What Keeps Me Up at Night: Project Delivery Methods
By Greg Offner
Embarking on a construction project, many jurisdictions have their hands tied by legislation when it comes to how they can bid and award a construction project. Many times, regardless of a project’s size or complexity, schedule and budget considerations, the project delivery decision is already set in stone.
We are a quarter of the way through the 21st Century. The fact we are still using late 19th Century methods to deliver construction projects has me counting sheep at night. There are other methods by which a construction project is designed and constructed that are better, safer, quicker and deliver higher quality. Procuring a project is also an important local business decision, considering how best to maximize local talent must be a factor in how the project is procured! What keeps me up at night is the delivery method choice is most times driven by age-old legislation, not necessarily in the best interest of the taxpayers.
In this article we will share how the delivery “decision” has become more difficult in recent years as several “alternative delivery methods” have been created to address weaknesses in the traditional lump-sum bid, design, then bid, then build delivery method.
Alternative bid and award strategies have gained in popularity in the U.S.A. They include Construction Manager (CM) at-risk where the CM holds the contracts with the sub-contractors, CM at Risk with multiple prime contractors where the Owner holds the contracts, and design-build. Perhaps not as popular here in The States, The Dominion of Canada also uses the strategies mentioned above as well as Public-Private Partnerships, and Design-Build-Finance for a majority of their public works projects.
Proponents of particular alternative methods promise improvements over the traditional system in terms of cost, project control and reduction in disputes. Let’s face facts, these alternatives are better. Why? Because the owner knows his cost to construct and date of delivery sooner, it saves tax dollars and offers the owner more control of the expected outcomes. In today’s market the unknowns outweigh the planned. The increased number of alternatives offers an Owner or developer more flexibility to choose an appropriate and effective system for its particular project.
Traditional Design-Bid-Build – Single Prime-Multi Prime
The traditional design-bid-build system remains the popular delivery method for both public and private construction projects. An Owner hires a Architect to prepare the design of the complete facility, including construction drawings, specifications and contract packages. Once completed, the design package is presented to interested general contractors (GC), who prepare lump sum bids for the work, and execute contracts with subcontractors to construct various specialty items. In many cases, the contractor submitting the lowest responsive bid is selected to perform the work. This Single-Prime contractor is then responsible for constructing the facility in accordance with the design, also known as the Contract Documents. In a multi-prime delivery, a General Contractors bid is added to lump sum bids received from Mechanical, Electrical and Plumbing contractors. Together they will deliver the project. Regardless of which Lump-Sum method is used, be prepared for many sleepless nights.
Some of the major disadvantages to an At-Risk Lum Sum bid process, and there are so many I had to bulletize them are:
· The process is time-consuming since all design work must be completed prior to solicitation of the construction contract.
· The designer may have limited ability to assess scheduling and cost ramifications as the design is developed, which can lead to a more costly final product.
· The Owner generally faces exposure to contractor claims over design and constructability issues since the Owner accepts liability for design in its contract with the contractor.
· The traditional approach tends to promote more adversarial relationships rather than cooperation or coordination among the contractor, the designer and the Owner.
· The contractor pursues a least-cost approach to completing the project, requiring increased oversight and quality review by the Owner.
· The absence of a contractor’s input into the project design may limit the effectiveness and constructability of the design. Important design decisions affecting both the types of materials specified and the means of construction may be made without full consideration of a construction perspective.
The most common approach to bidding on a construction project is for general contractors to submit a sealed, lump-sum bid for the work.
Construction Management at Risk
The Construction Management (CM) delivery system is similar in many ways to the traditional Design-Bid-Build system, in that the CM acts as a general contractor during construction. That is, the CM holds the risk of subcontracting the construction work to trade contractors and guaranteeing completion of the project for a fixed, negotiated price following completion of the design. In this delivery scenario, the CM-at-Risk can
also provide advisory professional management assistance to the owner and work in partnership with the Architect prior to construction, offering schedule, budget and constructability advice during the project planning phase. Thus, instead of a traditional general contractor, the owner deals with a hybrid construction manager/general contractor.
In addition to providing the owner with the benefit of pre-construction services which may result in advantageous changes to the project, the CM-at-Risk scenario offers the opportunity to begin construction prior to completion of the design. The CM can bid and subcontract portions of the work at any time, often while the design of unrelated portions is still not complete. In this circumstance, the CM and owner negotiate a guaranteed maximum price (GMP) based on a partially completed design, which includes the CM’s estimate of the cost for the remaining design features. Furthermore, CM may allow performance specifications or reduced specifications to be used, since the CM’s input can lead to early agreement on preferred materials, equipment types and other project features. A good night’s sleep? Not so fast!
The disadvantages cited in the CM-At-Risk system involve the contractual relationship between the designer, the CM and owner once construction begins. Once construction is underway, the CM converts from a professional advisory role of the construction manager, to the contractual role of the general contractor. At that time, tensions over construction quality, the completeness of the design, and impacts to schedule and budget can arise. Interests and stake holding can become similar to the traditional design-bid-build system, and adversarial relationships may result. While the fixed GMP is supposed to address the remaining unfinished aspects of the design, this can in fact increase disputes over assumptions of what remaining design features could have been anticipated at the time of the negotiated bid.
An owner wishing to use the construction management at-risk approach can realize many benefits. Chief among them is the opportunity to incorporate a contractor’s perspective and input to planning and design decisions and the ability to “fast-track” early components of construction prior to full completion of design. However, since a commitment is made to a contractor earlier in the process, a premium is placed on prequalification selection of CM to provide the best value to the owner.
Design-Build
Around 1980, the design-build (D-B) project delivery system grew in popularity and is seen by some in the industry as the perfect solution in addressing the limitations of other methods. For an Owner, the primary benefit is the simplicity of having one party responsible for the development of the project. While the other systems often give rise to disputes among various project participants—with the Owner acting as referee many of these disputes become internal D-B team on issues which do not affect the Owner.
Under this system, the Owner contracts with a D-B team, which is often a joint venture of a general contractor and a designer. Since GC’s are comfortable in the role of risking corporate capital in performing projects, they usually are the lead members of this sort of team. Whatever an owner demands from the building architectural and operational requirements, the D/B team performs the complete design of the facility, usually based on a conceptual scope and operational and architectural program presented by the Owner as a bridging document.
At some point early in the process, the D/B team will usually negotiate a firm, fixed price to complete the design and construction of the facility. It is rare a Guaranteed Maximum Prices are used in a Design-Build delivery. Once underway, the D/B team is then responsible for construction of the project, and for all coordination between design and construction. Since the construction team has been working together from the outset, D/B offers the opportunity to save owners time and money.
However, the advantages of the system are offset by a significant loss of control and involvement by the Owner and stakeholders. This may cause a few restless nights. It mat be difficult for the Owner to verify they’re receiving the best value for their money, without a great deal of confidence in the D/B team. The primary caution for an Owner considering D/B is that it considers the level of involvement it requires for a successful project. First, the Owner needs to recognize the effort and completeness that must be behind its initial scope/preliminary design which forms the basis of its contract with the design-builder. Often, the Owner will require needs additional consultants to help it develop its scope or preliminary design, in the role of a traditional design firm.
With the above in mind, another primary consideration for the Owner is proper selection of the D-B team. Since the Owner selects a team that has been created prior to selection, it may be difficult for the Owner to maintain the proper balance of design expertise, financial capability, construction experience, and experience in D-B team roles. In particular, the Owner should strongly favor D/B teams with a successful track record working together on previous projects in the same D/B roles. More so than in any other delivery system, the success of a D/B project may hinge on the initial selection process.
Manage Risk
Ask an Architect or a builder what delivery method they prefer. Most times, the quick-draw answer will be “it doesn’t matter”. However, they know it does matter and any firm that tells you it doesn’t matter is likely sleep deprived. There are metrics that show the incidents of Claims, Change Orders, Errors and Omissions and Defaults are higher when a Lump Sum Bid, at risk project is planned. Limiting the risk of Claims is a benefit to the owners!
Both CM and Design Build deliveries allow the Architect to have a second set of eyes and permit the contractor to become more intimate with the design. The Contractor, in partnership with the Designer, can practically eliminate omissions or duplications in the documents, provide construction documents with clear detailing, coordination of components and most of all, make value added, lower cost approaches to the assembly of the building. If you want a good night’s sleep, work to make single prime and multi prime lump sum bidding a thing of the past.
Greg Offner is a Criminal Justice Consultant serving the Planning, Design and Construction Community, a valued member of the CN Editorial Advisory Board, and a regular contributor to Correctional News.
Editor’s Note: This article originally appeared in the July/August 2024 issue of Correctional News.