The mix of planning, design, and the actual physical work on a construction job site can be hard to manage. When there are so many moving parts, organization and sticking to a plan of attack become crucial. But there are a variety of ways to organize and manage a project. Who is responsible for design, and who will lead the building? Who is at fault for cost overruns? There are a variety of project delivery methods to choose from, each with their own benefits and disadvantages. Construction Manager at Risk (CMAR) is a delivery method that is often misunderstood. In this article, we’ll explain how CMAR works, and explore the pros and cons for different types of projects.
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What is Construction Manager at Risk (CMAR)?
Construction Manager at Risk, commonly called CMAR is a project delivery method in which the construction manager acts as an agent of the property owner to complete the project within a specified guaranteed maximum price (GMP).
The construction manager, typically a general contractor, consults on both design and construction phases of a project to ensure the costs remain below that maximum price. This is where the “at risk” part of the title comes from: If the project exceeds the pre-determined limit, the manager will be financially liable for any costs over and above the amount they agreed upon in the contract.
Unlike the design-build method of construction, under a CM at risk agreement the designer and builder operate under separate contracts. But because the CM is responsible for cost control measures, they are involved in all phases of design and production.
The CMAR method divides the project into two parts: design and building. In the first phase, the architect and the CM collaborate to create designs that are feasible within the budget. During the building phase, the Construction Manager supervises the physical construction to ensure it meets the design and performance requirements.
The Pros: Benefits of CMAR
Construction Manager at Risk is probably most often used when a property owner doesn’t have a lot of experience with construction projects, or is stretched too thin. With an experienced, honest construction manager overseeing the job, the CMAR method can deliver positive results — not just for the property owner, but for the architect and contractors on the project as well.
Job cost accuracy
One of the biggest benefits to property owners is that it provides a higher level of cost control from the very beginning of the project. Throughout the design process of the project, the construction manager provides the property owner with cost estimates with the goal of keeping those estimates in line with the overall construction budget. If things don’t add up, the construction manager can propose design changes to bring the cost in line with the planned expenses.
For the property owner, this results in limited financial liability. Because a maximum guaranteed price is set, the owner knows that the price is the maximum exposure they face if all goes well.
Construction Manager at Risk gives the construction manager a ton of control right from the start of the project. By being heavily involved with the owner’s decision-making and with the design phase of the project, the construction manager can bridge the design and build phases of the project. These two project phases can pretty easily find themselves at odds, so reducing that strain is a big win here.
The construction manager acts as a liaison between the property owner, architect, and lead contractor — all of the parties responsible for completing the job successfully. This is beneficial because, if successfully done, the CM serves as the eyes and ears on the project, which in turn helps to reduce schedule delays and cost overruns. This also reduces the burden on the property owner — who may be inexperienced — to manage the project.
Communication breakdowns and poor jobsite visibility are a common cause of payment delays. With the construction manager serving as the single point of communication at the top of the payment chain, CMAR can result in faster approval of payment applications and reduced payment delays to the subcontractors on the project.
As long as the construction manager stays under the guaranteed maximum price, risk is reduced. Under the CMAR method, the owner and construction manager have already come to terms on an acceptable number. Payment disputes can be alleviated when the job stays on-budget.
The Cons: When CMAR can fail to deliver
Sometimes, an advantage of the Construction Manager at Risk can quickly become a drawback in the right (or rather, the wrong) scenario.
Single point of failure
The success of a CMAR project will hinge on the performance of the construction manager. An inexperienced CM can cause problems in both the design and building phases of a project, leading to an inferior product, workmanship disputes, and payment delays.
Liens & payment disputes
Under the CMAR method, the construction manager operates as an agent of the owner. But at the end of the day, they have their own business to run. They are highly motivated to deliver the project under the maximum price in the agreement.
If job costs start piling up and approaching that max price, the construction manager may be motivated to put downward pressure on the contractors and subs further along the payment chain, using bogus back charges or other scare tactics to bully subcontractors into accepting less money for their work. This can lead to payment disputes and a heightened risk of mechanics lien claims filed by sub-tier parties.
Because the construction manager is financially responsible for any cost overruns, the Construction Manager at Risk method can incentivize them to cut corners on the quality of work or materials to keep expenses under the contract price. This is particularly true if the CM is also acting as the general contractor. Of course, this is a common risk when using a GMP contract.
4 fundamentals for success on a CMAR project
As with any delivery method, technical and human error still occur. Unexpected issues pop up, egos can flare, and best-laid plans may go to waste. When working on a large, complex project, using the Construction Manager at Risk method can go a long way toward keeping the project in sync — as long as the fundamentals are in place.
1. A capable construction manager
The construction manager is the ultimate hinge on which the project will swing. The property owner needs to hire a CM with a track record of successfully managing similar projects in the past. Before signing a contract, every party to the project should vet the construction manager thoroughly to reduce their own risk.
2. An accurate estimate
An accurate estimate is essential on any construction project, but it is especially critical when using the CMAR method. Budget overruns are the biggest source of problems on this type of project, because they create an incentive for the CM to cut corners or withhold payment from the subcontractors.
Everyone on the project has a vested interest in ensuring the project can be completed within the maximum price to make sure the CM’s interests are aligned with everyone else’s. The owner may want to hire an outside firm to consult on the cost estimation to confirm the accuracy before the project begins.
3. Clear expectations
The construction agreement between the owner and the CM outlines the expectations for both parties, including their responsibilities and how disputes are resolved. The contract documents should not only set forth a clear scope of work for the construction manager, but clearly identify the consequences for failing to deliver the project as specified and free of lien claims.
4. Constant communication
Most other types of project delivery spread out responsibility and oversight among multiple parties. With a single CM acting as the eyes and ears on a project, clear and timely communication is essential to keep everyone on the jobsite aligned and on the same page. It will be especially important for subcontractors and suppliers to send preliminary notice — not just to the general contractor or the CM, but the property owner as well. After all, the CM isn’t the only one at risk; the owner is at risk of losing their property if everyone on the job doesn’t get paid.