Home > FM Frequency > Frequency Sept. 2002

To Build Or Not To Build: Is That Really The Question?

Since the universe's conception, architects, engineers, contractors, and owners have debated the pros and cons of design/build vs. spec/bid/build construction methods. While the public sector (schools, governments, military, etc.) has historically favored spec/bid/build, the private sector seems to experiment more with design/build projects. What's the big difference, you might ask? Well, read on and find out!

Spec/Bid/Build Construction
The basic concept of spec/bid/build construction is that a team of architects and engineers (usually led by an architect) prepares a detailed set of construction documents consisting of plans and specifications. This package is "put out for bid" for general contractors to submit a fixed price bid based on the construction documents. In this scenario, general contractors can be pre-qualified, but often bids are sought with public notice. Unfortunately, with a public invitation to bid, anyone with a contractor's license and a pickup truck can bid on the project. (Not really–a truck would usually require a change order if the architect didn't include it in the plans!)

Government projects are usually required to seek bids publicly and select the "low bidder" unless the low bidder can be dismissed for cause. My experience has been that getting a low bidder dismissed on a public project can be more difficult than building one of the Great Pyramids, even if he doesn't meet the "minimum requirements" listed in the bid documents!

The benefits of spec/bid/build construction include open, fair competition among general contractors (insert your own joke about political favors and public money) and securing the lowest bid. In this arrangement, the architects and engineers (A&E) are responsible for making sure the contractor builds what was designed.

Of course, these benefits are only realized when: the general contractors bidding on the project are all well qualified; the A&E team has perfectly prepared the construction documents; and the owner doesn't change anything after the bid documents are released. Since none of these conditions are realistic, huge change orders can result from minor design mistakes or owner change requests. This can quickly erode cooperation between the owner, A&E, and the general contractor and can turn an otherwise well conceived project into a nightmare.

Several years ago, I worked on a public project that required a public bid and mandated low bidder selection. There was no architect, so I was the project manager (mechanical engineer) representing you, the taxpayer.

It was a critical project at an old facility (with suspect as-built documents), and it required thorough plans and specifications for demolition and new construction. Recognizing the complexity and environmental sensitivity of the work, we included minimum qualifications for the general contractor. The low bidder (only by a few percent) didn't meet the minimum bid qualifications, so we decided to disqualify the company based on its lack of experience. The local public officials agreed with our position, but the contractor appealed to a higher level. To make a long story very short: this contractor got the money.

On this particular project, the general contractor subcontracted most of the work, because–as we suspected–the project was outside his area of expertise. At about 30% completion, the project headed south–big time. The team was unable to complete the job, its work had undermined the foundation of a nearby building, and the public entity had to put the project back out to bid to fix what the original contractor screwed up–in addition to completing the original scope of work.

The second low bid was understandably more than the original scope of work. The lesson to be learned? A project that should have taken less than five months turned into several years with probably over three times the price tag. Did I mention this was taxpayer money?

Design/Build Construction
The basic concept in a design/build project is "the more involved, the merrier." In this arrangement, the owner (or his agent) selects developers, architects, engineers, and general contractors based on their qualifications. Everyone agrees to work as a team from conception through completion. The owner can either have a single contract, or he can have multiple contracts.

The primary benefit of design/build is the existence of a more cooperative relationship. Having the general contractor involved in the design process can help minimize field coordination and constructability issues and often yields suggestions for the owner to save money with minor design changes.

It shouldn't be a surprise that architects, having 50% artist DNA, often design things that are unreasonable for the guy in the hard hat to build. "You mean we can't have the company's logo hovering in the middle of the atrium without wires?" There is also more opportunity for flexibility during construction that can save time associated with change orders and formal addendums.

Developers and A&E firms can be paid in a lump sum or on an hourly basis with a percent of budget as a cap on their fees. General contractors can be paid on a cost plus agreement with construction management fees that can eliminate the temptation to cheapen materials on the job. Personally, I think it's a good idea to incorporate a savings sharing agreement with the general contractor. That way, if he is able to bring the project in under budget, both parties will be rewarded.

Facility professionals can also consider schedule incentives and penalties, although in design/build, be careful about this. If the owner changes the scope of work dramatically, he might impact the budget and/or schedule and unfairly penalize the team. The likelihood of design and schedule changes (and even potential weather events) should be openly discussed and considered before agreeing on any type of performance incentive or penalty.

An Outline For Success
While I am confident there are many very successful spec/bid/build projects, I think owners (and taxpayers) need to be aware of major flaws in the process. That said, retail stores, restaurants, and other facilities built with prototype designs (numerous times) are probably good candidates for spec/bid/build construction. An emphasis on repeatability and field experience should minimize design mistakes, and standardization should minimize cost/schedule impacts associated with whimsical owner changes.

However, my experience has been that most projects utilizing spec/bid/build construction do so because they have no choice. In my opinion, the best option for most construction projects would be design/build/design some more with the following characteristics:

1. Owner establishes separate contracts with the following:
• Developer (if there is one);
• Architectural firm to cover A&E services;
• General contractor for construction costs; and
• Contractor or consultant responsible for building commissioning.

Note: Building commissioning is an often forgotten component of construction. An A&E might design the perfect building, but if it isn't installed and "started up" to run the way it was designed, you can have major problems and efficiency losses. Don't let the architects or engineers talk you out of this! You should work with an independent, qualified person to confirm your building is running properly. Design and construction mistakes are often not detected until you are occupied and running under load.

2. Establish a "guaranteed maximum price" for the project budget and schedule. Openly and honestly consider incentive and penalty options.

3. Establish a "cost plus" agreement with the general contractor and hourly fees with the A&E firms, developers, and commissioning crews (with caps based on percent of budget).

4. Maintain open accounting practices with the general contractor and work with a financial services firm to help you segregate construction costs for optimum tax advantages.

5. Have owner, architect, general contractor, and subcontractors participate at "value engineering" meetings.

6. Be an informed participant. Read trade magazines, understand the technology, and talk to other people who have been through it. Don't blindly spend company or taxpayer money. Construction requires tremendous investment, and you have an awesome responsibility.

My advice is this: have fun and take a lot of pride in your projects! If you build and maintain your facilities correctly, why shouldn't they last as long as the Great Pyramids? After all, do you think the pharaohs were required to select the lowest bidder?

Crane is operations manager for Charleston, SC-based Blackbaud. He can be reached via e-mail at jeff.crane@blackbaud.com.