Owners typically select design-build and construction manager at risk (CMAR) contractors based on qualifications, experience and project-specific approach. A contractor’s ability to deliver hinges on demonstrated capabilities and available resources. The value of these delivery methods is rooted in early-phase communication and collaboration. During design, contractors provide critical input through early cost estimates, aligning with project budgets, while constructability feedback optimizes design for cost and schedule efficiency. Contractors are chosen based on their track record successfully delivering these early-phase services. While this phase sets the foundation for project success, execution remains paramount. Though owners often prioritize qualifications and construction quality in contractor selection, the focus usually shifts to cost transparency when developing the guaranteed maximum price (GMP). This transition can introduce challenges that must be strategically managed.
Most of the time, contracts include requirements for bidding on any work that's to be self-performed — offering assurance that the amount in the lowest, responsive bid will be used for the work. Typically mandated by legislation or procurement regulations, this process mirrors the competitive bidding approach used by public entities. While it promotes transparency and structure, it can discourage contractor participation and limit a design-builder or CMAR contractor’s ability to assemble the most qualified team for project delivery.
Challenges of Public Procurement Requirements
One of the primary challenges with a GMP is that it is often established before the design is fully complete. While contractors may use internal estimates as a baseline, the GMP typically incorporates some level of competitive market pricing. This pricing serves a dual purpose — providing owners with confidence that the GMP is not artificially inflated while giving contractors assurance that the project can be delivered within the agreed cost. The complexity arises in how this market pricing is obtained. Bidding on incomplete drawings leads to inherent risks — either an underestimated cost that lacks necessary details or an inflated bid to account for design evolution. To mitigate this, contractors typically conduct scope reviews with bidders to confirm alignment. However, strict procurement processes, originally designed for traditional delivery methods, can limit this flexibility, making it difficult to validate scope coverage before finalizing pricing.
Strategic Considerations for Self-Performed Work
In the water sector, contractors typically self-perform critical project elements, including water-bearing concrete, process equipment installation and mechanical piping. This approach enhances control over the critical path and key cost components. Most design-build and CMAR contractors in this sector have extensive experience in these disciplines, making them valuable partners for clients seeking specialized capabilities. Many contractors also continue to deliver projects through traditional methods, leveraging their construction background to provide consulting services during phase one.
A recurring challenge in self-performed work is maintaining competitive pricing against market rates. Since contractors develop scope packages and integrate directly into the design process, they often have a deeper understanding of project details than external bidders. This knowledge gap can result in significant pricing discrepancies. Additionally, while general conditions, overhead and profit for self-performed work are defined, general contractors can often realize efficiencies unavailable to outside bidders. Their ability to access and manage project contingencies further influences pricing strategies. These dynamics can discourage market competition, making it a critical factor for project owners to consider when structuring procurement strategies.
Managing Risks in GMP Development and Contractor Selection
The challenges previously outlined can create significant obstacles for a project team. In a limited market, both the owner and the contracting community may lose confidence in the procurement process, raising concerns about whether the GMP reflects true market value and whether the contractor made a rigorous effort to engage the market. From the contractor’s perspective, they are accountable for overall project delivery, including subcontractor performance and its impact on outcomes. Selecting the lowest bidder based on incomplete drawings introduces risk rather than mitigating it. Similarly, engaging a design-builder or CMAR based on qualifications but then restricting its ability to manage construction undermines project success. The objective remains clear: selecting a qualified partner who can deliver value to the owner.
Optimizing Procurement Strategies for Collaborative Delivery
When developing requests for proposal (RFP) and procurement guidance, it is essential to define the rationale behind selecting a collaborative delivery approach. If a project is highly complex and requires a contractor capable of planning and executing critical work components, the selection process must confirm that the chosen contractor can self-perform those elements. The goal is to establish a structured method for the owner to validate that the GMP reflects fair and reasonable costs for the contractor’s self-performed work.
Introducing competitive bids for these critical work elements later in the project can create unintended consequences. If pricing is solicited solely to validate the CMAR or design-builder’s self-perform costs, it misrepresents the intent to the broader contracting community. If the objective is purely to reduce costs, the risk emerges that another contractor — not the CMAR or design-builder — executes the work, undermining the original justification for selecting collaborative delivery.
There is no universal solution to these challenges. While collaborative delivery methods have advanced significantly over the past two decades, further refinement is needed to optimize processes and maximize value. As the industry continues to clarify legislation and procurement standards, owners and practitioners can enhance project success by developing RFP and contract requirements that fully leverage the intended benefits of collaborative delivery.
