Happy New Year! Things have been quiet around here in recent months but I hope to get back into the swing of things here at the Journal in 2015. I wish all of you, loyal readers, a terrific year filled with health, happiness, and success!
McGraw-Hill Construction’s recent SmartMarket Report, Project Delivery Systems: How They Impact Efficiency and Profitability in the Buildings Sector, offers some interesting insights from industry stakeholders on attitudes towards, and the effectiveness of, the design-bid-build, design-build, and construction management at-risk delivery models. Noteworthy for our purposes here at the Journal is a section of the report that looks at “positive influences” on the use of specific delivery systems, including the influence of green building practices on delivery model selection.
According to 24 percent of the architects and 17 percent of the contractors surveyed for the report, the use of green building technologies and practices encourage the use of the design-bid-build delivery model. Twenty-six percent of architects and 49 percent of contractors said they drive design-build delivery. For 46 percent and 26 percent of architects and contractors, respectively, green building practices promote CM-at-risk. With respect to this last result, the report observes that “[w]ith the GMP determined during design, it is possible that sustainable elements of a project are less likely to be value-engineered out of a CM-at-risk project.”
Another section of the report looks at the impact of choice of delivery method on green building performance and construction quality. While (unsurprisingly) the report did find that most architects and contractors find that choice of delivery system can impact project cost and schedule, fewer were willing to agree that it influences green building performance or construction quality. Just 19 percent of architects and 11 percent of contractors agreed that design-bid-build delivery improves building performance; 7 percent of architects and 38 percent of contractors, design-build; and for only 14 percent and 13 percent, CM-at-risk. Also, 52 percent versus 31 percent said that no delivery system is better than the others at improving building performance and quality of construction.
So what can explain these results? First, it seems natural that architects and contractors would most firmly believe that green building practices promote the delivery systems where they have most control over the project (i.e., design-bid-build and design-build, respectively). And as the report points out with respect to CM-at-risk, if an owner agrees to a guaranteed maximum price, it is less likely that a project’s sustainable bells and whistles will be value-engineered out of the design before it goes out to bid in a design-bid-build in order to rein in costs. With respect to improved performance and construction quality, it is interesting to note that architects and contractors do not find a particular delivery system more effective than any other. That result could be explained because the operations and maintenance phases of the project are most critical to overall performance – and occur after the architect and contractor are off the job.
The release of this report also presents a good opportunity for us to take a closer look at some of the advantages and disadvantages of these three delivery models, which we do below after a brief overview:
Sixty percent of today’s domestic vertical construction market is delivered by the traditional design-bid-build model, where the owner engages a designer to complete 100 percent drawings and specifications before bidding the construction work out to a general contractor, typically on a low-price basis.
The model also prevails in the horizontal construction market, which consists mostly of public sector clients. These projects are frequently highly technical and would require a fully developed set of plans and specifications for bidding, even if public sector requirements did not prohibit the other delivery models (as is often the case).
- Because it contracts directly with the designer, the owner retains significant control over the design in a design-bid-build delivery. And, generally speaking, construction costs are more predictable because the contractor is bidding on a fully developed set of plans and specifications.
- Design-bid-build is also widely understood by the industry because it has been the prevailing construction project delivery mechanism for many years. Rights, remedies, and responsibilities of the various players are well-defined, and case law and contract documents are well-settled.
- Design-bid-build is most likely to comply with public procurement laws because the construction contract is typically awarded on a competitive, lowest-price basis.
- Because the design must be fully completed before bid packages are prepared and issued and construction commences, design-bid-build projects take longer to execute.
- The designer and contractor are placed in an adversarial setting because of the separate contracts through which each is engaged by the owner. For example, the owner may face more exposure in terms of design defects and contractor change orders because it is responsible to contractor for those issues in the construction contract (under the Spearin doctrine).
- In addition, the lack of construction contractor input during the design phase may result in a design that is difficult to construct or more expensive, as the designer may not have ability or inclination to comprehensively assess cost and schedule impacts during the design phase.
CM-at-risk accounts for 25 percent of the vertical construction market; it is seldom used in the horizontal infrastructure market (again, because the majority of those projects are delivered for public sector clients facing restrictive regulatory structures, though that is slowly changing).
The model is similar to design-bid-build in that the construction manager at-risk (CMAR) acts as general contractor during construction, holding trade contracts and guaranteeing construction performance and completion for a cost negotiated when the design is between 50 and 90 percent complete.
However, the CMAR also provides professional construction advisory management services during the design phase, advising the owner on schedule, budget, and constructability issues. For this reason, construction can start before design is 100 percent complete, usually for a guaranteed maximum price (GMP) that is negotiated during that 50- to 90-percent complete window.
Advantages of CMAR
- CM-at-risk can expedite a project schedule: “fast-tracking” allows certain construction activities to begin before the design is complete.
- The owner gets the benefit of construction contractor input on budget, constructability, and scheduling issues during design.
Disadvantages of CMAR
- The same adversarial issues present in design-bid-build may also exist, once the CMAR converts from the owner’s adviser during design to an at-risk general contractor during the construction phase.
In general, because the design and construction team are integrated from the start, there are opportunities in design-build to save both time and money. However, because there is only one contract between owner and design-build team, the owner loses much involvement with, and control over, the design program and the accountability it can demand through holding separate contracts with the designer and builder as in other delivery models. Yet it is the least risky delivery model from the owner’s perspective. Today, fifteen percent of vertical construction projects are delivered through a design-build model, with most studies suggesting this figure will continue to increase.
- Because the time required to create the bid documents and a complete design that is required by design-bid-build is removed, project delivery speeds can increase. And the synergies realized through engaging single design and construction team should reduce total costs. (For example, there is no danger that the sorts of initial bids received in design-bid-build will be over budget.)
- From the owner’s perspective, there is a single point of contact and accountability for design and construction issues. Design-build projects also boast fewer change orders, which are usually owner-initiated.
- Design-build delivery is ideally suited for conventional projects where the owner’s program requirements are easily defined and design-build expertise and experience is easily procured.
- The owner loses significant control over and involvement in the design phase when compared to traditional design-bid-build delivery. So design-build may not be appropriate for highly technical projects with unique or specialized programmatic requirements where the owner’s involvement is preferred or even necessary.
- There is a loss of the accountability that exists when the owner chooses to hold separate contracts for design and construction. This can also lead to a lack of ambitious or bold design programs.
- Finally, design-build is not authorized in every jurisdiction for public projects, though attitudes towards design-build are changing across the country.