Wednesday, June 1, 2011

Should an Owner Negotiate or Bid Preconstruction Services on a GC/CM Project?

One of the major benefits of public agencies using the General Contractor/Construction Manager (GC/CM) method of public works project delivery is obtaining preconstruction services from the contractor early in the design process, including cost estimating, scheduling, value engineering, constructability reviews, etc.  

The GC/CM is typically selected early in the design process, preferably no later than the end of the schematic design phase in order to provide sufficient time for the GC/CM to interact with the owner and designer in shaping the project.  The GC/CM is selected partially based on qualifications and partially based on their price for their fee (overhead and profit) and specified general conditions costs.

In Washington State, the use of GC/CM is governed by state law in RCW 39.10.  It is surprising that very little is actually mentioned in state law about preconstruction services or how they are obtained.  Thus, public agencies have flexibility and options on whether to negotiate the cost of the preconstruction services or bid them as part of the process of selecting the GC/CM.

From my perspective, it is much more beneficial for an owner to negotiate the cost of the preconstruction services than to bid them. Here are some issues to consider in evaluating whether to negotiate or bid these services:
  • Scope of Work:  Bidding preconstruction services requires the owner to have a very detailed and precise scope of work, so that all contractors are bidding on the same body of work. This is often difficult for the owner to develop at such an early stage of the project, without significant input and advice from the contractor.
  • Partnership:  Because GC/CM is a partnership and collaborative model, negotiating the preconstruction costs gets the contractor and owner working together immediately.
  • Avoiding the Low Bid:  Bidding preconstruction services invites contractors to submit a low price in hopes of winning the project.  However, because preconstruction services are one of the biggest benefits of GC/CM contracting, bidding these services goes back to one of the criticisms of the low bid process: contractors bidding work low in order to be awarded the project, but not having included enough money in the bid to perform the project without disputes and contention.  In bidding preconstruction services, the owner may not, in fact, get the full range of preconstruction services without a fight with the contractor.
Simply put, negotiating preconstruction services gets the owner and contractor off on the right foot in creating a collaborative partnership for the project, rather than an adversarial one shaped by a low bid that has too little money in it to provide the full range of required preconstruction services.

GC/CM is known by different terms such as Construction Manager at Risk (CM at Risk) or Construction Manager/General Contractor (CM/GC).
Mike Purdy's Public Contracting Blog 
© 2011 by Michael E. Purdy Associates, LLC

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