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Kenneth M. Block and Joshua M. Levy Kenneth M. Block and Joshua M. Levy

Construction management agreements, where the construction manager (CM) is a constructor acting as an independent contractor, as opposed to an advisor acting as an agent of the owner, traditionally take the form of guaranteed maximum price (GMP) or cost plus agreements. (While stipulated sum agreements can also be used, they are more akin to traditional general construction contracts, without the transparency of “open book” construction management agreements.) There is, however, a third form of traditional construction management agreement (CMA): the cost plus hybrid, which is the subject of this article.

Forms of CMAs

Under the GMP form, the major risk factors under a CMA—subcontract cost, schedule and the quality of the work—are assumed by the CM. Thus, the CM guarantees the total cost of the project, including its supervisory expenses and subcontract costs (usually based on drawings which are 80-90 percent complete). However, to mitigate this risk, a contingency, usually 3-5 percent of the subcontract and general conditions costs is made available for the CM’s use to offset the cost of, for example, bid errors, defective work, subcontractor defaults, scheduling conflicts, delays, etc. Often, unspent savings in the contingency are shared by the CM and the owner.

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