Let's talk about contracting. I'm not a lawyer and I'm not gonna profess to get into the legalese issues. I'm just gonna go with some various methods of contracting, okay? The most basic of all, and these are some of the things you have to take into consideration, you have to think about as a project manager. And by the way, if you're managing a lump sum project, it's totally different than a cost-plus project. It's totally different from a GMP project. It's totally different from a typical CM-Agent or CM At-Risk. And I'm gonna save the last box as being open for now. But let's stick with the lump sum, one-price type of project. You typically find it in the public sector because they look for the competition, they look for the lowest price, doesn't always. I have to be honest, do I think that lump sum bidding is the best way to contract the project? No, no, not always, okay? But in the public sector, it's a must, because they feel that the lowest price is the best way of protecting public assets or public funds, and so forth and so on. You're getting the best value for your dollar. That's the theory behind it. However, if you go back and examine, and I'm not generalizing by any stretch of the imagination. If you go back and examine some of the lump sum projects that took place over the past, let's say, five years, I bet you pennies to dollars that the lump sum, low bid, one-price contract ended up being not the lowest price by the time it was all said and done. So, not a big fan, I realize it's mandatory, but the point what I'm making with this is also a very aggressive method of contracting. Because as a project manager, you have your company's assets at risk, okay? If the project doesn't make money, then you're not a good project manager. I don't agree with that comment, but it's been said to me more than one occasion, okay? I don't think profitability, in some cases, equates to an effective leader, okay? There are some cases that even a good leaders can't solve. But let's not go there at the moment. Let's just say when you're bidding a lump sum project and when you're bidding hard money, hard bid, you have to worry about how profitable will the project be, which it's ultimately will be a reflection in some form or fashion. That type of projects requires, believe it or not, a considerable amount of foreplanning. And one of the mistakes that I've noticed over the past few years is the project managers don't have any involvement, in some cases, during the bidding process. So you have your estimators, maybe a scheduler, usually a project exec or a senior person in your firm, without the project manager being involved in putting together the bid. So let's say you win the bid and you handed off this project and say, okay, you know what, run with it. You've had no input, you have to live with the circumstances of the project. You have live with the, in some cases, the organization that's given to you in the project. So you have to be able to react quickly, learn quickly, get up to date quickly, and start dealing with it in a very aggressive fashion. Because the old saying, time is money, it couldn't be more truer than in a project like this. So I'm gonna move on to a cost-plus. What's a cost-plus? Okay, if you notice two boxes over, I mentioned construction manager no-risk. It's a form of construction management not being a risk. You can also call a construction management as agent. And there's multiple ways of dealing with cost of work plus a fee. In some cases, let's say for example, it's a percentage of the cost, right? Which typically is not very favorable towards the owner, because they've perceived that the construction manager has little incentive to keep the cost down. Cuz the higher the cost, the higher the fee. So another component of that is cost of work plus a fixed fee. Which, of course, then the owners perceive that if there's no incentive to raise the cost of the work, the fact that you're not gonna make any money, that you're gonna be a lot more aggressive in protecting the project and their assets. Don't agree with that, but that is a philosophy that's pretty prevalent out there. Another component of that is a sliding scale where, let's say, if a project is 50 million, you'll get like a 3% fee. If it goes to 100 million, you're getting 1.5% fee, and so forth and so on. Again, what's perceived to be a methodology of controlling costs and the fact controlling the owner's perception that you're actually not pushing project costs up to make more money. GMP. I hear those three initials, GMP, bounced around quite a bit, Guaranteed Maximum Price. The way that's typically run, ran, run, whatever you wanna call it, is that the fact that you start early, which is one of the benefits of construction management, is the fact that it allows you to start portions of the work while the rest of the drawings are being developed, while the rest of the design documents are being developed. Which contrary, is the biggest negative of lump sum, one-price contract. Because at that point, in order for you to put a lump sum price together, you need 100% construction documents. Whereas, in the construction management sector, which of course I'm a big proponent of, a construction management method in that sector, excuse me, is the fact that you can start working early and start working on the project way before you have 100% design documents. So the GMP is usually compiled somewhere between your DD and your CD phase. Once you're about 75 to 80% complete, I would say, and you get to actually create allowances based on your experience as a knowledgeable construction manager, that would carry you through the rest of the project. Now, what does that mean? Typically, the allowances tend to be kind of fat because they're, lets face it, they're CYA allowances. You need to cover yourself. You need protect yourself. You need to protect the project and so forth. You need protect the client, to make sure that there's enough money in the project to see it through to completion. However, once the GMP's established, okay, at that 75 to 80% stage, then it becomes almost like a lump sum contract. Which kind of creates the, I don't wanna say the word adversarial, but not necessarily the friendliest of relationships. Because if you look it close and you really think about it, once you're guaranteeing a price, it's very close to a lump sum, one-price contract. Because at that point, you have established a scope and you have a fixed price to deliver that particular project. That being said, any changes, any delays, anything that would create any kind of cost overruns, Becomes a change order, becomes a delay. And let's face it, change order, it's a dirty word. It's a dirty word in our industry. They have a tendency to, the architect, the designers, I don't wanna say the architect, I don't wanna single any one entity out, the designer's have a tendency to become defensive. The owner thinks you're ripping them off, the contractors become very aggressive in collecting this extra income. And you're stuck in the middle trying to play this game of balances, checks and balances in trying to push the project, negotiate the change orders and trying to justify why in a sort of like a friendly environment, without letting it get adversarial, as to why this extra monies is required. So that's my philosophy in GMP. Now, CM-as-Agent, which I'm a big fan of, which is something that SDV does a lot of, it creates a sense of partnership, okay? And I'm not gonna get into the IPD. And I'm not gonna get into the lean stuff. There are other people a lot more experienced than me that can talk to those aspects of method or contracting. But CM-as-Agent, it is a form of partnership. You have the designers, you have the owner, and you have the construction manager, what I consider to be the three-legged stool. Excuse me, what I consider to be the three-legged stool, okay? Because if any one of those three-legged stools, the designers, the owners and the construction manager, if any one of those three falls flat in their face, then you have a problem, okay? It will result into, the project will suffer. The project will delay. It will cost more. And a whole heart of hurt feelings will be created. And we all know where hurt feelings end to. It means not another opportunity, it means not working together, it means a nasty close out, and so forth and so on. So construction management kind of eliminates a lot of those components because you have the transparency. You have the teamwork. You have the open book policy. You have the joint decision making. And quite frankly, it does not lead to added costs, contrary to what most people think, that only lump sum and GMP would guarantee a price, it would make a contract or a construction manager more aggressive. So without going into deep detail about Construction Management-as-Agent or not risk. Cuz quite frankly if you look at those slides, the at-risk and the guaranteed maximum price, the reason we put them next to each other is because they're so close, they correlate to each other very well. And, of course, the no-risk which goes back to the cost-plus and cost of the work plus a fee, are what I consider to be the most effective way of delivering a large project. Now, it doesn't work if you're gonna do, let's say, a project between 1 and $5 million, okay? At that point, you might as well just go bid it out, get a general contractor and just run with it. So Construction Management-as-Agent, and a lot of the approaches that I'm gonna discuss going forward will focus on quite a bit of my experience as Construction Management-as-Agent. Now an effective way of contracting is to understand your contract, what type of contract you have, and some of the owner's provisions that have to be reviewed to manage your risk, to manage your client's risk, and to manage your firm's risk. When I meant your risk, I meant your project's risk, not your personal risk. So the client's risk, the project's risks, and of course, your firm's risks. And again, I'm not gonna get into legalese but you have to be aware. And a lot of stuff will be pointed out to you in other discussions with people a lot more knowledgeable in the legal field than I certainly am.
