Information to Help the Owner Through the Design & Construction Process
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To achieve the best value when contracting for design and construction services, it is important to know what levels of service are available to you and what services you really need to accomplish your goals. The process of choosing which construction delivery method that can best serve your needs is a critical first step! It can be difficult and confusing but it is vitally important for the success of a project.
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Choosing a Construction Delivery Method
Before you can select a contractor, you need to know which delivery system best suits your project's needs. There are several very different forms of construction contracts that can be used. Understanding the differences is key to determining which one will help you meet your objectives for the project. In some cases, this choice must be made even before the selection of an architect. For instance, if you hire an architect first, you effectively eliminate design-build as an option.
An experienced Owner's Representative can easily save several percent of the contract value by negotiating the terms of the contract to the owner's advantage while still allowing the contractor and architect to make a fair profit.
Forms of construction delivery include:
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Construction Manager
A construction manager is hired to
manage the construction project only. They do not physically do any
on-site construction work. They may assist in the design phase.
Typically, they are hired on a straight fee basis. Contracts are held
by the owner and payments are made to contractors directly by the owner.
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Pros
- The construction manager is considered an agent of the owner and is
duty bound to put the owner's interests first during the design and
construction.
- A construction manager can provide construction
expertise during the design phase that can improve the constructability
and cost effectiveness of the design
- The construction manager is
hired as a consultant, thus allowing public bodies to choose the most
qualified construction manager versus having to rely on accepting the
lowest bidder to manage the construction process.
| Cons
- There is no profit incentive to manage the project cost effectively.
- The construction manager has little or nothing at risk to motivate their performance.
- Since all costs are typically passed through to the owner, whether
the project gets done in six months or twelve months has little effect
on the construction manager's profitability.
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Competitive Bid General Contractor
This is the most
conventional form of construction delivery where bids are received from
a number of general contractors after the plans and specifications are
complete. The contractor is selected on either low bid or a
combination of low bid and other qualifications.
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Pros
- This is the most competitive method of construction delivery as each
contractor prepares a cost estimate based on a complete set of plans
and specifications.
- General contractors generally manage the project more efficiently because their profitability depends on it.
| Cons
- Because general contracting is so competitive, there is an inherent
risk that the contractor may not provide the level of quality and
service that the owner needs.
- Anything that is not clearly
identified in the plans and specifications, becomes a potential point
of contention for requesting a change order. Many contractors use this
to their advantage to enhance their profitability.
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Construction Manager - Constructor or Negotiated General Contractor
This
can be confusing terminology but it refers to a contractor who is paid
a fee to both manage the construction process and also provide on-site
labor and material. While the American Institute of Architects
recognizes Construction Manager - Constructor as a contract form,
Negotiated General Contractor is a more accurate term for this delivery
method. The contractor may or may not be involved in the design
process.
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Pros
- The negotiated general contractor can bring valuable construction
expertise during the design phase that can improve the constructability
and cost effectiveness of the design.
- Many owners prefer selecting
a contractor using this method because they feel more comfortable
building a working relationship with a contractor before the plans are
complete enough to produce competitive bids.
- This 'team' approach can work effectively when the relationship between the contractor and owners is a strong one.
| Cons
- When a negotiated general contractor is really a contractor and not a
pure construction manager, the responsibilities that are intrinsic to
an agency relationship are lost. The construction manager has an
obligation to put the interests of the owner ahead of his own interest
under agency law, while a contractor has no such obligation.
- Contractors
like this method because it typically generates higher profitability
while at the same time reducing their risk, neither of which is in the
owner's best interest.
- If the relationship is tests by adversity during the construction process, the owner has significantly more financial exposure.
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Design / Build or Turn-Key
This delivery method provides for a single entity to both design and build the project for the owner.
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Pros
- There is a single source of responsibility for all design and construction activities.
- Because the architect is also the contractor, the plans can be prepared more expeditiously and with less detail.
- There are fewer conflict arising out of what the intent or meaning of the construction documents.
- Developers often use this method of delivery because they can determine what the cost of the project will be in advance.
| Cons
- It is very difficult to compare proposals from competing
design/build firms because the level of detail is insufficient at the
time of the comparison. When the cost of the project is set before the
design detail is provided, the project will be designed to maximize the
profitability of the design/build firm.
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As you can see from the brief descriptions above, each method has both
advantages and disadvantages to the owner. An Owner's Representative
can help an owner determine which contract form will be in his best
interests and meet his goals. How the contract is structured will
determine how much profit the contractor makes on the project, what
incentives the contractor has to affect efficiencies during the
construction process, and who benefits from those efficiencies.
Quality, time and money are the driving forces behind all decisions
made in the design and construction process. Choosing the appropriate
construction delivery method will go a long way toward meeting the
owner's goals with respect to all three.
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You may be knowledgeable about the various methods of construction delivery and have already determined which one works best for you. If so, your next step would be to select either an architect or a contractor from the hundreds available. This involves establishing specific criteria and priorities that are important to your project so that each firm can be evaluated systematically. Each project and each owner will be unique in this respect and it is very important to give consideration to the specific requirements of your project and which method can best meet your objectives..
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Selecting an Architect
Architectural fees vary dramatically, from as low as 2% or 3% to as high as 12% or higher. This variation in fees may relate directly to the level of service that the architect is providing or the size of the project, but not necessarily. To assure the architectural fee is appropriate for your project, it is important to understand the level of expertise and service your project requires.
Once the architect selection has been made, and the design process begins, the design progress should be reviewed regularly. Your Owner's Representative can easily read and understand construction documents and has an understanding of your project goals and objectives.
Following are some of the important questions to ask and evaluate when determining which architect will best meet your objectives. As you read down, ask yourself if anyone on your team has the time and ability to do this type of thorough evaluation. If the answer is "no", you may want to consider hiring an Owner's Representative.
Project Goals
- What is the best construction delivery form for your project? (Construction Management, Competitive Bid General Contraction, Negotiated General Construction, Construction Manager / Constructor, Design/Build, etc.)
- How much creativity and innovation does your project require of an architect?
Related Experience
- Does the architect need project specific experience?
- Does the architect have project specific experience?
Firm Staffing
- What are the names of all the project architects within the firm and the years of experience of each?
- What is the experience level of the proposed project architect compared to that of other project architects within the firm?
- What similar projects has the project architect been responsible for?
- What are the specific responsibilities of the project architect?
- What other personnel will be involved and what will their responsibilities be?
- Will the firm agree not to make any changes to key personnel during the duration of your project?
Technical Ability
- How much detail do the drawings need to have to effectively contract for construction using any of the above methods?
- What was the percentage of change orders on similar past projects?
- Did similar past projects come in at or under budget?
- Were the designs of past similar projects completed as scheduled?
- What is the architect's obligation to design within the budget established by the owner?
Fees
- What is the fee and how is the fee distributed between schematic design, design development, construction documents, and construction administration? (It is very important that a sufficient amount of the fee is applied to construction administration.)
- Did the architect charge additional fees not included in the original contract proposal on past projects?
- What is their obligation to redesign for no additional fee if the project comes in over budget?
References
- How do past owners rate the firm and the project architect's performance on their projects?
- How do past owners describe their working relationship with the proposed project architect?
- How do the contractors that built similar projects with the architect rate the architect's plans and specifications?
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Selecting a Contractor
Once a construction delivery method is selected, a contractor that best fits the project can be selected. Having an Owner's Representative overseeing the construction process will help insure that the contractor's performance lives up to expectations and that your project remains the contractor's top priority at all times.
Managing the construction process is what you are really paying a contractor to do. The experience and ability of the people assigned to the project will in large part determine the success of your project. Evaluating the experience and capabilities of the superintendent and project manager that the contractor proposes to use on the project will impact how well the job is managed.
Following are some important considerations to ask and evaluate when determining which contractor will best meet your objectives. It is important to know your project requirements and select a contractor who is well suited for the project. As you read down, ask yourself if anyone on your team has the time and ability to do this type of thorough evaluation. If the answer is "no", you may want to consider hiring an Owner's Representative.
Project Goals
- Do you want some control in the selection of subcontractors?
- Is the completion date of the project critical?
- Is the amount of time allowable for construction unusually short?
- Do you anticipate taking advantage of owner direct purchasing of construction materials as a tax-exempt institution.
- Does the building have a high level of finishes requiring more highly skilled craftsmanship?
- Is it important that the project not exceed a specific budget amount?
Firm Experience
- What is the contractor's backlog of work compared to their historical backlog?
- What is the contractor's experience with owner direct purchases?
- What union contracts is the contractor signatory to and how will that effect the competitive bidding of your project?
- What is the contractor's safety record?
- What is the contractor's workman's compensation insurance mod rate?
Firm Staffing
- Does the contractor intend to utilize a working superintendent on the project?
- What work does the contractor perform with their own forces?
Technical Ability
- Does the contractor use leading edge computer software like Prolog and Primavera to manage their projects?
- How often do they typically update the project schedule?
- Does the contractor maintain an active quality control program?
Cost Considerations
- How does the contractor charge for general conditions?
- How does the contractor charge for general conditions?
- Will the contractor put a cap on the cost of general conditions?
- Will the contractor itemize the general conditions and put a cap on each line item?
- Is project management time included in the general conditions?
- What hourly rates does the contractor use for billing the superintendent and / or project manager to do the job?
- How does the contractor charge for equipment that is used on the project?
- Is the cost of equipment subject to a maximum?
- If the contract is based on cost plus a fee, how will the costs on the project be verified?
- How will the contractor insure competitiveness on the work that they perform with their own forces?
- If the project is based on cost plus a fee, will the contractor put a cap on the amount of actual profit that they make on the project?
- Are you aware that most construction trade unions have a fund available to subsidize union subcontractors who are competing against non-union subcontractors? Do you know how to take advantage of it?
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