project.
- Requires Experienced CMAR: The success of a CMAR project heavily relies on the expertise, integrity, and collaborative spirit of the chosen construction manager.
- Less Competitive Bidding: While subcontractors are typically competitively bid, the overall CMAR fee and general conditions are negotiated, which might not be as competitive as a full Design-Bid-Build scenario.
- Scope Definition Critical: The GMP is only as good as the clarity of the project scope at the time it's established. Ambiguities can lead to disputes or increased costs.
- Owner Involvement: This method often requires more active owner involvement during the design and pre-construction phases, which may not suit all owners.
Common Mistakes
- Inadequate Scope Definition: Establishing a GMP without a sufficiently detailed scope can lead to misunderstandings, disputes, and cost escalations later.
- Choosing the Wrong CMAR: Selecting a CMAR based solely on price rather than experience, reputation, and a proven track record of collaboration can undermine the project's success.
- Lack of Owner Engagement: Failing to actively participate in design reviews and decision-making during pre-construction can negate the benefits of early contractor involvement.
- Insufficient Contingency: Not allocating adequate contingency funds for owner-directed changes or truly unforeseen conditions can strain the budget.
- Poor Communication: A breakdown in communication between the owner, designer, and CMAR can lead to errors, delays, and a loss of trust.
Best Practices
- Thorough CMAR Selection: Vet potential CMARs based on their experience with similar projects, their team's expertise, references, and their approach to collaboration and transparency.
- Clear Contract Documentation: Ensure the contract clearly defines roles, responsibilities, scope, GMP inclusions/exclusions, contingency usage, and dispute resolution mechanisms.
- Robust Pre-Construction Phase: Invest sufficient time and resources in detailed cost estimating, value engineering, and constructability reviews before setting the GMP.
- Maintain Open Communication: Establish regular meetings and clear communication channels among all project stakeholders (owner, designer, CMAR).
- Active Owner Participation: Remain engaged throughout the design and pre-construction phases, providing timely feedback and decisions.
- Transparent Cost Reporting: Insist on open book accounting from the CMAR to ensure all costs are verifiable and fair.
Real-world Examples
Construction at Risk is frequently employed in projects where complexity, budget predictability, and schedule are critical. For homeowners, this might include:
- Large-Scale Custom Homes: When building a unique, architecturally complex home, a CMAR can help manage intricate designs, specialized materials, and tight budgets from the outset.
- Extensive Home Renovations or Additions: Projects involving significant structural changes, integration of new and old systems (e.g., HVAC Systems, Electrical Systems), or challenging site conditions benefit from the CMAR's early planning and risk mitigation.
- Multi-Unit Residential Developments: For owners developing small apartment buildings or townhome complexes, CMAR offers a way to control costs and schedules across multiple units while ensuring quality.
- Sustainable or Green Buildings: Projects aiming for specific certifications like Passive House or Net Zero Energy often require specialized knowledge and integrated design-construction planning, making CMAR an ideal fit.
Frequently Asked Questions
Q: What is the main difference between CMAR and a traditional General Contractor?
A: A CMAR is involved during the design phase, providing cost and constructability input, and commits to a Guaranteed Maximum Price (GMP). A traditional General Contractor is typically hired after the design is complete and bids on the finished plans.
Q: Does CMAR always guarantee the lowest price?
A: Not necessarily the lowest, but it aims for the most predictable and controlled price. The GMP provides certainty, and value engineering during pre-construction helps optimize costs without sacrificing quality.
Q: What happens if the project costs go over the GMP?
A: If costs exceed the GMP due to factors within the CMAR's control, the CMAR is responsible for covering the overage. If due to owner-directed changes or explicitly excluded unforeseen conditions, the GMP may be adjusted.
Q: Can I still choose my own architect or designer with CMAR?
A: Yes, the owner typically contracts separately with the architect/designer. The CMAR then collaborates closely with the design team during the pre-construction phase.
Q: Is CMAR suitable for small home improvement projects?
A: CMAR is generally more suited for larger, more complex projects where the benefits of early contractor involvement and cost certainty outweigh the potentially higher initial fees. For smaller projects, a traditional contractor might be more appropriate.
Q: How are cost savings handled in a CMAR contract?
A: If the project is completed under the GMP, the savings are typically shared between the owner and the CMAR according to a pre-agreed percentage outlined in the contract.
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References & Further Reading
- Construction Management Association of America (CMAA) - Professional Standards and Guidelines
- Associated General Contractors of America (AGC) - Contract Documents and Best Practices
- American Institute of Architects (AIA) - Contract Documents (e.g., A133-2019, Standard Form of Agreement Between Owner and Construction Manager as Constructor where the basis of payment is the Cost of the Work Plus a Fee with a Guaranteed Maximum Price)
- Project Management Institute (PMI) - A Guide to the Project Management Body of Knowledge (PMBOK® Guide)
- Federal Highway Administration (FHWA) - Construction Management at Risk (CMAR) Primer