Many school districts and other public agencies are considering using a special process for capital projects, by engaging the contractor through the construction manager / general contractor (“CM/GC”) method. Use of this procurement method requires several extra steps that are not applicable to the standard bid process. Special care must be taken in its implementation.

Advantages

A key concept behind CM/GC procurement is that the contractor is selected early in the design process, before the scope and price of the project are set. The contractor agrees to participate in development of the design, providing input on such matters as constructability, alternative approaches, and cost estimating, for a set or not-to-exceed fee. When the project scope is established and subcontract bids are available, the price is set through a contract amendment. Because the contractor becomes familiar with the design earlier in the process than through the traditional bid method, its input will provide value in establishing the project parameters, and there may be schedule advantages over use of the traditional process. When guaranteed maximum price contracting is used in conjunction with CM/GC, there is also an opportunity for the agency to realize cost savings if the actual cost of the construction is less than the contracted guaranteed maximum price.

Procurement

Different rules apply to contracting through the CM/GC process than traditional contractor bid procurement. First, exemption from competitive procurement requires the agency to adopt findings justifying the exemption. ORS 279C.335. ORS 279C.337 then provides governing standards for the procurement itself. Among other things, that statute requires the public agency to follow the model contracting rules adopted by the state Attorney General. ORS 279C.337(2)(h). Those rules include detailed standards for when CM/GC contracting is justified, requirements for inclusion in the RFP and construction contract, and the mandatory process for implementation of the contract itself. OAR 137-049-0690. The interplay of the statute and these rules is complex, and has changed over the years. Advance preparation by the agency for compliance with these standards is critical.

Contracting

After the contractor is selected, the agency may, if the procurement documents so state, negotiate the terms of the contract. ORS 279C.405. Early decisions on the contract form and contract terms are critical, to avoid issues after contractor selection has occurred. The contract form may be based either on an industry standard, such as the CM/GC contract form promulgated by the American Institute of Architects, or a form specially developed for the agency. In either case, careful advance review is required to ensure the contract meets the multiple required contracting standards in the statute and rules.

Administration

Agencies anticipating use of CM/GC procurement are required to properly staff the project. Specifically, the Attorney General Rules state “Contracting Agencies shall use this contracting method only with the assistance of legal counsel with substantial experience and necessary expertise in using the CM/GC Method, as well as knowledgeable staff, consultants or both staff and consultants who have a demonstrated capability of managing the CM/GC process in the necessary disciplines of engineering, construction scheduling and cost control, accounting, legal, Public Contracting and project management.” OAR 137-049-0690(1). Careful consideration of the project team will help avoid later problems inherent in participants who have neither experience with or knowledge of the CM/GC process.

Many school districts are moving forward with capital projects large and small in the coming months. At both ends of the spectrum, many districts are hoping to gain financial and logistical benefits by engaging construction managers / general contractors (“CM/GC”) early in the process. This is a great time to discuss some good practices to keep in mind with these types of projects.

Procurement

If the district is involved in the procurement phase of a CM/GC process, you must keep in mind that different rules apply than in the traditional design-bid-build phase. First and foremost, the district should make sure to follow the requirements of Oregon Revised Statute (ORS) 279C.337 to the letter. This statute requires that the school district conduct certain investigations, and that the school board make certain express findings on the record, in order to prepare a CM/GC request for proposals for publication. These include establishing criteria for evaluating proposals, identifying the anticipated savings and efficiencies from employing the CM/GC process, and confirming the rules that the district will follow in the process.

Next, the district should familiarize itself with the model rules adopted by the Attorney General under ORS 279A.065. The district should confirm the rules under Oregon Administrative Rules (OAR) 137-049-0600 and following. Here, there is little room for improvisation. Generally, the district should simply make sure to work its way through all of the detailed requirements of the statutes and rules, and ensure compliance.

Contract stage

After a provider is identified, the district has greater leeway to customize the terms of the work and the relationship between the construction manager / general contractor, as well as the rest of the project team, which may consist of the district, and owner’s representative, an architect, and perhaps other professionals. Here, the district’s priority should be to clearly delineate the responsibilities of each party, and the specific cycle for a project. By taking the time to negotiate a workflow among all of the project team members who guide design and planning squarely through the process, from one professional to the next and back again through the cycle, the district will make sure no party steps on another party’s toes. This not only ensures the orderly flow of feedback and integration into the next iteration of the process, but also ensures that each team member gets to have their rightful say on their respective parts of the project.

Once the dust has settled after a remodel or new construction is completed, it is tempting to put the project in the rear-view mirror and move on. However, that can lead to problems down the road if the construction project has not been properly documented. At the end of the process the owner should be in possession of all documents related to the project, from start to finish.

The owner should obtain and preserve all documents related to the project. These documents typically include contracts, change orders, architect or designer communications, photos and videos, samples and other physical objects, warranty and instruction information, notes from meetings, and correspondence. It is easy to overlook items like emails and text messages but it is important to collect and retain these as well. When a project involves an owner’s representative or project manager, all documents related to the project should be turned over from the representative or manager to the owner.

The owner should have a clear policy on how and where the documentation is to be retained. It may be best to print emails and text messages and file them with the other paper documentation. Keeping the documents in a safe location is equally important, as we have seen several instances where construction documents were ruined by flooding or a fire.

Finally, it is important to retain documents for a proper length of time. It won’t be helpful to an owner trying to sort out a construction issue or question if the documents are gone. Clients sometimes ask how long documents should be retained. Given that claims and questions can arise for years after a project is completed, the best course of action is to retain the documentation for at least 12 years.

In Oregon, there is a time limit for a school district, or any property owner, to raise concerns with its contractors about potentially faulty construction workmanship. Pursuant to Oregon Revised Statutes 12.135(2), a school district as a public body has 10 years from “substantial completion” of a construction project to file a claim against a contractor for faulty construction workmanship. This is an absolute outlier date, called a statute of repose. No claims may be brought beyond that date, unless a contractor or product manufacturer agrees to an extended warranty.

Within those 10 years, other deadlines apply. Recently, the Oregon Supreme Court made important decisions which affect those other deadlines, called statutes of limitations. In Goodwin v. Kingsmen Plastering, Inc., 359 Or 694 (2016), the Supreme Court ruled that a school district has just two years to file a claim against a contractor for negligent or faulty construction workmanship, measured from when it “knew or should have known” of “the injuries or damage that form the basis of their claims.” In the complicated field of building performance, two years is not a lot of time for facilities professionals to recognize and diagnose performance issues. Compounding the difficulty, the Supreme Court’s decision may start the clock from when the District’s facilities professionals first start noticing problems, for example problems with a buoyant gymnasium floor, an underperforming HVAC system, or leaking windows. Even with outside assistance, it can take a lot of investigation to determine who may be at fault for a problem, and therefore what contractor may be the subject of a claim. In the meantime, potentially, the clock may be ticking under Goodwin while investigations are underway.

An unfortunate side effect of the Goodwin decision is that it increases the pressure on school districts to investigate and make claims against contractors. To protect themselves, school districts should advise their facilities professionals to be diligent in reporting concerns. If a concern is reported, school districts should reach out to contractors who may potentially be involved and ideally sign “tolling agreements,” stopping the clock on claims while investigations continue. If contractors are not amendable to this, they may put themselves in the position of forcing a claim process with the school district.

This issue of “discovering” a claim may also come up with respect to claims for breach of contract. Currently, the safe bet is that a school district has six years from the date a contract obligation is breached to raise a claim. That is typically understood to be the date of performance, i.e. the date of faulty work itself, not the date any damage or fault is discovered (when the district discovers symptoms of a problem). In the months ahead, the Oregon Supreme Court may consider expanding the concept of “discovery” to contract claims, which may provide some relief to school districts already under increasing pressure to investigate problems and pursue contractors who may be at fault.