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WEBINAR SERIES2017 Construction Law

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Common CM-At-Risk Agreements

Agreement General Conditions

Guaranteed Maximum Price (“GMP”) Amendment

A133-2009 A201-2007 Exhibit A

ConsensusDocs 500 Amendment A

CM at Risk Agreement

General Conditions GMP Amendment

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Key Terms For CM-at-Risk Agreements1. Consequential Damages Waiver and Liquidated Damages2. Proof of Owner Financing3. Contract Sum = Cost of Work + Fee4. Reliable Budgets5. GMP Amendment6. Contingency7. Disputes8. CM Personnel9. Audit10. Assignment

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Consequential Damages Waiver and Liquidated Damages

Tug of War

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Consequential Damages WaiverA201 – General Conditions

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If The Project Finishes Late

Owner Will Be Left High and Dry

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Consequential Damages WaiverA201 – General Conditions

Opens the Door To A Liquidated Damages Provision

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For An Owner There is Hope! – Sort of

1. Liquidated Damages a. If the Contractor does not have its Work on the Project Substantially Complete within the time

period described in the GMP Amendment, the Contractor shall pay the Owner (or the Owner may set off from sums coming due to the Contractor) Liquidated Damages in the per diem amount of $10,000.00 . If Contractor still has not achieved Substantial Completion after thirty (30) days of the time period identified in §4.3 for Substantial Completion, the Liquidated Damages assessed against the Contractor shall be increased to a total per diem amount of $15,000 per day.

b. The Contractor acknowledges that the Liquidated Damages represent a reasonable estimate of the actual damages for loss of or interference with the intended use of the Project that the Owner would incur if the Contractor’s Work is not Substantially Complete by its Date for Substantial Completion of or Finally Complete by the required date for Final Completion.

An LD Provision Provides An Avenue For Recovering Delay Damages

But ……

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But This Waiver Could Still Preclude Loss of Income For Defect Claims

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There Are A Few Options

Remove Consequential Waiver Entirely

ProsNo Limit On Recovery of Damages By Owner

Cons• Significant Exposure for CM• No Set Amount of Delay

Damages –(ie no Liquidated Amount)

Option 1

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1. Liquidated Damages a. If the Contractor does not have its Work on the Project Substantially Complete within the time

period described in the GMP Amendment, the Contractor shall pay the Owner (or the Owner may set off from sums coming due to the Contractor) Liquidated Damages in the per diem amount of $10,000.00 . If Contractor still has not achieved Substantial Completion after thirty (30) days of the time period identified in §4.3 for Substantial Completion, the Liquidated Damages assessed against the Contractor shall be increased to a total per diem amount of $15,000 per day.

b. The Contractor acknowledges that the Liquidated Damages represent a reasonable estimate of the actual damages for loss of or interference with the intended use of the Project that the Owner would incur if the Contractor’s Work is not Substantially Complete by its Date for Substantial Completion of or Finally Complete by the required date for Final Completion.

Insert LD Provision For Recovering Delay Damages

ProsOwner Still Covered For Delay and Consequential Damages

Cons• Still Significant Exposure

Because No Limit On Consequential Damages

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Option 3

Insert LD Provision For Recovering Delay Damages

Insert Exclusion for Consequential Damages Due To Defects

Mutual Waiver of Consequential Damages Does Not Apply To:

Consequential Damages, including loss of use, caused by the repair of construction defects (including latent defects) that are incurred after the Owner has made Final Payment to Construction Manager

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Owner’s Obligation To Provide Evidence of Financing

Owner’s failure to comply with this paragraph shall allow CM to stop work upon seven (7) days written notice.

Add Some Bite for CM

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Contract Sum = Cost of Work + Fee

ARTICLE 5 COMPENSATION FOR CONSTRUCTION PHASE SERVICES§ 5.1 For the Construction Manager’s performance of the Work as described in Section 2.3, the Owner shall pay the Construction Manager the Contract Sum in current funds. The Contract Sum is the Cost of the Work as defined in Section 6.1.1 plus the Construction Manager’s Fee.

Owner Writes The Check For The Contract Sum

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GMP Acts As A Cap

Estimated Cost of the Work

Fee

GMP

Contract Sum

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CM Pays For Costs Above GMP

Actual Cost of the Work

Fee

GMP

CM Pays For Anything Above GMP

Contract Sum

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Savings If Contract Sum Comes In Under GMP

Actual Cost of the Work

Fee

GMP

Savings

Contract Sum

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Look At The Entire PictureDon’t Just Focus on CM’s Fee

Estimated Cost of the

Work

Fee

Subcontractor Costs

CGL Insurance Rates

Bond and Subcontractor Default Rates

CM’s Personnel and General Conditions

Contingency

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Reliable Budgets

Owner Is Relying On CM To Make REASONABLE JUDGMENTS based on information available as it develops its Budgets

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Avoid This When It Comes Time To Open Up The GMP Proposal

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Reliable Budget Language To AddBy issuing estimates at the stages identified in this Agreement, Construction Manager represents it has taken into account the level of completeness of the Contract Documents and used the degree of skill, care, expertise and efforts reasonably exercised by construction managers of similar size, experience and reputation as Construction Manager to make:

(i) appropriate judgments and inferences in connection with the requirements of such Contract Documents; and

(ii) appropriate inquiries to the Owner and Architect to clarify the Contract Documents as necessary to calculate the estimate.

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More Reliable Budget LanguageConstruction Manager acknowledges that the Owner is relying on Construction Manager’s estimates and professional judgment as the Owner makes decisions relating to the Project’s design and size.

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GMP Amendment Language

§ 2.2.12 Guaranteed Maximum Price Amendment shall be in the form as issued by AIA with the following additions:

By entering into this GMP, the Construction Manager agrees that the documents and level of design available to compile the GMP are sufficient to provide the completion of the Work, and includes all Work, whether or not shown, that may be reasonably inferred to be required for completion.

Construction Manager acknowledges that the GMP includes costs for future design development consistent to meet the standards further defined xxxxx.

Agree Up Front To The Language of the GMP Amendment

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More GMP Amendment Language

By agreeing to the GMP, Construction Manager has taken into account the levelof completeness of the Contract Documents and used the degree of skill, care,expertise and efforts reasonably exercised by construction managers of similarsize, experience and reputation as Construction Manager to make: (i)appropriate judgments and inferences in connection with the requirements ofsuch Contract Documents and (ii) appropriate inquiries to the Owner andArchitect to clarify the Contract Documents as necessary to calculate andestablish the Stipulated Sum.

By agreeing to this GMP Amendment, Owner is relying on ConstructionManager’s professional judgment and superior knowledge obtainedthrough its extensive involvement in the planning of the Project to constructthe Project within the parameters described in the Contract Documents withoutexceeding the Stipulated Sum unless otherwise provided for in this Agreement.

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Owner Not Obligated To Pay Above GMP Unless There Has Been A Scope Change

The Construction Manager shall not make, and Owner shall not be required to pay costs beyond the GMP in connection with the completion of the Contract Documents, except for Change Orders agreed upon by Owner. Accordingly, and notwithstanding any other provision of this Agreement, Construction Manager shall only be entitled to a Change Order for “Scope Changes,” which is hereby deemed to mean Work that is:

i. not reasonably inferable from the Contract Documents by a similar firm engaged in the planning, construction and management of large scale and complex projects of similar scope, function, size, quality, complexity and detail as this Project; and

ii. is a material change in the quantity, quality or programmatic requirements set forth in the Contract Documents incorporated into this Amendment.

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§ 2.2.11 The GMP contains a Construction Contingency of 3% of the Cost of Work included in the GMP. The Construction Contingency shall be identified in the Schedule of Values and shall be adjusted, as the case may require, reflecting net savings or net losses result from the award of Subcontracts. Contractor shall inform the Owner for those items the Contractor intends to allocate to the Construction Contingency.

As part of the Contractor’s monthly pay application, the Contractor shall provide to the Owner a monthly Construction Contingency Report detailing all expenditures of the Construction Contingency and the remaining balance available.

Inform the Owner

zBattling Interests When

It Comes to Spending Contingency During Construction

Owner’s Desire To Spend It On Extras

CM Does Not Want To Give Back Contingency To Only Later Encounter A GMP Overrun

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Language To Reduce Contingency as Construction Proceeds

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Disputes

If the Owner and Construction Manager disagree as to whether Work required in the forthcoming issued for construction documents is within the GMP (“Disputed Work”), the Construction Manager shall furnish the Owner with an estimate of the costs to perform the Disputed Work.

To the extent the Owner believes the estimate is excessive, Construction Manager and Owner agree to allow the Initial Decision Maker to review the estimate and make any modifications deemed appropriate by the Initial Decision Maker.

If the Owner issues a written order for the Construction Manager to proceed, the Construction Manager shall perform the Disputed Work and the Owner shall pay the Construction Manager fifty percent (50%) of the estimated costs to perform the work. In such event, both Parties reserve all rights as to whether the Disputed Work was to have been included in the GMP.

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Avoid Bate and SwitchLock In Team

§ 11.5.2 The Construction Manager shall not replace any of the Construction Manager’s key people identified above except with the Owner’s prior written consent unless the person ceases to be in the Construction Manager’s employ.

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And Some Bite To This Requirement

§ 11.5.3 The Owner and the Construction Manager acknowledge that if anyone of the Construction Manager’s Key People ceases to perform services forthe Project in the Key Person’s assigned capacity, it would be difficult, if notimpossible, to determine the actual damages to the Owner. Consequently, inthat event, the Owner and the Construction Manager agree that as liquidateddamages, and not as a penalty, the Construction Manager shall, at theOwner’s option, pay to or credit the Owner the below-described percentage ofthe associated liquidated-damages per-person sum set forth next to the namesand titles of the Key People identified.

LD Provision If Key Personnel Are Removed

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Audit Requirements§ 6.11 Accounting RecordsThe Construction Manager shall keep full and detailed records and accounts related to the cost of the Work and exercise such controls as may be necessary for proper financial management under this Contract and to substantiate all costs incurred. The accounting and control systems shall be satisfactory to the Owner. The Owner and the Owner’s auditors shall, during regular business hours and upon reasonable notice, be afforded access to, and shall be permitted to audit and copy, the Construction Manager’s records and accounts, including complete documentation supporting accounting entries, books, correspondence, instructions, drawings, receipts, subcontracts, Subcontractor’s proposals, purchase orders, vouchers, memoranda and other data relating to this Contract. The Construction Manager shall preserve these records for a period of three years after final payment, or for such longer period as may be required by law.

If any audit or inspection by the Owner discloses overpricing or overcharges (of any nature) to the Owner that the amounts of such overpricing or overcharges shall be reimbursed to the Owner. If such overpricing or overcharges are in excess of $10,000.00, then Contractor agrees to reimburse to the Owner the cost of conducting such audit.

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Coordinate Assignment with Lender § 11.4 AssignmentThe Owner and Construction Manager, respectively, bind themselves, their agents,successors, assigns and legal representatives to this Agreement. Neither theOwner nor the Construction Manager shall assign this Agreement without thewritten consent of the other, except that the Owner may assign this Agreementto a lender providing financing for the Project if the lender agrees to assumethe Owner’s rights and obligations under this Agreement. Except as providedin Section 13.2.2 of A201–2007, neither party to the Contract shall assign theContract as a whole without written consent of the other. If either party attemptsto make such an assignment without such consent, that party shall neverthelessremain legally responsible for all obligations under the Contract.

Upon request, the CM shall execute a Consent of Assignment in the form attached to this Agreement.

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Think About Assignment To Owner Related Entities After Construction

Additionally, Owner shall be permitted to assign the Contract and any warranties to any entity that is owned or controlled by Owner at the time of the assignment.

§ 11.4 AssignmentThe Owner and Construction Manager, respectively, bind themselves, their agents,successors, assigns and legal representatives to this Agreement. Neither theOwner nor the Construction Manager shall assign this Agreement without thewritten consent of the other, except that the Owner may assign this Agreementto a lender providing financing for the Project if the lender agrees to assumethe Owner’s rights and obligations under this Agreement. Except as providedin Section 13.2.2 of A201–2007, neither party to the Contract shall assign theContract as a whole without written consent of the other. If either party attemptsto make such an assignment without such consent, that party shall neverthelessremain legally responsible for all obligations under the Contract.

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Final Thoughts

CM’s Scheduling Requirements – The Project’s Success or Failure Is Dependent on CM’s Scheduling and Coordination Ability. Require proper CPM scheduling and that schedules are issued in native format.

Termination For Convenience – Is typically triggered if a GMP Amendment is Not Executed. Should consider making a change to standard language such that payment for lost profit and overhead is not permitted.

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Trust Is Key For SuccessfulCM-at-Risk Projects

Owner Must Control Its Architect by Being Involved At All Steps. Owner Can’t Expect CM to Price Things Not Reasonably Expected or Well Beyond Budget.

CM Has To Understand Owner’s Expectations and Actively Guide The Design and Construction Process To Meet Those Expectations.

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Questions?Mike Madigan, DirectorKegler Brown Hill + Rittermmadigan@keglerbrown.comkeglerbrown.com/madigan614-462-5478