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Construction Management Agency (CMa): Facts Not Fiction

By: Sanford C. Loy, CCM BArch MSCE
Tel: 865-675-3603, ext. 102
Email Mr. Loy


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Does CM Agency (CMa) expose the owner to more risk than other processes?

No. With CMa you actually have better protection because each individual contractor will be under an individual payment and performance bond. If a contractor defaults there is a specific bond for the specific scope of work affected.

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IF there is a performance issue with a contractor, your CMa will address it with that contractor without being conflicted. In the inverse, a general contractor or CM at risk is conflicted because they have an interest in protecting their own bonding company and their own liability exposure.

With CMa the entire project is still 100% protected by Payment and Performance bonds; but in 25 or 30 segments or increments not one large bond issued to only one company. By diversifying your bonding, you diversify your protection.

Is it true that a CMa does not have any risk?

No. A CMa has the same risk as any other professional service. Just like the Architect, the Engineers, and the Attorneys. It is a professional service covered by Professional Liability Insurance.

In the inverse, a CM at risk becomes a General Contractor as soon as the price is fixed. The question is do you want someone who is a professional looking out for your interest acting as your watchdog every day or someone who is looking out for their own interest every day?

A CMa has fiduciary liability to represent you as professional agent and advocate.

A CM at risk’s liability is exactly the same as a general contractor’s. The insurance costs are doubled because the CM at risk has to have liability coverage for the entire project and the subs also have coverage for the entire project; so, you pay for it twice.

With CMa the subs pay for the contractor’s liability for the entire project and the CM agent is covered by professional liability to protect you from negligence or lack of performance on his part.

What about warranty problems? Who makes sure the contractors come back?

Your CM agent, throughout the warranty period, makes sure all warranty issues are resolved by the (sub)contractors. Failure of any of the contractors to honor their warranty is a default covered by their performance bond.

Does this process create extra paperwork? And do our accounting people have to do all that?

No, a CMa will handle all the paperwork for you. Including all the required work to process all the pay applications, lien waivers etc.; the CMa will package them every month, into a pay application package with a list of checks to be cut, usually between 20 and 25 per month.

The summary package will show you all the contracts status, change orders, any contingency balance, and remaining balances on each contract.

What about sales tax savings?

The CMa method makes sales tax savings simpler because if the owner is a tax-free entity Purchase orders for materials may be written and simply processed just like the other Prime Contracts, thus saving the owner tens of thousands of dollars.

How does the CM Agency process truly maintain transparency?

CMa is THE most transparent process possible. Every bid package may be publicly advertised, and the bids publicly opened if the owner wishes. The budgets and the totals of the cost are made available for the owner and/or public at all times and are supplied to the local newspaper for publishing if the project is public. Whatever the owner’s wishes the owner has complete access to all the bids, contracts and status of each one. The process can’t be more transparent.

Is "CM Agency" the same as the "Multiple Prime Contract Method"?

YES. The term MPCM is often used because with CM Agency or MPCM every subcontractor has a direct prime contract with the owner; so you have Multiple Prime Contracts, each with its own bond.

With a CM at risk or GC you would have one prime contract and one bond for the entire project.

With CMa or MPCM the subcontractors have a prime contracts directly with the owner; managed by the CMa and the owner protected by bonds and insurance. This eliminates the cost of money being handled by a GC. This eliminates many taxes, duplication of insurance and double bonding costs!

Disclosure
All the above answers are based upon my education and experience and reflect the way my company approaches and performs the CM Agency service. Every company has their own paradigm of these principles and you should make sure you feel confident with the answers to these questions from whichever CMa you consider hiring.


Sanford C. Loy, CCM BArch MSCE, has 40 years of experience in the Construction Industry. Mr. Loy has Degrees in Architecture and Engineering. A Certified Construction Manager (CCM), he is committed to the Code of Ethics and Standards of Professional Practice established by the Construction Management Association of America. CCM is the ANSI accredited professional designation for construction management and is the gold standard for CM service providers in over 145 countries.

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