DAN JOSEPH ARCHITECTS

SELECTING A CONTRACTOR: THINK AGAIN…THINK DESIGN BUILD!

Construction delivery is changing before our very eyes. Design–Build previously known as just another option to the built solution may now be the most preferred method of the built response. The old method in the separation of design and construction is not the standard in many other more complex and cost driven industries. Why then until recently has there been a separation in building design and the construction process?

Well, formally and until just 32 years ago (1978), the American Institute of Architects (AIA) Code of Ethics and Professional Conduct suggested that architects should not be allowed to participate in the construction process of any project, including design-build project delivery. Now repealed, owners are now choosing design-build for a number of good reasons (see attachment link below), including: Single Source for Design and Construction, Quicker Project Delivery, Guaranteed Project Pricing, Minimized Claims and Damages, Extended Product Warranties.

Further, Design-Build keeps the appropriate stake holders involved in the process from concept to turn-key, by formally integrating all entities into a simplified contractual agreement of “Single Source Accountability.”

ARE ALL ARCHITECTS CAPABLE OF PROVIDING SINGLE SOURCE DELIVERY SERVICES?

The standard prerequisite is experience, capacity and diligence; therefore it is fair to say that not all Architects are equal in delivering a Design-Build service. However, the risk of taking on a professional practitioner that lacks experience in the built response can be greatly diminished by insisting that the Architect pre-qualify and collaborate with a well respected and capable Construction Manager.

WHAT QUALIFIES A CONSTRUCTION MANAGER AS CAPABLE?

As in any endeavor a successful track record over a number of years is an important benchmark; but no less important is the utilization of a proven process and the comprehension to a number of related topics including:

Costing of Preliminary Design, Design Development and the final Construction Document (Uniformat, WBS, Master Format), including Request for Information (RFI’s), General Conditions, Allowances, Equipment Rentals, Estimated Costs, Solicitation of Bids (RFP’s), Self Performance, Cost Plus Work (T&M), Pay Applications, Change Orders, Wavier of Liens, Sworn Statements, Project Scheduling, On Site Supervision, Safety Program, Owner Review Documentation-Disclosures, Insurance, Bonding Capacity and other similar relevant matters.

VERIFY, VERIFY, VERIFY

Long gone are the days of Cost Plus services, when it was sufficient to enumerate a list of activities that equaled an owner proposed budget. Project expenditures can equal millions of dollars and each listed item of service or expense must be verifiable in both quantity and unit cost modified to equal regional norms.

Believe it or not there are still some contractors in the industry that will start with a proposed budget under a “Cost Plus” and will quickly allocate by percentage to multiple pages of cost, with no verifiable means in which to support the data of expense shared. Simply stated, if the line item is not quantified, it is not valid, should be held as suspect and is likely erroneous!

Engaging a process that is not verifiable results in one of two outcomes; the first is in the proclamation that the final cost is under the overall budget. Such a declaration is meaningless; with some diligence in review, it will be revealed that while some line items are much less then anticipated, many more are over….either way the owner will likely have paid much more then the value of the total work provided in a game of pushing numbers to match an inflated, unverified, misrepresentation of expenditure.

The second possible outcome of an unverified process of project delivery is a long parade of Requests for Change Orders. Change Orders can either be for deductions (reduced scope of work, substitution of means, methods or materials), or for adds. The emphasis here is Change Order Adds or a Request for Change Orders that inflate the final contract amount. If the unverified sum proposed is undervalued, say due to an error of not pumping the number high enough for a safe outcome, the result will be in the form of a dreaded Change Order.

So take note…predictable project expenditures will require consistent, verifiable means of back checking; and in the absence of quantifiable measures, your final project cost will most certainly exceed your expectations.

(Please note that some Change Order Adds are legitimate, such as: Owner driven requests for change, unknown below surface conditions, missing detail, etc. and will not be expanded upon during this brief discussion.)

THE PERFECT STORM

By example here is one scenario that you should avoid at all costs.

The contractor is charming, energetic, articulate, they also appear to be competent and have completed a few projects in the area; in fact they may have even been introduced by an acquaintance or friend that was introduced to the contractor in the same unsuspecting manner. Accomplishments are often times exaggerated, as they confidently offer to cost out your project. Within a few days or sooner they will have quickly presented you with an estimate, likely well before any other reputable contractor and at a price that appears to be competitive.

Interested, you invite them back for another discussion. During this meeting you may feel a little rushed; as the contractor talks about pending weather, a backlog of work or perhaps that labor and material pricing is at an all time low…”now’s the time to act” you are told. During your discussion a budget that appears very well organized and detailed, over many categories and a number of pages is pushed across the table. In your review it appears to all be all accounted for, plainly stated and best of all the contractor has offered to perform this work on a cost plus basis.

Cost Plus you are told is by where all work is completed for the submitted cost and a reasonable margin will be added to the bill later for overhead and profit. You talk about the margin of mark-up and settle on a percentage that works well for both parties. During this meeting or perhaps later on you are presented with an agreement where the basis of payment is "Cost of the Work" plus a fee and there is no “Guarantee of Cost”. Wow what a deal…you are only going to pay for cost and a small margin of mark-up to oversee your project!

At this point you willingly sign the agreement, pay the deposit and work commences. However upon the first pay request some of the costs have been exceeded and suddenly you are confronted with requests for Change Orders (a formal document that inflates the contract sum). After several months into construction a pattern of busting budgets and requesting change orders is well established. You are told that while some items have exceeded expectations, many others are under and the in the end it will all even out. You aren’t happy, but you feel stuck…what can you do; you’ve got to finish the project? If you pull the plug now, it becomes just a heap of uncompleted work; you will loose momentum, be distracted from your work and will end up with yet a larger headache. You decide to bite the bullet and sign off on the change orders.

Truth be told…far too many good natured and unsuspecting home owners have been down this bumpy road. But what can you do, how do you build the home of your dreams for a fair and predicable price? Here is some practical advice….

First, I highly recommend that large scopes of work be delivered under a Design-Build enterprise; dollars will be maximized under this arrangement and allows you to be in control of the project every step of the way. Next, if you are determined to work under a separate agreement for the built solution, have several reputable, competent and capable contractors competitively bid the project…per plans and specifications, under a Lump Sum–Fixed Fee Agreement. The price will be competitive, is guaranteed and change orders will be less frequent. Lastly…if you are determined to work under a Cost Plus arrangement be forewarned….

Under a Cost Plus agreement profit incentives invite the following: Less on-site management (reduced overhead for the contractor, more cost to you, shoddy workmanship, mistakes), a buddy system of sub-trade selection (higher pricing, inappropriate gifts or referral fees, no competition), delayed and extended schedules (padding down time between projects, increasing profits, working on other projects), requests for multiple change orders (costs exceeding a poorly estimated and managed project expense), work performed is on your clock not theirs (dramatically increasing labor costs, hiring of incompetent craftsman, inaccurate or false reporting of time, material, equipment, etc.), increased cost of equipment rentals (the longer the equipment is on site the more margin paid the contractor)…the list goes on and on and on.

At the very least…if you are going to move forward under a Cost Plus arrangement despite the many pitfalls and disadvantages, require the following:

i.) That each itemized line of expense be supported with “units of measure” (cubic yards, square foot, tons, board feet, per item, allowance, man-days, etc) and the “price per unit”, that can be compared to the architects take-off and other competing contractors estimates. Remember…in the absence of these “units”, the estimate and thus the proposal or agreement is bogus!

ii.) After confirming all units of measure to the plans, estimates, etc. approve of the amount(s) as an “NTX” or a “Not to Exceed” only. In other words the amount noted is the cap…approval is not granted for sums exceeding this amount. However, this arrangement will not guarantee you a price that will be less then the sum proposed; and in fact will likely equal or exceed the amount noted in the desire to earn all available sums within grasp of the contractor.

iii.) Be leery of work self performed by a contractor that can be competitively bid for less by outside sub-trades.

iv.) Watch for material, finishes, or equipment, etc. substitutions that reduce the cost that are not translated into a savings for you or the project; but rather improve the contractor’s margin of profit only. e.g.: windows, flooring, hardware, roofing, furnaces, etc., etc.

Wrapping up…many contractors are reputable, honest and deserving of praise and sums paid for their service; this example has been provided in the attempt to help the unsuspecting from becoming victims of tactics by dishonest business practices known to exist in the market place.

CONCLUSION

With over 27 years of construction specific and professional service experience, Dan Joseph Architects is ready to assist with your project needs. We have prepared a list of pre-qualified contractors and continue to interview, audit process and capacity to meet the growing list of tomorrows demand. Give us a call and discover the joys and the many advantages of a Design-Build Team for your next project!

POINTS TO REMEMBER

1. A Design-Build relationship keeps all stake holders actively involved as “Single Source” accountable from concept to completion.

2. Not all architects are capable of delivering an effective Design-Build service; qualify experience, capacity and diligence.

3. Design Build is the most competitive, timely project delivery system known, as supported by intensive study (see attachment below)

4. When selecting a Contractor, a successful track record over a number of years is an important benchmark; but no less important is the utilization of a proven process and the comprehension to a wide range of related topics.

5. Most importantly…predictable project expenditures require consistent, verifiable means of back checking; and in the absence of quantifiable measures, your final project cost will most certainly exceed your expectations!

6. Stay away from “Cost Plus” agreements for large scoped projects.

Click on the link below to view Design Build attachment:

http://www.djawest.com/DesignBuildBrochure.pdf