On Tuesday, March 14, construction law attorney Mike Madigan hosted the second installment of Kegler Brown's 2017 construction law webinar series. Mike discussed key provisions that play a significant role in how risk is divided when it comes to CM-at-Risk Agreements and GMP Amendments.

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WEBINAR SERIES
2017 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
Agreements
1. Consequential Damages Waiver and Liquidated Damages
2. Proof of Owner Financing
3. Contract Sum = Cost of Work + Fee
4. Reliable Budgets
5. GMP Amendment
6. Contingency
7. Disputes
8. CM Personnel
9. Audit
10. Assignment

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Consequential Damages Waiver
and Liquidated Damages
Tug of War

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Consequential Damages Waiver
A201 – General Conditions

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If The Project Finishes Late
Owner Will Be Left High and Dry

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Consequential Damages Waiver
A201 – 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
Pros
No 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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Option 2
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
Pros
Owner 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 Picture
Don’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 Add
By 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 Language
Construction 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 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 and
establish the Stipulated Sum.
By agreeing to this GMP Amendment, Owner is relying on Construction
Manager’s professional judgment and superior knowledge obtained
through its extensive involvement in the planning of the Project to construct
the Project within the parameters described in the Contract Documents without
exceeding 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

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Battling 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 Switch
Lock 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 any
one of the Construction Manager’s Key People ceases to perform services for
the Project in the Key Person’s assigned capacity, it would be difficult, if not
impossible, to determine the actual damages to the Owner. Consequently, in
that event, the Owner and the Construction Manager agree that as liquidated
damages, and not as a penalty, the Construction Manager shall, at the
Owner’s option, pay to or credit the Owner the below-described percentage of
the associated liquidated-damages per-person sum set forth next to the names
and titles of the Key People identified.
LD Provision If Key Personnel Are Removed

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Audit Requirements
§ 6.11 Accounting Records
The 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 Assignment
The Owner and Construction Manager, respectively, bind themselves, their agents,
successors, assigns and legal representatives to this Agreement. Neither the
Owner nor the Construction Manager shall assign this Agreement without the
written consent of the other, except that the Owner may assign this Agreement
to a lender providing financing for the Project if the lender agrees to assume
the Owner’s rights and obligations under this Agreement. Except as provided
in Section 13.2.2 of A201–2007, neither party to the Contract shall assign the
Contract as a whole without written consent of the other. If either party attempts
to make such an assignment without such consent, that party shall nevertheless
remain 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 Assignment
The Owner and Construction Manager, respectively, bind themselves, their agents,
successors, assigns and legal representatives to this Agreement. Neither the
Owner nor the Construction Manager shall assign this Agreement without the
written consent of the other, except that the Owner may assign this Agreement
to a lender providing financing for the Project if the lender agrees to assume
the Owner’s rights and obligations under this Agreement. Except as provided
in Section 13.2.2 of A201–2007, neither party to the Contract shall assign the
Contract as a whole without written consent of the other. If either party attempts
to make such an assignment without such consent, that party shall nevertheless
remain 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 Successful
CM-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, Director
Kegler Brown Hill + Ritter
mmadigan@keglerbrown.com
keglerbrown.com/madigan
614-462-5478