Optimize Your Construction Dollars
Negotiated project delivery systems offer several advantages

By Carl F.Wesely

Unlike early construction projects which were overseen by a master builder who designed, engineered and constructed a complete building, today's projects are completed using various design and construction delivery systems. These can include design-bid-build or a negotiated contract such as design-build, among others.

In the former method, the owner or manager usually contracts separately with the designer and contractor, who in turn subcontract to other entities. Designers and contractors have little interaction during the design phase, sharing information at the end of design and during construction. This approach can result in increased errors and disputes, higher costs and longer schedules.

In a negotiated project delivery system such as design-build, projects have a single point of responsibility for design, construction and project management with the owner contracting with a single entity to complete the project. The Construction Industry Institute and Penn State University conducted a study in 1997 titled, "A Comparison of United States Project Delivery Systems" with some interesting conclusions. Among them are the facts that

• The unit cost of design-bid-build is at least 6 percent higher than design-build
• Delivery speed of design-bid-build is 33 percent slower than design-build

Why is it then that design-bid-build still prevails in the industry? Often owners and managers believe that a competitive bid for a project is necessary because they think of buying construction as a commodity. Some owners believe that the only way to find the true construction cost is to search for the lowest bid price, instead of searching for the lowest overall project price.

The lowest bid price does, however, include many contingency costs plus future costs that go unaccounted for until the end of the project. Contingency cost includes added cost for scheduling and interpretation of unclear drawings and specifications. Future costs include change orders due to incomplete drawings or specifications.

When the budget rules

Budget consideration can often be the reason that low bid is the project delivery method chosen, but this can prove to be detrimental. In a bid project there is a selection process for the design team, consisting of the architect, structural, mechanical and electrical engineers. Each of these is a bid process usually resulting in the entity accepting a fee for the project. At this point, the entire design is prepared according to the budget with no entity responsible for that budget. If these entities are chosen strictly on a fee schedule, they are encouraged to spend as little time possible in order to complete the design for the proposed fee.

As stated above, in a competitive bid process, plans are distributed to a number of trades for response in a specific time frame. With schedule and human nature being what they are, many don't review the project in detail until the last week. A day or two before the bid, the phones are ringing off the hook with questions. And in the last hours, with final bids coming in, the numbers are reworked and the bid is submitted, usually with just minutes to spare. This process does not allow for a clear communication or understanding of the owner's and designer's intent, with all of the different construction trades. In fact, if one subcontractor knows more about the designer's true intent than his competitor, it only helps his competitor. If sub A knows that the designer will require a specific product that is higher in cost than what is industry standard and is not specified, the sub A would lose the job because he would not be the low bidder.

An owner spends a great deal of money to develop a set of working drawings. In a design-bid-build situation, the architect and design teams produce working drawings and details without the advantage of having input on the most current construction methods and accurate construction costs. Upon completion of the working drawings and city plan check, the drawings are sent out to several bidders with the hope that the project cost will be below the architect's estimate and the owner's budget. When the lowest bid is over the project budget, all of the bidders are asked to value engineer the project to bring the cost down to the architect's estimate. In this scenario, the project's scope and quality will suffer.

It is important to remember that a project's scope, quality and cost is determined by the design team during the programming and preliminary design stages. Only by working together as a well-disciplined team can the integrity of the project be maintained without incurring cost. In a negotiated design-build scenario, the designers and owners working with contractors design smarter. Always looking for ways and means to accomplish the design criteria without sacrificing scope and quality and at the same time holding a line on cost.

All the above is a good argument for choosing the negotiated project delivery system. There are some important points to consider when embarking down this road. The first and foremost is the selection of a design team from the outset. This includes the architect, structural engineer, mechanical, electrical and general contractor. This need not be an intimidating process for an owner if certain steps are taken, such as selecting a general contractor first, then together choosing the architect and the balance being chosen by all of them

Choosing the best

Of course, the obvious question is how do you choose the best team? Experience on the type of project would be the first item required. Beyond that, find a general contractor that is a team player who works well with consultants and knows the building type. It would be valuable for an owner to have more than one meeting with several general contractors, if time permits, during which references should be requested along with bonding and banking info. It could be useful to talk with some of their subs to see how their business is operated. Talking to past owner/references on how they worked as a team; what they brought to the table including ideas to save money; and their history on change orders is valuable.

One of the most important points to remember in the negotiated delivery method is scheduling. It must be started from day one with the architect, engineers and everyone who is part of the project. There's a cost benefit to everyone when people know when to be prepared, and repetitive work can be avoided.

Some of the many advantages to be gained once the negotiated project delivery system is chosen can include:

• A better opportunity to review work with prospective subcontractors
• Ability to focus on a limited number of related trades at a time instead of all trades at once. Expanding the buyout period allows the subs to fine-tune the costs. In a bid method, everything is bought at the same time causing a lot of contingency in everyone's pricing
• The opportunity to address subcontractor uncertainties about scope, extent and sequencing of work and to remove contingencies otherwise built in during the competitive bid process, which results in better pricing
• The opportunity to develop, present and secure approval on alternate construction methods and detailing

In comparing competitive bid to negotiated bid process, it becomes evident that there is no potential for cost savings using the competitive bid format. Money is saved in a negotiated bid because the team is working together from design on through construction. It isn't necessary to give up schedule or quality in order to reduce costs. In negotiated bids, you design smarter. How often it's said that after a team brainstorms a more cost-effective solution is found.

Obviously, an owner or manager needs to determine which system best suits their needs, both personally and for the project. We believe that the ideal strategy to optimize construction dollars would be to utilize design-build as the project delivery system under a negotiated bid process with a team of qualified professionals doing the planning.

Carl F. Wesely is president of Wesely-Thomas Enterprises, Inc., design-builders/general contractor, in Thousand Oaks, CA. Wesely is chairman of the Organizational Alliance Task Force for the Design-Build Institute of America. He is a member of AIA, IFMA, ISPE and NAIOP. For further information, contact him at wtei@aol.com.