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Home >> Part 4 >> Project Delivery

Project Delivery

Robert R. SmithAbout Robert R. Smith
Bob is a University of Arizona graduate with over 30 years of experience in the management of architectural projects, design firms, and university facilities programs. Currently, Bob is serving as the Senior Associate Vice President for Business Affairs at the University of Arizona, assisting in the management and oversight of twelve extensive University departments.

Author(s): Robert R. Smith - University of Arizona

This chapter is current as of March 05, 2010

Introduction


For most of the 20th century, the accepted method of delivering construction projects was through the traditional, low-bid design-bid-build (DBB) approach. Building projects were designed by the project architects and engineers, the drawings and specifications were then bid to all interested contractors who could bond the project, and the project was then built by the lowest bidder for the work. This method provided a level playing field for all contractors who wished to compete for the construction contracts involved, and was utilized by all public owners and many in the private sector as well.

The DBB process, however, became increasingly problematic for many owners, as costs escalated, competition intensified, quality became more of an issue, conflicts and litigation became more prevalent, and owners began to look for better ways to do business. In the 1990s, many owners implemented partnering programs in an attempt to increase trust and collaboration among project teams and reduce the adversarial relationships that had become commonplace. The partnering process was quite successful in some cases, and it began the industry's movement toward a generally more cooperative approach to construction projects. But it was a voluntary process that was not supported by contractual requirements, and it was not universally effective. Many conflicts regularly experienced throughout the course of DBB projects continued to pose serious problems for owners across the country.

Late in the 1990s, new proposed methods for increasing project team collaboration and success, such as the design-build (DB) process, were developed and championed by many. New professional associations such as the Design-Build Institute of America (DBIA) began to educate industry members and legislators about new and potentially better ways of doing business. With the DB process, the general contractor and architect/engineer (A/E) team could be selected based on their qualifications; work closely together during project design, providing a single point of responsibility to the owner; and deliver the project quite efficiently and expeditiously. This option was attractive to many owners but required procurement law changes in most states for its legal use. As a number of states began making statutory changes to make DB a legal option, other beneficial alternative project delivery methods began to emerge as well.

One of the most widely utilized alternative project delivery methods, construction manager at risk (CM@R), provides many of the advantages of DB, except that the A/E team retains a direct contract with the owner, which provides more design control and a more objective review of the contractor's work. This process also allows for fast-tracked construction, which uses overlapping design and construction phases to shave months off of a project schedule. Although fast-tracked projects can save time and money, they also present additional risks if changes need to be made during construction.

These alternative delivery methods have been quite successful for a number of owners, providing significant improvements over the traditional DBB approach in many cases. Still, they are not perfect, and in the absence of a true trust-based approach among project team members, serious problems can occur. Cultural and legal differences throughout the many states also have limited the project delivery methods available to many owners, and have led to the use of a number of different types of approaches. Some jurisdictions favor the use of a construction manager with the bidding of fees and general conditions, where the construction manager (CM), who manages the construction process, is selected on the basis of a low bid on his or her fees and general conditions. Many continue to use the DBB approach with the assistance of an agency construction manager, who acts as a consultant who represents the owner during the construction phase. Some states are geared toward the use of multiple prime contracts, where the owner contracts directly with a number of prime subcontractors, who must coordinate their work on the construction site. Still others utilize cost-plus, time-and-material, or unit-price-based contracts in an attempt to pay the actual cost of the construction as it is incurred.

Meanwhile, private sector owners often utilize a negotiated contract for construction, which allows them to informally select and negotiate with the contractor of their choice, in a less formal process that is otherwise similar to CM@R. Public owners generally do not have the flexibility to utilize these less formal private sector methods, because of the need to provide equal opportunities for all qualified bidders to pursue publicly funded contracts.

Many public owners do, however, utilize other alternative approaches to meet specialized needs. The job order contracting process provides an expedited method of performing multiple smaller projects through open-end contracts with selected contractors and subcontractors. Public-private projects provide cost and schedule efficiencies for public projects that can be designed, constructed, financed, and often maintained by private sector developers.

The current leading edge of innovative project delivery methods, however, is referred to as integrated project delivery (IPD). This emerging delivery approach provides new levels of collaboration and efficiency through the integration of the responsibilities, risks, and savings shared between the A/E team, contractor, and major subcontractors. This approach also makes use of the greatest technological innovation in building design since computerized drafting: building information modelling (BIM). New BIM technologies allow the A/E and contractor/subcontractors to work closely together in designing the building architectural and engineering systems, thus saving time and reducing errors. The A/E's design drawings can actually become the subcontractors' coordination/shop drawings utilized for construction. There are many variations in the use of the IPD approach, and a great deal of work is in progress to improve contracts and procedures needed for its most effective use. But many expect the IPD method to be a wave of the future in the realm of innovative new project delivery methods.

This project delivery method chapter will provide a brief summary of the various delivery approaches noted above, with references and links to industry websites and resources that will provide more information in a specific area of interest. Additional general information about the various delivery methods in use can be found in the following locations:

Associated General Contractors of America (AGC): www.agc.org/cs/industry_topics/project_delivery

Construction Management Association of America (CMAA): www.cmaa.com/delivery-method

American Institute of Architects (AIA): www.aia.org/index.htm

Before any of these approaches are attempted, it is important that state laws be consulted for a clear understanding of what is legally allowed. While more states are continuing to legalize the use of many alternative delivery methods, legal counsel should be obtained to ensure that a desired delivery approach is allowable in accordance with applicable state statutes.

In addition to compliance with legal requirements, a project delivery method choice should consider specific project type, size, schedule, and budget conditions, as well as the owner's project management capabilities and political conditions. With all of this in mind, it is hoped that the information in this chapter will provide assistance in the development and use of the project delivery methods that will work best for each specific project.

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Project Delivery Option Overview


Following is a brief overview of the major types of design and construction project delivery methods commonly utilized across the country today, including general pros and cons for their use. This is intended to be a condensed reference summary, with additional detail related to each delivery method provided in the following subchapters. Please note that the uses of these methods can vary across the country, and that the procurement laws of each state should be consulted before any of these delivery methods is attempted.

Design-Bid-Build

Traditional delivery process with design, bidding, and construction in separate, sequential steps. Construction contract is awarded to the lowest bidder, who then utilizes the subcontractors included in his or her bid.

Advantages
  • Process most familiar to institutional design and construction community.
  • Owner controls the design, which is completed under direct owner-A/E contract prior to construction.
  • Direct way to provide competitive pricing for entire construction contract.
Disadvantages
  • Project cannot be expedited with fast-track process; drawings and specs must be 100% complete to bid.
  • Construction contract is awarded to low bidder, without consideration of his or her qualifications.
  • No contractor assistance with estimating, plan checking, and constructability reviews during design phase.
  • Not an open-book process; bid shopping can occur and actual overhead and profit amounts are unknown.
  • Adversarial, change-order-oriented environment can occur between owner, A/E, and contractor.
  • Construction price is not fixed until after design and bid phases are completed.
  • Time-consuming redesign and rebid is generally required if bids come in over budget.

Design-Build

Design and construction are provided under a single design-build contract initiated at the beginning of the project. A DB contract is awarded on the basis of price and/or qualifications, in a one- or two-step selection process.

Advantages
  • Single point of responsibility for both design and construction of the project.
  • A/E and contractor work together through all phases of the project.
  • Guaranteed maximum price (GMP) is fixed early in design phase of the project.
  • Construction contract is awarded on basis of design-build team qualifications and/or price.
  • Project can be expedited with fast-track construction, which can also reduce costs.
  • Less adversarial relationship is encouraged between owner, A/E, and contractor.
  • Change orders are generally reduced due to A/E-contractor collaboration and contractual relationship.
  • Contractor is motivated to ensure owner satisfaction when selections are based on qualifications and performance.
Disadvantages
  • Works best with simple project types where requirements can be fully documented in request for proposals (RFP).
  • Much pre-planning is needed to prepare sufficient material for the request for quotations (RFQ)/RFP process.
  • Owner has less control of design process, with the A/E typically working for the contractor.
  • Design changes can result in costly impacts to drawings or construction work in progress.
  • Disagreements related to intended quality of work can occur.
  • May not work any better than DBB if mutual trust relationships are not built.
  • Is not legal in some states.

Construction Manager at Risk

Construction is performed through a CM@R who works with the owner and A/E through design and bids and manages subcontracts to complete the work. The CM@R must complete the project within the agreed-upon GMP amount, or else is at risk to cover the additional costs.

Advantages
  • A/E, owner, and contractor (CM@R) work together through all phases of the project.
  • GMP may be fixed early, during the design phase of the project.
  • Project can be expedited with fast-track construction, which can also reduce costs.
  • Construction contract is awarded on basis of CM@R qualifications and past performance.
  • Construction work is competitively priced through low bids of prequalified subcontractors.
  • Less adversarial relationship is encouraged between owner and A/E-contractor.
  • Change orders are generally reduced due to A/E and contractor coordination through the design phase.
  • Owner controls the design, which is completed under direct owner-A/E contract.
  • Provides more design-change flexibility for complex building types.
  • Contractor is motivated to ensure owner satisfaction when selections are based on qualifications.
Disadvantages
  • Fast-track construction presents risks related to incomplete construction documents.
  • Design changes during construction can result in costly changes to construction work already in progress.
  • CM@Rs must learn to provide quality preconstruction services.
  • May not work any better than DBB if mutual trust relationships are not built.
  • Is not legal in some states.

Construction Management with Bid of Fees and General Conditions

Construction is performed through a CM, who is selected on the basis of the lowest bid of fees and general conditions.

Advantages
  • A/E, owner, and contractor (CM) can work together through all phases of the project.
  • GMP may be fixed early, during the design phase of the project.
  • Project can be expedited with fast-track construction, which can also reduce costs.
  • Change orders can be reduced with improved A/E and CM coordination through the design phase.
  • Owner can control the design, which is completed under direct owner-A/E contract.
  • Provides more design-change flexibility for complex building types.
  • Ensures lowest CM fee and/or general conditions amounts through bid process.
Disadvantages
  • CM qualifications or past performance are considered in the CM selection process.
  • The lowest bid of fees and/or general conditions is not an indicator of CM capabilities.
  • Fee and/or general conditions savings can be much less than the cost of CM inefficiencies.
  • Fast-track construction presents risks related to incomplete construction documents.
  • CMs must learn to provide quality preconstruction services.
  • May not work better than DBB if mutual trust relationships are not built.
  • Is not legal in some states.
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Agency Construction Management with Design-Bid-Build

Agency construction manager is hired as a consultant to help represent the owner’s interests during the construction phase of a DBB project.

Advantages
  • Same pros as noted for DBB process.
  • Agency CM can provide industry experience and estimating, scheduling, and project management expertise for the owner’s benefit.
Disadvantages
  • Same cons as noted for DBB process.
  • Agency CM has no direct accountability for the success of the construction process.
  • Owner must pay the fees of an agency CM in addition to the contractor’s fees for the construction work.
  • Agency CM must be committed to representing the owner first and foremost, or a loss of control can result.

Multiple Prime Contracts

Multiple direct owner-contractor prime construction contracts that are bid for various trades, or groupings of trades, as needed to complete the entire scope of construction.

Advantages
  • Construction method required by the procurement law in certain states.
  • Can reduce markups of general contractors who otherwise would oversee the entire scope of work.
  • Can be preferred by some established subcontractors who have prime contracts with the owner.
  • Project can be expedited with fast-track construction, which can also reduce costs.
Disadvantages
  • No single point of responsibility for the construction of the various trades related to the project.
  • Construction is awarded to multiple low bidders, without consideration of their qualifications.
  • The owner is responsible for conflicts and inefficiencies between the multiple prime contractors.
  • No contractor assistance with estimating, plan checking, and constructability reviews during design.
  • Not an open-book process—bid shopping can occur and actual overhead and profit amounts are unknown.
  • Adversarial, change-order-oriented environment can occur between owner, A/E, and contractor.
  • Construction price is not fixed until after the design and all bid processes are completed.
  • Time-consuming redesign and rebid is generally required if bids come in over budget.
  • Is not legal in some states.

Negotiated Construction Contracts

Private sector project construction is performed by an often informally selected general contractor, whose contract is developed through a negotiation process.

Advantages
  • Informal contractor selection and award process can be expedited.
  • Informally negotiated contract can be informally terminated if needed.
  • Terms and conditions of private sector contracts are often more oriented toward the owner’s interests.
Disadvantages
  • Negotiated contracts are generally not legal for use by public owners.
  • Informal contractor selection processes may not identify the most qualified contractors.
  • This process can lead to perceptions of favoritism toward often-utilized contractors.
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Cost-Plus, Time and Material, and Unit-Price Contracts

These contracts do not attempt to establish the total construction contract amount in advance, but use instead the actual documented construction costs or preestablished unit prices, plus agreed-upon contractor fee markups, to determine the contractor’s compensation as the work progresses.

Advantages
  • Does not rely as much on accurate estimating or bidding of the work.
  • Reduces potential for change-order-related conflicts.
  • Open-book process allows the owner to keep track of actual costs and appropriate compensation.
  • Good process if budget is not limited or phased completion levels are flexible.
Disadvantages
  • Is not conducive to effective overall project budget management.
  • Is not legal in some states.

Job Order Contracting

Open-end construction contracts with general contractors and/or subcontractors who are selected through a fee markup bidding process, and who perform multiple small-scale projects through job orders under the open-end contract.

Advantages
  • Expedites projects by eliminating project-specific bid phases and reducing design documentation requirements.
  • Allows for construction price negotiation based on an established construction cost unit-price book.
  • Less adversarial relationship is encouraged between owner and contractor.
  • Can be utilized with single or multiple job order contracting (JOC) contractors.
Disadvantages
  • Works best on small- to medium-sized projects with easily identified construction components.
  • Allowable JOC project size is limited by the procurement codes of most jurisdictions.
  • Although process is more informal, files and documentation must be carefully kept for audits.
  • Is not legal in some states.

Privatized Design-Build-Finance

Turnkey design, construction, financing, and possibly operation of a facility by a private sector developer, with varying levels of legal, financial, and ownership participation by the public owner.

Advantages
  • Same advantages as DB except
  • Owner generally pays for facility through lease payments over time, rather than through bond sales or other financing methods.
  • Some design and quality control can be incorporated into the terms of the ground lease, when applicable.
  • The owner may receive ownership of the building at the end of the ground lease term.
  • The project cost may not be included on the owner’s financial statements in some cases.
Disadvantages
  • Same disadvantages as DB except
  • Less control of design, quality, and maintainability with developer managing the design and construction process.
  • Developer may be able to build projects less expensively, but at lower quality levels.
  • Developer may not have access to tax-free financing and reasonably expects to make a profit on the project.
  • Projects are often included on owner balance sheets by bond/credit rating agencies anyway.

Integrated Project Delivery

An emerging delivery method that attempts to increase project team collaborations and the use of new technologies by integrating various elements of the contracts and work efforts of the A/E and contractors. This process builds on the ideas of partnering and project alliances to establish a performance-based and results-oriented approach. The benefits of a more collaborative process and the use of BIM technologies suggest that this may be the project delivery process of the future.

Advantages

Same advantages as CM@R except

  • Shared responsibilities, risks, and savings can be built into integrated A/E and contractor agreements.
  • BIM technologies are utilized to streamline and coordinate the work of the A/E and the contractors, where subcontractor shop drawings are developed directly from A/E design documents.
  • Time savings and error reductions can result from collaborative use of BIM technologies.
  • A nonadversarial, collaborative relationship is encouraged between all project team members.
Disadvantages

Same disadvantages as CM@R except

  • New contract forms with integrated responsibilities, risks, and savings are needed to manage projects effectively.
  • Most owners, A/Es, and contractors are still unfamiliar with the use of this process.
  • For most effective use of BIM technologies, subcontractors must be selected early in the design phase to participate in the collaborative design process with the A/E. This requires that competitive pricing for major portions of subcontractor trade work be accomplished without competitive subcontractor bids.
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Additional Information and References


Following is additional information that might be useful in the utilization of each of the project delivery types identified, along with some website references and links to additional information published by various industry organizations and professional associations. This information is intended to be utilized in conjunction with that provided in the previous Project Delivery Option Overview subchapter.

Design-Bid-Build

This traditional, time-honored project delivery method utilizes a sequential process of first completing the design drawings and specifications, then conducting a formal, open bid process, and then starting construction after bid award to the low bidder. This competitively bid, lump-sum contract approach requires meticulously thorough and accurate drawings and specifications to avoid potentially costly and contentious change order claims from the general contractor and subcontractors. The general contractor cannot assist with estimating, scheduling, plan checking, or constructability reviews during the design phases of the project, and this approach does not allow for time-saving fast-track opportunities. Although this approach is still appropriate for many types of projects today, the number of challenges that it presented over its decades of use led to the exploration of alternative delivery methods.

Additional information regarding this familiar delivery approach can still be found in most procurement codes and federal and state laws and contracts. A good general description of the process is also found at the AGC website: www.agc.org/cs/industry_topics/project_delivery/designbidbuild.

Design-Build

The DB approach to project delivery has been utilized in various forms for specialized project types by a number of entities in past decades. For example, the Corps of Engineers has long used a form of DB for the competitive design and construction of military housing projects. The process began to gain in popularity in the 1990s, in response to a growing environment of claims and litigation in traditional DBB projects. By its very organizational nature, the DB process brings the design team and contractor into a more collaborative working relationship. It is attractive to many owners as well, considering its single source of contractual responsibility with the DB team.

This approach continued to gain popularity with the growth of the DBIA, a collaboration of contractors, design professionals, and owners who wanted the opportunity to find a better way to deliver projects. As the DBIA found success with revisions to a number of state procurement laws, more owners gave it consideration; today, it is one of the most widely used methods. DB projects can also be expedited with fast-track construction.

The DB process combines the design team and the contractor into a single entity, which is generally competitively selected based on its qualifications for that project. The DB team can be led by either the design team or the contractor, but the contractor is generally in charge as the responsible entity, due to his or her larger financial investment in the project. DB projects can be fast-tracked, and they encourage designer-contractor coordination during the design phases. However, with the design professionals contracted to the contractor, they may find it difficult to fully represent the owner's interests. Some owners prefer the DB approach for projects with simpler design requirements that can be fully expressed early in the design process. DB can be very effective for horizontal construction projects such as highways.

Additional information, guides, contracts, checklists, and publications regarding the DB delivery approach can be found at the following sites:

Design-Build Institute of America: www.dbia.org/about/designbuild/default.htm

American Institute of Architects (AIA) Publication: Architect's Guide to Design-Build Services: www.aia.org/index.htm -- AIA Bookstore

Associated General Contractors of America: www.agc.org/cs/industry_topics/project_delivery/designbuild

Construction Manager at Risk

The CM@R project delivery method emerged as an alternative to the DB approach to provide most of the benefits of DB, while keeping the design professionals on separate contracts directly with the owner. It provides the ability to fast-track projects, select the contractor on the basis of qualifications, and receive his or her input during the design phase. The work is still competitively priced through bids to subcontractors. But the A/E team is hired by and works directly for the owner, often responding more thoroughly to his or her needs and priorities. And, although the owner holds separate contracts with the A/E and contractor, the entire project team is generally motivated to work collaboratively throughout the project.

The CM is considered to be "at risk" because he or she holds the construction trade contracts and takes on the performance risk for the project. He or she also provides a cost guarantee, or GMP, for the completion of the project within the established budget and schedule. The timing of the GMP can vary, from early in the design process to after the drawings and specifications are completed. The price can be fixed early for budgeting or fast-tracking purposes, but the risk of unexpected expenses increases when the design is not yet complete, calling for increased design and construction contingencies. Even in a fast-track scenario, the GMP is often scheduled to be agreed upon as late as possible before the first phase of construction must begin, to allow the construction documents to be as complete as possible for pricing. Multiple, sequential GMPs can be obtained if small amounts of early construction or the purchase of long-lead items are needed. But early, multiple GMPs increase the risk of subsequent budget overruns later in the GMP-setting process.

The success of the CM@R and DB processes requires a more collaborative, trust-based approach among all project team members. If the project team does not pursue a level of cooperation that is uncommon in many hard-bid projects, the benefits of the alternative delivery methods will be diminished, and the project may not achieve its ultimate success potential.

Additional information, contracts, guides, and publications related to the CM@R process can be found at the following sites:

Associated General Contractors of America: www.agc.org/cs/cm_atrisk

AGC Interactive State Map of CM at Risk-Friendly Laws: www.agc.org/cs/industry_topics/project_delivery/cmatrisk

Job Order Contracting

JOC programs were developed to allow smaller projects to be completed more quickly and efficiently through the use of open-end construction contracts. These contracts are competitively awarded on the basis of qualifications and fee proposals, and are intended to accommodate a number of smaller projects without time-consuming bid processes for each project. When a qualifying small project is needed, a purchase order may be written to the open-end contract for work to begin. The price for each project is generally determined with an itemization of unit costs from a pre-accepted price book, or with the use of actual bid pricing when available. JOC contracts are typically awarded to one construction firm, which completes all small projects within the contract, although some programs include multiple contractors and subcontractors.

Privatized Design-Build-Finance Projects

Also known as public-private partnerships or third-party-financed projects, these creatively assembled projects make use of the private sector to complete projects that also benefit the public sector. The private developer generally provides turnkey design, construction, financing, and possibly operation of a facility, with varying levels of legal, tenant, and financial participation by the public owner. The public owner often pays for the facility through lease payments over time, rather than through bond sales or other public financing methods. This method can result in facilities with less impact on public owner debt capacities in some cases, and facility ownership can sometimes be transferred to the owner at the end of the financing term. However, the owner will have less control of design and construction standards utilized, and facilities building systems are likely to be of a lower level of quality than most public buildings.

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