Best practices for an Owner-developer seeking to reduce risk to its Construction Manager under a Guaranteed Maximum Price (“GMP”) contract suggest adoption of these action items:
1. Contract Provided to CM in Advance to Price Risk
Too much time and leverage is lost when contract negotiations begin after a Construction Manager (“CM”) is selected. A better process is to provide the CM in advance with the proposed contract and instruct the CM to price the risk in those contract documents.
2. Lock in GMP on Comprehensive Scope of Work ASAP. No Exclusions/Exceptions.
Too often, the design is not finalized as the GMP is set and the GMP Amendment does not include a comprehensive listing of all design documents that the Owner is expecting be built for the GMP. Often a CM sneaks in exclusions that make the GMP anything but.
3. Owner’s Representative to Prepare Detailed Minutes of Meetings
Letting the CM draft meeting minutes is like “letting the wolf guard the hen house.” An Owner’s representative should record and circulate detailed meeting minutes to all interested parties.
4. Track NOFs and Lien Waivers
The Owner’s team needs to proactively organize any Notice of Furnishing (“NOF”) and lien waivers to ensure that subs and suppliers are waiving their lien rights as payment is being made.
5. Secure Lender Commitment to Timely Payment
A failure to make timely payment at all tiers is the root of 90% of all project problems. The Owner team and its lender are well advised to streamline a payment process designed to avoid payment delays.
6. Prompt Owner Decision-Making. Face-to-Face Presence by Key Decision Makers Valued.
Too much is lost in posturing in e-mails and other routine project correspondence. There is no substitute for the personal relationships and exchange of information in frank, face-to-face meetings by key decision makers at the jobsite.
7. Recovery Plan for Catching up When Schedule Slips.
Regular schedule updates are key, and when the schedule slips, the CM should be required to submit an appropriate recovery plan designed to make up the lost time.
8. Prompt Notice of Claims or Waived.
The CM should timely advise of claims for additional time or money. Failure to do so should result in a waiver of such claims. Nobody wants surprises adversely affecting the project or budget late in the job.
9. Lien Waiver by CM.
A lien waiver from the CM in the contract is enforceable in Ohio and could eliminate a big problem (or lien release bond) later in the event of a dispute. This waiver might also be passed down the to the lower-tier subs and suppliers.
10. Financial Disincentive for Late Completion.
While there is a mutual waiver of consequential damages in the AIA documents, the Owner needs an exception for losses like rent caused by defective work. In addition, liquidated damages need to be imposed for failure to complete the work timely. Sometimes an early completion bonus/incentive will encourage the CM to expend resources to keep the schedule on track.
If well-informed Owners employ these strategies, misunderstandings can be minimized and risk reduced.