1/6/2013

CONSTRUCTION CLAIMS

PROJECT DELIVERY METHODS

Ayman Morad, Ph.D.

Project Delivery Methods

Traditional (Design/Bid/Build)

Construction Management Agency

Construction Management at Risk

Design/Build

Modified CM Design/Build: Design Subcontracted

CM Oversight Design/Build

Multiple Primes

Design-Build-Operate-Transfer (BOT)

Public Private Partnership (PPP)

Integrated Project Delivery (IPD)

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Most Common Delivery Methods

Traditional (Design-Bid-Build) Design-Build

CM (Pure) Agency CM @ Risk

Traditional (Design-
(Design-Bid-
Bid-Build)

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Participant Involvement: Traditional (Design-

(Design-Bid-
Bid-Build)

Contractor

A/E

OWNER

Feasibility Design Tendering Construction Operation

Demolition

Participant Involvement: Traditional (Design-

(Design-Bid-
Bid-Build)

Design professional is in charge of the preparation of design and

contract documents

Competitive bid or negotiation with contractors after design
complete

Contractor is in charge of the delivery of the completed project
(may decide to subcontract)

The contractor is the only one responsible for the execution of work

Sequential Process

Collaborative relationship between A/E (Chosen on Qualification
Basis) and Owner

Lump-sum bids commonly adopted.

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Participant Involvement: Traditional (Design-

(Design-Bid-
Bid-Build)

General Contractor Responsibilities

Still responsible for a large portion of work (particularly public jobs

with bidding)

For larger jobs, GC does not do much of work (sometimes <10%)

Contractor designs temporary structures (Engineer needs to stamp)

Participant Involvement: Traditional (Design-

(Design-Bid-
Bid-Build)

Subcontracting

GC manages most subcontractors

Exceptions: Tenant subcontractors

Overhead at each level

Get bids from subcontractors (bid shopping a danger; no formal
guarantee of award of contract)

Bidding here is typical

Can be large number of subcontractors

Responsible for failure

Shop drawings typically produced by subcontractors

Handles submittals

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Participant Involvement: Traditional (Design-

(Design-Bid-
Bid-Build)

Subcontracting

Motivations to GC to Subcontract:

No In-house ability

GC overstretched

GC lacks familiarity with local conditions

Need to get warrantees

Laws and regulations (assign subs to contractor)

Due to specialization, more efficient, cheaper

Sometimes GC provides equipment to subs

Subcontractor management and coordination are very important
for productivity

Participant Involvement: Traditional (Design-

(Design-Bid-
Bid-Build)

Role of Architect/Engineer

Typically negotiated contract

Recruited on service rather than commodity basis

Financial stability, other factors critical

Sometimes have design competition

Do not want to push too low:

Poor design

Poor personnel

No time for double-check

Contrast

Price of design has small impact on overall price

Quality of design has big impact on overall price

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Participant Involvement: Traditional (Design-

(Design-Bid-
Bid-Build)

Role of Architect/Engineer

Sometimes do own value engineering (dangerous)

If estimates off, may be required to redo design at their own expense

Carry errors and omissions experience

Limited participation in construction process

Typically “observes” construction

Review shop drawings –with disclaimers

Do not want to direct construction methods

May put suggestion in contract documents

Participant Involvement: Traditional (Design-

(Design-Bid-
Bid-Build)

Advantages:

Well known method (courts, companies)

Flexibility during design (vs. design-build)

Cost defined early (when bidding)

Good contractual protection for the owner

Open bidding procedure very easy

Owner not too involved in the construction process

Trusting relationship between A/E & Owner

Good if uncertainty exists, primarily in design

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Participant Involvement: Traditional (Design-

(Design-Bid-
Bid-Build)

Disadvantages:

Design not reviewed before construction

Miss opportunities for major time/cost savings

May yield changes due to constructability problems

Sequential and linear process preventing from overlapping of
tasks and money saving

Construction can not start until design is complete

Difficult for complex projects

Participant Involvement : Design-

Design-Build

Designer/Builder

D.C.P

OWNER

Feasibility D/B Select Design Construction Operation

Demolition

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Design--Build
Design

Design--Build
Design

The Owner develops 20-30% design with the assistance of DCP and
hires a DB firm to complete both design and construction

This firm can be a design/build firm but also a joint-venture firm for this
specific project

Possibility for the design/build company to hire subcontractors

Owner solicit work via a RFP

Can be good for complex projects – but need phased design to shield
parties from risk

One contractual team responsible for design and construction functions

Owners emphasis on the speed of schedule, despite less control and
more uncertainty of cost

Loss of control over design and flexibility in changes

Owner with enough knowledge about design & construction to establish
initial parameters, review proposals & monitor process

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Design--Build
Design

Dominant method early in the US history

Recent drivers

Desire for single source of responsibility

Time pressure (desire to fast track)

Shortcomings of tightly defined architect role (constructability
issues, limited A/E oversight of construction)

Bridge Designer/Engineer (Design Criteria Professional - DCP)

Serves as bridge between Owner and Design-build team

Preliminary design before DB team hired (Maybe up to 30%
design)

Monitors development of design and construction (Fiduciary with
owner)

Design--Build
Design

Advantages:

Allows Fast Tracking

May be good for some complex projects

Close coordination within the DB team

Good interactions among participants

Single source of accountability

Designer/contractor conflicts not exposed to owner

Easier incorporation of changes caused by field conditions

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Design--Build
Design

Disadvantages:

Pricing is not possible at the beginning

Can be bad for complicated projects (Very important for owner to be
closely involved to specify important aspects of design up-front)

Fewer checks and balances

Changes in contract

Problems may be hidden until late (no A/E to watch)

Design-build firm can give high quote for changes

Fast tracking: Changes can lead to (Rework, Iteration, delay)

Owner responsible for quality assurance

One Package: Can not pick or get rid of individual team members

Design--Build
Design

Pricing and Selection

More comprehensive selection process typical

Design/Price/Schedule/Team

Design competitions undertaken

Timing tension for when to recruit DB firm

Earlier recruitment: Greater risk and Risk premium (hard to judge on
qualification of D/B team)

Later recruitment: Less benefit from D/B (Limit creativity - closer to
GC, lower ability to fast track)

Often have segmented pricing (cost-plus design, fixed price or GMP
build)

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Participant Involvement : CM Agency

Trade Contractors

CM Agent

A/E

OWNER

Feasibility Design Construction Operation

Demolition

CM (Pure) Agency

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CM (Pure) Agency

The Owner hires both a designer and a construction management

firm before construction

Typically CM selected based on qualification

Many variations are possible in this delivery method depending
mostly on when the management team is hired and its skills

Started in late 1960s

World Trade Center

Madison Square Garden

The CM May recommend A/E

CM checks billings

CM (Pure) Agency

TASKS

Pre-construction
Constructability, value engineering, estimation, alternatives,
schedule, financing, manage designer, early procurement
Field supervision
QA, Targets met, invoice checking, coordinate work of contractors,
change orders, payments, claims, inspections for design
requirements, sometimes safety

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CM (Pure) Agency

Lessens Owner’s Responsibilities

Project control

Job meetings

Management meetings

Reports (operational and annual)

Administrative tasks

Budgets

Drawing approval

Oversight

Quality assurance

CM (Pure) Agency

Features:

Great flexibility in the schedule and for changes

Market competition for Trade Contractors

Small financial risks of PCM and high risk of loss of reputation

PCM Generally paid a Fixed Fee (professional)

Take over work of designer, GC, owner

PCM as facilitator/mediator in conflicts

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CM (Pure) Agency

Advantages:

Great Flexibility for Changes

CM more objective, less partial

Less conflict between owner and CM

Small Financial Risks of PCM

Cost competition (for Trade Contractors - often 5 to 8% savings for
dealing directly with contractors)

One common reference point: The CM

Owner can get rid of particular trade contractor

Lessens owner’s responsibilities

CM (Pure) Agency

Disadvantages

Lower incentive for CM to reduce price, time

Owner alone takes risk on cost of project (no guarantee from CM)

Participants must all be cooperative and well communicating

High Risk of Loss of Reputation

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Participant Involvement : CM @ Risk

CM

A/E

OWNER

Feasibility Design Construction Operation

Demolition

CM @ Risk

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CM @ Risk

CM usually Guaranteeing Maximum Price: GMP to give the owner

security that the project will be built within budget

This is a big difference from pure CM

Fee typically 10-15%

Reduced Owner Risk

Risk-wise, ½ between the DBB and the PCM System (VERY similar to
GC hired early)

Contractual Relationships between CM & Subs

Performance bonds typically needed

CM @ Risk

Advantages:

Reduces Owner’s risk

CM at Risk usually goes with Guaranteed Maximum Price (GMP)

Contractual relationships between CM and Trade/Sub Contractors

Disadvantages:

The GMP is a defined price for an undefined product

Bad during design: Design pressure

Tension (If CM is hired early: more price risk – If CM hired late: less value
during design)

CM is no longer impartial (may argue against changes for own interest)

Risk of adversarial relationship with the A/E

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Modified CM Design/Build:
Design Subcontracted

CM serves as Design/Builder and Subcontracts Design

Modified CM Design/Build:
Design Subcontracted

CM provides Agency Oversight on Owner’s behalf

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Integrated Project Delivery

Integrated Project Delivery

Definition:
IPD is a project delivery approach that integrates people, systems, business
structures and practices into a process that collaboratively harness the
talents and insights of all participants to optimize project results, increase
value to the owner, reduce waste and maximize efficiency through all
phases of design, fabrication and construction.

IPD principles can be applied to a variety of contractual arrangements and

IPD teams will usually include members well beyond the basic triad of
owner, architect, and contractor. At a minimum, an integrated project
includes highly effective collaboration between the owner, the architect, and
the general contractor ultimately responsible for construction of the project,
from early design through project handover.

AIACC Definitions Document

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Integrated Project Delivery

Delivery Principals, Compared

Principle Classic Models IPD Model

Decision-making Propose / Dispose Consensus
Best able to manage,
Risk Allocation Least able to avoid
shared
Accomplish project
Reward structure Protect fixed price
goals
Maximize project
Outcome focus Protect self-interest
outcome
Deliverable focus Least effort Best result
Team behavior Self, then project Project = self

Integrated Project Delivery

Benefits:
Projects delivered through IPD provide the following benefits:

A superior ability to visualize and coordinate building systems

A reduction of RFI’s during construction

The ability to communicate more complete scope, resulting in tighter bids

Shorter lead times and compression of construction schedules, resulting
in cost savings and/or added value

Revolutionizes the roles of project team members across all disciplines
to become collaborators

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Integrated Project Delivery

Advantages:

Cost savings for the owner (potentially, the costs of construction,

operations and maintenance) resulting from the incentive for the
team members to earn bonuses

Faster completion for the owner resulting from the incentive for the
team members to earn bonuses

Bonuses paid to the designers and contractors for achieving cost
savings, faster completion and other project goals

Reduced risk of design and construction defects resulting from the
collaborative, teamwork approach

Reduced liability for the designers and contractors resulting from
the agreed upon limitations of liability and dispute avoidance

Integrated Project Delivery

Disadvantages:

Highly capable designers or contractors might be unfamiliar with IPD and

decline to participate in an IPD project.

Getting all of the core IPD team members to agree on one form of multi-party
agreement could prove to be difficult.

An owner might have difficulty securing financing because lenders are not
familiar with IPD or dislike its approach, such as the potential for bonuses to be
paid or the limitations of liability

Limiting liability necessarily means that the party that suffers the economic
damages or other adverse consequences will be left “holding the bag” (the
insurance industry is currently exploring possible products to insure against
such risks to facilitate IPD)

The bonus compensation system requires that budgets and schedules be
scrutinized carefully to ensure that they are fair and reasonable and not inflated

The teamwork approach must be supported by strong leadership and
management to ensure active, earnest and positive participation and avoid lax
participation – IPD is no place for “slackers”

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Public Private Partnership

Design--Build-
Design Build-Operate-
Operate-Transfer (BOT)

Long-term financing (vs. DBO)

Can compete on size, transfer time, etc.

Owner/Agent (Owner does part of design)

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Type of Relationships Among Participants

Owner- A/E- CM-

Owner-A/E Owner-CM CM-A/E
Contractor Contractor Contractor
DBB CN CN CR - - -
D/B CN IN - - -
PCM CN CN - CN CR CR
CMR CN - - CN CR CN
IN – Internal Relationship
CN – Contractual Relationship
CR – Communicational Relationship

Advantages and Disadvantages

of Common Delivery Methods
Traditional CM
Design-Build CM @ Risk
(Design-Bid-Build) (Pure) Agency
Advantages
Legal and contractual precedent X
Cost determined before contract commitment X
Fast-tracked construction allowed X X
Minimum owner involvement X X
Cost benefit from competition X X
Negotiation with quality contractor for unique expertise X X
Allow adjustment to new conditions without changing agreement X X
Single firm control of design/construct process X
Disadvantages
Design does not benefit from construction expertise X
Design construction time is the longest X
Adversarial relationship owner/designer vs. contractor X (X)
Contract agreement affected by changes X (X)
Few checks and balances X
Cost control occurs late in project X
Contract amount may be complicated by continual contractor X (X)
negotiations
Contract agreement affected by unforeseen conditions X (X)

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Comparison of PDMs

Topic of Deign-Bid- Design-Build CM Agent CM @ Risk

Concern Build

Owner Manages Owner Manages Owner Manages Owner Manages

Consultant Consultant Agreement with Consultant & CM Consultant & CM
Contract DB Contracts Contracts

Owner Owner
Owner Owner
determines determines
determines determines
performance and performance and
Quality Control performance and performance and
quality quality
during Design quality quality
requirements requirements
requirements requirements with
with consultant with Consultant
with consultant DB
and CM and CM

Owner Manages Owner Manages Owner Manages

Contract One General Several Trades One Construction
Not Applicable
Administration Construction plus contract with Contract with the
Contract CM CM

Insurance
GC DB Owner CM
Responsibility
Various Tenders Various Tenders
Project has One Not Applicable
for Various for Various
Tendering Tender Period (RFP for DB
Trades Over Trades Over
Selection)
Time Time

Comparison of PDMs

Topic of Deign-Bid- Design- CM Agent CM @ Risk

Concern Build Build
Occupational
Health and
GC DB Owner CM
Safety (OHS)
Responsibility
Depends on Trade Depends on Trade
Prices Received Prices Received
and Will Vary for and Will Vary for
Fixed at the
Cost Control Not Applicable Those Items That Those Items That
Time of Tender
Cannot be Cannot be
Qualified at Time Qualified at Time
of Tender of Tender
Yes for
Competitive
Yes Not Applicable Yes Subcontractor
Bidding
Selection

Quality Control Consultant Owner Consultant & CM Consultant & CM

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