Given the financial risk associated with construction projects, owners have to understand the types of procurement available and the advantages and disadvantages therein. This maximizes the chance of a successful outcome with adequate risk protection. Construction projects are subject to several issues that can impact successful completion:
- Design issues, errors and omissions in plans by architects and/or engineers
- Lack of documentation from owner for project acceptance
- Poor document control and recordkeeping
- Unaddressed and worsening issues
- Change orders, rework and delays to schedule
Understanding Procurement Types
There are several procurement types available for construction delivery:
- Design-build: Collaboration between designer and contractor for a complete, functional project
- Negotiated projects: Costly projects with relatively low issues and utilization of top subcontractors
- Traditional bid projects: Lower costs, where the project is generally awarded to the contractor with the lowest bid
- Construction management at risk (CMAR): Assures owner that project will not exceed an agreed-upon cost, leaving no room for owner savings
Contractors prefer design-build and negotiated projects due to increased profit margins as opposed to the lower margins of a traditional bid project, with longer schedules and increased risks of claims to maximize profits to offset a low, winning bid. CMAR contracts guarantee that a project won’t exceed a cost, but this leaves no room for owner cost savings due to value engineering or change order negotiations.
Hiring a Construction Management Firm
Many owners can add an extra layer of oversight by hiring a construction management (CM) firm to oversee their projects. These consultants serve as an extension of owner staff and focus solely on project progress and resolution of issues. The CM firm doesn’t assume risk or responsibility for completion of the project due to a separate contract based upon hourly rates and fees. A CM firm can work on a project ahead of the contractor, anticipating issues and providing regular, comprehensive reporting. Should litigation arise, a construction management team helps to protect the owner, because the CM team helps to make sure contractual obligations and construction documents are adhered to by the contractor and subcontractors.