What is a Construction Manager at Risk?

By August 30, 2019General Construction
Construction Manager at Risk

If you are planning a construction project, there are many things to consider. With so many moving parts like design, permits, cost and more, being the owner of a development isn’t for the faint of heart. If you want to optimize your project, raising the bar on efficiency, then consider hiring a Construction Manager at Risk. This can help take a load off of your shoulders while still allowing you to have a hands on experience with the process.

What is Construction Management at Risk?

Construction Management at Risk (CMAR) is a method that calls for close knit collaboration on a project. The most common format for completing a construction project follows a system of design-bid-build which is where the owner works with a designer to completely create the desired finished project on paper. Based on those finished designs, the owner then hires a contractor who gives an overall bid on the project, then they work to complete the construction.

The difference with a CMAR is that the builder or contractor comes into the process early on in the design phase to make sure that the foreseen project is achievable at the rate the owner has agreed to. The Construction Manager at Risk is constantly working in favor of the owner to ensure that their needs are met when it comes to cost, functionality, quality, and meets their overall vision for the project.

What is a Guaranteed Maximum Price?

When working with a CMAR, the biggest factor is the Guaranteed Maximum Price (GMP). In the more traditional Design-Bid-Build method, the owner is primarily responsible for the completion and cost of the project, taking on the financial risk. This method requires the owner to be very well versed in all of the steps necessary to complete a construction project. However, when working with a CMAR, a GMP acts as a safeguard against risk for the owner and puts a lot of the liability on the Construction Manager. This Guaranteed Maximum Price is a dollar amount that is contractually agreed upon while the CMAR is working with the design firm for the project. The “risk” factor for the Construction Manager at Risk comes into play with the GMP, because if the overall cost of the project exceeds this amount, the CMAR is responsible for the overages. So, while the CMAR is legitimately acting in the owner’s interests, their own personal liability is also a factor in completing the project within budgetary confines. This is the main driving factor in the relationship between the designer and the builder; they must create a design with the overall costs in mind.

Contingency Plans

Within the contract between the owner and the CMAR, there will also be a contingency plan which will be in addition to the GMP. There are typically owner contingencies and contractor contingencies. The owner contingency plan is to fund any additions or design changes that the owner decides upon after the GMP is agreed upon. The contractor contingency plan is meant to cover minor additional construction costs that do not fit within the GMP. So that neither the owner or the CMAR have the liberty to abuse contingencies, a set amount is agreed upon with the contract. The overall goal of the relationship between the owner and the CMAR is to create a collaboration defined by trust as the CMAR works with the design team to construct a product that meets a high standard within the owner’s budget.