To CM/GC or not to CM/GC (or to Design Build?)
From our Spring 2022 e-newsletter
The alternative contracting methods of Construction Manager/General Contractor (CM/GC) and Design Build have been used for seismic upgrades and other public contracting agency projects throughout the state. However, I continue to see entities confused or not gaining the benefits of these methods. Small entities often forge ahead on the advice of consultants, only to find themselves without the proper expertise to manage unnecessarily costly and time-consuming projects.
Before blithely heading down the primrose path, be aware that these methods are not only substantively, but also procedurally more complicated than a standard design-bid-build process. In summary, each alternative contracting approach requires an initial exemption, supported by specific findings, adopted after notice and a public hearing. Your governing body needs to weigh its options and associated pros and cons before choosing which construction process is appropriate for your particular project.
WHAT IS “CM/GC”?
Without an exemption, construction must follow a design-bid-build approach. That involves a retained architect designing a structure, then putting those drawings out for bid, with award made to the lowest responsible bidder. In contrast, a CM/GC allows a contractor to be chosen before or during the design process. The CM/GC contractor then joins the architect (under a separate contract with the public contracting entity) in the design process. The “team’s” goal is to obtain value engineering cost savings and often phased construction benefits. Once design is complete, an addendum is executed setting a “guaranteed maximum price” (GMP) for the construction.
Nearly a decade ago, the legislature attempted to dissuade local contracting agencies from using CM/GCs. Legislation preempted all prior public entity rules governing CM/GC contracts, and directed the Attorney General (AG) to replace those locally adopted rules with model rules. (See, Oregon Administrative Rule (OAR) 137-049- 0690.) We all believed that was the end of CM/GCs, but CM/GCs continued in use, subject to stringent procedural hoops. Whether it is advisable to jump through those hoops depends on the construction project at issue.
A CM/GC’s “phase one” role involves reviewing and analyzing the design as it develops and proposed materials in order to minimize errors, delays, unexpected costs and other issues during construction. Benefits also can include improved safety, reliability, and efficiency at a reduced price within a shorter construction window. Once design is completed, the cost of construction, materials, labor and other costs are distilled into a GMP. The GMP is agreed upon by amendment, triggering construction pursuant to the completed designs.
Despite potential benefits, the CM/GC arrangement is a “technically complex project delivery system.” OAR 137-049-0690(1). Contracting agencies should use it only with the assistance of knowledgeable staff or consultants who have a demonstrated capability of managing the CM/GC process and have expertise in engineering, construction scheduling and cost control, accounting, legal, public contracting and project management. Most public contracting agencies do not have expertise in all these areas, which is why architects and contractors are placed in the forefront on these projects.
WHAT IS “DESIGN BUILD”?
Design Build is a public improvement contract in which the construction contractor also provides all required design services. OAR 137-049-0610(6). The project team consists of the Design Builder and public contracting agency. In other words, a single contractor is responsible for providing your entity with all professional design services and construction labor necessary to design and construct your project.
As with CM/GC’s, Design Build contracts have “not readily apparent” technical complexities. OAR 137-049-0670. Similar to CM/GCs, your entity may only use Design Build contracting methods with the assistance of knowledgeable and experienced staff or consultants. You must reasonably be able to anticipate benefits such as a need for a single point of responsibility, value engineering, and construction commending prior to completion of a “buildable design.” The goal is to reduce contract claims, while shortening the project time.
An exemption required for a CM/GC or Design Build involves findings that the chosen method will not encourage favoritism, nor diminish competition, and will result in substantial cost savings. Findings must also identify anticipated time savings and the technical complexity of project construction. For example, construction that must overlap with ongoing building use and operations can satisfy this last requirement.
Prior to adopting an exemption resolution, at least fourteen (14) days’ notice must be provided by publishing in a newspaper of statewide circulation (i.e., the Daily Journal of Commerce), and in as many others as desired by your entity. After the exemption’s adoption, your entity will issue its solicitation (likely a request for proposals), advertise statewide, evaluate and rank proposers, before finally awarding a contract.
Upon project completion, exempt contracting methods require a post-project evaluation. Essentially, the evaluation answers whether it was in your entity’s best interest to conduct the CM/GC or Design Build process. Findings must address financial information, successes and failures of the process, and conclude with an objective assessment of use of the process. The evaluation must be completed and submitted to your local contract review board (i.e., your district board or city council) within thirty (30) days of project acceptance.
Public contracting agencies often pursue alternative contracting methods based upon consultant advice that it will help address time/cost constraints. The ability to overlap design with construction can eliminate the need for later change orders, keep projects on schedule, and result in a sound product at a lower cost. In other cases, hoops are jumped through, the project completed, all for about the same cost and within the same timeframe as if a standard design-bid-build process had been followed.
Your governing body is in the best position to evaluate the technical complexities of your agency’s project and the value of using a CM/GC or Design Build contract. Involving your attorney early will ensure that all applicable requirements are addressed before a contract is awarded.