Early Subcontractor Involvement on GC/CM Projects

One of the benefits of the General Contractor/Construction Manager (GC/CM) process is the early involvement of the contractor in working with the owner and the designer on the project. The GC/CM lends their expertise with cost estimating, constructability reviews, scheduling, etc., and at the same time becomes more familiar with the project over a longer period of time than they would under a Design-Bid-Build scenario.

One of the next steps in extending this early contractor involvement in the project is to involve key subcontractors early on in the project as well. Under Washington State law (RCW 39.10.370), there is a provision that permits the GC/CM to conduct early subcontract bidding, award, and construction of certain subcontract bid packages even before finalization of the contract documents and negotiation of the Maximum Allowable Construction Cost (MACC). If this option is pursued, the owner and GC/CM typically will enter into a GC/CM contract for a portion of the MACC only, and then later amend the contract to include the additional and full scope of work for the project.

There are two benefits to such early involvement by subcontractors. First, it helps to establish what the market pricing is for the work which helps both parties in MACC negotiations and mitigates risk to the GC/CM. Second, some owners see early involvement by subcontractors as a means for having them perform valuable "design-assist" functions. In other words, the subcontractor might complete the design of the project after the design development stage (or maybe later), rather than have the architect/engineer do so. The subcontractor's early involvement can be of great benefit to the project.

Particularly for public owners, there are a number of issues and risks that must be considered in evaluating whether early subcontract bidding and "Design-Assist" services works well in a GC/CM contract, especially under the constraints of Washington State law. While there are clear advantages to such involvement, there are also risks, some of which may also push the boundaries of what is permissible under authorizing laws.

Here are some issues that need to be evaluated and discussed in the context of how Design-Assist would work on a GC/CM project.

1. Clarity and Fairness in Bidding: To the extent that the GC/CM conducts subcontract bidding early before completion of the design, there is the risk that subcontractors will be making different assumptions about the project, thus creating an unequal competitive bidding environment. While the bidding documents may direct that the subcontractor bid a complete project (based on incomplete documents at the design development stage), without the details of construction documents specifying exactly what is intended, there may be widely varying assumptions made by subcontractors in developing their bids. The earlier that subcontract bidding of incomplete construction documents occurs, the more doubt is cast over whether the intent of open competitive bidding of subcontract bid packages is actually being met, and whether subcontractors are actually bidding on the same work.
   
   
2. Cost Increases: Under the traditional GC/CM model, the GC/CM conducts subcontract bidding after negotiation of the MACC, which in Washington State may not occur prior to the construction documents being at least 90% complete. If subcontract bidding is pushed back even earlier, there are additional risks to both the GC/CM and owner as to responsibility for increased costs of subcontract bid packages once the design is completed and construction occurs (whether the design is completed by the designer or the subcontractor under a "design-assist" model). While it is fairly clear that the owner is responsible for additional costs to the extent that the owner adds work to the project, there are other cost increases that are less clear as to whether the subcontractor, GC/CM, or owner will bear the cost for price increases over what the subcontractor bid. Owners and GC/CMs who pursue early subcontract bidding must have a very clear set of expectations and contractual language about actual costs versus what the subcontractor bid.
   
   
3. Liability and Risk Allocation: To the extent that part of early subcontract bidding by the GC/CM includes the subcontractor performing "Design-Assist" responsibilities, there must be clear provisions about liability and who bears the risk of design errors and unanticipated design issues. What is the liability of the original designer if a subcontractor is completing their design? Is the subcontractor responsible? How do you determine which party is responsible in the event of a problem? What is the liability of any designer that the subcontractor may hire to complete the design? Who pays for design errors, and who bears the risk for increased construction costs due to lack of coordination between the various designers?
   
   
4. Roles and Responsibilities: This item is closely tied in with Liability and Risk Allocation issues above. Clear roles and responsibilities at each step in the process must be assigned for the following parties: Designer, Subconsultant to the Designer, GC/CM, Subcontractor, Designer for the Subcontractor, Owner.
   
   
5. Cost Procurement of Design Services: If early subcontract bidding includes procurement of "Design-Assist" services by the subcontractor, is this violating Qualifications Based Selection requirements that the federal government and many states have? In Washington State, chapter 39.80 RCW requires that architectural, engineering, landscape architectural, and land surveying services be procured based on qualifications and that price may not be a factor in the selection process. If the "Design-Assist" services, along with the construction work, is actually bid by the GC/CM, does this violate Qualifications Based Selection requirements?
   
   
6. Reduction of A/E Design Fees: Under Design-Assist, if the Architect/Engineer (A/E) will no long be preparing Construction Documents, that should result in a decrease in the fees that are paid to them.
   
   
7. Failure to Negotiate the MACC: Under any early subcontract bidding scenario in which work begins prior to negotiation of the final MACC, whether for the purpose of assisting the parties in negotiating the MACC and/or to provide "Design-Assist" services, the risk is present that the owner and GC/CM may not be able to successfully negotiate the MACC, even though some work may have already been performed. It is important to carefully evaluate on a project-by-project basis the type of work to be done early and evaluate the risk and options in the event a MACC is not successfully negotiated between the owner and GC/CM.

Without clear legislative direction about "Design-Assist" and subcontract bidding at a very early stage of completion of the construction documents, both owners and GC/CMs should be very cautious, and if they do decide to utilize these tools, they should have very clear expectations and contract language describing how these issues will be handled.

While Design-Assist may occur regularly in the private sector, public agencies need to make sure that the concept fits within legislatively approved methods of contracting.