While traditional delivery methods like design-bid-build (DBB) and design-build (DB) are often still the default for most projects, alternative project delivery methods like construction manager at risk (CMAR) are increasingly gaining popularity. Governments, in particular, are warming to CMAR as a viable option.
If you're considering a construction manager at risk for your projects, keep reading. This guide explains CMAR's workings, benefits, and challenges, as well as best practices for teams implementing this construction delivery method.
Let's get into it.
Construction management at risk—aka CMAR—is a delivery method in which the construction manager (CM) commits to completing the project within a guaranteed maximum price (GMP).
Owners bring in the CM early in the process, where they provide input on costs, schedules, and constructability. The construction manager also oversees subcontractors, ensuring the project aligns with the budget and schedule.
Here’s the kicker: the CM assumes the risk of cost overruns, so owners have more financial predictability. If the project goes beyond the agreed-upon GMP, the construction manager absorbs the costs.
To give you a better understanding of CMAR, let’s compare it to other delivery methods.
Design-bid-build has a more sequential approach with separate design and bid phases. As such, teams typically work in isolation. Meanwhile, CMAR encourages collaboration among stakeholders from an early stage.
In terms of risk management, DBB often places the burden on the owner to manage and coordinate between separate contracts, while CMAR centralizes risk management with the construction manager.
While both DB and CMAR integrate design and construction, CMAR provides a GMP, adding financial safeguards that DB lacks and enhancing budget control.
CMAR centralizes project management under one CM, reducing owner risk compared to MP's multiple contracts, which can lead to coordination challenges. As far as risk management goes, CMAR provides the owner with a single point of accountability, simplifying the resolution of issues and reducing the likelihood of disputes among multiple parties.
Both CMAR and IPD are highly collaborative. The main difference lies in who takes on project risk. As mentioned above, CMAR means construction managers assume the risk of budget overruns; but with IPD, all parties share the risk. IPD agreements usually include collective risk pools and incentives that align the entire team toward project-wide goals.
What does CMAR look like in practice? This delivery method usually follows these steps.
In this initial step, the owner evaluates potential construction managers based on their experience, expertise, and past performance. The selection is crucial as the construction manager will have a significant role in every phase of the project. The CM will serve as the owner's agent and consultant, advising on the project's feasibility, cost, time, and quality.
When the CM is selected, they work closely with the owner and the design team to understand the project's scope and requirements. The CM then uses this information to calculate the GMP, which includes the construction cost, the CM's fee, and contingencies. This price represents the maximum amount the owner will pay for the construction unless the project scope changes.
The construction manager provides strategic advice during the design and planning phases. This can include conducting value engineering and constructability reviews, suggesting cost-saving alternatives, and refining the project design. Their goal is to enhance the project's functionality and efficiency while controlling costs.
When the design and budget are set, construction kicks off under the supervision of the construction manager. The CM coordinates all construction activities, manages subcontractors, and oversees the quality and progress of work. The CM's primary role during this phase is to ensure the project is completed within the agreed timeline and budget while mitigating any risks that arise.
During this phase, the construction manager continuously monitors the work to ensure compliance with the project plans, schedules, and the GMP.
Once construction is finished, the CM oversees the close-out process. They ensure all contractual obligations are met, finalize any remaining payments, and resolve outstanding issues. The CM also confirms that all project documentation is complete and that the owner receives all warranties and manuals they need to maintain the facility.
There are several reasons owners would prefer to use CMAR in their projects. When implemented properly, CMAR can optimize project outcomes through enhanced control over quality, costs, and timing.
Let's explore these benefits below.
With CMAR, the GMP provides a cost cap, which creates more budget certainty. The CM can also offer detailed cost breakdowns and regular financial updates, giving owners more transparency on where every dollar is going. This also helps avoid unexpected expenses.
Engaging a CM early in the project lifecycle means they can provide preliminary design, cost, and scheduling input. They're also involved in selecting contractors to ensure the team is aligned with the project's goals and budget constraints right from the start. All of this can facilitate more accurate planning and give everyone a good idea of how much the project would cost.
CMAR shifts the risk of cost overruns from the owner to the construction manager as long as the project scope remains unchanged. This arrangement provides greater financial security for the owner.
The construction manager centralizes project management and coordination responsibilities, which helps alleviate the owner's load of coordinating between contractors and consultants. As such, this delivery method can facilitate a smoother project execution.
While offering advantages like risk mitigation and budget control, CMAR does have potential drawbacks. These include:
Owners rely on the CM to choose subcontractors. While this shouldn't be a problem if you have a competent and experienced construction manager, projects may run into quality issues if the CM selects suboptimal contractors.
If project goals misalign or communication falters, tensions between the owner and CM may lead to conflicts or, worse, litigation. Owners can avoid this by selecting a good construction manager from the get-go—ideally, someone who shares their values and has a proven track record.
Owners may need to manage complex contracts between design and CM, which can add a layer of administrative work.
Plus, with the construction manager sitting between the owner, designers, and contractors, teams may have to deal with additional back-and-forth between parties, as opposed to a method like design-build, where designers and contractors work directly with the owner. This setup sometimes leads to slower decision-making and potential delays in project timelines.
On the flip side of the CMAR delivery method are the construction managers, who benefit from increased control and involvement in the project from an early stage.
Let's explore these advantages below.
This advantage allows CMs to work closely with the owner and design team from the outset. This early involvement cultivates a more collaborative and unified approach to the project's goals, so teams are on the same page early on. It also paves the way for smoother coordination throughout all phases of construction.
CMs can leverage their expertise to guide design decisions, ensuring that the project is practical to build and aligns with budget and timeline constraints. With a good construction manager, there's less chance the project will encounter costly and time-consuming redesigns or construction delays.
Early involvement gives CMs a clearer understanding of the project scope and technical requirements. Done right, CMAR results in more accurate subcontractor bids and fewer financial surprises as the project progresses.
What challenges should construction managers be aware of when implementing CMAR? These are some of the few (potential) hurdles that CMs should be wary of.
CMAR involves agreeing to a guaranteed maximum price, which places the CM at financial risk if project costs exceed this limit. That's why it's essential for CMs to diligently assess all aspects of the project during the preconstruction phase.
The CM must fairly manage the bidding process among subcontractors and maintain clear, unbiased reporting to the owner. This can be challenging when trying to balance project efficiency with transparency.
CMs must set realistic expectations about project outcomes, timelines, and costs.
Of course, while construction managers do their best to ensure that expectations are met, a project can run into issues or curveballs. Depending on the owner, continuously managing these expectations can be a challenge.
You want to have all your legal bases covered before implementing CMAR, especially for federal and state projects. Regulations and requirements vary depending on the type of projects and states in which you're operating. These things impact things like contracts, bid solicitation, and project execution. Be sure to consider the following to ensure compliance.
On the federal level, CMAR standards and requirements will depend on the agency and the project type.
For example, the Federal Transit Administration (FTA) emphasizes that, unlike A/E services, the price must be considered in CMAR contracts, which are categorized distinctly from construction management services.
"FTA regulations call for price to be considered as a factor in award for all but architect-engineering (A/E) services as defined by the FTA Procurement Circular 4220.1F. The services defined there as A/E include "construction management," but this term refers to Construction Management (Agent) as discussed in section 6.1.2.1 of the FTA Best Practices Procurement Manual."
The FTA treats CMAR contracts as construction rather than A/E services, aligning them more with design-build approaches. This distinction is important because it influences how bids are solicited and how costs are controlled, ensuring compliance with federal requirements.
Meanwhile, if your project is awarded by FEMA, you must fully comply with federal procurement rules. These guidelines include addressing potential conflicts of interest, selecting responsible contractors, and ensuring full and open competition.
To avoid landing yourself in federal hot water with CMAR, be sure to review each agency's guidelines and follow them to the tee.
CMAR guidelines vary by state. Not all states authorize the use of CMAR, and even those that do allow it may have restrictions based on project size, type, or funding sources.
Take California, which approved CMAR for certain public entities as early as 2018. In 2022, Iowa explicitly allowed public entities to use the CMAR method. Meanwhile, Minnesota has allowed municipalities to use CMAR for non-right-of-way construction projects exceeding $175,000, effective August 2023.
To be safe, consult your state's specific procurement statutes or a legal expert in construction law.
The best way to avoid frustration when using CMAR is to be aware of common issues and friction points. Consider the following.
Between owners, design teams, CMs, and subcontractors, roles and responsibilities often intersect at different stages of the project. That's why effective communication is critical. Misunderstandings arise if project goals, changes, and expectations are not aligned among all stakeholders.
Like with any project, accurate costing is vital. Unrealistic estimates lead to budget overruns, which increase risk for the construction manager. As such, ensuring teams work with detailed, realistic estimates during the planning phase helps manage expectations and prevent financial curveballs down the line.
Quality issues or delays may arise if the CM selects the wrong subcontractors. These challenges can escalate costs and diminish trust, so regular oversight and proactive management are essential.
Ready to implement CMAR in your projects? Follow these best practices to maximize efficiency and achieve better project outcomes.
Remember our note earlier regarding potential disputes? Clearly drafted contracts that define scope, responsibilities, and compensation can prevent them. Invest the time in crafting solid agreements and ensuring all parties understand their obligations.
Detailing the terms for changes and risk management is crucial to maintaining transparency and trust.
Preconstruction planning sets the foundation for a successful CMAR project, so don't skimp on this phase. Conduct detailed design reviews, accurate cost estimations, and risk assessments. Doing so can help teams identify potential issues early and prevent delays later on.
Since multiple parties are involved in project delivery, CMs and owners should establish regular communication channels and tools to align stakeholders. The key is to ensure everyone is informed and can make decisions quickly if project changes occur.
Defining clear roles and responsibilities for the owner, CM, design teams, and subcontractors helps prevent overlap and confusion. Make sure every stakeholder knows their specific duties and how they fit into the overall project management framework.
Risk management is crucial, particularly for CMs. So, identify potential risks from the get-go and evaluate their impact. Whether it's financial risks, safety concerns, or project delays, always have a mitigation strategy as early as possible.
Keeping risks and costs low is essential, but equally important is ensuring that projects are delivered to the highest quality standards. This is why it's helpful to have rigorous quality assurance processes. Doing so ensures that all aspects of the project meet specifications and standards, ultimately enhancing outcomes and stakeholder satisfaction.
Whether you're a project owner, a seasoned construction manager, or somewhere in between, integrating CMAR into your project delivery toolkit can help enhance your project outcomes.
CMAR can streamline project delivery and reduce risk as long as the method is implemented well. CMAR success hinges on early planning and open communication so make sure all parties are aligned from the outset. And if you're working on government projects, keep a close eye on both state and federal regulations to ensure full compliance.
