Anyone with a construction project ahead of them will soon realize that there are more choices available for how their project is delivered than ever before. Understanding the differences between them will help you understand the effect of your choice on: a.) the project cost, b.) when the project cost is determined, c.) the risk you are taking on, d.) the duration of the project, and e.) the likelihood that the project will meet your needs and expectations.
This article will outline the basic differences and features of each type of construction delivery method, or contractual arrangement, and my understanding (colored as it may be from my perspective and experience as an architect) of the advantages and risks inherent with each type.
Design-Bid-Build
The traditional and best understood contractual arrangement is the design-bid-build project delivery method. The owner initiates the project by selecting an architect. The owner and architect determine the scope and goals of the project, and the architect prepares a design, followed by construction documents that define the proposed construction work in detail. General contractors tender bids for the project, which usually include prices from subcontractors for specialized portions of the work for which the contractor does not have in-house expertise. The bids are opened together at a set time and the project is typically awarded to the lowest bidder. For projects involving public money, the bid opening is open to the contractors. For privately funded projects, the bids can be opened privately by the owner, and the decision to award the project may include considerations other than price.
This kind of contractual arrangement is required for many public projects. It is well supported with readymade contractual agreements that are familiar to anyone in the industry. It provides the designer with the most flexibility in meeting the owner’s needs creatively, and may be fairest to the contractor as they have access to the entire project documentation from the outset, before developing a price.
This form of project delivery arrangement means that the final price for the project is not determined until after the design is complete (although typically, the construction cost can be reliably estimated by the architect). The process excludes the contractor from input during the design process. This also generally results in the longest overall project delivery time, as none of the construction can begin until design and bidding are done. The design-bid-build arrangement can set up an adversarial relationship between the owner (allied with the architect) and the contractor. Since the price is set, the contractor has little incentive to add value to the project and gains directly if he can find ways to take shortcuts in the construction process. Overall, this delivery method can contribute to an “us vs. them” relationship between designers and builders, and resultant disputes.
Variations on design-bid-build include “fast track” and “multiple prime.” With “fast track” construction, the project is bid in stages, which allows portions of the work to start before the design is complete. For example, foundations and earthwork could be bid before the interior design is finalized. This adds significantly to the risk, as the owner is committing to contracts for a portion of the work before the final price for the whole project is known. It also locks in some portions of the project before all of the design decisions are made. In the “multiple prime contracts” delivery method, the owner is typically more experienced in construction and with in-house construction management staff, and will often break the project into multiple specialized contracts (for example, masonry or electrical work). These are bid separately, allowing for maximum competition. This results in multiple construction contracts, each with the owner, who is required to coordinate construction activities.
Design-Build
In the design-build delivery method, the owner contracts directly with a single entity that is responsible for providing all of the project requirements in both construction and design. The agreement could be with a contractor with an in-house architectural staff, a contractor who hires the architect separately, a partnership between a contractor and architect, or a developer who assembles the construction and design components required for the project. Note that for most construction projects, it is required by law that a licensed architect provide sealed construction documents.
With this form of contract, all of the work in designing and constructing the project and all associated risks are transferred from the owner to the design-builder. Any disputes between the architect and the contractor are internal to the delivery team.
This method of project procurement is most effective when the project can be very well defined at the outset, or when the owner has direct access to the team’s architect. The design portion of the project, unless it is very simple, is still necessary in order to determine the owner’s needs and develop an appropriate design solution so that the owner’s expectations are met.
Since the contractor is engaged at the beginning of the project, his or her expertise can inform the design solution. This contributes value engineering by identifying inappropriate costs and providing alternatives, and by improving the buildability and efficiency of the design. Often, the design-builder can provide a GMP (guaranteed maximum price) to the owner halfway through the design process. With the project cost determined, portions of the project can be bid and started early without too much risk, and overall construction time can therefore be reduced. Note that design-builders still bid or negotiate many portions of the work with their subcontractors, typically for specific trades like electrical work.
There are a number of contractual arrangements possible for design-build, and typically, these only differ in the way the design-builder gets paid—stipulated sum, guaranteed maximum price, percentage fee, etc. Contractors who properly manage these projects are professionals and should be carefully sought out in this type of arrangement.
Construction Management
In the construction management project delivery method, the owner hires, in addition to the architect, a professional firm to manage and run the project on his or her behalf. The construction manager (CM) sets the project schedule and provides estimates of construction costs during the design process. They manage the bidding process and typically separate the project into multiple contracts to encourage competition. The CM is responsible for ensuring that the bids cover all of the work required. During construction, they coordinate the efforts of the multiple contractors and monitor the progress of the work. Having the project professionally managed and estimated allows the construction schedule to be planned and compressed from the outset so the overall project delivery time can be reduced in comparison to the traditional model.
There are two types of CM service: “Agency CM” and “CM-at-Risk.” An “Agency CM” is primarily a professional who acts as a consultant. The CM works for a negotiated fee to manage the project through every phase and provides advice to the owner. Under this arrangement, the owner will have contracts with multiple contractors and carries some risk from these contractual relationships.
In the “CM-at-Risk” procurement method, the construction management firm takes on the entire responsibility for delivering the project as it is defined by the owner and the architect. The CM typically provides the owner with a guaranteed maximum price halfway through the design process, then bids and contracts the work with multiple contractors. Note that one of the primary differences between this arrangement and design-build is that in this case, the architect is independently working directly for the owner.
Whichever project delivery method is chosen, communication among the architect, the contractor and the owner define the project outcome. The future holds the promise of even more collaborative methods in which new contractual arrangements and advanced software allow the many specialized construction trades to interact with the designer and create projects that are better defined, more efficient and possibly allow more imaginative solutions to the owner’s needs.
Having worked on major construction projects that were delivered in just about every combination listed above, I have to assert that all are capable of delivering successful outcomes and meeting the needs and expectations of the owner. As an owner, your needs and expectations must match the project delivery method you choose. iBi
