CM at risk versus design bid build: what changes for the owner

Design bid build is simple to explain to a board. The architect finishes the drawings, contractors bid, the lowest responsible bidder wins, and the owner has a lump sum. Cost risk sits with the contractor from the day the contract is signed. The owner's job is to pay for completed work and manage change orders.

CM at risk replaces that single moment of price certainty with something more gradual. The contractor joins early, helps price the design as it develops, and eventually commits to a guaranteed maximum price. The owner gains a partner during design and loses the clean line that a hard bid draws. Oversight has to change to match.

Where the price comes from

Under design bid build the price is the product of competition. Several contractors read the same complete documents and the market sets the number. The owner never sees inside the bid and does not need to. If a bid is too low, that is the contractor's problem.

Under CM at risk the price is the product of an estimate. The construction manager builds the GMP from subcontractor pricing where it exists, from its own estimates where it does not, and adds fee, general conditions and contingency. Competition happens later, at buyout, package by package. The owner sees inside the number because the owner has to. The GMP is only as good as the assumptions it was built on, and those assumptions are written into the amendment as qualifications, allowances and contingency.

Where the risk sits, and when it moves

A hard bid transfers cost risk on one day. A GMP transfers it in stages. Before the GMP is set, the owner carries all of it. At the GMP, the contractor takes on the risk of cost above the ceiling, but keeps a contingency inside the ceiling to absorb its own estimating misses. After buyout, the picture sharpens further because estimates become subcontracts.

Consider a fictional $60 million middle school. At GMP, 55 percent of the cost of work is bought. The remaining 45 percent is the construction manager's estimate. If the mechanical package comes in $400,000 over its GMP line, the contractor draws its contingency. If three packages do that, the contingency is gone and the contractor starts looking hard at every change order to see whether it can be attributed to the owner or the design. The owner who is tracking buyout package by package sees this coming. The owner who is not does not.

What the owner sees, and what the owner must keep

Design bid build produces a short paper trail on the owner's side: the contract sum, the schedule of values, the pay applications and the change orders. CM at risk produces all of that plus a contingency log, an allowance reconciliation, a buyout log and a shared savings calculation at the end. Each of those is a record the owner should keep independently rather than accept from the contractor as a finished summary.

This is not a matter of distrust. The construction manager's records are organized around the construction manager's needs. The owner's questions are different. Which fund paid for that change, and should it have? How much of the contingency was drawn for coordination issues that the drawings should have caught? What will the savings pool look like if the two open allowances land badly? Those are owner questions, and they need an owner ledger.

The open book clause

Under most AIA A133 based agreements the owner has the right to see the cost records behind the GMP. That right is only useful if the owner knows what the numbers should be. A second ledger turns audit rights from a theoretical power into a routine check.

Which method suits which owner

Design bid build suits owners with complete documents, simple scope and no appetite for involvement during construction. CM at risk suits owners with tight schedules, complex or phased work, and the capacity to watch the inside of the contract. That capacity is the part many owners underestimate. A public owner running a bond program on CM at risk needs someone, in house or an owner's representative, keeping the owner's version of the numbers every month.

Costwitness exists for that second case. It keeps the owner's ledger on the GMP, applies the contract's rules to contingency, allowances, buyout and change orders, and raises flags when something drifts. The decisions about cause and response stay with the owner.

In the product

GMP baseline, Buyout tracker, Contingency ledger. Free tool: Pre-GMP Readiness Score, Cost Influence Curve.

Keep reading

Earlier: What sits inside a guaranteed maximum price: cost of work, fee, contingency, allowances. Later: What a GMP contract is, read from the owner's side. All articles on gmp contracts.