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Witness Testimony of William Wakefield, The Haskell Company, Jacksonville, FL, Vice President, Healthcare Division

Introduction

The purpose of this summary is to provide an objective summary and comparison of the alternatives that healthcare providers may wish to consider for the design and construction of new or expanded facilities.

For this study, project delivery systems and procurement methods are discussed as separate, although related topics.  A Project Delivery System is the process under which design and construction services are provided to complete a project.  A Procurement Method is the process by which the Owner selects the team that will provide the services required to complete the project.

The selection of the most appropriate project delivery system must precede the selection of the procurement method.  No single delivery system or procurement method is optimum for all projects and circumstances.

Project Delivery Systems

Until recently, the design and construction industry was characterized by highly contentious relationships between architects, engineers, contractors and subcontractors.  In recent years partnering, alternative delivery systems and more enlightened owner-designer-contractor relationships have improved these adversarial relationships.

Design-Bid-Build
 

Design-Bid-Build Flow Chart Design-Bid Build has been the traditional project delivery system used in the United States for about 200 years.  Under this system, the Owner contracts separately with a designer and a contractor.  The architectural/engineering firm produces “complete” plans and specifications.  Contractors provide bids to perform the work.
   

Advantages:    

Established and familiar system
Established legal precedents
A/E works directly for the Owner
Appropriate for price competition (as opposed to value)
Availability of insurance and bonding
   

Disadvantages:    

Diffuses accountability for the overall process
Contributes to adversarial relationships and disputes
Owner is the arbiter between design and construction
Initial low bid does not necessarily result in low final cost or best value
Very late knowledge of firm costs
Slowest of the delivery systems
   
Construction Management at Risk (CM at Risk)
   
Construction Management at Risk Flow Chart The CM at Risk delivery system evolved to take advantage of early involvement of the construction member of the project team.  The Owner contracts separately for design and construction services as in the Design-Bid-Build system.  However, the CM firm is selected earlier and is integrated into the design process.
   

Advantages:    

Early involvement of construction
Greater collaboration between design and construction
Construction input during design
Earlier knowledge of firm costs
Improved cost control
Faster than the Design-Bid-Build delivery system
   

Disadvantages:   

Same contractual relationships as Design-Bid-Build
Diffuse accountability for the overall process
Contributes to adversarial relationships and disputes
Owner is the arbiter between design and construction
Slower than the Design/Build delivery system
   
Design/Build  
   
Design-Build Flow Chart Design/Build is a project delivery system in which the Owner contracts with a single entity to perform design and construction, and perhaps additional, services.  This system offers the Owner the benefits of even greater design and construction integration and singular responsibility for the outcome and the overall process.
   

Advantages:   

Singular responsibility
 Risk management
Early knowledge of firm costs
Cost savings and value
Improved cost control
Time savings
Improved quality
Reduced Administration
   

Disadvantages:   

Owner’s unfamiliarity with the delivery system
Greater reliance on transparency and trust
Limited availability of insurance and bonding
   

Comparisons of Delivery Systems

A major research project, conducted by Penn State University in 1997, studied the outcomes for 351 projects and compared those outcomes against the delivery systems used for the projects.  The measured outcomes included:

Unit Cost

A comparison of the unit cost – the cost per square foot in place – for the different systems indicated:

CM at Risk was 1.6% lower than Design-Bid-Build
Design/Build was 4.5% lower than CM at Risk
Design/Build was 6.1% lower than Design-Bid-Build

Design and Construction Cost Growth

The cost growth – form initial contract cost to final cost – for the different systems was:

Design-Bid-Build 4.83%
CM at Risk 3.37%
Design/Build  2.17%

Delivery Speed

A comparison of the delivery speed – taking into account design and construction –indicated:

Design-Bid-Build 3,250 square feet per month
CM at Risk 4,712 square feet per month
Design/Build 6,842 square feet per month

CM at Risk was 13.33% faster than Design-Bid-Build
Design/Build was 23.5% faster than CM at Risk
Design/Build was 33.5% faster than Design-Bid-Build

Design and Construction Schedule Growth

The schedule growth – from initial schedule to final schedule – was:

Design-Bid-Build 4.44%
CM at Risk 0%
Design/Build 0%

Quality

Measured on a scale of 1-10, with 10 being the highest, Owners graded the quality of their projects at turnover and start-up as follows:

Design-Bid-Build 6.00
CM at Risk 7.43
Design/Build 7.50

Summary of Comparison

A summary table of the findings of this study follows:

Design-Bid-Build (1)

CM at Risk (2)

Design/Build (2)

Unit Cost

 clear circle

black circle

black circle

Cost Growth

 clear circle

black circle

black circle

Delivery Speed

 clear circle

black circle

black circle

Construction Speed

 clear circle

gray circle

black circle

Schedule Growth

 clear circle

black circle

black circle

Turnover Quality

 clear circle

black circle

black circle

System Quality

 clear circle

black circle

black circle

 

(1)   Compared against other systems

black circle Significantly outperforms

(2)  Compared against Design-Bid-Build gray circle No significant difference 
  clear circle  Significantly underperforms

Further Discussion – Advantages of Design/Build

Undivided Responsibility 

Design/Build contracting provides both architecture/engineering and construction resources under a single contract. A single entity is responsible for cost control, quality assurance, schedule adherence, and performance of the finished project. This results in clearly fixed responsibility, maximum cost control and immediate responsiveness.

The Owner can exercise his desired degree of control over design, with the added advantage of continuously knowing the cost implications of each decision. The Owner’s control of the entire process is strengthened by contracting with a single firm unconditionally committed to the success of his project. It provides a comprehensive view of the project, as opposed to the one-piece-at-a-time method of multiple providers.

Time Savings

Design and construction are telescoped, bidding periods and redesign time are eliminated, and long-delivery components are identified and ordered early in the design process. Therefore, total design construction time is significantly reduced, which translates into earlier utilization of the completed facility.

Reduced Possibility of Project Delays 

The integrated nature of Design/Build results in decreasing the risk of schedule erosion and project delay. Bidding periods and redesign time are eliminated. Materials and equipment procurement and construction work can begin earlier – in some cases, before the construction documents are fully completed. Since total design-construction time is reduced, Owners enjoy earlier utilization of their completed facility. The chance of late entry to market or production downtime is greatly reduced. 

Early Knowledge of Costs

The Design/Build team, working closely with the Owner, accurately conceptualizes the completed project at an early stage.  Continuous and concurrent estimating during the development of design results in knowledge of firm, overall cost far sooner than is possible with other approaches. This process also permits making early decisions – which have the greatest impact upon cost – in an informed, cost-based environment.

Cost Savings

Design and construction personnel, working and communicating as a team, evaluate alternative materials and methods efficiently and accurately. From the outset of the project, both design and construction expertises are brought to bear upon all components of a project, from site work through mechanical and electrical systems. Cost evaluation is continuously “fed back” into the design process and the cost implications of design decisions are known at the time – not after design is complete. Because the Design/Builder is responsible for both design and construction, cost overruns resulting from design error or faulty coordination are the responsibility of the Design/Builder, not the Owner. The Owner pays only for scope changes that he initiates.

Reduced Risk of Cost Overruns

With Design/Build, risk reduction begins at the design stage. Construction specialists are an integral part of the design team, so construction implications are addressed early. The team works together to decide the most cost-effective materials and methods of delivery before a design is finalized, which enables them to provide more accurate costs and better scheduling up front. Because the same group is responsible for both drawings and functional performance, the possibility of expensive surprises in the construction phase is virtually eliminated. Too often with design-bid-build, design impracticalities are discovered during construction, which leads to increased cost, blown schedules, and finger pointing between architect, engineer, and contractor.

Because the Design/Builder is accountable for both design and construction, the risk of cost overruns from design error or poor coordination are transferred from the Owner to the Design/Builder. 

Risk Is Transferred From The Owner To The Design/Builder

Single source responsibility of Design/Build reduces risk to the Owner.  The Owner no longer takes the risk of scope gaps, document misinterpretation  or design errors.  The Design/Builder carries singular responsibility for both the design and the construction of the project.  This reduces the staff and management requirements for the Owner for those that normally manage the risk of those gaps and errors.

In the traditional design-bid-build method, multiple entities are used for the various tasks required. This separate engagement of architect/engineer, contractor, and other parties means there is no single party responsible for overseeing the entire project, and the Owner is therefore at greater risk for undesirable outcomes.

Design/Build presents less risk from a contractual perspective. There is only one contract, so Owners look to a single source for performance. This is a major advantage over the design-bid-build process, where the responsibility for any aspect of a project’s outcome may be unclear due to language in the various provider contracts. Typical are phrases like, “The Owner warrants to the contractor that the drawings and specifications are complete and free from error…” This language places the responsibility for design solely with the Owner. If problems are encountered during construction, the contractor can blame the architect who, in turn, may point the finger right back at the contractor. This method relies on audit, inspection, and, all too frequently, the legal system to ensure final project quality. In contrast, the Design/Builder assumes all responsibility by documenting the Owner’s requirements and expectations in performance terms.  “The Design/Builder warrants to the Owner that it will produce documents that are complete and free from error…” The Design/Builder essentially guarantees high quality in the finished facility by assuming complete responsibility from design through completion and into operation.

Procurement Methods

Procurement methods are distinct from, but related to delivery systems.  Not all procurement methodologies discussed below are applicable to all delivery systems.  The selection of the procurement method will follow the selection of the delivery system for a particular project.

Direct Selection

Direct Selection is the process where the Owner selects a firm without considering other firms for the project or service and negotiates the terms under which services will be provided.

Direct Selection may be appropriate when the Owner has considerable positive experience with that firm, the project is so highly specialized that only one firm is qualified for the project or where an umbrella purchasing agreement is in place.

Price Bidding

Price Bidding is the process under which any reasonably qualified contractor can submit a bid for a given scope of work.  A variation of this method is bidding by a small number of invited firms, who have been pre-qualified (see below).  The Owner usually selects the lowest reasonable bid.

Price Bidding requires complete construction documents, which limits its application to the Design-Bid-Build delivery system.

Qualifications Based Selection (QBS)

Qualifications Based Selection is similar to the method commonly used for the selection of consultants, architects, engineers and program managers.

Pre-Qualification:  Pre-qualification is the process used by an Owner to restrict the pool of firms that will be invited to propose or bid on the work.  The Owner may restrict the pool in several manners, the most common of which are qualifications, relevant experience, capacity or location.

The Owner will often develop and issue a Request for Qualifications.  The Owner will evaluate the submittals made by interested firms against criteria that was pre-established by the Owner.  A short list of firms will be selected for further consideration, often involving interviews, proposals and reference checks.

Proposal:  The proposal process usually follows a pre-qualification process.  Again, the Owner would develop the Request for Proposals and evaluate the proposals against pre-established criteria.

Pre-Established Criteria:  To create an objective selection process it is essential for the Owner to establish the selection criteria in advance.  The criteria may include:

Firm History
Financial strength
Backlog and capacity to deliver the project
Depth of personnel in key positions
Firm and team member experience
Project work plan
Ability to meet DBE and similar requirements
Performance history
References

Negotiation:  Negotiation typically follows a Pre-Qualification, Proposal or Direct Selection process.

Qualifications Based Selection is most often used for the selection of a CM at Risk or Design/Build firm.  It has the advantages of an accelerated selection process and a greater match of firms to the Owner’s objectives.

Value Based Selection

Design and price proposals are solicited in a Request for Proposals, which usually stipulates program requirements, design criteria, performance specifications, site information and contract terms.  The teams invited to submit proposals are often pre-qualified and limited to a few teams.  Teams then submit design and price proposals, which are evaluated against pre-established criteria, by a selection panel or jury, and the winning team is selected.

Value Based Selection is limited to the Design/Build delivery system.  While it has the advantage of providing a variety of design solutions, it can be a time and resource consuming process.  Pre-qualification of firms, issuing the RFP, preparing design and price proposals, evaluation of proposals and selection of the winning firm can take many months.  A jury must be appointed to evaluate the proposals and the members must agree on the application of the pre-established evaluation criteria.  To offset the cost of preparing design and cost proposals, a stipend is often paid to the competing firms.  For large and complex projects, stipends can exceed $100,000.

Bibliography

“Best Value, Performance Based Procurement System”, by Arizona State University

“Comparison of U.S. Project Delivery Systems”, by Mark Konchar and Victor Sanvido, published by Penn State University

“Construction Industry Megatrends”, by Preston Haskell

“Design-Build Basics for Owners”, Design-Build Institute of America

Design-Build Learning Series, Successful Design-Build Project Delivery, Design-Build Institute of America

Design-Build Manual of Practice, published by Design-Build Institute of America

Design Build – Planning through Development, by Jeffery L. Beard, Michael C. Loulakis and Edward C. Wundram

“Design Teamwork”, published by Healthcare Design

“Design and Construction Survey”, published by Modern Healthcare

Principles of Design-Build Project Delivery, Texas Chapter, Design-Build Institute of America

“Project Delivery Systems: CM at Risk, Design/Build, Design-Bid-Build”, by Construction Industry Institute

Selecting Project Delivery Systems, by Victor Sanvido and Mark Konchar

“The Integrated Design-Build Firm”, by David Engdahl