Article of the Month
Cost Considerations in Design-Build Projects
Bruce W. Husselbee, PhD, PE, DBIA
Infrastructure is critical to the quality of life we all enjoy in Hampton Roads. Bridges, roads, utilities, or the buildings we live and work in make our life better. Paying for this infrastructure is a challenge and can even result in difficult political debates. Much of the infrastructure, whether public or private, typically has a long-expected life. This requires a thoughtful review of the investment to be made to assure value is provided to those who use and ultimately pay for this infrastructure. Delivery of infrastructure projects is often complex and time consuming. A thoughtful decision of “how to” delivery a project that balances quality, cost and schedule is the first step that Owner’s must determine. The two most common forms of Design-Build project delivery are fixed-price and progressive. Both delivery methods have their place and the decision to use one or the other is often driven by state or local procurement requirements. Fixed-price Design-Build typically locks in pricing early in the project delivery process. This is a benefit to Owners since this early price certainty is beneficial. Progressive Design-Build is often budget estimate oriented until the scope of work is more clearly defined and a final price can be determined. Cost is intertwined with value. A low initial cost is desirable as long as the quality and schedule delivery need for the project are met. Estimates for infrastructure indicate that only 20 to 30% of the life-cycle cost of an asset are the initial cost of installation. An Owner must be prudent and weigh the total cost to build, operate and maintain the infrastructure to be installed. Both fixed-price and progressive Design-Build can allow Owner’s to weigh the value proposition and make informed decisions. Today’s economy creates further challenges when considering the cost of infrastructure. Engineering News Record (ENR) indicates that construction costs are rising. Their benchmark indicators are showing measurable increases (CCI=3.8% and BCI=6.1%)*. The cost for individual building components including steel, copper and timber have increased dramatically in recent months due to supply chain difficulties and the improving residential building market. An Owner that asks a Design-Builder to predict the future cost of building materials will pay a premium for this request. A process that shares the price of future escalation risk is beneficial to all parties. This can be accomplished by using published price indexes like ENR or documented quotes for specific suppliers of certain building materials. All projects must balance quality, schedule, and cost. The Design-Build process can allow for an open communication of project risks and associated costs. Through this open dialogue, best value decisions can be made which in the long run will benefit those that need the infrastructure we are proud to design and build.
*CCI = Construction Cost Index, BCI = Building Cost Index
Design-Bid-Build vs. Design-Build vs. Construction Manager-At Risk
By Draper Aden Associates
Which construction delivery method is best for you?
As an owner embarking on a new construction project, one of your first choices will be the type of delivery method best suited for you and your project: Design-bid-build, design-build, and construction manager-at-risk. The below video walks through these three common methods of project delivery.
Design-Build: A valuable construction project delivery method for the right project
Neil Lowenstein, Esq., Vandeventer Black LLP
A class I taught recently overviewed the myriad of available construction project delivery methods. Of course, one of those methods was design-build. While most of the attendees were familiar with design-build, some were not so we spent additional time discussing when I see design-build as particularly effective. While there is no single project type for design-build, I see some commonalities.
Project complexity is certainly one of those factors, but not the most important. Design-build can work effectively for any type of project, even complex ones. More importantly, I believe, is willingness of the parties, and the owner, particularly, to embrace the design-build method, including ceding design control.
That does not mean the owner must ignore anything design related, but the owner must be flexible and more focused on the end product’s usability than, for example, its design flair. In exchange, the owner avoids and shifts design responsibility, and importantly liability, to the design-builder team.
The owner still has input regarding the design, but the design-build delivery method works best when the owner’s input stays bigger picture focused on conceptual and usability aspects of the design and does not stray into design or construction means and methods.
The more the owner strays into means and methods, the more the owner puts itself at risk of responsibility for those means and methods, and so also liability respecting them, obviating one of the key owner advances respecting the design-build methodology.
So, before using the design-build delivery method, owners must honestly evaluate their own needs, expectations, and personalities. However, if after such honest evaluation the owner is comfortable with design-build, the design-build delivery methodology is cost effective and efficient, while avoiding the responsibility and liability applicable with other common construction project delivery methods.
Operational Benefits of Design/Build or Alternative Delivery
Design/Build provides a platform to increase collaboration, reduce schedule, and ultimately provide the most value to the owner. Providing the most value is not always the lowest cost initially. Many times operational cost and furthermore future maintenance issues are not considered when selecting equipment to be specified on projects.
Design-Bid-Build was the predominant delivery method for decades. This delivery method was used on public and private projects. Under this scenario, the project was designed and specified typically with an or equal specification that resulted in the lowest possible cost for all equipment included in the project. Under this delivery method the owner always received the equipment that was the lowest cost that could generally meet the spec. All equipment always has numerous items that are not exactly the same, but generally provide the same performance.
Private Industry moved to Design-Build prior the public sector. The reason behind this is that private industry is typically making products or running plants and the operational side of the equation is almost more important than the initial capital cost. If a pump or processing piece of equipment goes down more regularly due to problems which shuts down a plant or manufacturing process, this can cost the owner much more than a little bit more for the initial capital expense. Private industry (particularly manufacturing, food processing, etc.) needs to keep the facilities running. Downtime is unwanted, unacceptable, and much more costly due to equipment problems.
The public sector has been able to realize this same benefit through the use of alternative delivery and specifically design/build. Through the collaboration with the design/build partners, specific or critical equipment may be provided within the design/build platform to meet the owner’s needs and not just the lowest priced piece of equipment on bid day. Many factors go into selecting equipment – initial cost, replacement cost, spare parts cost, spare parts availability, existing service relationships, etc. Ultimately, the owner can get the piece of equipment they specifically want and probably not at a premium.
Including the owner’s operational staff in equipment selection decisions for input on previous experiences and operational problems or concerns will go a long way to forming a successful partnership under design/build.
David M. Ervin, DBIA
Vice President, MEB
How NOT to Approach Design/Build
I received a call recently from a colleague who owns a successful A/E firm in a nearby state. Since most of his firm’s work is for municipal government clients, the predominant delivery method has been traditional Design-Bid-Build. His clients are migrating more into the Design/Build delivery method, and he is looking to enter that arena. “I was going to reach out to one of our competitive-bid contractors,” he said, “They don’t charge a lot on change orders, they generally build in accordance with our plans and specs, and their punch lists are usually short. I’m sure they would be a good partner to join on a Design-Build project.”
If you are new to the Design-Build delivery method, choose your partners carefully. While good D-B-B contractors have talented estimators, they may not have experienced preconstruction managers that understand the nuances of D/B delivery. Here are some tips for entering Design/Build if you do not have familiarity:
Start small. Find a project type in which you have a lot of expertise, and a client that is open to creative project delivery. Don’t go after the $50 M project at s a first project – start with one where you can get comfortable with your D/B partners, learn the aspects of delivery and not lose your shirt if the project does not go well.
Reach out to contractors who have D/B experience. Even if you are new to Design/Build delivery, we have all worked with contractors on negotiated or Construction Management-at-Risk contracts. These contractors understand the preconstruction process – how to work with owners, architects and engineers during the design and construction documents phases to get the best results for the client.
Find partners that have a similar value system to your own. Does the contractor work in an environment of trust, respect, and confidence in the entire team? Does your staff have equal respect for the contractor’s team and what they bring to the D/B process? Cooperation is vital to a successful D/B project.
Don’t go it alone. Find colleagues in the A/E/C industry that have had success with Design/Build projects. Join a team in a support role where you can share your specific expertise, but not necessarily take on the entire design risk (and reward) for the project. When joining a well-organized D/B team that has delivered successful projects, be a sponge – soak up everything you can about the process.
Assign senior staff members to the project. The biggest mistake I see a lot of firms make in Design/Build is to start the project off with inexperienced teams. D/B pursuits are often at the team members’ risk, so you support them with your less expensive staff, saving the senior staff for the clients that are paying, right? This approach is the best way to get upside down quickly. The decisions that are made made during the first 10% of the project are the most critical – and the riskiest. They must be made by experienced team members, who can quickly evaluate high-level design options and their impact on cost/schedule/constructability.
Read DBIA literature and utilize DBIA agreements. The DBIA understands Design/Build, and the contract templates responds more to the industry – owners, contractors, and designers – than other association templates. Take advantage of the experience that other A/E/C colleagues have instilled in these documents.
No-ego environment. Put the ego aside. This is an extremely very collaborative process with one goal in mind – the best project that meets the client’s needs. If you always need to drive the process, control communications with your client, and protect the owner from the contractor, Design/Build is probably not for you.
While the Design-Bid-Build construction procurement delivery will not go away, the construction industry continues to evolve toward more creative and collaborative delivery methods. My firm has been delivering CM at Risk and Design-Build projects for over 25 years and have has found the collaboration and creativity of the teaming to be very rewarding, and a great business decision.
Thomas G. Tingle, AIA
Picking the Right Client in Design Build is Critical for Project Success.
Those of you that are Seinfeld fans might remember the episode where George is breaking up with his girlfriend. He rehearses the break-up phrase, “It’s not you, it’s me.” (That episode is hysterical.) Well, sometimes it is the actions--or inactions--of the client that drives the service provider to consider the relationship they are in and give some thought to doing work with that client again. Let’s face it: All clients are not created equal. Picking the right client, especially in Design Build, is critical for project success.
In another article later this year, we will explore the thought that it was you that may have cause the problem with the client. After all, the most common excuse for poor performance is to blame the client. But for today, let’s explore what to do when you find yourself in a situation where you need to say, “It’s not me, it’s you!”
Despite conducting thorough background research on a new client and harboring the best of intentions to have a collaborative, mutual beneficial relationship – it just doesn’t happen. The relationship is strained, tense. And now you find yourself working on a project where the technical aspects of the project are advancing, but you find yourself dreaming at night about the client and wondering “is it me?” You realize that relationship with your client is broken.
Here’s is my advice – wrap up that job and do a really honest post-mortem on the project and service provider – client relationship. I have found in my many years working in the AEC Industry that the most common excuse for poor performance is to blame the client. Understanding that YOU might be the problem, let’s turn our attention to some reasons that you might want to drop a client or no longer pursue work with that client. Here are some things to think about.
Reasons to drop a client:
1. Your instincts say so. Don’t underestimate what you gut it telling you. If your client is renting space in your head – lose them.
2. The client does not appreciate the value to bring to the team. You can see or feel this in your interactions with the client.
3. The client does not treat you in a professional manner. Professionalism means being respectful of others and speaking with integrity and in the right tone.
4. The customer does not share the same values as you. (I’m defining values as the motives behind the actions that are being taken.)
I think it is important to understand that YOU decide who you will work for. All work is not good work. While nurturing client relationships is critical to success, it’s important to recognize the signs of when you should end those partnerships that are no longer functional or mutually beneficial.
William A. Sorrentino, Jr., P.E, PMP, DBIA