Project Management 1.4 - Article: Choosing the Best Delivery Method for Your Facility Project, by Blake Peck, CCM, McDonough Bolyard Peck, Inc.

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Introduction

A college or university embarking on a construction project must make an important decision regarding the method by which the project is designed and constructed-the project delivery method. This decision has become more difficult in recent years as several "alternative delivery methods" have been developed to address weaknesses in the traditional design-bid-build scenario. Methods that have gained in popularity include at-risk construction management, fast-track construction, multiple prime contractors, and design-build. Proponents of particular alternative methods promise improvements over the traditional system in terms of cost, project control and reduction in disputes.

For the facility owner, the wealth of choices can be both good and bad. The downside is that with the variety of delivery systems-along with the accompanying assurances of the superiority of one method over others-confusion can be inevitable. The good news is the increased number of alternatives offers the owner or developer more flexibility to choose an appropriate and effective system for its particular project.

Construction management (CM) is a discipline uniquely tailored to the planning, design and construction process of capital projects. It has proven effective regardless of the chosen contract form or project delivery method. Indeed, CM has been used successfully in all contracting methods and delivery systems by owners who do not continuously maintain the staff expertise or numbers necessary to deal with the complex responsibilities involved in the management of major projects. The following is. a brief review of project delivery systems, along with a discussion of some of the important points an owner should consider in choosing a delivery method.

Owner's Requirements

A facility owner has several areas of concern when embarking on a construction program. The following highlights some of the key considerations in developing a construction program:

Budget

The owner has an obvious need to determine a realistic budget before design to evaluate project feasibility, to secure financing, and as a tool to choose from among alternative designs or site locations. Once the budget is determined, the owner requires that the project be completed at or near the established figure without excessive overruns.

Design

Of foremost importance to the owner is that the desired facility function as envisioned, that the design program successfully fulfill the needs of the owner and users. Therefore, an owner requires that its design team be well qualified in the type of facility being designed. In addition, the owner must ensure that the owner's and user's program. needs are clearly conveyed to the design team. Since the design of the facility actually must be buildable and properly communicated in order to be useful, the owner requires that the design documents are constructible, complete, and coordinated. The documents should properly incorporate unique features of the site to include subsurface conditions, interface with adjoining properties, access, and other characteristics.

Schedule

The owner has similar needs in the area of scheduling. The date of completion of a new facility can be critical, either in terms of generating revenue from the facility, or in terms of providing needed functional space by a particular deadline. Therefore, a realistic assessment of project duration and sequencing needs to be performed early in the planning process. The schedule should then be monitored throughout design and construction.

Risk Assessment

The development of any facility involves many risks. In construction, issues of risk are closely tied to schedule and budget issues. The owner requires an understanding of the risks involved in construction, and should make a conscientious decision regarding allocation of these risks among project participants, so that all areas of exposure are properly understood. In considering risk allocation, the owner should strive to assign risks to those parties that exercise control over those aspects. For example, it would typically be problematic to require that the contractor correct problems due to design errors at no extra cost since a contractor generally has little control over the cause or magnitude of such errors.

Owner's Level of Expertise

The owner's familiarity with the building process and level of in-house management capability will have a large influence over the amount of outside assistance required during the process and may guide the owner in determining the appropriate project delivery system.

Review of Project Delivery Methods
Traditional Design-Bid-Build

The traditional design-bid-build system remains the most popular delivery method for construction projects. The owner engages an architect or engineer (A/E), which prepares 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 bids for the work, and execute contracts with subcontractors to construct various speciality items. In many cases, the contractor submitting the lowers responsive bid is selected to perform the construction. This contractor is then responsible for constructing the facility in accordance with the design. The A/E typically maintains limited oversight of the work and responds to questions about the design on behalf of the owner. The A/E may also assist the owner in administering the construction contract, including determination of project progress, for interim payments made to the contractor.

This contracting system offers the advantage of being widely applicable, well understood, and with well-established and clearly defined roles for the parties involved. Furthermore, it offers the owner a significant amount of control over the end product, particularly since the facility's features are fully determined and specified prior to selection of the contractor. However, many construction owners have experienced a variety of frustrations using this system, leading to the development of other methods.

Among the chief disadvantages of the traditional system are:

The process is time-consuming since all design work must be completed prior to solicitation of the construction contract.

The A/E 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 constructibility 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 A/E 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 constructibility 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.

While the most common approach to bidding a project in building construction is for general contractors to submit a sealed lump-sum bid, many variations in contractor procurement exist in the traditional system.

Other methods include unit-price contracting, which is generally limited to projects that can be easily divided into small work units and quantified prior to construction. This is commonly found in heavy construction projects. At the other end of the spectrum is cost-plus contracting, generally used in circumstances where there is such high risk or variability in the work that preparing a responsible bid is impossible.

Most successful owners make some effort to pre-qualify contractors, either through invitation, or through an objective set of criteria considering construction experience and financial capability. Doing so helps assure the owner that the contractor is capable of providing a high-quality product.  Once the field of bidders is established, an owner bidding a lump-sum project may choose to require sealed bids, wherein the lowest responsible bidder will earn the right to perform the work.

However, many private owners prefer to negotiate bids with pre-selected GC's. This can be an especially powerful technique if the owner considers qualifications, history of claims and experience in related work along with price in its evaluation. What the owner should really be seeking is the best value for its money, not necessarily the lowest initial cost. Through a careful negotiation or contractor evaluation, the owner can maintain the maximum amount of control over the resulting construction portion of the project.

Construction Management at Risk (CM as GC)

This system, adopted and promoted by many large general contracting firms, is similar in many ways to the traditional system, in that the CM acts as a general contractor during construction. That is, the CM holds the risk of subletting the construction work to trade subcontractors and guaranteeing completion of the project for a fixed, negotiated price following completion of the design. However, in this scenario, the CM also provides advisory professional management assistance to the owner prior to construction, offering schedule, budget and constructibility advice during the project planning phase. Thus, instead of a traditional general contractor, the owner deals with a hybrid construction manager/general contractor (CM/GC).

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/GC can bid and subcontract portions of the work at any time, often while design of unrelated portions is still not complete. In this circumstance, the CM/GC and owner negotiate a guaranteed maximum price (GMP) based on a partially completed design, which includes the CM/GC's estimate of the cost for the remaining design features. Furthermore, CM-at-risk may allow performance specifications or reduced specifications to be used, since the CM/GC's input can lead to early agreement on preferred materials, equipment types and other project features.

The primary disadvantages cited in the CM-at-risk system involve the contractual relationship among A/E, CM/GC and owner once construction begins. Once construction is underway, the CM/GC 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.

One mitigating approach to this problem is for the CM/GC to share with the owner its subcontractor bids, to ensure openness in the process. The CM/GC may further assume risk by taking some responsibility for design errors discovered during construction, if it was involved in the review of the design prior to establishing the GMP. In addition, arrangements can be made regarding risk-sharing and profit sharing if there are over-runs or under-runs in the GMP.

An owner wishing to use the construction management at-risk approach can realize many benefits. Chief among them are 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 the proper selection of the CM/GC to provide the best value to the owner.

Multiple-Prime Contracting

Another alternative procurement system is multiple prime contracting, in which the owner holds separate contracts with contractors of various disciplines, such as general construction, structural, mechanical, and electrical. In this system, the owner, or its CM, manages the overall schedule and budget during the entire construction phase.

This system, which many state agencies are required to use, gained favor in part as another method of "fast-tracking" construction. Work in each construction discipline is bid separately, allowing the flexibility of awarding construction contracts on the first portion of the project as soon as the respective aspect of design is completed. This fast-track approach appears to be a highly desirable feature of this method of procurement in cases where time of performance is a critical element.

Furthermore, the system allows the owner to have more control over the project schedule, since the owner sets the schedule for bidding individual portions of the work. For example, if an initial phase of construction (such as foundation construction) is delayed, the owner may reduce liability for delays by postponing the bidding of follow-on work. Another advantage of this system is that the owner can realize savings by directly procuring major material items, such as structural steel or major mechanical equipment, avoiding contractor mark-ups.

However, the very nature of this system is one of its primary disadvantages. There have been numerous cases where this method did not work well, due to the absence of overall authority and coordination once construction is underway. The problems primarily arise from lack of coordination and contractor delay issues. While the general construction prime contractor is often given contractual responsibility to coordinate the work among trades, including schedule, this contractor lacks the contractual authority to dictate the schedule of another contractor.

For example, during the construction of a university laboratory/classroom facility, delays arose due to coordination issues involving installation of laboratory equipment. The general contractor sought damages from the owner for delays by the mechanical contractor, while the mechanical contractor blamed the general contractor for its delays. This type of dispute is far from unique in this form of contracting, even in cases where the owner has used an independent CM to coordinate schedule issues.

Design-Build

The design-build (D-B) project delivery system has grown 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 (or party ultimately to blame)-in D-B many of these disputes become internal D-B team 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 an A/E. 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. One variation of the typical D-B team structure, known as fee-paid developer, involves the owner engaging a developer, which then selects its own A/E and contractor partners. However formulated, the D-B team performs the complete design of the facility, usually based on a preliminary scope or design presented by the owner.

At some point early in the process, the D-B team will usually negotiate a fixed price to complete the design and construction of the facility. 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 is working together from the outset, D-B offers the opportunity to save time and money. However, the advantages of the system are offset by a significant loss of control and involvement by the owner. Accordingly, it is difficult for the owner to verify that it is receiving the best value for its 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 A/E firm.

Owners with highly specialized program needs or desires may not find it advantageous to turn over responsibility to an outside team, without ensuring adequate levels of oversight and communication. For example, a government owner constructed a high-technology research facility involving highly specialized equipment using D-B. During project development, the D-B team made several key design and equipment selection decisions without full involvement of the owner, resulting in an unsatisfactory facility that required costly changes.

With this lesson in mind, it appears that D-B is best suited to conventional projects for which project requirements can be clearly defined and for which expertise is widely available. For example, a classroom / office facility or dormitory complex might be projects ideally suited for D-B. In projects of this type, the owner is not assuming undue risk in conceding control over the project, and may benefit from the advantages of D-B.

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.

Agency Construction Management Services

Agency construction management (ACM), or construction management-for-fee, encompasses a range of services provided by a CM on behalf of an owner.  It is a common misconception that CM-for-fee represents a distinct project delivery system. In fact, agency construction management consists of a distinct set of services that are applicable to any project delivery system. These services can be used by the owner as necessary to extend or supplement the owner's own expertise, its own staff, and to manage the construction process to help address some of the shortfalls of the project delivery system chosen.

A CM working is an agent to the owner primarily provides the benefit of independent, professional services provided on the owner's behalf throughout the project. In contrast to some other project participants, the ACM has no vested interest in the project - in either its design or construction - and maintains a fiduciary duty to act on the owner's behalf and provide to provide impartial advice concerning the construction project. As such, ACM firms should be selected based on qualifications, and not on a cost or low-bid basis.

Services offered by an ACM include the following:

Pre-Design and Design: As discussed earlier, there are often advantages to obtaining construction expertise during the early planning stages of a project. Some services typically offered by ACM firms during planning stages include the following:

Selection of a design team: An ACM firm, based on historical experience in the market, can assist the owner in selecting the most qualified A/E team to develop project plans and specifications. Similarly, an ACM firm can also assist the owner in evaluating various potential construction sites.

Budget and Cost Estimating: Preliminary budgets, based on historical data for similar projects, will assist the owner in determining the feasibility of initial scope. More refined estimates are developed during the design process to pinpoint the necessary construction budget, and provide a basis of comparison to contractor bids.

Constructibility Review: A review of design plans and specifications will help the owner verify that the design as presented is clear to the contractor, poses no construction conflicts, and is economically feasible to build.

Value Engineering: A multi-disciplined team reviews project features to ensure that the owner's necessary functions are provided in the most cost-effective way, both in terms of initial and life-cycle costs.

Contract Bidding: An ACM firm can assist the owner in pre-selection of contractors and development of the bid package to ensure that the contractor selection process is fair and provides the best value to the owner.

In fact, an ACM is often most cost effective during the planning stages of the project, since the ACM firms can provide the careful planning and organization skills that can help prevent costly problems during construction. Properly executed services such as constructibility reviews and preliminary scheduling can result in significant risk reduction and cost savings many times initial cost in terms of limiting change orders, delays, and contractor claims. Here the owners can maximize the benefits of CM in a professional advisory role throughout the design and construction process because the CM has no stake in the construction contracting.

Construction Phase: ACM firms provide a variety of services during construction, including the following:

Construction Inspection and Surveillance: Virtually all owners desire some type of examination of project performance on a continuous or periodic basis to review progress, ensure compliance with specifications and plans, and to review housekeeping and safety issues.

Project Controls: These services are provided to ensure that the project is efficiently and effectively managed. They include maintenance of project correspondence, conducting progress meetings, handling submittals and requests for information, documentation of progress, review of pay requests, schedule reviews and schedule updates.

Change Order Review: These services include negotiation of change orders with the contractor, coordination with A/E over design changes, determination of responsibility for changed conditions or coordination conflict, and review of price and schedule changes.

Project Closeout: Review of the project to ensure orderly and timely completion, including development of punch lists; monitoring of implementation, training and warranty periods; resolution of outstanding issues; review and analysis of claims or disputed issues.

The most frequently cited criticism of ACM services is that the CM adds a level of bureaucracy to a project, resulting in added cost. While it can be argued that such costs may actually reduce overall project costs, it should be noted that an owner can realize the benefit of the ACM services without necessarily committing to large increases in expense by supplementing its own project management as necessary and selecting ACM on a service-specific basis.

The owner has the option of tailoring its use of ACM services to its needs in order to provide the best combination of project control and cost. For example, many public agencies have a large contingent of inspection personnel, but may lack sufficient management experience to enact effective project cost controls. Or, an owner may wish to have more construction knowledge built into the design process by engaging an ACM firm to perform a value engineering or constructibility review. An owner may also desire enhanced scheduling expertise in coordinating its various designers and contractors for a multiple-phase effort.

Other owners may be very comfortable with their A/E team, but may need assistance in finding qualified contractors to perform the work. Many owners use an ACM's construction closeout services to resolve intractable problems on projects which degenerate due to disputes with a contractor over schedule and delay issues.

Recommendations and Conclusion

Clearly, there is no one right project delivery method for a given project. All of the methods discussed have been used successfully, and have weaknesses which can limit their success. The following considerations should guide the owner in selecting the proper delivery method:

Type of Project: The owner should gauge the level of complexity and uniqueness of the project, and maintain an appropriate level of control.

Size of Project: The amount of outside assistance and number of project participants should match the significance of the project. Obviously, the more complex and costly a project, the greater the need for professional management and advice.

Owner Capabilities: The owner should realistically assess its own in-house capabilities in evaluating project procurement methods.

Time Considerations: If the project needs to be constructed in a severely compressed time limit, methods adaptable to fast-track construction should be considered. However, the owner must weigh the need for the compressed time limit against the increased risk of fast tracking.

Likelihood of Changes: If the owner is aware that its requirements may change considerably during the project, this should be evaluated against the potential cost of such changes. For example, a D-B team may present the most fluid method of incorporating changes during construction, but those changes may come at a higher cost than through other methods.

The Construction Management Association of America (CMAA) believes professional construction management can help owners in constructing the best facilities possible, on-time and on-budget. From our vantage point, professional constructional management is highly desirable, if not essential, to a successful project. These services are adaptable to any project delivery system, and are scalable to meet the specific needs of the project. We recommend that an owner thoroughly explore available options for construction procurement, and consider the benefits of professional management services regardless of the contractual approach used to deliver the project. We also urge owners to look for the Certified Construction Manager (CCM) designation in evaluating firms and individuals they are considering for upcoming projects. This certification identifies a potent resource that can help you have a successful project.

Blake V. Peck, CCM, is a founding principal of McDonough Boylard Peck, an ENR Top 100 CM Firm and is president-elect of CMAA.

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Originally printed in the March/April 2001 issue of Facilities Manager, published by APPA

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