Originally posted Friday, 27 March 2015

Written by Alan G. Burcope

If you want to improve the future of the design and construction industry, take a hard look at your smart phone.
When Steve Jobs created the iPhone, many people didn’t understand that it was not just a device, but an ecosystem that interlaced multiple, seemingly unrelated industries in a way that not only vastly increased the value of the user’s experience, but produced massive profits for Apple. By integrating the disciplines of high-tech design, manufacturing, telecommunications, art, and music under a single leadership and a shared vision, he opened the door to innovations that leaders inside those industries thought were impossible. Yet to the end user, the idea of the iPhone seemed so simple and so desirable. Skeptics thought that the biggest obstacle to the iPhone’s success would be changing the consumers’ purchasing habits, but in fact resistance from leaders within the industries themselves proved to be the bigger challenge.

Lessons Learned

1. The idea of integrated design and construction is so simple and so promising, yet it is viewed by many as taking a step backwards.

2. Most of the current project delivery methods fail to measure the value of a project in its totality; instead, they measure the value of design separately from the value of construction—and so they often fail at both.

3. It is a fact that delivery of a project requires both designers and builders, so it may seem peculiar to observers outside of the industry that these two integral components are contracted separately.

4. By combining the procurement of design and construction, an Owner can create incentive for firms to demonstrate total project value before contracting either the design or construction.”

5. In the AEC industry, purchasing decisions tend to be controlled by industry insiders, this means that change will have to come from inside the industry itself.

6. Reform in procurement that opens the door for fully vertically integrated design and construction firms can unlock tremendous value for forward-thinking Owners.

Integrated Design and Construction

How does this relate to the design and construction industry? To an industry outsider, it might seem obvious—even as simple as the idea of being able to purchase and listen to music on your phone. Is it possible that vertical integration in design and construction could produce similar groundbreaking results? Is resistance from within the industry the biggest obstacle to finding out? Many AEC industry insiders have difficulty seeing beyond certain “realities” that prevent them from visualizing an industry full of integrated design-builders, perhaps in the same way others resisted Jobs’ vision of the iPhone. The idea of integrated design and construction is so simple and so promising, yet it is viewed by many as taking a step backwards. The term “design-build” has been associated with “cutting corners” and cheapening design. Perhaps there are numerous “realities” that support this view, but before rushing to judgment consider these other “realities” that are part of the status quo:

1. Industry trends, such as Integrated Project Delivery, collaborative design and shared savings have gained in popularity and the benefits are numerous and generally well understood. But despite the advantages, there remain challenges due to divergent business interests of team member firms. Even with the most robust legal arrangements, the Owner still assumes most of the risk. Add to that the fact that the process still lacks an accurate means of measuring and assuring value from the onset of the project. Most of the current project delivery methods fail to measure the value of a project in its totality; instead, they measure the value of design separately from the value of construction—and so they often fail at both. By combining the procurement of design and construction into a single exercise, an Owner can create an environment that allows provider firms to assume the project risk, relieving the Owner of that risk and providing competing proposals from firms with incentive to maximize, quantify, and demonstrate the value of their solutions before the Owner commits to contracting either the design or construction.

2. Technologies such as Building Information Modeling (BIM), Building Automation Systems, Energy Modeling, etc. struggle to gain acceptance or fail to be developed and utilized to their full potential because of the fractured nature of business infrastructure. Many firms today cannot justify significant investment in these technologies, nor can they take a long-term view of their development because they cannot effectively monetize those investments. There is an inability to quantify the benefits of their implementation in a concise manner, and very little incentive to put them into legitimate practice in a marketplace dominated by a “qualifications-based selection process.” This fact will remain as long as neither the designers nor the builders can leverage actual, project-specific performance data to win work or increase profits. The catalyst needed is a proliferation of project procurement where consolidated design/construction firms can attain success by competing on the basis of actual quantifiable performance specific to that project. The incentive created by such an environment would lead to rapid adoption and advancement of these very promising technologies.

3.The risk profile, legal, and surety aspects of design and construction are highly complex, perhaps needlessly so. Traditional limits of liability in both design and construction effectively shift risk to the Owner, who is forced to pay for the management of that risk through contingencies and insurance policies. Even more significant—and less transparent—are the hidden costs of risk coverage layered throughout the supply chain of their providers who carry their own contingencies. While it is a fact that delivery of a project requires the efforts of both designers and builders, it may seem peculiar to observers outside of the industry that these two integral components of a project are contracted and insured separately. Assigning responsibility and accountability is virtually impossible in this scenario. Is it any wonder that even projects with large contingencies exceed their budgets, miss their schedules, are riddled with claims, or result in litigation? It is no secret that when there is a lack of accountability, there will be a lack of performance. A consolidated design/construction company can be held responsible for the whole of the project, and this accountability creates an incentive to perform.

Procurement Reform

But how can an integrated design/construction firm succeed in a marketplace that does not recognize it as a legitimate provider? This is where the iPhone comparison ends. Apple was able to market the iPhone directly to the end user who recognized the benefits and made their own purchasing decisions. In the AEC industry, purchasing decisions tend to be controlled by industry insiders themselves, who are often plagued by the same kind of myopia that hindered Steve Jobs’ early attempts at the iPhone. This means that change will have to come from inside the design and construction industry itself.

Reform in procurement is the most critical hurdle to creating a market for consolidated companies. Brooks Act legislation and other procurement methods that default to procuring design and construction separately have guided the process since the early 1970s. Much has changed since then, but some would argue, not nearly enough, and perhaps this is why.

Procurement methods that open the door for proposals from fully vertically integrated design and construction firms can unlock tremendous value for forward-thinking Owners. The keys to success in this alternate process are three fold.

1. First, the process should procure design and construction together under a single Request for Proposal and should focus on the desired result rather than the minutia of the process. The RFP should provide enough information to allow competing firms to provide a comprehensive solution, but not so much as to limit the creative flexibility of the competitors. This creativity is where the value comes from. Incorporating “bridging documents” or “criteria documents” in an RFP is all that is necessary to clearly define the program and quality expectations, as well as to define only the most significant details.

2. Secondly, competing submittals should be required to be in the form of a “lump sum” proposal. Allowances and exceptions may be included, but the project should be a fixed-sum contract similar to a design-build agreement, where the project is warranted to “serve its intended purpose.” The Owner should carry a contingency for their own use, but the use of a GMP (Guaranteed Maximum Price) contract will defeat the purpose of this alternative procurement method by shifting the risk right back to the Owner.

3. Lastly, the selection criteria used to choose from the submittals should be a clearly defined scoring system in which the price proposal is very heavily weighted. If price is not a significant criterion in selecting the successful firm, then there will be no incentive for the competing firms to focus on efficiency in their proposed solutions.

Under this process, it is not necessary to dictate the use of BIM or any other specific technology in design or construction because firms will be highly motivated to enlist any technology or other competitive advantages that can improve the solution, price proposal, and value they can demonstrate to the client. A proliferation in the use of this or similar procurement methods could result in a quantum leap forward in the AEC industry and open the door for the kind of innovation that we have seen in other sectors of the economy—all you have to do is look in your pocket to see an example.

Alan Gray Burcope, AIA, MBA, LEED-AP is an Architect and Case Manager with HHCP Architects and HHCP Case Division in Orlando. His career experience includes delivering large complex projects using traditional “design-bid-build,” “CM at Risk,” IPD and the “fully integrated design and construction approach” discussed in this article. Alan can be reached at burcope@att.net.

Editor’s note: The views and opinions expressed in this article are those of the author and do not necessarily reflect or represent the views and opinions held by COAA.