For the first few years of my career as an estimator, I always prepared my bids for general contractors. Then a new (to me) kind of project came my way called multiple prime. I was completely unprepared for it. Because of my lack of knowledge, I threw in a lot of last-minute allowances and ended up being the high bidder. At the time, this type of contract was popular for school bids; therefore, I made sure I knew what I was doing for the next one.
First, let’s talk about prime contracts. Simply stated, the company holding the position of prime contractor is responsible for all of the work as described in the bid documents. This includes drawings, specifications and all other documents provided by the owner. This can be a lot of documents.
Currently, I am working on a bid that is not very large, but still has 460 pages of introductory information, bidding, contracting and general requirements. All of these documents must be read, understood and acted on before submitting a bid.
Beyond those pages are 1,690 pages of specifications that also need to be reviewed. These pages include many forms to be filled out along with hundreds of pages of requirements that must be understood and adhered to. Some prime contractors self-perform portions of the work and engage with subcontractors for the rest. Other prime contractors only manage the project and use subcontractors to perform all of the work.
When most of the work on a project is electrical, an EC often holds the position of prime contractor. Now, the electrical contractor is responsible for all the work. It also means bids become more difficult, as the contractor must comply with all the documents mentioned above. Additionally, the EC is responsible for all project management activities such as scheduling, safety, cleaning, and daily, weekly and monthly reports. Responsibility for all of these activities increases the EC’s overhead significantly.
Now let’s take a look at multiple prime (MP) bids. I have worked on a couple of variations of MP contracts. The first is when the owner takes full responsibility for managing a project. The other is when the owner hires a construction manager (CM) to run the project. The latter is what I have the most experience with; it’s called construction manager multiple prime (CMMP). In either scenario, every trade is a prime contractor, meaning they have sole responsibility for all of the work indicated in their bid documents. When bidding on MP contracts, there can be no exclusions or exceptions of any kind.
Let’s look at some of the pros and cons associated with multiple prime contracts. First, the CM is not at risk because they are paid a negotiated fee for managing the project. Claims made by the trade contractors are sent to the owner with no financial responsibility by the CM. Another pro is the owner can save money by eliminating a general contractor’s markup. Under a CMMP method of delivery, the owner selects the contractors based on their qualifications and then negotiates each contractor’s fee. The owner has open-book access to all project costs. This includes participation in the bidding and selection of subcontractors and vendors, which represents the costliest component of development. There is a significant downside to this type of contract. If the owner or CM lacks the skills and resources to manage the project, the prime contractors can be negatively impacted. This leads me to the contract.
It is much more important to understand the contract as an MP than it is as a subcontractor. I know many electrical contractors do not read contracts before bidding as a subcontractor. Do not do that as an MP. You must have someone with construction law experience read the contract. Often, this must be done by a lawyer. There are many possibly dangerous phrases in these contracts including indemnification, change order terms and responsibilities. Even if the owner and CM are great, you can still get hurt if you do not know how to protect yourself. Again, this means reading and understanding the contract.
The CMMP approach of contracting emerged in response to a series of poor projects using the traditional design-bid-build method. Cost overruns and schedule problems were plaguing many projects. However, the improvements promised by CMMP can still be lost when the owner or CM are incompetent. It was my experience that the same unqualified general contractors became unqualified construction managers. As a multiple prime contractor, you still need to use the contract and the law to protect yourself.