Options for Pricing Preconstruction Services on GC/CM Projects

One of the key advantages of using the General Contractor/Construction Manager (GC/CM) method of project delivery on public works projects is having the contractor on board early in the project - usually no later than the end of the schematic design phase. The contractor, or GC/CM, then works with the public agency throughout the design and construction documents providing various Preconstruction Services such as cost estimating services, constructability reviews, and scheduling assistance.

Different states have different laws governing this type of contracting procedure. Under Washington State law, it is interesting that Preconstruction Services are hardly mentioned at all, thus leaving public agencies with different options to pursue in terms of how to price Preconstruction Services.

In RCW 39.10.210 (9), the maximum allowable construction cost (MACC) is defined as "the maximum cost of the work to construct the project including a percentage for risk contingency, negotiated support services, and approved change orders." Note that Preconstruction Services are not part of the MACC. Neither are they part of the Total Contract Cost that includes the cost of "the detailed specified general conditions work, the negotiated maximum allowable construction cost, and the percent fee on the negotiated maximum allowable construction cost."

The only other reference I am aware of in chapter 39.10 RCW about Preconstruction Services is a reference to the requirement in RCW 39.10.360 that the Request for Proposals include a copy of any Preconstruction Services Contract.

So how should public agencies obtain prices for Preconstruction Services? There are two basic methods used:

1. Bidding Preconstruction Services
2. Negotiating Preconstruction Services

In order to bid the cost of the Preconstruction Services, it is important to have a very clearly defined and comprehensive scope of work for Preconstruction Services. Without such a clear scope, contractors will be bidding based on differing assumptions, and the owner may be faced with change orders for items not clearly in the scope. It seems to me that one of the big benefits of having a GC/CM is the services they provide to the owner during preconstruction. Subjecting the pricing for this to bidding where contractors will be tempted to submit a low bid just to be selected as the GC/CM may not get the public agency the full range of Preconstruction Services needed to make for a successful project.

While I am normally a strong proponent of competitive bidding, in this instance, it seems to me more beneficial to negotiate a not-to-exceed amount for Preconstruction Services based on a mutually agreed upon work plan proposed by the contractor and reviewed by the public agency. The GC/CM is selected by the public agency to be a partner in constructing the project, and having the parties come to acceptable terms at the beginning on Preconstruction Services seems like a great way to start the partnership. The owner has the ability to ensure that the work plan proposed is sufficient to meet its needs and that the pricing and proposed hours and rates from the contractor are appropriate. Payment should be made to the contractor based on documented time and expense records. The contractor should be at risk for going over the agreed upon amount except in instances where the owner has added Preconstruction Services desired that were not part of the negotiated work plan. The work plan should be included and attached to the contract for Preconstruction Services.

Bottom Line: Negotiating the cost of the Preconstruction Services will probably be most beneficial to the public agency. But be sure to have a clearly agreed upon scope of work, and evaluate critically the contractor's proposed tasks, hours, and hourly rates.