Guaranteed Maximum Price vs. Estimated Maximum Price

Building construction is not an easy task. There are not only a lot of moving parts in the process of construction; behind the scenes, there is a flurry of activity. The larger the building project, the more complex it is to attain funding and plan many other tasks. Before a project begins, a pro forma is typically compiled. A pro forma is a financial statement noting the financials behind a project, the financial projections to be attained from the project, forecasts, and the like. This is a tool used in order to attain project funding. A large building project is typically not funded personally by an owner, but is funded through banks, investments, a corporation or large entity, or a board of investors-it depends upon the project. 

The pro forma can be used to secure the financials for setting a construction budget. Oftentimes, there is either little room for error in terms of construction budget or there are benefits to investors or other financial entities in early completion of the project (for example, the ability to collect rent earlier than expected). The concept of guaranteed maximum price (GMP) is employed in these instances. In setting a GMP, the construction manager (at risk) is contractually obligated to complete the project on time and on budget. Failure to do so may penalize the CM per the contract. This process puts a large amount of stress on the CM. 

Estimated maximum price (EMP) contracts take the stress off of the CM. With EMPs, the responsibility is not solely on the CM. Instead, the risk is shared by the major parties involved-including the owner, designers, and others-and uses financial interests as a way to align these parties with the interests of the project.

Pure CM vs. Construction Manager-as-Agent vs. Construction Manager-at-Risk

Construction managers (CMs) are often involved in large and complex construction projects. CMs offer a unique skill set and experience as they are trained specifically for building construction management through a higher education degree program. 

CMs can be involved in construction projects in many capacities. This post will highlight three of them: pure CM, construction manager-as-agent, and construction manager-at-risk. 

Pure CM 

Pure CM is when the CM takes on the role of a traditional contractor as an agent to the owner. In this role, they contract with subcontractors and suppliers for the construction project. 

Construction Manager-as-Agent 

Also referred to as construction manager-as-advisor, this relationship puts the CM in purely an advisory role as an agent to the owner. In this capacity, the CM is not bound to any construction contract, nor to any contracts with subcontractors and suppliers, and offers independent judgment. The beneficial aspect of this relationship is that the CM helps the owner make decisions before, during, or even after the construction process. Oftentimes, owners are not well versed in construction and need the expertise of a CM for that insight. This relationship is essentially about the management of a construction project. 

Construction Manager-at-Risk 

Construction manager-at-risk, or construction manager-as-constructor (CMc), is a specific project delivery method (AIA Document A133-2009). With this role, the CMc assumes the construction project with a GMP, or guaranteed maximum price; they guarantee that the project will be delivered on budget and on time. That assumption of the contract makes the CMc liable should the project not meet budget or schedule. However, if it comes under budget and on time (or earlier), the CMc is often rewarded by sharing the cost savings with the owner.

Construction and Evaluation: At Risk

In project delivery methods, a commonly heard term is "at risk." It sounds precarious although, in reality, it is about assigning risk for a project. Typically associated with guaranteed maximum prices (GMPs) or construction contracts with a GMP, those at risk are responsible for delivering the project on time and on schedule; doing so is guaranteed. If this is not done, then there may be penalties per the contract. This is a very serious prospect and those at risk are typically construction managers-individuals who are trained in, and are experts with, the construction process-as there is little to no wiggle room. Because of the liability assumed by the construction manager in being at risk, oftentimes the construction manager is in charge of the whole process with the owner beholden to them. Although it does not seem natural for the owner to answer to the construction manager, it makes sense. If faced with the prospect of a big penalty for not delivering the project on time and on budget, it is in the best interest of the construction manager to have full control over the construction project. 

On the flip side, as an incentive, what is also common with at-risk models is to have a sharing of cost savings, or other reward, between the owner and construction manager should construction finish early and under budget. 

Any time the term "risk" is used, it is typically synonymous with insurance coverage. Those at risk assume liability beyond standard procedure; because of that, they have insurance policies in place to cover that added risk. When considering this type of arrangement, be sure to consider sureties (insurance companies) as another member of the relationship.

Construction and Evaluation: Design Build Project Methodology

There are many ways to build a building. The "how" is referred to as the project delivery method. These various methods came about for many different reasons and trends within the building construction industry. Design-build (DB) is one of those methodologies. In the traditional or design-bid-build (DBB) project delivery method (both refer to the same method), it was found that owners started responding to (really, complaining about) the tense relationship between the contractor and the architect. The solution was to combine entities through the DB model. 

In the DB model, the architect and the contractor are one contractual entity with the owner. This means that the owner signs only one contract and gets an architect/contractor team. (In the DBB model, the owner contracts the architect and the contractor separately.) Organization aside, what is interesting about this relationship (and deserves introspection, in my opinion) is the role of the architect and, thus, the process of building design. With DB, typically the contractor is the lead as they are "at risk"-they assume the responsibility for and are at risk with construction costs and the like. In this model, the budget can easily set the building design. There are instances where the architect in DBB can be at risk, but it is not advised as architects typically do not have the breadth of experience (and ability/insurance to take on that risk) and construction experience. It is something architects should think about in these contractual relationships. 

No two project delivery methods are alike. When deciding which to use, it is important to understand the roles and process and to make sure that it is not only appropriate for the project, but appropriate for the team members involved as well.

ARE Study Materials

NCARB offers a list of study materials for each exam in the ARE 5.0 Handbook (downloadable as a PDF on its site). However, if you add up the costs of all the resources and time it would take to read through them all, it becomes daunting and costly! One resource for selecting materials would be those recommended by the ARE 5.0 community forum. There is a lot of insight as to what worked best for those who took the exam. In addition, my two cents follow: 

Table of Contents

1. The Architect's Handbook of Professional Practice (AHPP).

2. AIA Contract Documents

3. Building Codes Illustrated: A Guide to Understanding the 2015 International Building Code

4. Building Construction Illustrated

5. IBC Codes

 

1. The Architect's Handbook of Professional Practice (AHPP). The content of this book spans all exams, but it is also essential for practice. Full of case studies and dense with information, no matter what, it should be on every architect's bookshelf.

2.  AIA Contract Documents (www.aiacontracts.org). This resource offers full, sample contracts for free (along with other documents such as applications for payment), and is useful when reviewing specific contracts for exam divisions. 

For the project planning and design (PPD) and project development and documentation (PDD) divisions: 

3. Building Codes Illustrated: A Guide to Understanding the 2015 International Building Code. This book translates the codes into drawings, aiding the visual learner in understanding how the code affects building design. 

4. Building Construction Illustrated. Again, a resource heavy in drawing, this book illustrates building assemblies and construction details. 

5. IBC Codes. The International Building Code is a significant part of the PPD and PDD exams. It is necessary to know how to navigate the IBC and where to find relevant information for questions on occupancies, allowable building heights, fire ratings, and so on. A free version is available through the International Code Council on its site: https://codes.iccsafe.org/

This is hardly an exhaustive list, nor is this the tip of the iceberg. However, know that you can still be successful even if you don't buy all of the resources listed in the ARE 5.0 Handbook.

ARE Exam Tips

The ARE is a marathon of an exam (six exams total). Studying tips and timelines for taking the exam vary from person to person. There is no one-size-fits-all approach; you do you. Having said that, here are a few tips I can offer based on my experience with the exams: 

Table of Contents

1. Know what happens in each phase and when

2. Read the exam questions carefully

3. You don't have to start the exam right away

4. Know your stuff

5. Strategize about the exam

6. Know your resources

7. The exam is not parts, but a whole

1. Know what happens in each phase and when. Per the B101 contract, the architect offers certain basic services. Know how and when they start and stop. There may be questions where the answer seems correct, but it is during the wrong phase. 

2. Read the exam questions carefully. The clock is ticking with the exam, but this is not an exam to skim through and knock off answers. As noted above, the complexity is in the details of the question. 

3. You don't have to start the exam right away. The exam begins when you hit the button to start. Use the time to take a breath or write things down on the paper you will receive at the testing center. Use the time to enter the exam calmly. 

4. Know your stuff. The ARE tests understanding/application and analysis/evaluation. Often, questions are not about specifics, but are situational. It is essential to have a thorough understanding of roles and responsibilities. 

5. Strategize about the exam. There are many ways to take the exam and a system may help. Some test-takers go through the case studies first, and some leave them for last. Whatever you choose, the exam itself is a strategy. Devise a game plan while taking practice exams so you will know your flow going into an exam. You don't want the clock to dictate whether you pass or fail. 

6. Know your resources. The exam offers resources such as formulas and documentation to accompany the case studies. 

7. The exam is not parts, but a whole. The ARE may be presented in sections, but it is a whole. You do not need to take the exam linearly, but can jump around and access all parts and resources for every question.

Challenges of Licensure

It's no secret that the Architectural Registration Exam (ARE) is one of the toughest professional licensing exams. It often becomes a deterrent for someone considering the vocation of architecture. 

With the current version (ARE 5.0), there are six sections. The National Council of Architectural Registration Boards (NCARB) estimates that it takes over two years to complete. Any longer, and you can be facing the dreaded rolling clock-the time limit for any particular exam to be current. Passed exams are good for five years; if you take more than five years to complete all parts of the exam, the rolling clock will start deleting those that have expired. It may seem daunting for a candidate to have to pass all exams within five years, in addition to the stresses of practicing architecture and managing family or other personal obligations that inevitably come as candidates age during the process (the average age at completion, according to NCARB, is almost 33). 

However great the challenge may be and however many reasons one may find to avoid this process, do not give up. What can look like a mountain just needs a strong and determined steady climb. The process of studying for the AREs-whether you pass or not-makes you a better professional. You will learn the challenges of not only the practice of architecture, but also the legal challenges, contracts, project delivery methods, and so on. There is a reason why the exams are so complex, but those complexities should make studying for the exams all the more exciting.

A colleague once told me, "It's not that you fail, it's just that you don't pass." No matter the outcome, you are "passing" through the process. Keep your nose in your study material and keep on passing!