When a SD city is building a major public improvement like a community wellness center and wants to hire one firm to manage the project as construction manager-at-risk, can that firm do the warranty work and the fix-up of third-party contractor mistakes itself, or must even those small construction tasks be done by separate contractors? And can a single firm serve as both the architect/engineer and the construction manager-at-risk on a project over $100,000?
Plain-English summary
In 2003, SD authorized "construction management" as an alternative public-procurement method for public improvements. The model uses one of two roles:
- Construction manager-agent (CM-agent): acts as the governing body's agent, helping coordinate but not assuming construction risk.
- Construction manager-at-risk (CMAR): contracts directly with subcontractors and suppliers, and takes on the financial risk of the project.
The CMAR model is popular because it puts one firm in charge of price, schedule, and quality, with real skin in the game. But it has to coexist with SD's general public-procurement statutes, including SDCL 5-18B-15, which says: "No person, firm, or corporation may act as architect or engineer and also contractor on any public improvement project if the amount to be expended exceeds one hundred thousand dollars."
The City of Mitchell wanted to build a community wellness center. The City wanted to hire one firm to serve simultaneously as architect/engineer and as CMAR. The City planned for the firm to bid out and contract with third-party contractors, subcontractors, and suppliers for the actual construction, but it wanted the firm to do its own warranty work and any completion/correction work needed for unacceptable third-party performance.
City Attorney Randolph Stiles asked the AG whether this structure worked under SD law. Two questions:
Question 1: Could the City negotiate a CMAR contract where the CMAR did no actual construction except warranty and completion/correction work for third parties?
Question 2: Could the same firm be both architect/engineer and CMAR if its only "construction" activities were warranty and completion/correction work?
The AG's answers, both no.
On Question 1, the AG started with the negotiation question. SDCL 5-18B-43(2)(b) says that when a CMAR will perform "actual construction" on a project, the governing body must use a request-for-proposal procurement method (SDCL 5-18B-44) unless certain exceptions apply. When the CMAR will not perform construction, there is no RFP requirement, so the governing body can negotiate directly.
The City wanted to negotiate. The negotiated path was open only if the CMAR did no construction. The City believed warranty work and completion/correction were not "construction" because they were small, post-substantial-completion tasks.
The AG looked at the statutory definition of "construction." SDCL 5-18A-1(4) defines "construction" and "constructed" "in addition to their ordinary meaning, repair, demolition, and alteration." That is a very broad definition. Warranty work is repair. Completion of incomplete work is construction in its ordinary meaning. Correction of unacceptable work is repair or alteration. Every category the City wanted to handle directly fits the statutory definition.
So the AG concluded: A CMAR hired under a negotiated contract may not perform any construction activities, including warranty work or completion/correction work. The City could negotiate a CMAR contract, but only if the CMAR did zero construction. If the CMAR needed to do warranty or completion work itself, the City would have to use the RFP method.
On Question 2, the AG looked at SDCL 5-18B-15, which prohibits the same firm from being both architect/engineer and contractor on a public improvement over $100,000. The AG read "construction" the same broad way: warranty work and completion/correction work are "construction." Performing any of that work while also serving as architect/engineer would put the firm in the role of both architect/engineer and contractor on the same project, which SDCL 5-18B-15 prohibits if the project exceeds $100,000.
The community wellness center was clearly over $100,000. So if the same firm wanted to be both architect/engineer and CMAR, it could not do any construction activities, including warranty and completion/correction work. All actual construction (broadly defined) had to be done by separate contractors.
The combined effect of the two answers: the City of Mitchell could hire a single firm as both architect/engineer and CMAR if it wanted, but that firm had to be a zero-construction CMAR. Every drop of physical work, including warranty repairs and completion of subcontractor work, had to go to other contractors. That made the model administratively heavier than the City had hoped.
Currency note
This opinion was issued in 2011. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. SD's public-procurement statutes were substantially recodified in 2010, just before this opinion, and have been amended periodically since. The construction management provisions in SDCL chapters 5-18A and 5-18B should be checked directly. The general principle that SD's "construction" definition is broad enough to capture warranty and completion work is likely stable, but verify before structuring a new procurement.
What the opinion meant at the time
For the City of Mitchell building its community wellness center, the opinion meant the City had to choose between two structures. Option A: hire one firm as architect/engineer and CMAR, accept that no construction (including warranty and completion work) can be performed by the firm, and contract with separate parties for every construction task. Option B: split architect/engineer and CMAR into two firms, run an RFP for the CMAR if the CMAR will perform any construction, and have the CMAR perform warranty and completion work directly.
For SD construction management firms in 2011, the opinion clarified the scope of their work. A firm that wanted to be the CMAR on a project could either (a) restrict itself to management and contracting only, with no physical work at all, or (b) accept that performing construction triggered the RFP procurement requirement and any concurrent architect/engineer role.
For architects and engineers seeking dual-role contracts, the opinion was a clean stop. If you wanted to design and build, you couldn't do construction in any form on projects over $100,000.
For city attorneys advising on public improvement procurement, the opinion provided concrete guidance on a recurring structural question. The broad definition of "construction" in SDCL 5-18A-1(4) was the controlling fact. Any work that could be characterized as repair, demolition, or alteration was construction.
For school districts and other local governments building schools, gyms, or similar improvements above $100,000, the opinion applied with equal force. The CMAR model had to be used carefully, and the line between management and construction was where the firm's services had to stop.
Common questions
Q: What is a construction manager-at-risk?
A: A construction management role where the construction manager assumes financial risk for the project, contracts directly with subcontractors and suppliers, and provides construction-management services to the public purchasing agency. Defined in SDCL 5-18A-1(8).
Q: How is CMAR different from a construction manager-agent?
A: A construction manager-agent acts as the governing body's agent and helps coordinate but does not take financial risk. A CMAR takes the risk and contracts directly.
Q: What does "construction" mean under SD public procurement law?
A: Per SDCL 5-18A-1(4), "construction" and "constructed" include their ordinary meanings plus "repair, demolition, and alteration." This is broad enough to cover warranty work and completion or correction of third-party work.
Q: What is the $100,000 threshold for?
A: SDCL 5-18B-15 prohibits one firm from being both architect/engineer and contractor on a public improvement when the amount to be expended exceeds $100,000. Smaller projects are not subject to the dual-role prohibition.
Q: Can a CMAR negotiate or must it go through RFP?
A: It depends on whether the CMAR will perform any construction. If yes, RFP is required (with some exceptions). If no construction (truly zero, including warranty and completion work), the governing body may negotiate.
Q: Can the architect/engineer firm also be the CMAR?
A: Yes, but only if the firm does no construction (including warranty and completion work) on projects over $100,000. The same firm can manage and design, but cannot also build.
Q: What if the CMAR has to fix a subcontractor's bad work?
A: Under this opinion, the CMAR cannot do that work itself. The correction has to go to another contractor (typically a separate bid or a subcontractor procured by the CMAR).
Q: Does this affect design-build delivery?
A: Design-build (one entity for design and construction) is a different procurement model under different statutes. The architect/engineer-as-contractor prohibition in SDCL 5-18B-15 has historically applied to design-bid-build and CMAR delivery on public improvements. Design-build authority for public projects in SD has been added in specific contexts; check current statutes.
Q: Are emergency repairs treated differently?
A: SDCL 5-18B-15 includes an exception for emergency-nature public improvements that affect public health and safety and are funded through emergency or special appropriations. Routine projects do not qualify.
Background and statutory framework
SD authorized construction management as an alternative procurement method in 2003 (former SDCL 5-18-45 through 54). The 2010 recodification of government procurement laws moved the framework to SDCL chapters 5-18A and 5-18B. The substantive structure was preserved, but section numbers and some details changed.
The framework recognizes two distinct construction-management roles. A construction manager-agent acts as agent of the purchasing agency, helping coordinate without taking on construction risk. A construction manager-at-risk takes the risk, contracts directly with construction trades, and effectively becomes the general contractor for the project (while still being labeled "construction manager").
SDCL 5-18B-39 makes the use of construction management discretionary. The governing body can use it or not. If it chooses to use it, the procurement framework in SDCL 5-18B-40 through 44 applies.
SDCL 5-18B-43(2) lays out the procedural requirements. Subsection (2)(b) requires the RFP method (SDCL 5-18B-44) when the CMAR will perform actual construction on the project, unless specific exceptions in (2)(c) or (d) apply. Where the CMAR will not perform actual construction, the negotiated approach is permitted.
SDCL 5-18B-42 makes the CMAR the contracting party with respect to subcontractors and suppliers. The CMAR signs subcontracts and bears their financial obligations. This is the structural feature that puts the construction "at-risk" with the CMAR rather than with the public purchasing agency.
SDCL 5-18B-15 is the dual-role prohibition. The text is straightforward: no firm may be architect/engineer and contractor on the same public improvement project over $100,000. The provision exists to prevent the self-dealing problem where the same firm designs the project, contracts to build it, and has no independent check on cost or quality.
SDCL 5-18A-1(4) is the broad "construction" definition. By including repair, demolition, and alteration in addition to ordinary meaning, the definition sweeps up most physical work on a project. The AG's reading of warranty work as repair, and completion/correction work as construction or alteration, follows directly from the statutory text.
For state agencies, the AG also noted that SDCL 5-18D-17 to 20 RFP procedures may apply because construction management services satisfy the definition of "professional services" in SDCL 5-18A-1(19). State agencies have an additional procurement track separate from local-government procurement.
The opinion's broader principle is conservative reading of the architect/engineer-contractor separation. Even small amounts of physical work cross the line if they fit the broad construction definition. Public procurement law in SD treats the separation as structural and important, not merely a technicality.
Citations and references
Statutes:
- SDCL 5-18A-1(4) (construction definition)
- SDCL 5-18A-1(5)-(8) (CM role definitions)
- SDCL 5-18A-1(19) (professional services definition)
- SDCL 5-18B-15 (dual-role prohibition over $100,000)
- SDCL 5-18B-39 (discretionary use)
- SDCL 5-18B-40 through 44 (CM procurement framework)
- SDCL 5-18B-42 (CMAR contracts with subs)
- SDCL 5-18B-43(2) (procedural requirements)
- SDCL 5-18B-44 (RFP method)
- SDCL 5-18D-17 through 20 (state agency RFP)
Cases:
- None cited.
Source
Original opinion text
STATE OF SOUTH DAKOTA
OFFICE OF THE ATTORNEY GENERAL
February 23, 2011
Randolph F. Stiles
Mitchell City Attorney
612 N. Main St.
Mitchell, SD 57301
OFFICIAL OPINION NO. 11-01
Construction Manager-at-Risk Services Available to be Provided
Dear Mr. Stiles:
You have requested an official opinion from this Office regarding the following question:
QUESTION 1:
Whether the construction management provisions in SDCL 5-18B-40 through 44 allow the City to hire a construction manager-at-risk where the construction manager does not perform any of the actual construction work on the project other than warranty work or completion/correction of incomplete or unacceptable work done by a third party contractor, subcontractor or supplier and receives no additional compensation for such work?
QUESTION 2:
Whether a construction manager-at-risk providing architect/engineer services violates SDCL 5-18B-15 where the construction manager's performance of work on the project is limited to warranty work or completion/correction of incomplete or unacceptable work done by third parties?
OPINION SUMMARY:
The City may negotiate a contract with a firm to act as a construction manager-at-risk; however, that firm may not perform any construction work, including warranty work or completion/correction of incomplete or unacceptable work done by a third party. SDCL 5-18B-15 prohibits a construction manager-at-risk from performing architect or engineer services and performing any construction work when the public improvement exceeds $100,000.
FACTS:
The City of Mitchell is in the development stages of construction of a community wellness center. The City desires to hire, through negotiation, a firm who will provide services as an architect/engineer and act as a construction manager-at-risk for the project. It is anticipated that the firm acting as a construction manager-at-risk will enter into contracts with third party contractors, subcontractors and suppliers utilizing a bidding process with public notice. It is further anticipated that the firm will not perform construction work, except which is necessary for the completion or correction of work performed by third party contractors, subcontractors and suppliers, or warranty work following final acceptance and occupancy by the City. It is anticipated that the firm will receive no additional compensation for such work.
IN RE QUESTION 1:
In 2003, the South Dakota Legislature authorized construction management as an alternative procurement system for construction of a public improvement. SDCL 5-18-45 through 54. These construction management provisions were substantially recodified as part of the 2010 revision of the government procurement laws. See SDCL 5-18A-1(5), (6), (7), (8), SDCL 5-18B-39 through 45. The decision to contract for construction management services is discretionary. SDCL 5-18B-39.
Under state law, there are two types of construction managers; construction manager-agents and construction managers-at-risk. Your question pertains solely to a construction manager-at-risk. SDCL 5-18A-1(8) defines "construction manager-at-risk" as "any construction manager that assumes the risk for construction, rehabilitation, alteration, or repair of a public improvement and that provides construction management services to the purchasing agency." One of the distinctive characteristics of using a construction manager-at-risk is that the construction manager-at-risk, and not the governing body, is the entity that contracts directly with the contractor, subcontractor and suppliers of a project. SDCL 5-18B-42. This provision facilitates the construction manager-at-risk's assumption of the monetary risks of construction.
The Legislature varied the procedure required of a governing body in contracting with a construction manager-at-risk, depending on whether the construction manager-at-risk is to "perform actual construction on the project." Where actual construction is to be performed, unless the exceptions in SDCL 5-18B-43(2)(c) or (d) apply, the governing body must satisfy the request for proposal method of procurement under SDCL 5-18B-44. SDCL 5-18B-43(2)(b). There is no comparable provision when the construction manager-at-risk does not perform construction services. Thus, if construction services are not part of the contract, local governmental bodies may negotiate a construction manager-at-risk contract.
Assuming that the City negotiates a contract for construction manager-at-risk services, the question is whether the construction manager-at-risk may perform warranty work or completion/correction of incomplete or unacceptable work performed by a third party with whom the construction manager-at-risk has contracted. The answer to this question is no. SDCL 5-18A-1(4) defines "construction" and "constructed," "in addition to their ordinary meaning, repair, demolition, and alteration." Based upon this broad definition, "construction" encompasses warranty work and the completion/correction of incomplete or unacceptable work done by a third party. Thus, under the current statutory scenario, a construction manager-at-risk hired under a negotiated contract may not perform any construction activities. SDCL 5-18B-43(2) and 5-18B-44.
IN RE QUESTION 2:
SDCL 5-18B-15 provides:
No person, firm, or corporation may act as architect or engineer and also contractor on any public improvement project if the amount to be expended exceeds one hundred thousand dollars. Any public improvement of an emergency nature which affects the public health and safety of the state and are funded through the use of an emergency appropriation or special appropriation, and any full-service firm which specialize in the design, fabrication, and installation of cultural and educational exhibits are exempt from this section.
Assuming that the public improvement exceeds $100,000, it is my opinion that SDCL 5-18B-15 prohibits a construction manager-at-risk from performing architectural/engineering services, and also acting as a contractor. As set forth above, "construction" includes warranty work and work necessary for completion/correction of incomplete or unacceptable work.
In contrast, given the description of the services performed by a construction manager in SDCL 5-18B-40, state agencies may be required to go through a request for proposal process under SDCL 5-18D-17 to 20. The description of services for a construction manager satisfies the definition of "professional services" in SDCL 5-18A-1(19).
Respectfully Submitted,
Marty J. Jackley
Attorney General
MJJ/JPH/rar