(2007)

92 Op. Att'y Gen. 65
Procedural entryThis page is a short order in (2007). Read the opinion of the Court — 92 Op. Att'y Gen. 51
Maryland Attorney General Reports·Decided July 13, 2007·Published

Opinion

Dear Bruce A. Myers, CPA

You have requested our opinion whether State agencies may use a method known as "Construction manager at risk" ("CMR") to carry out a construction project. You describe the CMR method as commencing with a State agency's procurement of a construction manager by a competitive process. The construction manager is then responsible for working in conjunction with the architect on the design, providing a "guaranteed maximum price" for construction of the project — accepting the risk that the cost of the project may exceed that price — and procuring the actual construction of the project. You question whether the CMR method, which generally involves a competitive procurement process for the construction manager only at the initial phase, improperly avoids requirements of the State Procurement Law intended to foster competition.

In our opinion, State law does not prohibit the use of CMR as a project delivery method, provided (a) the construction manager is selected by one of the means authorized by the Procurement Law, such as competitive sealed bidding or competitive sealed proposals, or by the approved policies and procedures of agencies not subject to the Procurement Law, and (b) the agency complies with any applicable regulations and directives of the Board of Public Works. The merits of CMR with respect to a particular construction project will depend on how well the procurement is structured to provide the winning construction manager with incentives to limit the cost of the project while delivering it in a timely manner. The General Assembly has delegated to the Board of Public Works the authority to set policy under the Procurement Law. It is the role of the Board to decide whether the use of CMR as a project delivery method in a particular case is structured to be advantageous to the State and in accordance with the general purposes of the Procurement Law. The Board may wish to consider adopting regulations or policies to guide agencies in structuring CMR contracts to meet these goals.

I
Background

A. Project Delivery Method v. Source Selection Method

It is important to distinguish between a project delivery method and a source selection method, although there is inevitably some overlap in the two concepts. "Project delivery" denotes the method by which the design, construction, finance, risk management, and other elements of a construction project are combined to carry out the project. 1 Bruner O'Connor, Construction Law § 2:10 (May 2006). "Source selection" denotes the method by which the entities or contractors that carry out the various stages or aspects of the project are selected. The project delivery method may affect how and w hen contractors are selected for different aspects of the project; hence, the two concepts are not entirely distinct. A statute prescribing specific methods of source selection for public contracts might preclude certain project delivery methods. Id.

B. Construction Manager at Risk

"Construction manager at risk" ("CMR") is a project delivery method that is used by private and public entities to carry out construction projects. CMR may be contrasted with a traditional delivery method often referred to as "design-bid-build."1 In the design-bid-build method, the owner engages an architectural and engineering firm to prepare a design of the facility, including construction drawings, specifications, and contract packages. The completed design package is let out for bid to interested general contractors, with selection typically based on price — i.e., the lowest bidder typically wins the contract. Each contractor bases its price on contracts it has negotiated with specialty subcontractors. See 1 Bruner O'Connor, Construction Law § 2:11 (May 2006). The general contractor, who had no role during the design phase, is responsible for constructing the facility in accordance with the design. Once the design phase ends and construction begins, the design firm's role is usually limited to responding to design questions on behalf of the owner.

The perceived advantages of design-bid-build are that the design is completed before construction phase is priced, and that the construction phase can thus be bid simply on the basis of the lowest price.Id. This method is also identified with certain disadvantages: because the contractor does not participate in the design phase, the project loses the benefit of the contractor's perspective on materials, construction feasibility, and control of project costs (potentially resulting in change orders that may add to the price); the process can be slow and cumbersome; the competitive bidding process for the construction phase may encourage bidding to minimum specifications.Id.

In the CMR method, a construction manager acts as both project coordinator during the design phase and also as general contractor, with the same risk in the latter capacity as a general contractor. See, e.g.,Modern Real Estate Transactions: An Overview of Architect andConstruction Contracts, ALI-ABA Continuing Legal Education (2006), SM 002 ALI-ABA 663. Construction may begin before the design phase is completed.

The owner of the project engages the construction manager during the design phase of the project. The construction manager is often chosen, at least in part, on the basis of qualifications as opposed to price alone, and acts as a member of a collaborative design team, providing pre-construction services such as schedule, budget, and construction reviews. The construction manager may assist the owner of the project in determining whether the design can be built within the owner's budget; if not, the direction of the design work can be changed.

At some point during the process, the construction manager and owner negotiate a guaranteed maximum price (GMP) for both the construction management services and the construction itself based on a partially completed design and the construction manager's estimate of the cost of the remaining design and construction items. 2 Bruner O'Connor, Construction Law § 6:59 (May 2006). The owner may also require the construction manager to post a bond for the GMP. See 63 Opinions of theAttorney General 549, 551 (1978). If permitted by the terms of the contract, the owner of the project may also seek competing proposals for a GMP at that point.

The construction manager typically acts as the general contractor during construction, assuming the risk of subcontracting the work and guaranteeing completion of the project at the fixed, negotiated GMP. 2 Bruner O'Connor, Construction Law § 6:59 (May 2006). The construction manager may bid and subcontract portions of the work at any time. In entering into the trade subcontracts, the construction manager assumes the risk that the total cost will exceed the GMP.2 The construction manager is thus liable to the owner for the subcontractors' performance and to the subcontractors for payment. Id. A CMR contract may provide that, if the ultimate cost of the project is below the GMP, both the owner and the construction manager may share the benefit of those cost savings.

The perceived benefits of CMR are the ability to incorporate a contractor's perspective into planning and design decisions and to fast-track early construction components prior to full completion of design.

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(2007), 92 Op. Att'y Gen. 65 (Md. 2007).

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