Construction Management at Risk

Engineering projects follow general stages like design, planning, financing, and construction. The owner determines the best approach for each stage, with the help of construction professionals. Construction management at risk is an innovative approach to deliver projects within the required time and budget. The term is often shortened as CMAR, CM@risk or CM at risk.

In the CMAR method, a commitment is established between the construction manager and the project owner. The construction manager must deliver the project within a Guaranteed Maximum Price (GMP), based on construction documents and guidelines. The contract also considers inferred items and a contingency budget to cover any unforeseen events.

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CMAR can be incorporated during the project planning stage, during the design phase, or before the construction stage. Generally, the construction manager at risk gives the owner the GMP prior to bidding the project. By doing so the CMAR assumes the risk of higher bids, since there is a contractual obligation to stay below the GMP.

The construction manager at risk works as a consultant for the owner during the design and construction phases. The CM may also also provide construction services directly, depending on project requirements and the company’s expertise. The following are some responsibilities of the CMAR throughout the project:

• Construction schedules
• Budgeting
• Cash flow analysis
• Value engineering

Besides acting in the owner’s interest, the construction manager must control costs to stay below the GMP. As stated in the contract, any cost that exceeds the GMP becomes a financial liability for the construction manager. Exceptions are made if changes requested by the owner cause the extra costs, and also for external factors beyond the construction manager’s control.

CMAR as a Consulting Service

When the CMAR method is applied, the construction manager acts as the owner’s consultant during the preliminary stages of construction. In other words, the owner relies on the construction manager to select adequate subcontractors and request their bids.

Once the Guaranteed Maximum Price it is accepted, the owner will not pay more, except in special cases. At this point, the role of the CM changes from consulting to project management.

CMAR as a Project Management Service

When the consulting role is completed, the CM at risk moves into the project management role. The CMAR focuses mostly on design and cost optimization during the preliminary stages, moving to execution and cost control once the project starts. The CMAR method creates a strong incentive to stay within the budget:

• The construction manager will make the best effort to prevent cost overruns, since they have a direct financial impact.
• On the other hand, cost optimization increases profits for the CM.

Benefits for Project Owners

For the project owner, the CMAR method offers a high level of cost control from the start. For the best results, the construction manager should be involved as early as possible. For example, if the building has not been designed yet, the CM can collaborate with the architect to cut costs. On the other hand, if the CM is involved late in the design process or just before construction, there is less flexibility to optimize costs. The following are some additional benefits of CMAR:

• The construction manager will act in the best interest of the owner.
• CMAR reduces the workload for the owner, since key decisions are delegated to the construction manager.
• Since the construction manager gives the GMP before the bidding process, any bids that are too high or too low can be identified. These subcontractors can be disqualified, leading to more accurate pricing, higher quality and fewer claims.
• Construction management at risk requires expertise in architecture and engineering, and this adds value to the project. 
• Most of the owner risks are passed to the construction manager once the GMP is accepted. Any additional costs must be assumed by the CM, unless they are beyond their control and decisions.

Like in any construction project, mistakes in the drawings and guidelines will cause change orders. In this case, any extra costs are assumed by the construction management firm, who is responsible for preventing design errors. On the other hand, if the owner takes a decision that changes the project scope, the GMP can be reviewed and updated without affecting the construction manager.