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Construction Management at Risk: The Risks and Rewards for Contractors

Jun 23, 2023 | Blog, Job Bidding, Management

In the construction industry, the manner in which projects are delivered significantly influences a contractor’s approach, management style, and eventual success. One widely implemented method for large, complex projects is Construction Management at Risk (CMAR). However, what does CMAR mean for contractors? Let’s dissect it.

What is Construction Management at Risk (CMAR)?

CMAR is a project delivery method where a construction manager (CM) commits to delivering a project within a guaranteed maximum price (GMP). As a contractor, you’ll serve as a consultant during the design phase and transition into a general contractor role when the design is finalized. This arrangement gives you the opportunity to advise on the project design and schedule while controlling the cost and quality of construction.

The term ‘at risk’ refers to your commitment to cover any cost overruns that exceed the GMP, assuming they aren’t a result of changes in project scope by the owner. If the project comes in under the GMP, the savings typically return to the owner, creating a partnership that motivates cost efficiency and innovation.

Contractor Advantages in CMAR

CMAR offers several compelling benefits to contractors.

  • Early involvement. Engaging with a project from the onset allows you to influence design decisions, highlighting potential construction challenges before they become costly issues.
  • Control over project. As the CM, you’ll have significant control over the project, including selecting the subcontractors, which allows you to shape the project according to your vision and standards.
  • Profit Potential. If you successfully manage the project and bring it in under the GMP, you could potentially benefit from performance incentives, depending on your contract’s terms.

Contractor Disadvantages in CMAR

While promising, CMAR also comes with potential pitfalls for contractors.

  • Financial risk. As a contractor, you’re assuming the financial risk of cost overruns beyond the GMP. Poor estimating, unexpected issues, or mismanagement could lead to losses.
  • Dependency on design. You rely on the design team to produce a project design that can be built within the GMP. Design errors or omissions can lead to construction problems that you may have to rectify at your own expense.
  • Competition. The competitive process for CMAR contracts often focuses on qualifications and price, which can make winning these contracts challenging.

Risks Associated with CMAR for Contractors

While some risks are inherent in any construction project, CMAR introduces unique ones.

  • Estimation errors. A flawed estimation during the development of the GMP can lead to significant financial risk.
  • Scope changes. Changes in project scope by the owner could lead to cost disputes. Unless these changes are carefully managed, they can escalate and negatively impact your profit margin.

Mitigating CMAR Risks for Contractors

These risks aren’t insurmountable, and with the right steps, can be effectively managed.

  • Effective communication. Maintain open, regular communication with the project owner to prevent misunderstandings and promptly tackle issues.
  • Detailed contracts. Create a comprehensive contract that clearly defines each party’s responsibilities. This can significantly minimize potential disputes.
  • Expertise. Ensure you have the necessary skills and track record for managing CMAR projects before taking one on. Building a competent team to accurately estimate costs, manage construction, and control quality is crucial.

To sum up, the CMAR delivery method offers several opportunities and challenges for contractors. It provides early involvement, control over projects, and potential profit benefits, yet also introduces financial risk and the challenge of estimation accuracy. As with any project delivery method, the key lies in understanding whether CMAR aligns with your specific project capabilities and business strategy. Balancing the pros and cons, CMAR can indeed offer a viable, profitable pathway for many contractors.