The Washington State Legislature is reviewing legislation to expand the availability of the “general contractor/construction manager” or “GC/CM” method of construction on public construction projects.
GC/CM contracting, sometimes referred to as “construction manager at risk” or “CMAR” (although technical distinctions may be drawn), is currently authorized for certain Washington public projects under RCW Ch. 39.10. Under the GC/CM methodology, the project owner selects a general contractor/construction manager earlier in the design process than is done with traditional sealed low bid projects. The benefit is that the selected GC/CM can help develop the design. For example, the GC/CM can provide feedback regarding constructability, availability and cost of materials, and other aspects of the design to achieve lower costs, increased quality, and/or shorter construction schedules. Read more on GC/CM construction here.
With the GC/CM being selected before design is complete, the project owner makes the selection based on the contractor’s qualifications, including its ability to produce the desired level of quality, speed, and cost. This is in contrast to traditional public works procurement, which requires a public project owner to hire the contractor offering the lowest price to build a project based on an already complete design. In GC/CM contracting, the GC/CM is paid a fee for pre-construction consulting, and the owner and GC/CM negotiate a maximum allowable construction cost later, when the design is 90% complete. Although the owner and GC/CM negotiate the price to build the project, under existing Washington law the GC/CM must nevertheless procure all subcontract work on the project through traditional sealed bidding. The GC/CM may perform up to 30% of the work itself, but only if it is the lowest bidder for that work and certain requirements are met to ensure the bidding process is fair and impartial.
While the existing GC/CM statutes have been well received by both the government and contracting communities, and have produced notable successes – read more here – there has been only limited use of the GC/CM method for projects traditionally labeled as “heavy civil” projects, such as roads, utilities, and other infrastructure improvements. One of the key reasons cited for this is that the business model of many qualified heavy civil contractors requires them to use their own resources (e.g. specialized heavy equipment and skilled workers) on a project to control quality, achieve efficiency, and reduce costs for the owner. Since heavy civil contractors are significantly invested in their equipment and other resources and effectively manage and deliver projects through significant self-performance, and because Washington’s current GC/CM laws tend to limit the GC/CM’s ability to self-perform work (it must bid against third party subcontractors and is capped at 30% of the construction cost), GC/CM contracting has not generally been viewed an effective way for owners to take advantage of the core competencies of heavy civil contractors or for heavy civil contractors to make money.
The legislation currently under consideration, HB2208 and SB6428, addresses a shared desire between public-sector project owners and contractors to increase the incentives and flexibility necessary to take advantage of the potential cost savings, efficiency, increased quality, and opportunity for involving disadvantaged business enterprises afforded by the GC/CM method for heavy civil projects. As proposed, the legislation addresses these concerns as follows:
1. The GC/CM may negotiate with the owner to self-perform up to 50% of the cost of the work to construct the project. As part of the negotiation, the GC/CM must submit a proposed construction management and contracting plan, including a proposed price and scope of work for the negotiated self-perform portion of the project, scope of work, and cost estimates for bid packages, and the GC/CM’s bases used to develop its estimates.
2. The GC/CM must procure at least 50% of the cost of the work through traditional sealed competitive bidding. Of this, the GC/CM may participate in the competitive bidding for up to 20% if specified requirements are met to ensure the procurement is fair and impartial. At least 30% must be performed by third party subcontractors.
3. The governmental project owner has discretion to reduce these percentages, except the 30% that is always reserved for third party subcontractors.
4. As part of its negotiations with the owner, the GC/CM must address its plan to include disadvantaged business entities in the project.
The legislation was developed and approved by the Capital Projects Advisory Review Board (CPARB), a board organized by the legislature in 2005 to review alternative public works contracting procedures and provide guidance to state policymakers on ways to further enhance the quality, efficiency, and accountability of public works contracting methods. CPARB organized a committee of over 30 representatives of various public owners, general contractors, specialty contractors, labor, and minority/disadvantaged business interests to develop the heavy civil expansion of the GC/CM statutes. The committee met numerous times over the course of six months, debating high-level goals and drafting the legislation itself. CPARB further scrutinized and revised the legislation in several sessions before ultimately recommending it to the legislature.
The legislation has received unanimous support in several legislative committee hearings and has passed through the House Capital Budget Committee on its way to the House Rules Committee. Even with a short legislative session, this well-supported bill may yet become effective in 2014.
Information regarding the legislation is available here.
Attorneys from Ahlers & Cressman, PLLC, including CPARB member John P. Ahlers and the author of this article, James R. Lynch, participated in conceptualizing and drafting the legislation at the committee and board levels, and will continue to monitor and report the progress of this potential advancement of Washington public works procurement.