Construction Management: At Risk

PROJECT MANAGEMENT STRUCTURE: Contractual Relationships

CM At-risk Delivery Method • CM is committed to deliver the project within a Guaranteed

Maximum Price (GMP)

• The construction manager acts as a consultant to the owner in the development and design phases

(Preconstruction Services),

• After preconstruction services, the CM then acts as the equivalent of a general contractor during the construction phase.

• In addition to acting in the owner's interest, the construction manager must manage and control construction costs to not exceed the GMP, which would be a financial hit to the CM company.

The Project Manager (Owner’s Representative)• The Project Manager is the sole conduit for

communications between the contractor and owner.

• All orders issued to the contractor must be done through Project Manager (not from owner)

• This procedure avoids conflict & confusion

Duties of the CMThe Construction Manager oversees items such as:

• documentation requirements for changes, etc.• planning & scheduling• payment administration• change orders & scope of work modifications• dispute & claim handling• punch-list inspections• administrative close-out

Project Manager May Delegate Responsibility To A Resident Field Engineer

• On site on a regular basis.• Works closely with contractor• Inspection & quality control/assurance• Accepts/rejects materials • Oversees field testing• Prepares “as-built” drawings• Involved in change order process• Provides status reports to PM

• **Must keep PM informed on a daily basis of project issues

Responsibility and AuthorityResident Field Engineer

• Eyes and ears of the ACM• Decisions are required on a daily basis• Must have SOME authority to make necessary on-site decisions

Resident Field Engineer may be granted “Limited Authority”

• This allows the Resident Field Engineer to make decisions without the authority to:

• Make contractual changes• Cost or time changes• Scope of project changes• Waive legal rights of owner

Delegation of Authority By The Resident Field Engineer

• The Resident Field Engineer may delegate some authority to an inspector

• Ie. Approval of workmanship or materials

• Inspector does NOT have authority to:• stop project operations• to approve deviations from the plans & specifications• to direct work

**Discussions should be with superintendents & not directly with workers.

How is Authority Delegated Legally?

The Agency Relationship

• This relationship is established when one party designates another party to act on its behalf.

• An “agency relationship” is established between an owner and the Resident Field Engineer.

• Owner is legally bound by the acts of its Resident Field Engineer.

THERE’S A GLITCH!

Apparent Authority –

• If the owner allows another party to act with the APPEARANCE OF AUTHORITY

AND

• If the contractor has reasonable belief they are dealing with a duly authorized agent

• Owner will be held accountable for the acts of the “apparent” agent

THERE IS A DIFFERENCE BETWEEN SUPERVISION & INSPECTION!

** Note: Often, the word “supervision” is connected with field inspection.

• Legally risky term and should be discouraged by all professionals in the construction industry.

• In the case of U.S. Home Corp. vs. George W. Kennedy

Construction Co. [610 F. Supp. 759 (D.C.III.) 1985] a federal court ruled that if a project owner agrees to “oversee” or “supervise” a contractor’s performance of the work, the owner may share responsibility for defective work performed by the contractor.

• Therefore, the owner simply “inspects” the work for compliance with the plans and specifications.