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F I S C A L I M P A C T R E P O R T

SPONSOR Komadina

DATE TYPED 3/4/05

HB

SHORT TITLE Government Construction Management Contracts

SB 265

ANALYST Wilson

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

$0.1

Duplicates Appropriation in the General Appropriation Act

Relates to Appropriation in the General Appropriation Act

SOURCES OF INFORMATION

LFC Files

Responses Received From

Attorney General’s Office (AGO)

Department of Administration & Finance (DFA)

General Services Department (GSD)

Public Education Department (PED)

Public School Facilities Authority (PSFA)

Regulations & Licensing (RLD)

Synopsis of Bill

Senate Bill 265 Senate Bill (SB) 265 amends the state procurement code to authorize the State

and local public bodies to enter into construction management services contracts with a "con-

struction manage (CM) at risk" on public works contracts. A construction manager at risk means

a person who:

•

Acts as an agent for the state agency or local public body for construction management of

a public works project;

•

Cooperatively develops the project with the public entity and an architect;

•

Guarantees to the public entity a maximum price for the project and appropriate time

schedules;

•

Provides performance bond or other surety satisfactory to the public entity to ensure all

guarantees are met; and

•

Obtains bids from qualified subcontractors for services and materials.

Senate Bill 265-- Page 2

Under current law, construction contractors are selected through a low-dollar bid process, or

through competitive sealed proposals.

Significant Issues

Under current New Mexico law, a construction manager is not "at risk" and therefore not respon-

sible to the state agency or local public body for claims for project delays, cost overruns and con-

tractor performance. A construction manager provides construction management services from

conception to completion of the construction project, applies appropriate management techniques

to project planning, design and construction in order to control time and cost and assure quality

for the project owner. The construction manager does not provide professional design or engi-

neering services, or act in the capacity of a contractor.

This bill gives more control of a construction project to a construction manager at risk than is

allowed in current statute for construction manager. The bill allows all facets of a construction

project to be influenced by a single construction manager at risk, including representing the gov-

ernmental entity, assisting in design development, guaranteeing maximum price and time sched-

ules, and choosing to buy materials or services provided by the construction manager at risk in-

stead of by competitive bid. This potentially could allow one individual to influence the design,

price and time schedules associated with the construction project. Guaranteeing a not-to-exceed

maximize price and time schedules may not serve the intended purpose of making the construc-

tion manager at risk ac-countable if the same person is providing such an extensive array of ser-

vices. Providing services normally provided by a licensed contractor without the requirement of

a competitive bidding process could adversely affect both cost and quality.

DFA indicates this bill is a rewrite of SB 20, introduced during the 2004 legislative session. This

2005 legislative session bill has added provisions in an attempt to correct some of the problems

in the earlier bill which only required the construction manager at risk to guarantee a maximum

price for the project. There were no provisions to guarantee the project would be finished on

time or that performance criteria would be met.

SB 265 specifies that the construction manager at risk must also guarantee time schedules and

provide a performance bond or other surety satisfactory to the state agency or local public body.

The GSD has expressed concerns that even with the changes made over the previous bill, there

are still not adequate controls to assure quality control.

This bill is intended, in part, to help local public bodies where contract management resources

are limited. Shifting more risk to a construction manager at risk may protect a local public body

from price over-runs and construction delays. However, it may also increase the cost of the con-

struction project without proper quality assurance oversight.

GSD states there are problems inherent in awarding construction contracts based on low-bid.

There could be problems when a construction manager is involved in both design and providing

construction services and materials, especially when competitive bids for the services and mate-

rial are not required. The bill does provide for a performance bond, which may not adequately

address quality control issues to ensure the CM at risk meets acceptable standards when provid-

ing the services and materials instead of bidding with qualified subcontractors.

Construction management is considered a professional service in the procurement code. There

have been unfortunate examples in recent years of large construction projects that lacked quality

control, some of which used the services of a construction manager.

Senate Bill 265-- Page 3

FISCAL IMPLICATIONS

Poor performance by a construction manager can result in elevated costs and reduced quality of a

project. Construction management is often used by owners who do not have “in-house” exper-

tise. This creates a situation that is ripe for those who will take advantage of ignorance. Con-

versely, when the services are performed well, the inexperienced owner’s interests are protected

and efficiencies achieved.

It has been RLD’s experience that projects on which construction management services are per-

formed do not necessarily result in code compliant construction. Though these services gener-

ally promote “oversight and efficiency” of construction, too often the oversight is minimal, and

the costs of the service are high.

The PSFA believes

the

added costs of hiring a construction manager will reduce the available

funds for construction. When combined with design professional services, available funds for

construction for a typical project will be reduced by 10 – 18 percent.

ADMINISTRATIVE IMPLICATIONS

The GSD rule pertaining to construction management services will have to be changed to ac-

commodate construction managers at risk.

Because of potential overlap of duties and liability with other professional groups, there will be a

need to ensure that appropriate construction management contracts are established that do not

conflict with engineer and architect contracts

TECHNICAL ISSUES

There are other sections of the procurement code that should be conformed e.g. 13-1-111 NMSA

1978 Competitive Sealed Proposals; Conditions for Use.

OTHER SUBSTANTIVE ISSUES

A number of construction management services contracts are being used by school districts as an

alternative project delivery method. The intended advantage of this construction method is to

eliminate general contractor markups of subcontractors work. Inasmuch as most school districts

do not have the staff or expertise to assume the added burden of project definition, coordination,

and control of the project, a construction manager is hired. Under this arrangement, the con-

struction manager assists the owner in obtaining multiple prime contractors to complete the

work. Each prime contractor is in direct contract with the owner with each being responsible for

a specific portion of the total project. Payment to the construction management firm is typically

based on a fixed fee plus a predetermined percentage of the prime bids and requires the owner to

hire a project superintendent to oversee the day to day operations. Under current law, the CM is

not at risk and therefore not responsible to the owner for claims for project delays and extended

overhead from nonperformance of one or multiple prime contractors. This methodology

has had mixed results in New Mexico and have in some cases resulted in higher construction

costs than traditional methods.

DW/lg