The Future of Design-Build (December 1999)
D-B most likely resurfaced as a result of frustration with the traditional construction delivery system. If the architect’s or engineer’s design, once bid, was over-budget, it required costly time and manpower to redesign and rebid. Sometimes the “cost” was so high as to put the entire project in jeopardy. Under D-B, the contractor provides the owner with a fixed price for the construction before the design process begins, and works with the architect to make sure the price holds up. Construction can then be initiated on a phased basis while design is still underway.
Though acceptance of D-B is not universal, the market has experienced nearly 300% domestic growth since 1986, and it is projected to command 50% of the construction market by 2005, according to the Design-Build Institute of America (DBIA). While owners who don’t understand the concept are still hesitant to use it, those who try D-B tend not to go back to the traditional D-B-B method of delivery.
D-B AdvantagesOne thing contractors can do to encourage the acceptance of D-B is to continue to promote its numerous advantages. Those include:
- Established firm price early
- Single-source responsibility
- Performance guarantees
- Accelerated project delivery
- Less oversight by owner/CM/GC
- Improved quality
- Better value
- Multiple systems with firm pricing (in lieu of multiple prices for a single system)
- Avoided adversarial relationships/team concept promoted
- Designer/builder synergy
Probably the most significant are the first four advantages. Early price commitment, for example, has played a critical role, and can continue to do so, in expanding D-B beyond the small office building market. A developer, for example, who needs a fixed cost to receive project approval from the bank cannot afford to then have the project come in over budget.
A contractor working for a hospital client can look at conceptual drawings and do a sufficient amount of engineering to price the project and guarantee the price to the owner. Since hospitals in some states must take the project cost to the state for a Certificate of Need (a process that can take a minimum of two months), the price, guaranteed up front, is critical. Under the D-B-B system, if the actual bids are greater than approved, the hospital will have to redesign or restart the process, possibly losing their previously approved funding.
Providing a performance guarantee is another significant owner benefit. The owner defines his needs, and the team must then determine the best solutions. The contractor does the necessary research, finding the solution that will get the process up and running vs. merely supplying a price. If an owner wants all rooms at 72°F, the contractor must have a good reason why they’re at 80°F. If the system doesn’t meet the owner’s defined goal, it is the contractor’s responsibility to correct the problem.
Delivery System ComparisonThe advantages of D-B seem to hold up, according to the results of a two-year study published by the Construction Industry Institute (CII). The study compared the construction management at risk (CMR), D-B, and D-B-B delivery systems as to cost, schedule, and quality.
The priority of the survey was the general building sector, since this group tends to use more diverse delivery methods and often confronts D-B as an unacceptable approach. CII received responses on 301 U.S. projects, both public and private, which they categorized into six market areas with similar function, system type, complexity, and value. The projects ranged in size from 50,000 sq ft to 2.5 million sq ft, and they had a variety of contract pricing arrangements.
The research showed that D-B systems “have significantly less design and construction cost growth when compared to D-B-B; that D-B-B systems have the greatest design and construction schedule growth; and that quality measurement associated with D-B, often maligned by many, is better than quality performance in D-B-B.”
While no one method can meet all owner, project, or individual critical success factors, these results should improve the owner’s ability for selection. Under design and construction cost growth, D-B had the best performance to minimize cost growth, followed by CMR and D-B-B. The median cost growth for D-B projects was 2.37%, less than half the 4.83% of D-B-B. The ability for early construction involvement in the process was the most common reason for achieving contract cost. This was particularly evident for D-B, where the constructor often has in-house engineering, or the constructor and the engineer have an established history of working together.
When comparing schedule growth, D-B-B again lagged with a median growth rate of 4.4% vs. 0% for both D-B and CMR.
The results of the construction speed comparison were dramatic. D-B and CMR had medians in the 8,000- to 9,000-sq-ft/month range, while D-B-B projects had a result of 4,600 sq ft/month. Past surveys performed by other parties have also confirmed that if delivery speed was the most important project requirement, D-B was the preferred method of delivery. The ability to start construction concurrently with design, and elimination of the traditional bidding process were the most common reasons for this.
While one perception prior to the survey was that quality suffered with D-B, the data analysis proved that in reality, D-B-B provided the lowest quality level. Owners rated their projects as to turnover and start-up difficulty; callbacks; operations and maintenance; system performance expectations of envelope, roof, structure, and foundation; interior space and layout; environmental systems; and process equipment. Despite only subtle differences in all categories, D-B overall scored higher than the other two, while CMR generally outscored D-B-B.
Best Markets for D-BThe advantages of D-B dictate its use by certain markets as well. Industries such as microelectronics, pharmaceutical, and food processing for example, driven by the need for speed and flexibility, continue to change the way they design and build their facilities. The survey recognized that owners who see an advantage to continue to fine-tune project scope, up to and even after the project has started, have a distinct advantage using a D-B contractor.
The competitive pressure inherent in the high-tech food processing and health care sectors, in particular, continue to force owners to push for even more compressed construction schedules. Survey results tend to support the argument that D-B promotes speed by facilitating fast-track construction. It also suggests that D-B “has the greatest opportunity of succeeding in achieving goals in schedule maintenance, construction speed, and construction intensity.”
Buffeted by the turbulence of corporate takeovers, rapid downsizing, and the need to be first on the street with their product, more sophisticated private owners, particularly in the health care and industrial sectors, are recognizing the value of single-service project delivery. Like their own products, which are being improved on an almost constant basis, these owners are always on the lookout for a better method of construction.
Some see an increase in work coming from the government, under pressure to complete projects on a fast-track basis. Despite a perception that D-B is best suited for simpler projects, it has lately emerged as one of the primary methods of procurement for several U.S. agencies, including the U.S. Department of Defense and the U.S. Postal Service.
In fact, D-B often seems to work best on more complex projects, such as retrofit work, or facilities requiring a compressed schedule. In order to perform a successful retrofit project, the contractor must understand the complete scope of work.
Under the traditional scenario, an independent engineering firm may not always have, or take sufficient time to determine the full scope. When an unanticipated problem is discovered, the contractor must consult with the engineer to know how to proceed. He must then price the changes and proceed with construction only after authorization to proceed or a changeorder is issued. Most construction schedules don’t allow for this delay.
Under D-B, the right contractor 1) will make sure before providing a guaranteed cost that he knows the complete scope of work, and 2) will provide a performance guarantee which makes him solely responsible for any problem that does occur. Due to his pricing for performance being locked in, the D-B contractor has a major incentive to solve the problem. The longer the delay continues, the more time and money he loses.
Corporate CutbacksCorporate downsizing has been a key factor in the rise of D-B. As many owners have eliminated in-house engineering personnel, they must now outsource more and more of their facility design work. As competition to be the first in their market heats up, the trend is to find a single source that combines outside design expertise with construction capability.
Whether the structure of that source is an integrated design-build firm with design personnel in-house, or a joint venture between an A/E and a contractor, the synergy between the engineering and construction components is critical. D-B works best when the owner, too, has a high comfort level with the contractor. Under the D-B concept, owners are investing all of their trust and resources into one firm. It is essential to select the best candidate for the job by verification of resources and references.
The cutback in internal design and construction staff is also making the addition of a construction manager (CM) to the team more prevalent. The CM is a professional consultant or contractor who offers his services for a predetermined fee. Functioning as the owner’s representative, the CM fills the “eyes and ears” role many owners believe they need.
How the CM selects subcontractors can have a dramatic effect on the mechanical contractor’s ability to win and successfully complete a project.
Most advantageous for the subcontractor, and for the owner, is a negotiated selection, wherein the CM requests qualifications with a fee proposal. The contractors define their costs based on the owner’s project definition and needs analysis. They also provide their qualifications and references. The most qualified contractors are shortlisted and interviewed. The best team is selected.
Under a competitive selection process, the CM provides a set of plans with criteria. Prequalified contractors present technical and price proposals. In most cases, the winner is selected based on low price. Here, if the information available at job time is insufficient, or the contractor is providing the minimum to get the job done, the owner or CM may have quality or pricing concerns later on.
Trust is EssentialNegotiated selection is most inclined to result in an open-book relationship between all parties; one in which the owner will see all invoices and time sheets. Also, under this scenario the subcontractors will most likely have access to the owner and/or the CM, allowing any problems to be discussed and restated face-to-face.
This direct contact with the owner almost always results in the most successful projects. To succeed, an owner must be able to convey his needs to the design-builder and vice versa. Access to the owner also forges relationships which are the backbone of any construction business. Trust is essential, and trust is earned when owners receive the project they were promised, within the time it was promised.
When an owner knows he has the right contractor for the job, his inclination is to negotiate rather than competitively bid his next project.
As we move into the next century, the challenge will not be to educate owners and convince them to use D-B. Rather, it will be to distinguish your company from other strong D-B firms. ES