California Authorizes Alternative Procurement Method for Public Construction Projects

by Best Best & Krieger LLP
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Counties Can Now Use Construction Management At-Risk

Effective January 1, 2014, all California counties are expressly authorized to use the “construction management at risk” project delivery method (CMAR) for any building projects over $1 million. This alternative procurement process has been in use by the private sector and other public agencies for many years. The CMAR project delivery method offers both benefits and risks for the project owner, which should be carefully evaluated.

Proponents of CMAR commonly cite the following benefits for the owner: the opportunity to select the contractor who will lead the project based on factors other than price; getting a contractor’s perspective during design; and a known price that is not automatically subject to increase on account of design deficiencies. Unlike design-build, the owner utilizing CMAR retains control of the entire design process.

Risks to the owner and criticisms of CMAR include the up-front cost of preconstruction services and the need for the agency to have sufficient expertise to evaluate cost proposals and assess the final project accounting. Agency staff also have to understand that the construction manager under a CMAR agreement is not a typical “agency” construction manager who works on the owner’s behalf. Some agencies choose to retain an owner’s representative to act on the owner’s behalf during the project, which increases overall project cost.

No project delivery method is fool-proof. One important key to a successful CMAR project is a contract that clearly identifies the risks the owner is shifting to the construction manager. Another is training the owner’s staff to use the contract to enforce those responsibilities.

Public Contract Code Section 20146 (SB 328) adds counties to the ranks of local public agencies that the Legislature has expressly authorized to engage a licensed contractor who provides preconstruction services and construction administration to deliver the project for a fixed construction cost. The CMAR contract can be awarded to the “lowest responsible bidder” or based on “best value.”

On a CMAR project, the owner retains the construction manager during (or before) design. The construction manager provides a contractor’s perspective during design, assists in value engineering, and performs quality control to reduce common design problems such as coordination and constructability issues. The construction documents are divided into “trade packages” suitable for competitive bidding as separate contracts. The construction manager selects the trade contractors through procedures established by the county, and is responsible for scheduling, coordinating and completing the project for a guaranteed maximum price.

The construction manager is typically paid a fixed sum for its preconstruction services and receives a fee, calculated as a percentage of hard construction cost, for services during construction. The construction manager may also provide site services for the project, such as security and sanitation, and may, in some cases, perform portions of the work. If it does so, payment for that work may be in addition to the fee.

The overall price for construction of the project, either a lump sum or guaranteed maximum price, is usually established late in the design phase or after all trade contracts have been bid. That price should change only if the owner modifies the project, if regulatory changes increase the cost of the work, or if unexpected site conditions appear.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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