New California Law Permits Expanded Use of Construction Managers At-Risk in Public Contracts

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On October 3rd, Governor Jerry Brown signed into law Senate Bill 328 which permits counties to enter construction manager at-risk agreements for construction of projects over $1 million. Counties now join other public entities, such as the University of California and California State University systems, as public entities that may use the construction manager at-risk method for building construction projects.

Prior to the passage of this law, counties were stuck with the traditional design-bid-build delivery method and the “lowest responsible bidder” system. The purpose behind the traditional model and the competitive bidding process is to enhance competition and prevent corruption and undue influence. Although laudable, these goals can be overshadowed by problems created by the traditional project delivery model. Contractors on traditional design-bid-build projects have no design involvement and, consequently, have less familiarity with the design and relatively little time to assemble a team of subcontractors to efficiently and effectively construct the project in accordance with the design goals. In addition, the traditional low bid approach can often lead to lower quality work and more risk to the county if the low bidder attempts to make up for its low bid by submitting numerous change orders, which could lead to increased claims, and time and money spent by the county resolving the claims.

In contrast, the construction manager at-risk delivery method minimizes some risks inherent in the lowest responsible bidder approach. The county is permitted to award the contract to a construction manager who is responsible for delivering the project within the agreed upon price, and since the construction manager is often already involved during the design phase, this should reduce the number of change orders on the project. Thus, the profitability of the construction manager is connected to the success of the project. The construction manager contract can be awarded to either the lowest responsible bidder or the bidder that provides the best value, which takes into account many factors other than price, such as the experience, financial strength and safety record of the construction manager. Thus, this approach provides the county with more control and options when choosing contractors.

The construction manager at-risk approach combines elements of the design-bid-build and design-build methods. Under this approach, the construction manager is usually involved prior to the construction phase to provide pre-construction services that can often alleviate problems earlier in the process. The construction manager then continues to oversee the work (similar to a general contractor) through the completion of the project. The continuity of expertise and a full understanding of the concerns expressed at the design stage can reduce risks and promote efficiency on a project.

By enacting this bill and expanding the role of the construction manager at-risk in California public works projects, California joins the growing trend of states that now seem to favor this alternative delivery method to the traditional design-bid-build method. We expect to see further expansion of the construction manager at-risk project delivery method in the years to come.

Topics:  Construction Contracts, Construction Workers, Managers

Published In: Construction Updates, Government Contracting Updates

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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