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Case Study of Construction Project Delivery Types

William J. Bender* PhD, PE, M.ASCE

* Construction Management Professor, IET Department, 400 East 8th Avenue, Ellensburg, WA 98926-7584

Phone: (509) 963-3543; benderw@cwu.edu

Abstract

Two separate construction projects that used different delivery methods and were managed for the owner by a part time construction professional are presented. One project used the classic design, bid, then build by using a low bid lump sum contract for construction. The second project selected a contractor during the design phase based on reputation and ability to perform the work. A negotiated Guaranteed Maximum Price (GMP) contract for construction was used for the second project. The author is a construction management professor and was the owners representative for these projects. The paper also briefly discusses efficient and prudent measures to ensure a successful endeavor when construction educators are working as a part-time construction management consultant.

Introduction

There are several methods and combinations of methods an owner can choose from to deliver a construction project. Each of the methods has distinct advantages and disadvantages for both the owner and the contractor. The objective of this paper is to highlight two specific project delivery methods that were recently used on projects the author has been associated with. A case study of each project is presented for review and may be used by educators in the classroom to highlight real life projects or for owners considering potential project delivery methods. The intent is not to promote one method as the best delivery method but to highlight some characteristics that should be considered. Finally, conclusions are presented for contractors, owners, and designers when considering their next project.

The author feels strongly that construction engineering and management educators must be actively engaged in some outside consulting to remain current and bring real experiences into the classroom. Construction project management is typically performed for owners by in-house staff or hired construction managers. In the presented projects the author, a construction management professor, provided these services for owners as a consultant. Continued fieldwork for construction management educators provides valuable material for classroom presentations and should be sought by all practitioners. Successful methods and pitfalls to avoid are presented for others to consider when performing this type of service.

Construction Delivery Methods

The owner may have the ability to hire construction professionals in any manner he or she chooses. The system chosen for construction is called the delivery method. Although not an exhaustive study of all types of delivery methods, several of the most popular methods are presented as background. These methods are briefly described and some of the major advantages and disadvantages from an owner’s perspective are presented. For each project delivery method there are combinations of payment types that will also be briefly discussed. For a more thorough review of construction delivery systems the reader is referred to Liebing (2001) and American Institute of Architects California Council (1999).

Design-Bid-Build. This is commonly referred to as the traditional approach. The advantages for owners is that it is a known way of doing business, results in competitive prices, and provides the owner exclusive control over the designer and contractor. Many public entities use this method combined with a lump sum low bid as bases for payment. Several variations in contractor selection or payment type may be used with this method. For example the traditional method may be used with a low bid lump sum or the contractor may be selected based on past performance and paid under a Guaranteed Maximum Price (GMP) with incentives for being under budget. The major disadvantage to this method is that it is slow. Other disadvantages are: has a propensity to result in adversarial relationships, may not result in best value, quality may suffer, and the potential for costly change orders.

Design-Build (DB). In this method the owner contracts directly with one entity for both the design and construction of a project. Variations to this method include: the level of pre-design, payment type, and a hybrid design build of only certain work packages, for example the mechanical systems. The advantages to this system are that it is generally quicker and the owner only has one contact that bears sole responsibility for both design and construction. Some disadvantages are that the owner must have an understanding of construction systems to fully understand what is being provided and some owners may feel they lose control of the design to construction interests. Payment for this delivery method is generally based on a lump sum low bid when it is priced and awarded based on a percentage (25-35%) of the design completed. An alternative method of payment is to use a GMP when the design has only been conceptualized.

Construction Management (CM). Several variations of this method exist; owner contracts with several subcontractors, agency (the CM acts as the owners agent), and at risk (the CM actively bids the work). In each method the CM may be brought on board early in the construction process, sometimes even before a designer is selected. Payment for CM services are generally paid as a fixed fee, based on a percentage of the total construction cost.

Project Case Studies

Two projects are compared and contrasted to show the benefits and disadvantages of a particular project delivery method. Similarities between the two projects are that they both contain renovation, involve some bid work from subcontractors, involve a new project team for a specific project, and the dollar volume is about the same range as both the designers and contractors work in. The projects are dissimilar enough to show how important the selection of the appropriate delivery method is.

School Project

Delivery system. The first project in this case study is a design-bid-build, lump sum, low bid $3.5 million school renovation and addition. Due to state funding and public bid requirements, the traditional delivery method was the only choice available to the school district (owner). A design firm was contracted with to provide requirements development, building design, and provide construction services. A very competitive price was obtained because the school bid package was requested by over 70 general and subcontractors, nine general contractors bid on the project and the lowest bids were within $20,000 of each other.

Scope of work. There were three separate additions to an existing K-12 school: a 3,000 Square Foot (SF) multipurpose room, a 6,600 SF high school, and 6,600 SF elementary school and office spaces. The existing school had fire piping and sprinklers installed, flooring, new roof system, mechanical and bathroom upgrades. The project also included civil site work to add a parking lot, septic system, and bus drop off lanes.

Project Team. With the assistance of a community building committee, the project was designed by an architectural firm located about a six-hour drive from the building site. The school district hired a construction management consultant or owners project manager two weeks before bids were due. The consultant’s function was to help with value engineering, provide contract interpretations, coordinate building issues, review changes, and provide inspection services. Since the project was for a small school district the school district superintendent was involved as an owners representative. The contractor specializes in schools and public projects. A superintendent for the contractor ran the job day to day and coordinated issues with the design team and owner. A project manager for the contractor organized and maintained subcontracts and communications. This project manager was on site once a week.

Challenges. School projects have been appropriately characterized as “never enough time or money” (Beaty 2002). This project was certainly no exception. Construction of site work began before school let out in the spring and the summer phase focused on putting enough of the school back together in time for the start of school. Certain portions of the building site could not be accessed until school let out. Change orders of differing site conditions for unsuitable building soil and unknown underground tanks were swiftly taken care of. As a renovation and addition to an existing structure several construction issues were not discovered until the construction phase. The building is on the lee side of the Cascade mountain range with heavy snowfall in winter and about 40 inches of total precipitation mostly during the months of September to June. This resulted in a relatively short weather window at the project site. The design was reviewed for constructability and were an average set of plans and specifications, thus requiring typical coordination, changed conditions, minor errors, and scope clarification during construction.

Teamwork. Weekly meetings between the owners project manager and the contractor began as soon the contractor was mobilized. Once the project had been going for about two months and intensive coordination was required, weekly meetings with the project manager, owners representative, superintendent, and architect were conducted. The project team started with the best intentions but due to time constraints an informal process (verbal followed with paperwork) was used to approve changes that affected the cost and time of the project.

General Conditions. The contract followed a modified American Institute of Architects (AIA) A201-1997 General Conditions (AIA 1997) format. The modifications generally placed more risk on the contractor and included language to price changes using the Means Construction Cost Data book (Means 2001). Liquidated damages were $7,000 per day if school did not start on time because the school would be required to rent facilities.

Timeliness. During mid summer it became readily apparent the contractor was not going to make the completion date for summer work and reach substantial completion in time for school to start. The contractor blamed the delay on the owner not vacating portions of the building per the contract. The owner acknowledged some of this delay (3 days) but could verify a major portion of schedule slip was due to difficulties with the contractor’s critical steel deliveries, fabrication, and erection. The contractor requested 22 days of acceleration to work Saturdays and overtime due to the delayed start. The owner offered to delay the substantial completion date by a week. An agreement was finally reached where the contractor was paid for 11 days of acceleration and substantial completion was extended one week. The owner felt an offer of goodwill would foster a spirit of cooperation to achieve school starting on time. The contractor found a new steel supplier and fabricator but relationships remained strained. School did start on time but several work areas were not satisfactorily completed on time, for example the roof leaked in places, parts of the building did not have heat, and temporary fixtures were installed.

Change rate. The change order rate for the project was 9 %. About 3 % of the changes were due to unknown or hidden conditions, 2 % to errors in the plans and specifications and 4 % due to betterment by the owner. Changes were initiated by requesting a Pricing Request (PR) from the contractor, costs were reviewed by the consultant and negotiated between the consultant, architect and contractor. Due to time constraints work was started and sometimes completed before a cost was agreed to. Toward the end of the project changes were particularly difficult to reach an agreement on because time was of the essence and cost proposals were excessively priced.

Quality. Several areas of quality suffered on this project. The concrete site work in several areas was unacceptable and had to be either replaced or the owner accepted consideration for unsightly work. Examples such as: un-nailed roof sheathing, missing insulation, bowed drywall, rain water allowed into the building envelope during construction (mold potential), mechanical equipment failures, improperly fitted plumbing vents, and a missing vapor barrier on the roof are all indicative of quality problems.

Problem Examples

Time. School began 1 October 2001 in portions of the old building. The entire building including additions was required to reach substantial completion by 1 February 2002. In January it became readily apparent that the entire building was not going to be ready by the required date. The contractor claimed the architect held up the door submittals and doors could not arrive on time for installation by substantial completion. The contractor requested a change order for over $10,000 for additional time. The school district required a 30-day burn in of HVAC equipment per the specifications before substantial completion could be reached. The HVAC systems stated operating on 21 January 2002. Liquidated damages were $1,000 a day for this portion of the work. Through several difficult meetings and negotiations a no cost, time only, change order was agreed to.

Demolition. A large glu-lam beam was uncovered that would project too low into a new addition. The beam was 5” x 16”, about 15’ long and was 10’ high. The contractor asked the owners project manager what to do about the protruding beam and it was determined that it could be removed without structurally affecting the new addition, (load was being carried by new construction). The contractor and the owners project manager verbally agreed that this was a changed condition and the contractor would be compensated for removing the beam. That afternoon the owners project manager observed two contractor employees removing the beam. A week later the contractor submitted a pricing request for over $5,000 to remove the beam. The owner would not pay such a high cost for removing a beam. After several negotiations, heated discussions, and ill will generated on both sides, the change was finally settled for about $2,000. Several similar changes of this type and magnitude were encountered during the late summer before school started.

Historic Renovation Project

Delivery system. The second project in this case study is a hybrid form of agency CM. A Construction Manager (CMGR) was brought in during the planning phase to guide the owner that consisted of a committee of volunteer board members for a non-profit community art center. The CMGR worked without a contract and provided his efforts as an in-kind service. During design, the committee selected a general contractor based on past performance, project personnel, preconstruction services, and intended method of construction. A GMP contract was used with the general contractor and the general contractor solicited bids from subcontractors for about 50% of the work, less Mechanical, Electrical and Plumbing (MEP). The MEP portion of the work was performed using DB. This DB work was performed under the umbrella of the contract between the owner and the general contractor. The DB effort was coordinated through a series of meetings between the construction manager, owners representative, general contractor and involved subcontractor.

Scope of work. The project was for a $1.2 million renovation and adaptive reuse of a 10,000 SF historic building built in 1889. The two story structure of unreinforced brick included two retail outlets on the first floor and artist studios on the second floor. The project included seismic upgrades, ADA accessibility including an elevator, demolition of the party wall between the former retail outlets, building new store fronts to the original historic look, installation of a mezzanine level, and a large ceramics studio.

Project Team. The volunteer Construction Manager (CMGR) assisted the committee with interviewing and hiring an architect. The owner’s representative was the art gallery director. The architect worked with the CMGR, gallery director, and committee to develop schematic drawings. To minimize costs the architect was hired with the understanding that their on site role would not be as time intensive as normally expected using the AIA B151 and AIA A201 guide specifications, the construction manager would be onsite daily to coordinate design issues, approve change orders, and interpret specifications. The general contractor provided a project manager for cost estimating and constructability preconstruction services. During construction the project manager coordinated design issues and an on site superintendent worked the day-to-day issues with the CMGR. A strong line of communication was established early on that directed all communications to go between the contractor and the CMGR.

Challenges. Cost, scope, and existing conditions were the major challenges during this project. The owner was very fiscally constrained. Several value engineering sessions between the CMGR, committee, general contractor and architect finally achieved a workable budget. These value engineering sessions also resulted in becoming team building exercises. When the process was completed the committee was happy with the expected construction scope and the contractor was satisfied the GMP was accomplishable. An added benefit was the buy-in from the committee members on the scope and cost of the project. These problems and challenges may have arose under any type of delivery method but how they were handled and their impacts were a function of the construction contract delivery type. A disadvantage or realistic result of severe value engineering efforts resulted in a reduction of scope and dividing the project into two phases.

This renovation project started with a 2% contingency and was soon over budget. A fund raising event about three months after construction began provided another 2% in contingency funds. Most practitioners and studies recommend at least a 10% contingency for renovation of buildings over 100 years old (Krizek et al 1996) and (Daoud 1997). The author feels a lower contingency may be budgeted provided good exploratory work is performed and the construction delivery method allows for a team approach to solutions and cost savings. A typical unknown cost was from discovering cracked masonry walls that needed replacement. Fortunately the team was able to develop cost effective solutions in a timely manner.

Teamwork. The renovation project had a well functioning team. Communications between parties was efficient yet all parties had input and thus buy-in to the project. The daily visits by the CMGR to the site and weekly coordination meeting ensured everyone was in the loop. A change order and invoice process was agreed to before construction began. All proposed changes involving cost had to have the CMGR signature before work could begin.

General Conditions. The construction contract used a modified form of the AIA A201-1997 as a guide. The CMGR and general contractor went through the specifications together and deleted clauses that would add additional costs and risk to the general contractor. The delivery method fostered this type of working arrangement.

Timeliness. The team developed a schedule. It included opening a portion of the building before the entire project was completed. This required special coordination and planning but allowed the owner to offer fall classes and provide retail in time for the Christmas season.

Change Rate. Changes to the GMP were due to unknown conditions, required additions to the original budget plans and specifications, and betterment. The change rate was 2% for unknowns and 1% for revisions and 1% for betterment. The change process was very smooth and not confrontational.

Quality. Active subcontractor management by the general contractor and daily visits by the CMGR built in quality control. By involving the general contractor early in the process the design was able to include work details that would cost less and provide better looking results. For example, the initial design showed bolts going through the brick walls and tied off using rosettes. The contractor’s experience was that drilling through old brick could be problematic because it tends to break and leave a larger hole than desired. Instead holes were only drilled two-thirds into the brick wall and anchored using an epoxy. The owners were especially pleased because they did not want rosettes in the first place.

Problem Examples. Other than the budget the single largest problem was getting decisions from that owners organization. This stemmed from a committee of volunteers that need to reach an agreement and then presenting the decisions to a board of directors. For example the exterior colors of the building took many iterations. Timeliness problems were avoided because difficult process and decisions were identified early and aggressively pushed by the CMGR.

Consulting for Construction Educators

Construction engineering and management is an applied field of study. To stay current in the field educators should be actively engaged in consulting. This may be in the form of providing CM services, claims analysis, expert witness, estimating, or providing training to industry practitioners. To be successful as both an educator and consultant some simple guides for consulting are presented:

Stay fairly close to your area of expertise and strengths. The author provided CM services for commercial building owners before becoming an academic. It would be difficult and time consuming to provide similar services for a different segment of the construction industry.

Provide services that fit your personality. The construction industry favors strong personalities at the project level. To minimize your stress level, understand what your ability to provide resolution is under a sometimes-confrontational environment.

Understand the time commitments of providing consultant services. You must pay attention to the customers, both clients and students. Consider whether you should take on long term (1-2 years) or short term (a week to months) projects.

Work within the constraints of your academic environment. Educators at an institution that place a high value on research may not be able to engage in much consulting. Ethically, educators must consider the amount and character of consulting work in relationship to their primary roles as teachers and scholars.

Bring examples of your work into the classroom. This can be in the form of talking about cases, providing actual case studies for groups to work on, and actual examples of contract documents i.e. shop drawings, schedules of values, pricing request, etc. Get your students on to the jobsite with field trips. Make the students write while they tour the jobsite to reinforce topics in class, for example have them complete a daily report or site safety review. Students enjoy the real world perspectives from these activities.

Become extremely efficient in doing things that do not involve people. Writing reports, filing, office automation systems, paperwork, and communications must be treated efficiently.

Conclusions

Two case studies of project delivery methods have been presented. The cases provided are not intended to serve as an advocate for one method over all others but to indicate that the best results may be achieved by matching the needs and level of sophistication of the owner with the project and within the constraints of time and budget.

The school project shows that the lowest price may be obtained through competition. The downside to this method may be strained relationships, poor quality and higher final costs. In the school project schedule was much more of a driving force than in the renovation project. The importance of a project’s schedule must certainty be considered when selecting the delivery method. The historic renovation project shows how a delivery system can be modified to suite the owner’s particular needs.

A rational and methods to provide construction management services by construction educators are also discussed. For efficiency reasons, ethical considerations and personal well-being, educators must carefully choose what types and how much consulting work to perform.

References

1. American Institute of Architects California Council (AIACC). 1999. “The handbook on Project Delivery” Sacramento, CA.

2. American Institute of Architects A201-1997. 1997. American Institute of Architects, New York, NY.

3. Beaty, Robert . 2002. Construction Superintendent, Personal communications, Ellensburg, WA.

4. Daoud, E.K. 1997. “The Architect/Engineer’s Role in Rehabilitation Work” Journal of Construction Engineering and Management, ASCE, Washington, DC.

5. Liebing, Ralph. 2001. “The Construction Industry” Prentice Hall, Upper Saddle River, NJ.

6. Krizek, R.J., Lo, W., and Hadavi, A. 1996. “Lessons Learned From Multiphase Reconstruction Project” Journal of Construction Engineering and Management, ASCE, Washington, DC.

7. Means RS. (2001). “Building Construction Cost Data 60th Annual Edition” Kingston, MA.

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