I previously wrote about these three major project delivery systems in 2015. It proved to be my most viewed article. I decided to redraft the article as... Circa 2022 edition to add the nuances which the past six unique years have added to the relevance of the differences and share what makes sense about each one during the unprecedented time including the COVID Pandemic. The following is the restated article...Circa 2022.
Due to the confusion caused by the misperceptions of these 21st century project delivery processes and the results they deliver; I decided to try and reduce into a condensed format the realities of each of these processes and what the pros and cons are of each. The desire being to allow people outside the industry a look into the industry through the eyes of someone in the industry; so that they can make better informed choices for themselves and the companies or organizations they represent.
The construction industry is no different than any other, as time has gone by, innovative ideas and new ways of instituting those ideas have come and gone. The sophistication of the technology involved in building (materials and sequences) often times takes a back seat to the impact technology has had on the management of building projects. Here is why this is not all bad. General contractors no longer employ 100’s of employees with dozens in each trade. The responsibility of maintaining competent tradesmen fall to the respective Subcontractors for their specific trade area. It coincides with the age of specialization.
Therefore, General contractors have become construction managers more than builders… making their management skills and their proficiency in the technology needed to be effective managers critical to their success in meeting owner expectations in the 21st century.
Similarly, Architects over the past half century have parceled out many of their traditional responsibilities as well. Both the Architecture and Contracting businesses have been severely impaired by liability paranoia. While contractors have become managers, Architects have evolved from being master builders to designers. They have been so severely handcuffed by liability paranoia they have gone from having substantial control of the building process, to having extraordinarily little. Today, even the engineers that work for them as consultants do not have the control they had even 20 years ago.
As one example, structural engineers do not detail every bolt and welded connection between beams and columns, the steel fabricators do. When the fabricators submit these details to the engineers, the engineers “approve” the drawings with a stamp that says (paraphrased) “We reviewed this, but we are not responsible for anything we missed or turns out to be wrong.” I call it liability paranoia. The Architect effectively has the same verbiage on their review stamp and so does the General Contractor. The process has become so fragmented over the past few decades that the costs of managing all the paper involved passing off liability has become cumbersome and very costly.
Adding to this maze of confusion is the mass of paper required to protect oneself from the inevitable finger pointing that goes on either during the construction or soon after if problems arise. For example, more time is spent by GC’s documenting the weather and its impact on the construction schedule than planning on ways to minimize those impacts on the schedule, liability paranoia.
We know that contracts in the most basic sense are an assignment of risk. Risk costs money. As lawyers work for owners to try and push as much risk away from their clients and onto the architect, engineers, and contractors they drive up the costs. It is like insurance, expensive insurance.
As the attorneys for architects and engineers work to push risk away from their clients and back onto the contractors, they drive up the cost. Of course, contractor’s attorneys have been working the entire time to push the liability back as well. This has created an environment of distrust and adversarial relationships.
These dynamics and how they have evolved highlight why it is so critical for project owners to understand the fundamental contractual relationship between all these parties in enough detail to enable them to make the best decision as to how they will build their project.
When a project is being contemplated, the first decision is, “We need to build,” the second and most crucial decision as it relates to cost, time, and overall value should be “How are we going to build?” Not what will it look like, not whether it will be brick or concrete, but “How will we program, design, procure, build and manage this project?” Before anyone is contracted with, an architect, a builder, an engineer, a planner…. anyone…. that question has to be addressed. To complete the project successfully the process has to be started successfully. A huge and very consequential question, “What is the best project delivery process for this project?”
This single decision will impact every step of the project, for months or years. As the project is designed, developed, budgeted, procured, and built. No decision is more critical… or will be loved or hated more than this one.
Let me address the potential answers to “How” are available in today’s market.
DESIGN-BID-BUILD:
The traditional process of design-bid-build (DBB) worked well 50-60 years ago when General contractors had 100’s of employees in dozens of trades. Carpenters, masons, electricians, plumbers, concrete finishers, finish carpenters, roofers, steel erectors, welders, equipment operators, drywall finishers, painters etc. etc. An owner could select an architect, even have them compete for the work by submitting schematic designs, and the selected Architect would do a complete set of bid drawings, Then the documents would be distributed to several of the “monster-sized” general contractors with hundreds of employees, for them to bid. The process was more consolidated then, as the bidders knew through their own cost history, the respective trade unit costs and could use this internal data and production rates etc. to prepare reasonably accurate bids. They were not at the mercy of subcontractors to make sure the respective trade scopes of work were covered and priced accurately. The drawings were “tighter” the bid process was “tighter,” the results were better.
Over time, the pieces started to fall away from the whole. Unions became unpopular. Non-union work was cheaper. With that freedom from Union halls came the ability for workers to go out and start their own businesses. Drywall finishers did not have to belong to a union and work their way up the ladder. They worked for someone for a couple of years and started their own business, the American dream. Every trade had this happen. The “monster-sized” general contractors with hundreds of employees in every trade now may have dozens at most, and most are management people and general trade skill people that can do many different things.
Today, Architectural firms are much the same. Firms that used to have a hundred architects, engineers, and designers, now have a few dozen. They send the majority, if not all, of the engineering out the door to independent consultants. The problem is that this fragments the design process at the critical coordination stage. There is not enough time for details, where trades intersect, to be coordinated as effectively as they were when the team members were under the same roof. This leads to change orders, cost increases and time extensions. The worst part is all this creates tension and finger pointing.
The drawings and specifications today are so cumbersome and generalized (to defend against liability) they are impossible to coordinate and complete accurate cost data on in the times required. Especially to a level that would produce well developed and complete bids. These “Bids,” today, are not assembled, developed, and analyzed by one or two people, who have knowledge of the thousands of details of all the data which is in their respective bid; they are the culmination of dozens, if not hundreds, of people from several different companies, locations, and areas of expertise. The Architect may cut and paste the specifications into their own spec manual, depending on the various subs and vendors required to understand the complexity of today’s respective trade materials and codes. It is impossible for one person to have the comprehensive knowledge of the specs for each trade. It is easy to see why the Architects who stamp a complete set of drawings are paranoid of their liability for a set of drawings and specifications which are impossible to 100% confidence in.
Similarly, the bid process in the DBB method is also fraught with behind the scenes strategizing, gamesmanship, and last-minute manipulating of the voluminous amounts of data produced by all the sources mentioned above. Hundreds of bids come in the last hour of the clock ticking down to the final bid time, to each of the contractors, and many are from people the respective contractors have never worked with, many of the sub-bidders intentionally scramble the scope of work they are bidding trying to gain an advantage. The result is each cumulative total bid from each General Contractors consists of hundreds of bids from vendors or subcontractors with whom the general contractor has no experience with and who may very well be doing their first job! As a result, the scope definitions which make up the respective sub and vender bids are too volumous to be adequately analyzed because of the issues mentioned above, thus the scopes of work included in the respective bids may overlap one another or worst yet, have gaps where the work is not covered by any of the sub bids. The cliché is that the low bidder is the one that made the biggest mistake. The perception that this process is “good” because the owner is getting the lowest price and possibly “getting something for nothing” could not be further than the truth.
The lowest bid is the cumulative total of sub-bids from hundreds of companies, for whatever total scope of work those bids happen to cover at a single moment in time. The GC's submitting those bids, while making their best effort to make the pieces of the thousand-piece puzzle all fit perfectly, cannot achieve that goal in a matter of minutes leading up to the bid time. It is a physical and statistical impossibility.
Starting a project with unknown team members, mixed and matched scopes of work and last-minute price juggling is no way to start any project. Odds are it will finish the way it starts.
In today’s world DBB is absolutely the worst process available to build any building. It cost more, takes longer, and statistically creates more litigation than other options. It is a series of adversarial relationships and distrust waiting to happen.
DESIGN-BUILD:
Design-build (DB) is evolving in the 21st century as the method of choice among many sophisticated owners because it solves many of the problems discussed above. Many of the DBB parameters mentioned above can be managed and processed more efficiently using the DB process. Design-Build (DB) puts everyone on the same team from the beginning, the team members can be involved in the entire process from concept through the system design which allows the DB team to get the pieces of the puzzle to fit, the collaborative team environment is based on trust and cooperation, not adversarial tension.
The DB method has traditionally been led by a general contractor which further takes advantage of the fact that GC’s have become more managers than builders; it puts them at the center of the process from the beginning, where they can do what they do best, manage. The most effective GC uses their overall understanding of the entire design and building process to manage the team and makes sure the best available subcontractors and venders participate in the design process. The subs and venders have the latest knowledge of the realities of their respective worlds which is in itself invaluable; they know which systems and materials are readily available and which ones are not. They know what innovative technologies are available and can assist the engineers to implement them in a cost-effective manner.
Budgets are more attainable because the team has pricing information during the design phase, not after the fact. If something needs to be modified or streamlined it can be identified while the changes can be made on paper. This method integrates the old-world method of a master-builder with the parameters of today’s construction industry. Scheduling and constructability issues may be addressed much earlier, during the design, and efficiencies can be implemented which save money through better design choices.
This process reduces adversarial relationships, it increases efficiency, and it decreases cost. It statistically produces less litigation, as one would expect. In today’s world it is the most efficient method to deliver a
construction project. The next critical decision, after the DB method is chosen, is to choose an experienced general contractor with experience in DB who you can trust. Trust is the greatest motivator in the professional world.
CONSTRUCTION MANAGEMENT:
This progressively popular method, CM allows owners to implement many of the design-build processes with a construction expert as their professional advocate from concept to finish while keeping the design and construction contracts segregated.
There are two primary factions of CM services, CM Agency, and CM at risk. The Construction Management Association of America acknowledges both and delineates the difference by saying that under CM at risk (CMr) you have a CM as your advocate until the price is fixed, at which time the “CM” reverts back to being one of a general contractor. In the inverse, a CM Agency (CMa) contract allows the CM to remain the owner’s advocate from start to finish.
Under a CM Agency arrangement, the contracts with each trade are between the owner and the subcontractors, which become individual prime contractors. The Owner distributes all the money and sees where every dollar goes. The entire management process is 100% transparent. The CM manages the team and defines the scope packages for the bidding process to make sure there are no gaps or overlaps. The bidders can be pre-qualified, so you have no unknown surprise bidders playing games with the owner's money on bid day and after.
CM Agency also makes fast tracking projects easier. Scope packages can be bid in phases with any desirable combination options identified, not left for subs to guess at, allowing bidders to compete to their strengths as well as allowing the CM adequate time to evaluate the bids; in lieu of “minutes” to make critical decisions as it happens during the traditional DBB process. The end result is the best combination of qualified competitive bids with complete scope coverage. This reduces costs, change orders, conflict, and time.
The CMa works for a set fee based on three critical areas of service.
- Pre-construction services as described above, are the most valuable. This should be a fixed dollar amount and not a percentage. If a CMa says they do this for free, beware, that means they do not understand the time required performing these services in a manner which will take full advantage of the cost savings opportunities present in every project during the planning stages.
- The second area is the actual management of the procurement and performance of the construction itself. This is the task typically associated with a CM’s duties and is usually performed for a percentage of the overall budget of the project. This fee covers the office personnel and overhead of the company required to procure bids, administer the contracts, and manage the project through completion.
- The third area is the field expense costs, often called general conditions. This cost has been traditionally paid to the CM through reimbursable expense clauses. This leaves the owner open to an unknown, which is obviously not very desirable. The more professional CM's will provide this service for a fixed percentage or a fixed dollar amount, usually for a specific period of time because these costs are time driven. This service is not an additional cost above that of DBB or DB because this category of costs includes the same costs which a GC would include in their bid in either the DBB or DB process. This includes time driven items that are not part of the hard construction costs, i.e., the superintendent, job trailer, truck, job phone, portable toilets, fax, computer, job clerk, mobile radios, internet service, progress clean up, permits, dumpsters, fees, etc. The General Conditions cost on any project will represent a substantial number and should be clarified and well understood by all parties prior to signing the contract.
It has been argued that some of the risk the owner assumes with the CMa process is, the subs as prime contractors are working directly for the owner and therefore the owner has some risk if one of the prime contractors were to default, this risk is there in any of the processes...the question is which process minimizes the risk in reality. In DBB the owner is in the dark, if a sub defaults, the GC may not want to alert their bonding company, (like not reporting a car accident to your insurance company) and they may resolve the issue in any number of ways and no matter their solution, the owner may never know it happened and never know how it was resolved. This risk can be better managed and mitigated by an experienced Construction Manager by way of:
- complete and well evaluated and coordinated scope definitions,
- thorough pre-qualification of the sub and vender bidders and
- payment and performance bonds that are qualified as being issued from sound government approved bonding companies.
That said, if a (sub)contractor does default, a qualified CMa will find a replacement contractor, manage the corrective work and the subsequent claim to the bonding company on the owner’s behalf. The CMa has no reason to keep such an event a secret, in fact any cost the CMa incurs managing the resolution for the owner will be paid for by the bonding company as well. The bonds are insurance for the bulk of the risk, including costs of delays caused by the default. Also, since the sub/prime contractors are pre-qualified by the CMa, the owner’s exposure becomes negligible. It is important to note that defaults on CMa projects statistically are much lower than those on traditional design-bid-build projects.
CMa also saves money by virtue of the fact that by contracting with the sub/prime contractors directly the funds do not filter through a GC…this means the costs incurred by a GC for gross receipts taxes, liability insurance and often double bonding are all eliminated. This payoff comes for owners in return for the mitigated risk they assume with the direct contracts with the subs/prime contractors. Again, this risk will be mitigated by using an experienced CMa; so, the owner actually realizes the savings.
In summary, CM Agency does not afford the owner with all the advantages of the DB process, but for municipalities or publicly traded companies it provides the ability to avoid many unfavorable aspects of the DBB process while enjoying the significant cost savings and more efficient project management a professional CM provides while meeting any bid criteria often required by state or federal laws.
Private owners often prefer the CM at risk process. It provides the same professional services described above except that the sub-contractors remain as sub-contractors working for the CMr. The funds flow through the CMr and at some point, the CMr and the owner agree to a Guaranteed Maximum Price; at which time the relationships and process becomes much like the traditional DBB or DB processes after the price fixed. While this method does not provide the owner with the savings of reduced taxes and liability insurance replication, it does provide them with a GMP which is attractive to many owners. The owner has a professional advocate during the design and bidding stages and also has the protection afforded them by knowing the price is guaranteed.
Any of these methods can produce beneficial results…but the decision as to which one is used must be made carefully with a full understanding of the pluses and minuses of each; each owner’s circumstances, risk tolerance, staffing, experience with construction, the degree to which the schedule and budget are respectively critical as well as their time available to deal with day-to-day issues and decisions... all factors needing to be weighed into the decision.
