As pressure increases to understand capital cost prior to the first spade touching dirt, more and more healthcare owners are turning to a Parallel Estimating process to improve understanding of exposure and ensure a successful preconstruction phase and subsequent bid and award. When procuring a project with a Construction Manager (CM) under a Guaranteed Maximum Price (GMP) contract (also referred to as a CM at Risk), there are definitive advantages of employing an owner’s representative cost estimator to triangulate estimating in the preconstruction process and produce a parallel estimate. Since a GMP contract transfers project risk to the CM, Parallel Estimating or triangulation is an effective way to validate the GMP developed by the CM and understand just how much risk has been built into the number. While CM at Risk is the delivery method specifically identified, this same process is also effective with other approaches such as Design-Build and Integrated Project Delivery.
On average, GMP projects can be as much as 2-5% higher than a project contract that is procured through a hard bid with a general contractor. While there are numerous reasons for this, aside from eliminating the competitive bid process; it is primarily due to the CM accepting complete responsibility for the project and the bid documents. Thus the CM is at risk and will protect themselves as needed based on exposure, given the quality of the documentation the GMP is based on. CM at Risk is typically used on complex and fast paced projects whereby the conditions and circumstances do not allow for a clear and easy bid process. In many instances, it is worth paying slightly more to have the CM manage and be accountable, especially if they base their GMP on insufficient documentation.
When an owner pursues a GMP procurement strategy, they are advised to engage a cost estimator to provide a secondary touch-point for risk identification and risk elimination. Having these two view points and opinions on scope, rates, quantity and constructability is an excellent way to flush out issues through the preconstruction process. This is often an unquantifiable benefit but the two contrasting views allow for a healthy discourse at the reconciliation meeting, highlighting areas of the project where both parties see risk and potential cost exposure.
Andrew Sumner is the director of cost management for the Americas for CBRE Healthcare.
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