Is it time to consider CM/GC on New England Transportation Projects?

In New England the primary procurement methodologies being used on transportation projects are Design-Bid-Build and Design-Build. Design-Bid-Build is the incumbent methodology best understood by state officials and the general public. It offers the owner control of the project, and allows more control of the risks such as utility relocations and right-of-way since the design is completed before the contractor is procured. Design-Build is gaining more acceptance with most states now having an established program. This methodology sacrifices some of the owner’s control of the design in exchange for more risk passed on to the contractor. These projects are generally completed more quickly, allow constructability reviews by the contractor as the design progresses, and allow State Agencies to secure federal construction dollars earlier in the process

With the state of the economy there are signs that Design-Build projects are not performing as intended. Contractors more desperate for work or trying to break into the Design-Build market are not requiring the financial compensation commensurate with their labor expended, materials costs, reasonable profit, and reward for the additional risk undertaken. In the short term this may be in the favor of the public good, getting projects built at bargain prices, but this is not a sustainable strategy and may ultimately injure the transportation market.

There is also some concern on the projects that are being selected for Design-Build. Some projects appear selected less for the advantages incumbent in the Design-Build process, and more to meet federal guidelines and deadlines for the allocation of construction funding. It is important on Design-Build projects that there is sufficient flexibility for innovation and that risks are identified and assigned to the party that can best mitigate those risks. Some projects are simply passing risks over to the contractors with minimal regard to their ability to mitigate those risks.

CM/GC is short for Construction Manager/General Contractor. CM/GC has a few different variations since it began in building construction with variants occurring as the process has been expanded into the Transportation market. The general framework is that the owner hires the design engineer using Quality Based Selection (QBS). The owner next hires the CM/GC (Contractor) also through QBS. At an agreed upon stage in the design, the CM/GC provides a Guaranteed Maximum Price (GMP). The advantage of this methodology is that the owner retains more control over the design, the contractor is involved in constructability reviews, risks can be better mitigated before the GMP is solicited, and once the GMP is received federal funding can be secured.

CM/GC may be particularly effective on those projects with smaller construction costs that would otherwise be a good fit for Design-Build. It is difficult for traditional practitioners of Design-Build to make a sustainable profit on projects with a construction cost of less than $10 million dollars. This isn’t necessarily to say that the successful Design-Build can’t make a profit. Most designers and contractors that have committed to Design-Build pursue multiple Design-Build projects. At the $10 million dollar or less construction value, even with a success rate of winning one out of every three or four Design-Build projects pursued, the profit of the single victory is not enough to offset the cost of the unsuccessful efforts. This may also be a function of the current procurement documents where smaller projects still often require the same level of effort as some of the larger projects. Since the bulk of the effort required is expended in the RFP phase, another factor is the selection of more than three firms on the short-list also affects overall profitability.

Before CM/GC can be implemented, it will be important to verify that current laws will allow this procurement methodology. This will need to include securing a waiver to procure a contractor through means other than low bid. Ironically it may also be an adjustment with the construction community switching to a QBS selection and working more closely with a designer outside a direct contractual relationship. Currently FHWA is encouraging the use of CM/GC as part of an overall study. States such as Utah and Oregon have been using the procurement methodology for several years.