Procurement Strategies for Construction.

This week in the news we find an article from Passenger Terminal Today.com about a request for proposal for a new terminal at Newark International Airport.

The story tells us that three joint-venture (JV) firms have been shortlisted for a design-build agreement to build a new Terminal at Newark Airport.

The three JV firms feature the top design and construction firms in the New York/New Jersey tri-state area.

What is significant about this story isn’t that passengers at Newark Airport may soon be treated with a new Terminal, or that some of the area’s top design and construction firms are all vying for the contract.  What I want to discuss Today is the delivery model that the Port Authority has selected.

As I discussed in this previous article, design build (DB) agreements have historically been disallowed from public procurement.  More and more, we see public policy changes allowing design build in jurisdictions around the world.  In the private sector, design-build projects have been favored for their simplicity and speed.

Design Build Delivery Model

Design Build (DB) is one of two major delivery models used in construction projects.  The appeal of design build comes from the “one-throat-to-choke” philosophy that an Owner can hire a single company to be fully responsible for the design and the construction work.  Often, this form of delivery can also be referred to as “turn-key”.

Design build is a great way to delivery a project when the level of control required by the Owner is low.  Owner’s who are comfortable not being deeply engaged in every design and construction decision and those who value schedule over all other consideration are well suited for design-build agreements.

A key benefit of a design-build agreement is that schedule and cost can be tightly controlled.  The key to the success of a design build agreement is in having well established standards for the design and quality of the work.

In the case of an airport terminal where design standards are well established and tightly controlled, a design build agreement is an excellent choice.

Conversely, DB agreement cost more than other delivery models simply because the DB contractor is required to set a price before the design has been completed.  This means that the contractor accepts a higher level of risk and therefore must factor in some amount of additional cost to accept that risk.

Given that the designer and the constructor are a single entity (note that all participants of the Port Authority project are Joint-Venture entities), DB agreement tend to run more smoothly.  The sheer nature of hiring a single entity to design and construct means the Owner wont be addressing change orders resulting from design errors and omissions.

While this can be viewed as a positive, many believe that the designer and the constructor should police one another for the benefit of the Owner.

In Carlsbad New Mexico another team of community members contemplating the construction of a new school.  Find themselves tight on funding and have opted for a design-bid-build (DBB) delivery model citing cost as it’s primary concern.

Design Bid Build Delivery Model

The design-bid-build delivery model is the most commonly used model.

In DBB the designer and the constructor are two individual companies.

The key to this tried and true method of delivery is that the Owner hires the designer and the builder directly.  This means that each firm is beholden only to the Owner and are responsible only to the Owner.  The innate friction that this delivery model creates is seen as beneficial for the Owner because one checks the other, but this friction can also create conflicts which can lead to change orders and project delays.

DBB has the distinct advantage that typically the design has to be completed before construction costs are solicited.  This reduces the risk the GC accepts and therefore results in lower construction costs.  This assumes that sufficient time is allotted to the design team to develop a complete set of design documents.

Time is a critical consideration in DBB because a harried approach to DBB is certain to lead to a higher than normal rate of change orders and even greater project delays.

Owner’s who expect to be deeply involved in decision making through each phase of work should opt for a DBB agreement as this will ensure they are able to be consulted throughout.

Integrated Project Delivery Model

A third but lesser known delivery model is known as Integrated Project Delivery (IPD).  IPD is essentially a modified design-bid-build model that brings Owner, designer, and constructor into a single three party agreement to deliver the project.

The American Institute of Architects has been a strong proponent of this model, but a very small percentage of projects are delivered in this way.

The goal of IPD has been to relieve the tension that a traditional DBB agreement creates between the designer and the constructor.  IPD promotes early engagement of the constructor encouraging collaboration between the designer and the constructor.  By having the constructor engaged prior to completion of the design the designer and the constructor can lean on one another potentially developing a more complete set of drawings.  Better drawings presumably means smoother construction.

While this concept is a good one, the truth is that three way agreements can be very difficult to negotiate and similar collaboration can be achieved by utilizing a DBB approach with a cost plus pricing model.

Closing

There is an appropriate place and time for each of these delivery models.  Before you begin your project, spend some time reviewing the pros and cons of each.  Ensure that you pair the delivery model with the right pricing model and you will have a more successful project overall.

Thanks for reading.  If you enjoyed this content, please feel free to browse my previous articles and please like, share, comment, and subscribe.  This helps promote my content and is greatly appreciated.

 

 

 

 

 

 

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