February 12, 2019 at 8:42 am
Kenneth E. Rubinstein, Attorney, Preti Flaherty
Ben Piper, Attorney, Preti Flaherty
Cordelia Pitman, Director of Preconstruction Services, Wright-Ryan Construction
Identifying the right construction project delivery method is critical to successful execution. Three of the most common delivery methods are Design-Bid-Build, Construction Manager (CM) at Risk, and Design-Build. Each of these methods has benefits and drawbacks. Choosing the right one will depend on your unique needs and the project requirements, and will allow you to better manage risk, quality, budget, and schedule. This article identifies the key features, benefits, and aspects to consider within each of these three delivery methods and describes the types of projects for which each method is best suited.
Design-Bid-Build is perhaps the best known and most traditional form of delivery. However, the method does present certain limitations. Within the Design-Bid-Build delivery method, the owner contracts separately with a design professional and a contractor. The design professional fully develops and delivers complete construction documents before the owner solicits bids from prospective contractors. A contractor is usually then selected based on the lowest price, which is often viewed as an objective criterion. The payment structure is most commonly lump sum, but it may also be cost-plus (based on a unit price), or cost-plus with a guaranteed maximum price (GMP).
Typical rationale assumes that bidding promotes transparency and impartial decision making, delivers the lowest cost, and provides all contractor candidates with a balanced opportunity for selection based on price. Design-Bid-Build provides the owner control over design and a clear division of responsibility among the various roles. However, it does not engage the experience, insight, and counsel of a contractor during the design phase.
This method may be preferable for simpler projects, and is often favored where collaboration is less important. However, Design-Bid-Build may not be an appropriate fit for more complex projects where early and consistent engagement from a construction professional is beneficial. It also might not be the right choice in a heated market because the method isn’t optimal when expedited completion is essential.
Construction Manager (CM) at Risk
In the CM at Risk method, a CM is hired during the project’s design phase (typically early on at the conceptual or schematic design stage) to provide pre-construction services regarding constructability, including systems and materials comparisons, schedule development, and milestone estimates. The owner contracts with the CM who works collaboratively with a design team hired under a separate contract with the Owner. The construction contract is then executed on a cost-plus with GMP basis, with the CM who provided pre-construction services during the design phase usually contracted as the builder under terms established at the outset.
The heightened collaboration between contractor and design professionals in the CM at Risk method typically leads to improved coordination, less conflict, and creative solutions that yield best-value results for the owner. It enables the design team and the owner to compare costs and benefits of various systems early in the project, allowing them to select the most cost-effective systems. This method also enables fast-tracking projects through phased scheduling.
CM at Risk engages a Construction Manager as an equal participant and contributor within a collaborative team. The process allows clients to hand-pick a CM based on the firm’s relevant knowledge, credentials, and expertise managing work similar to the proposed project. The method also consolidates and streamlines construction responsibility through one contract; yields more practicable and foreseeable outcomes; produces a GMP that is fully bonded; and most often results in schedule and cost savings while reducing risk.
The CM at Risk method may be appropriate in complex projects requiring customization since it allows owners to maintain cost controls. The owner can also maximize the value for their dollar on an expedited schedule. Because the CM can propose strategies to gain interest from appropriate subcontractors, it is often the right choice for owners in a heated market.
In the Design-Build method, the owner contracts with a single entity for design and construction, typically on a lump sum, cost-plus, or cost-plus with GMP basis. The single entity may be a builder who subcontracts the design role or a design professional who subcontracts the building role. In either case, the owner provides a “Basis of Design” identifying program requirements, and the design-builder controls aspects of the project not enumerated or defined in the contract.
The Design-Build method eliminates any conflict between design professional and builder, since a single entity holds both responsibilities. Combining the roles may also allow for lower cost and expedited completion due to enhanced collaboration and the ability to commence construction before the completion of design. Moreover, the owner has a single point of contact for simplified communication.
This method, however, requires the owner to put a great deal of trust in a single entity. Often, the owner will cede control of the design of the project at inception, which may lead to concerns of compromised quality and detail for any item not specifically called out in the basis of design. Fewer checks and balances may present challenges and create risk for less experienced owners.
The efficiencies of the design-build method are nevertheless useful for highly scheduled and cost-sensitive projects. And the risk of losing design control is mitigated in projects featuring repetition or more-formulaic models, such as hotels or dormitories where design elements are well-established.
The selection of a project delivery method is an early decision that will have ramifications throughout the lifetime of a project. Whether you are an owner, contractor, or design professional it is a decision worth informed consideration, taking into account the nature of the project, the needs of the parties, and the construction market.
Categories: Maine Real Estate Insider