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Your Construction Manager and Risk Management

As an owner embarking on a facilities building program, risk and its tolerance must be an essential matter of discussion. Construction is a complex process and the management of risk must start from the moment the owner decides to embark on a new facilities capital improvement project.

When selecting a construction manager (CM), the owner must inquire the CM firms on what is their risk management plan. Planning for risk or how to control it is a necessary trait that your CM should have. Your CM will play a vital role in coordinating the staff, offering technical and business advice, and providing CM services such as scheduling and cost estimating and being able to manage these items lowers your overall risk.

The Construction Management Association of America (CMAA) notes that in the project’s best interest, risk should be assigned to the party most capable of managing the risk. This is true, and the CM should have a plan for each step of the design and construction efforts from developing scope, to the selection of the design team, the engineers, other consultants, and to risk management. The owner should look at their own staff’s capabilities and determine how to leverage the CM services in implementing the construction process.

Risk Management should be a part of the owner’s philosophy and have a program that educates all the personnel involved from the very start of the process. As each new consultant or team member is brought on board, the risk management plan must be introduced andd reviewed for compliance.

Scope Development

The owner and CM should guide the design team in the scope of work and ensure the scope is clearly defined. The design team will examine and develop a plan and will go through the necessary steps from feasibility studies to conceptual plan, to design and then generate construction documents.

As the design progresses, the CM should provide scheduling and cost estimates of the work. The CM should also provide constructability reviews and ensure that quality is included into the scope.

The CM should also assist in developing the technical specifications and ensure that the owner’s requirements are included. The owner may have a certain type of HVAC system or special lighting that is required. The owner’s staff and facilities personnel and end user of the project should also be involved since design professionals may have limited experience in the facility’s use and will learn much from having team meetings. This is especially true if the new facility is an addition to an existing facility.

There are software programs such as Navisworks and BIM that allow for the design team to share the progress of the work at various stages of design that should be used so that an effective set of construction documents can be generated. The design must not be rushed, because doing so, could lead to more change orders during construction, potentially impacting time, cost, and quality.

Contract Type

The owner and the CM will have to determine the type of contract or project delivery method, for the construction of the facility. It could be a Fixed Price, Guaranteed Maximum Price, Design Build, Design Bid Build or any of the variety that is out there. The Construction Industry Institute confirms that claims and disputes are likely to increase significantly when the owner has decided to employ a new project delivery method.

If the owner’s staff is unaccustomed to a new project delivery method, then education and training by an experienced and knowledgeable CM is essential to the project’s success. The contract should allow for adequate competition and the owner and CM should have language in bid documents on the selection of the general contractor (GC). This can be done by requiring a certain number of years of experience, safety, and resources available to the GC, to determine best value, and not necessarily the lowest price.

If the owner is unsure on the contract type the CM should guide the owner on the appropriate type most beneficial to their project, team composition, and building program. The owner should understand that certain delivery types provide more control to the contractor and thus the risk is transferred away from the owner to the contractor. The more control the owner desires, means more than ever, reliance on a CM that can manage the owner’s increased risk with a solid risk management plan to protect the owner.

Contract Language

Effective contract language must also be written into the bid documents that address disputes and claims. The contract must include language that protects the owner and allows for changes to the work arising from owner requests or errors and omissions from the design team. The selected CM should show ample experience in negotiating cost and scope changes, effectively, fairly, and with the owner’s best interest in mind.

There must be a change management process and there should be a cost contingency, or change order reserve, from which to draw from in case of unforeseen changes. Change is inevitable on construction projects and is often due to concealed conditions, unknown circumstances, factors beyond any one party’s control, and there should be contractual language and project documentation that protects the owner from all of them.

The contract should also have language that addresses schedule management and cost controls. Having the CM involved early in the design and development process, will help establish a realistic construction schedule and budget. Once construction starts, the builder will have to abide by the contract language and project documentation.

The CM should include key performance indicators established in their Project Controls Plan that will alert the team when the schedule starts to deviate and when costs start escalating. Schedule and cost are the two of the main components that must be managed properly to ensure a successful project completed on time, within budget, and to the design/quality standards specified.

Plan Implementation

The best way to manage owner risk is to have a Risk Management Plan established early in the program and development phase that analyses all potential risk factors and provide pragmatic solutions when risks are encountered.

The plan should have input from the experienced CM and the owner’s team and the process should be embraced as an integral part of the building process. It should also have processes that will address the project as it moves through the design, the bid, and the construction phases.

It should not be a onetime effort, but a continuous operational cycle and improvement process from the beginning of the design period and all the way through the end of construction.

This article is courtesy of Raymond Esparza, President of Sylmar Construction Management at, a small, Southern California, minority business enterprise which was established to provide construction management services to clients that are looking for expertise in their Facilities and Capital Programs.

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