Vancouver Business Journal

Decision of consequence

Choosing the best delivery method brings project success, CM-at-risk tailored to experienced developers

Ron Frederiksen
RSV Construction Services

When it comes to commercial construction projects, no one method of project delivery is right for every client and every project. The options boil down to three basic approaches, including an interesting hybrid.

Choosing the best delivery method brings project success, CM-at-risk tailored to experienced developers

Ron Frederiksen
RSV Construction Services

When it comes to commercial construction projects, no one method of project delivery is right for every client and every project. The options boil down to three basic approaches, including an interesting hybrid.

For many years, "hard-dollar" bidding on complete, detailed plans and full specifications was the order of the day. Marketing centered on "low overhead" positioning. The underlying message:
"If you want the cheapest building, call us."

But as design fees increased, clients became unwilling to pay for a complete set of plans and specs suitable for the hard-dollar process. Essential detail was neglected, especially in the private sector.

Even the government sector learned its lesson as a second approach evolved. Construction Management (CM) proposals came to be requested from multiple general contractors to fulfill requirements of competitive bid laws.

The selected construction manager works with the client and various design professionals to provide up-front guidance and project leadership. At an agreed point in the process, the CM becomes the general contractor. The formal designation of this process is CM/GC. Many private, real estate developers utilize this same CM/GC process with varying degrees of success.

Be aware that many general contractors use this project delivery method to reduce their own risk. Once subcontractor bids are received, the CM/GC reviews them with the project owner who makes the final decision, while the CM/GC adds their own fee to arrive at the final contract amount.

But here is the problem. If a sub fails to perform, or does poor work, the CM/GC can say to the client, "You picked ‘em." Sound like hard-dollar bidding with a twist?

The third method of project delivery is design/build. In this process, the design/build contractor takes on total responsibility for design details, coordinates all of the drawings, submits, tracks and obtains all permits, prepares written scopes of work so that subs have clear direction, and finally guarantees the completion date, cost and quality.

Design/build is perfect for owner-occupied projects where the owner is busy running their own business. They are usually not professional real estate developers and don’t have industry relationships or knowledge of the design and permitting processes. Fortunately, a hybrid approach has evolved that has all the guarantees of design/build with the features that professional real estate investors may need. This process is called "CM-at-risk." Interestingly, the public sector has been insistent that this approach be perfected to avoid the pitfalls of the CM/GC process. Most large public sector CM projects are now moving to CM-at-risk.

Under this approach, when the CM becomes the GC, they assume the risk of time, cost and quality. The end result is a construction contract with a no-change-order guarantee. The latter is what project owners really want in the long run – a company that can guarantee its own performance.

CM-at-risk is a perfect fit for experienced, professional real estate developers. These developers typically have industry relationships and can bring together a group of their consultants and key subcontractors. Plus, experienced developers have the knowledge and ability to evaluate life cycle costs, finishes and detailed recommendations from their CM.