Cities Are Now Authorized to Use Construction Manager at Risk Process

By James Strommen and Cristina Cruz-Jennings

The 2023 Minnesota Legislature authorized municipalities to use the Construction Manager at Risk (CMar) process for non-right-of-way construction projects over $175,000, effective Aug. 1, 2023, and to be codified as Minnesota Statutes, section 471.463.

The CMar process is commonly used for large private projects, and state agencies have been able to use it since 2005. The CMar process places the construction manager in essentially the same position as a general contractor because the construction manager is responsible for all subcontractors and for the “price, schedule, and workmanship” of the project.

A look at the new law

The new law gives cities the option to use CMar in addition to the traditional Construction Manager as Advisor (CMa) process by which a city contracts with a construction manager to coordinate the work of multiple contractors without assuming the risk of project cost overruns.

In contrast to the CMa process, the CMar guarantees construction of the project for a guaranteed maximum price (GMP) in accordance with the agreed upon completion schedule, subject to owner-directed changes, or changed conditions. The GMP consists of the cost of the construction contracts, a contingency, the CMar’s negotiated fee, and its general conditions costs.

The CMar process allows a city to turn over a project to a competitively selected construction manager who is responsible for the work performed by the contractors, which are the CMar’s subcontractors rather than through contracts directly with the city. The CMar GMP method usually results in less city staff involvement in the construction process and fewer change orders than in the CMa process.

The CMar process is nearly identical to the state agency CMar requirements in Minnesota Statutes, section 16C.34. Cities using CMar must follow competitive selection procedures in hiring the CMar and must supervise the CMar’s required subcontractor competitive bidding process.

CMar and contractor procurement process

The CMar and contractor procurement process requires the city to form a selection committee and publish a Request for CMar Qualifications (RFQ) with statutory listed criteria. The selection committee must consist of at least three persons, one of whom has “construction industry experience.”

From the RFQ respondents, the committee selects at least two firms to receive and respond to the city’s Request for CMar Proposal (RFP). For CMar final selection, the city must employ a “scoring or tradeoff evaluation method” described in the RFP and may interview the “short-listed proposers.”

The city negotiates the contract with the highest scoring CMar candidate. If an agreement cannot be reached, the city may end negotiations with that candidate and negotiate with the next highest scoring candidate. The statute preserves the city’s traditional authority to reject all CMar proposals and use the typical competitive bidding process for the work, with or without a CMa or CMar.

The CMar-city contract negotiation should include a construction industry expert to assist the city on terms such as the size and CMar’s use of project contingency and allowances, circumstances allowing an increase to the GMP, and regular CMar reporting requirements on project cost and schedule.

The selected CMar must then “competitively bid and award all trade contract work for the project from a list of qualified [contractor] firms.” The competitive bidding must be carried out among a list of pre-qualified contractors established by the CMar using “selection criteria … approved by the municipality.”

Importantly, with the city’s consent, the CMar may bid on some of the project work. If so, the city would supervise the bidding and award the contracts for those work scopes, rather than the CMar. Upon completion of the contract awards for the work, the CMar and the city finalize the GMP, enter into the final CMar GMP contract, and issue the notice to proceed with the work.

Cities will need to evaluate the comparative benefits of the CMar method compared to traditional methods, with or without a CMa. If CMar is the selected project method, cities must prepare documents that fully comply with Minnesota Statutes, section 471.463. Consulting with procurement personnel at the state agencies that have used CMar would also provide helpful guidance.

James Strommen and Cristina Cruz-Jennings are attorneys at the law firm of Kennedy & Graven, Chartered (kennedy-graven.com). Kennedy & Graven is a member of the League’s Business Leadership Council (lmc.org/sponsors).