Gordian was founded by one of the creators of Job Order Contracting (JOC), and we’ve been perfecting the JOC process for over 30 years. But Job Order Contracting is only one of many construction procurement methods, each designed for specific purposes and best utilized for certain types of projects. Knowing the differences between them and when to use each delivery method can determine a project’s success.
In this series, we’ll examine and compare some of the most widely used project delivery methods, including Design-Build, Design-Bid-Build, and Time and Materials. In this installment, we look at Construction Manager at Risk.
Construction Manager at Risk: The Basics
Construction Manager at Risk (CMAR) is a unique project delivery method where the owner hires a construction manager (CM) – often a contracting firm – to oversee every aspect of a project from design to close-out. Work is completed within a set project threshold called a Guaranteed Maximum Price or GMP, which includes materials, labor and the contractor’s overhead and fees. If the project comes in under the GMP, the owner keeps the savings. If it exceeds the GMP, the CM is on the hook to make up the difference. Hence, Construction Manager at Risk.
This financial risk motivates the CM to act in the owner’s best interest at every turn and to actively manage the project budget.
The CMAR Process
The CM serves as an active project consultant and owner advocate from the get-go. They may select or have a voice in selecting architects and engineers, and will serve as an advisor during the design phase. As project design takes shape, the CM provides the owner with regular cost estimates. After a general project scope has been established and before the final design is complete, the CM solicits subcontractor bids. These bids inform the GMP.
Check out this comprehensive report to see how traditional project delivery methods stack up against Job Order Contracting.
The CM presents the owner with the GMP and contingencies to cover unforeseen price escalations and to ensure costs are covered as the design is finalized. Once the owner agrees to the GMP, project designs are made final and subcontractor bids are selected, construction can begin.
The CM is the single point of contact for all stakeholders once work starts. He or she is the hub of all activity and must coordinate and communicate with the owner, the architect and all subs. As the project ebbs and flows, it is up to the CM to balance making the best decision for the owner and the limitations of the GMP. Finally, it is common for the CM to manage all close-out proceedings.
Advantages of Construction Manager at Risk
The Construction Manager at Risk project delivery method project offers owners several advantages. The first – and most obvious – is reduced financial exposure. Offloading some of the risk to the CM creates a level of security unique to CMAR.
Secondly, CMAR is often a more transparent process than most other construction procurement methods. Owners receive regular cost estimates and project updates from the CM, and the GMP acts as a cost ceiling. This transparency results in more accurate budgeting, greater cost control and a more trusting, collaborative relationship between the owner and the CM.
Construction Manager at Risk projects tend to move quickly because the CM is often empowered to make decisions on the owner’s behalf, reducing potential delays. Finally, owners are not beholden to choosing the lowest responsive, responsible bidder. Knowing they have the GMP to protect them, owners can work with CMs who have amassed successful track records, even if they are not the least expensive option on the market. Not only will the owner have a greater chance of a favorable outcome, but users will enjoy a better product when it’s all said and done.
Disadvantages of Construction Manager at Risk
There’s a lot to like about CMAR from an owner’s perspective. But there is one major risk: The CM represents a single failure point. Pick the wrong CM, and a project quickly spirals into a nightmare. Without design or construction estimating expertise, the GMP may be delayed or woefully off-base. And a CM who lacks the requisite communication and people skills may unwittingly leave owners in the dark about project progress and setbacks.
Construction Manager at Risk asks owners to place an extraordinary amount of trust in the CM. When that trust goes unrewarded, projects suffer and frustrations spike.
Comparing Construction Manager at Risk and Job Order Contracting (JOC)
It is extremely unlikely for an owner to be choosing between CMAR and JOC. The former is almost always used for complex new builds, while the latter is often used for renovations and routine, operational work. CMAR is more popular in the private sector, while JOC tends to serve the public sector. Yet despite their differences, there are some similarities between the two project delivery methods.
Both CMAR and JOC are more transparent than other delivery methods like Design-Build and Design-Bid-Build. But the reasons for this transparency differ. With CMAR, the transparency is an outgrowth of a shared GMP and regular updates from the CM. With JOC, the transparency comes from a shared Unit Price Book that ideally uses current, local construction costs.
See why Gordian is the industry leader in Job Order Contracting.
Both delivery methods tend to accelerate time to construction, but again for different reasons: CMAR because the CM wields a lot of decision-making power and JOC because many projects may be completed using one, competitively-awarded contract. This single solicitation process results in saving a significant amount of time. 70% of respondents to a survey of public sector procurement leaders said that project delivery with JOC takes fewer than nine weeks. The majority of those respondents also reported that traditional project delivery methods take 12 weeks or more. Shortening the procurement cycle by 25% with JOC gives organizations the opportunity to deliver better outcomes more quickly.
In both instances, the owner’s experience depends largely on their partner. From a JOC perspective, no company has more expertise than Gordian. We’ve been implementing and overseeing successful Job Order Contracting programs for more than 30 years, and in 2022 alone, organizations trusted us to complete more than $3.2 billion in construction volume. Our data engineers provide custom, local procurement costs and our construction specialists have the skills and knowledge to keep projects running smoothly. Just as with CMAR, when it comes to JOC there is no substitute for past success.
Construction Manager at Risk might be an interesting project delivery method for owners who lack construction experience and want to exercise budgetary control over complex new builds but do not want to oversee day-to-day construction. If they can find an experienced Construction Manager to take on the project, owners can increase their chances for success while they minimize financial risk.
