In construction projects, there are several contracting approaches available, each suited to different project needs and client types. These approaches include Engineering, Procurement, Construction Management (EPCM), Design-Bid-Build (DBB), Design-Build (DB), Design, Build, Finance, and Maintain (DBFM), Construction Manager at Risk (CMAR), and Construction Manager for Fee (CMFF).
However, in this post, we will focus specifically on two of these methods: Construction Manager at Risk (CMAR) and Construction Manager for Fee (CMFF), exploring their unique roles, when they are best utilized, and key factors for their successful implementation in projects. Both involve a construction management approach but differ significantly in terms of risk distribution, financial obligations, and project involvement.
Construction Manager at Risk (CMAR)
Risk and Responsibility: In CMAR, the construction manager commits to delivering the project within a Guaranteed Maximum Price (GMP). This method places significant risk on the construction manager as they are responsible for cost overruns unless the project scope changes. The CMAR acts as a consultant during the design phase and as a contractor during the construction phase, providing a unique blend of expertise and accountability throughout the project lifecycle.
Financial Implications: The CMAR arrangement incentivizes the construction manager to keep the project within budget and on schedule. If the project exceeds the GMP due to inefficiencies, the CMAR absorbs the additional costs.
Project Role: The CMAR provides pre-construction services, input on pricing and scheduling, and constructability reviews, transitioning to full project oversight during the construction phase, thus acting as both advisor and contractor.
Construction Manager for Fee (CMFF)
Risk and Responsibility: Unlike CMAR, a CMFF has no financial risk for construction costs exceeding the budget. The CMFF is compensated with a fixed fee or a fee based on the project cost, independent of the project's final cost, which remains the client's responsibility.
Financial Implications: Since the CMFF's fee is not linked to the project cost, there is less financial incentive for the CMFF to control costs compared to CMAR. The client retains the risk of cost overruns, which can impact the overall project budget.
Project Role: The CMFF acts strictly as an advisor and manager without the contractual obligation to deliver the project within a fixed cost or schedule. Their role is to provide expert management and advisory services throughout the project, focusing on efficiency and effectiveness without the direct financial stake in the project completion metrics.
When to Use CMAR or CMFF
CMAR is best utilized when:
- The project scope is clearly defined.
- The owner desires a single point of responsibility for both design and construction.
- There is a need to minimize the risk of cost overruns on the owner’s side.
- The project timeline is tight, requiring fast-track construction.
CMFF is more suitable when:
- The project involves high uncertainty or changing scopes.
- The owner is capable of handling financial risks and prefers to maintain closer control over the construction process.
- The project does not have strict time constraints.
- Flexibility and expert advisory are prioritized over cost certainty.
Key Differences in a Nutshell:
| Aspect | CMAR | CMFF |
|---|---|---|
| Risk | Assumes risk for cost overruns within GMP. | Does not assume risk for cost overruns; client bears financial risks. |
| Payment Structure | Compensated based on GMP; potential penalties or bonuses for performance. | Paid a fee based on project cost or a fixed fee, regardless of overruns. |
| Project Involvement | Functions as both consultant and contractor. | Solely acts as a consultant and advisor without construction risk. |
Conclusion
Choosing between CMAR and CMFF depends largely on the client’s risk tolerance, financial strategy, and desired level of involvement from the construction manager. CMAR is suitable for clients who prefer a single point of responsibility with a focus on budget and schedule control. In contrast, CMFF is ideal for clients who are comfortable managing financial risks and value having an expert advisor without direct cost liabilities.