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WHAT CONTRACTORS FACE

Makers of the Environment was written to show how people in a small, depressed rural county can pull together to take advantage of the opportunities to become world leaders in the management of information to change our world. With systems and processes such as Makers describes, we for the first time in history can define and manage real-world assets. The book’s central design future forms the backbone for three scenarios showing how to use information to improve the world. The design futures include rich information, show how to take advantage of existing tools, and allow just-in-time decision making, but they are not yet fully realized. The individuals in these scenarios are archetypes of the people that manage similar issues today.

The following is excerpted from Makers of the Environment (ISBN 0979569966, https://www.createspace.com/3503060).

WHAT CONTRACTORS FACE

In the building industry, contractors are faced with a catch-22. They face an expectation that they need to use information models. This expectation has made modeling a requirement for most large projects. In some markets, the modeling requirement has made a limited set of modeling processes a commodity service that is delivered at wildly varying levels of quality. In an effort to protect their self-interests, some constructors agree to these requirements, having no real idea of how to deliver on their promise. Next, they face increasing demands to move data into the facilities operation and management system via such tools as COBie. This creates a confusing and complex interface that needs industry action. Currently, commissioning requirements, legacy facilities management tools, and highly stovepiped resource management systems all contribute to a confusing situation that must be resolved to achieve the long-term benefits from information models. False expectations, poor compliance, and outright fraud are the result.

Elle recognized the impact of technology on a fragmented industry. For some reason, the industry as a whole did not seem to believe that the remedy would not come from technology alone, it was a business and people issue. The issue was about the way that people work and how to get things done. Elle knew that at Cork Point they must understand the big picture and become nimble enough to respond to change. Technology might be a key to curing the fragmentation, but other things were much more serious.

One critical decision facing Elle was the structure of the delivery team. The virtual enterprise network gave her many options. Since the system was designed for collaboration and integrated working practices, many of the traditional reasons for selecting one methodology over another might not apply. Whatever method was chosen, the network would work collaboratively with Cork Point to create pain share/gain share relationships. Elle’s board of directors was adamant that contracting relationships be resolved prior to proceeding. They also required that agreements be clearly understandable and enforceable. They expected that Elle and her team would be able to put the process in context and justify the costs, benefits, and work efforts. Multiple options were under scrutiny because of this requirement.

With the right value system in a perfect world, any delivery method could deliver superb outcomes: outcomes where all share equally in the risks and rewards; outcomes where the constructor is paid for the work completed, with a reasonable profit; outcomes where the owner pays fairly for what was delivered, nothing more and nothing less. This is the way that most of us would like to think that design and construction works. Unfortunately, it is rarely so.

Delivery methods, such as design-bid-build, design-build, construction management at risk, agency construction management, and integrated project delivery, are someone’s idea of how to most closely achieve a perfect project. The sad truth is that none of them actually achieves these goals. Some come closer than others. Some may have worked once upon a time, and are no longer effective. It is not too hard to understand the basic differences between these options. The subtleties and complexities are more difficult.

Each option would be molded to involve collaborative work processes. Because of the necessity to build upon traditional delivery methods, each of the options would achieve this goal a bit differently. Some were, at their core, not collaborative at all. Some were relatively easy to convert. Each of the options required Cork Point management and control at a different level. Each imposed a slightly different cost structure. Each required a separate investment from Cork Point in time and money. Each option had been used widely for many years. As Elle evaluated her options, she knew that the process needed to foster collaboration, transparency, and shared information. Each must be understood in that context.

The first option involved Cork Point assigning full responsibility for project delivery to a developer. In this option, Cork Point would monitor the developer’s progress and participate throughout. The developer would be responsible for all activities required to provide a complete project. The developer would hire a general contractor. At project completion, Cork Point would retain the option of operating and managing the facility themselves or retaining the developer and leasing the project. This was Cork Point’s most expensive total cost option, adding about fifteen percent over the lowest-cost option. The fees and markups for the developer accounted for much of the added cost. Cork Point staff involvement and personnel cost were low, at about 3 percent, in this option.

Design-bid-build was perhaps the most traditional option. It allocated liability between Cork Point, the architect, and the general contractor. This option was arguably the most difficult to restructure to be collaborative and integrated. Case law and established standards of care were clear in this option. Unfortunately, adding technology to design-bid-build has been shown to result in conflict and people working at cross-purposes. The effort required to overcome these issues is significant. Some find this to be counter-intuitive, believing that design-bid-build offers the only way to be sure of the lowest possible price. This belief has been shown repeatedly to be false.

Design-bid-build has long held favor in the government world and for public bidding. It would seem as though this is the best way to assure everyone that you are getting the best price for your project. For many years, the truth has been much different. This method has produced more sub-par quality work, more lawsuits, and lower productivity than any of the other options. In this day and age, design-bid-build is almost a promise of unplanned change orders and litigation. In fact, many agencies budget believing that litigation is coming from day one. This option added about 4 percent over the lowest-cost option. Cork Point’s direct costs were a total of about 29 percent in this option.

Next was design-build. This option placed responsibility for all design and construction operations on the design-builder. Cork Point would bear the cost of fees, financing, legal, and accounting. Design-build has become increasingly popular over the last thirty years. This method can deliver on its promise of a single-point responsibility. In many situations, this single-point responsibility has led to compromised design solutions and shoddy workmanship. These issues are generally local. Local contractors, styling themselves as design-builders, offer prices too low, based on imperfect design documentation. They then drive quality to the bottom to deliver.

Recently, processes where the owner retains designers to create documents that become the standard of the design builder’s performance, have become more prevalent. This approach has been proven to overcome many of the quality issues. As a hybrid approach where the designer would develop information models for design-builder use, this method could achieve many of the benefits that Cork Point sought. Outcomes would depend on good intentions and ethical behavior. Substantial opportunities would still exist for participants to create benefits for themselves while harming others, without anyone actually knowing what occurred. This option added about 5 percent over the lowest-cost option. Cork Point direct costs were approximately 16 percent of the total cost.

Construction management at risk was the fourth option. This option could also be called developer-entity construction management since responsibility for the entire project is similar to the first option. The key difference is that usually, a large general contracting firm would act as the developer in this option, eliminating one layer of organization and associated costs. Construction management at risk is favored by many for large projects. In this method, the construction manager has control, much as in the design-build method. The construction manager supports the owner while retaining responsibility for delivering the design support and construction. Cork Point would contract with a single entity and a single surety bond could be provided.

After experiencing the construction management at risk choice in other hospitals, Elle realized that a surety bond or any other warranty did not add integrated delivery benefits. In her experience, construction management at risk retained many of the fundamental flaws associated with the traditional design-bid-build approach to the process. The construction manager usually did not hold contracts with the architect and engineers, who worked in an advisory role to the owner. Usually, the construction manager was required to bid the trades and then consult with the owner and award trade construction packages. Once past this point, the construction manager at risk assumed full construction liability.

On the surface, the construction manager at risk offers an improved model of a single point of responsibility. The reality can be quite different. As the design progresses and construction starts, the construction manager at risk is no longer required to share financial details. Suddenly, detailed negotiations with trade contractors, the actual value to the owner of change orders, and the cost of project support staff become an issue. Even with a guaranteed maximum price, the owner is often harmed. Savings that should accrue to the owner too often accrue to the construction manager at risk. The construction manager at risk, in strict compliance with the contract, has too many opportunities to enhance project outcomes to his or her company’s benefit. This option added approximately 1 percent over the lowest-cost option. Since costs flowed through a developer entity, Cork Point management costs were minimized.

Integrated project delivery is seen to be the way to correct these issues. Integrated project delivery offers incredible possibilities. Much energy has been spent to determine how integrated project delivery works and how relationships should be structured. Collaboration, information sharing, openness, and transparency are essential to the process. Sharing risk and reward is a worthy goal. The problem with integrated project delivery is that, in most cases, it departs from procurement standards. Many find abandoning the traditional checks and balances between the owner, designer, and constructor to be difficult. A small number of owners have been willing to take the risk, yet lack of legal precedents and a significant early-stage investment in time and money to negotiate collaborative agreements continues to make integrated project delivery a goal that is rarely reached.

Agency construction management was the last and arguably the lowest-cost option under consideration. Cork Point would become the contracting entity between all parties, assisted by the construction manager. The agency construction manager would not hold any contracts. All contracts would be direct with the owner. This would require that the owner be a direct party to many more agreements than in most of the other methods. Contracts and surety bonds would be managed by the agency construction manager in the owner’s interest. Since the agency construction manager was not the contracted entity, he or she would include the requirement for surety bonds to come from the project’s trade contractors. The construction manager would manage costs in Cork Point’s interest to ensure that payments to contractors occurred at a pace that minimized the risk of default. Since costs would be managed by the construction manager, Cork Point’s additional management costs would be minimal.

Agency construction managers work as an extension of an owner’s staff. They are the owner’s agent. In this role, the successful construction manager becomes the advocate for the owner’s needs. Since the agency construction manager does not hold any contracts, the ability to create windfall profit opportunities is limited. In their role as the owner’s agent, the construction manager has little reason to keep information close. Short of integrated project delivery, agency construction management offers the most transparent and collaborative strategy for project delivery. The contractual underpinnings of this method lead to an open and free exchange between all parties. With a construction manager acting as a trusted advisor to the owner and a design team contractually obligated to share and collaborate, agency construction management offers a significant step toward integrated project delivery. Combining information modeling, model servers, and proven agency construction management techniques create a system that balances traditional delivery with state-of-the-art technology to do better work.

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