Changes in the Way You Are Paid Across Project Delivery Methods

 

Changes in the Way You Are Paid Across Project Delivery Methods

When it comes to project delivery, payment structures vary significantly based on the method employed. Let’s break down how payments are typically handled under Design-Bid-Build, Design-Build, and Construction Manager at Risk (CMAR) methods, as well as how risk allocation differs among them.

Payment Structures

1. Design-Bid-Build (DBB) & Design-Build (DB)
   Payments in these methods are usually straightforward and based on a fixed price. They can follow one of two approaches:

   • Lump Sum: A single fixed amount for the entire project.
   • Unit Price: Payment is based on individual elements of the project, with prices agreed upon per unit.

2. Construction Manager at Risk (CMAR)
   In CMAR, payments become more nuanced due to the inclusion of preconstruction services. These payments include:

• Fixed Price Estimate: Covers time and costs associated with preconstruction services.
• Cost-Plus Proposal: Requires financial transparency, where the contractor is reimbursed for actual costs plus an agreed-upon fee.
• Guaranteed Maximum Price (GMP): Includes allowances for work not yet fully designed. These allowances must be accurately documented and justified.

1. Additional cost considerations for CMAR include:

• Direct Costs: Expenses directly associated with construction work, such as labor, materials, and equipment.
• General Condition Costs: Overhead costs related to overall project management and operations.
• Construction Fee: The contractor’s fee for their services.

Allocation of Risk

Risk allocation also varies between delivery methods, impacting how contractors and owners share responsibility for unforeseen issues.

1. Design-Bid-Build (DBB)

   • Risk on the Owner: Contractors assume that construction plans are accurate and buildable. If there are errors in the plans, contractors can request additional funds for changes, placing the owner at risk for extra costs.

2. Design-Build (DB)

   • Risk on the Design-Build Team: The design-build team is responsible for managing any plan errors internally. This minimizes disruptions to the project and protects the owner from additional costs.

3. Construction Manager at Risk (CMAR)

   • Shared Risk: The contractor is hired for preconstruction services and is expected to provide accurate cost and schedule estimates. Failure to do so can result in the loss of the construction contract.
   • The contractor must identify and correct errors during the design phase to minimize the likelihood of change orders.

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General Risks Across All Methods

Regardless of the delivery method, some risks remain constant and must be managed effectively:

• Job Site Safety: Ensuring safe working conditions for all personnel.
• Theft and Property Damage: Protecting materials and equipment from theft or destruction.
• Adherence to Plans and Specifications: Maintaining compliance with the agreed-upon design and scope of work.

Pooja Mattapalli