Discover how Customers can diversify risk and maintain surety with Construction Management (CM). Our latest Blog explores how CM can spread risk and provide greater assurance on a project.

Diversified Risk and Maintained Surety with Construction Management

Project procurement with CM allows customers to diversify their project risk. They contract with all Trade Contractors rather than a single Main Contractor, maintaining the ability to secure bonds and similar guarantees. Under CM the Construction Manager acts as an agent for the Customer. They provide guidance on how to best retain or transfer risk to Trade Contractors.

Risk is distributed to the party best placed to mitigate and manage it. This distribution spreads risk across various Trade Contractors. The majority of risk under Traditional procurement is borne by the Customer. Design & Build usually transfers all risk to the Main Contractor. However, D&B gives the Customer limited control or visibility over how that risk is retained, transferred, or managed.

With CM the Customer’s eggs in respect to project delivery are in multiple suitable baskets. With all risk management transparent and available to the Customer and their Stakeholders.

Performance bonds are commonly used on construction projects, usually required by funders, to safeguard the completion of work according to contract terms. Parent company guarantees, or similar cross-party agreements, are often used alongside or instead to ensure another party’s performance.

Under CM primary Trade Contractors can still provide performance bonds or other guarantees to mitigate non-performance risk. Such surety is for the full benefit of the Customer.

An experienced Construction Manager can significantly improve a project’s credibility with bonding companies. They may view projects managed by experienced professionals as lower risk, making it easier to issue bonds at a lower cost.

CM can enhance supply chain due diligence, ensuring the engagement of only stable and reliable trade contractors. Scribe conducts rigorous background checks on potential partners to guarantee their credibility and capability. This supports the issuance of bonds, providing further assurance of project performance.

Trade Contractors can develop and enhance their bonding capacity as the project progresses. This staged approach allows smaller contractors’ involvement in larger projects whilst managing their exposure and building their performance history.

Through CM Customers can achieve a diversified risk portfolio and maintain security. This dual benefit can ensure project viability and ensure its successful delivery. Key to this process is the Construction Manager. Their expertise and oversight drives the project whilst safeguarding the Customer’s interests.

Summary

Construction Management project procurement allows Customers to diversify risk and maintain surety via:

• Provision of expert risk advice by the Construction Manager
• Transfer of risk to the party best placed to mitigate and manage it
• Risk management transparency to the Customer
• Bonds and guarantees available direct from primary Trade Contractor
• Customers benefit from trade sureties without a Main Contractor intermediate
• Increased supply chain due diligence and visibility available

Contact Scribe to further discuss the risk and surety benefits of CM. Please comment below and read our other Blogs.

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