By Jay Snyder
I have participated in the construction industry as an Owner (corporate director for a hospital system), an executive with a contractor, and as a professional consultant. Overseeing the real estate planning, design, and construction program for a hospital system was quite rewarding. It was also a role where I experienced steady scrutiny, auditing, and ongoing education to my stakeholders of processes, techniques, and tactics of construction.
One of the more common topics of discussion was the debate over which project delivery method and contract method was most appropriate to the organization and to the project. Even today, as I speak to industry associations, consult our Owner clients, or present at other conferences, it is always on the minds of Owner program managers or directors.
Owners, boards of directors, architects, engineers, contractors, lawyers, and others spend a lot of time discussing the best project delivery and contract methods for their program. There has been considerable debate within the industry, and it is a topic that has been covered ad nauseam. Even so, the answer is unclear because … it depends. It depends on a number of characteristics that would describe the project, market, and the Owner. Project objectives and project complexity weigh heavily on the appropriate project delivery and contract method to implement. Many variables are also in play within an Owner organization that will determine the success or failure of Owner building programs.
These same drivers present constraints or advantages to various project delivery and contract methods. Determining which methods are appropriate for your organization requires more due diligence than reading a few case studies or listening to the success of others. To improve project outcomes and reduce risk, you have to understand those drivers, over which a program manager/director may or may not have control. Industry opinion and project case studies are an excellent tool for comparing your methods to others, but it does not mean that you will have the same success unless your project, market, and Owner organization are identical to those examples.
As you consider the various methods as an Owner, here are some of the variables that drive successful project delivery and contract methods:
• Corporate governance, policy, and procedure. Similar to risk tolerance, your organization has a series of policies and procedures intended to safeguard employees/occupants, manage financial risk, ensure certainty of business operations, and delegate specific authorities to various stakeholders. These constrain your options of project delivery and contract methods unless your organization considers modifying governance, policy, and procedure.
• Project complexity. Does the project require early involvement from the contractor to ensure constructability of design or budget feasibility? Is the project within an active campus or on an unusual site that requires front-end site planning and logistics coordination?
• Organization’s project priority (Cost vs. Schedule vs. Scope/ Quality). Above all else, what is most important to the organization? There is often a leading driver that decides the others, and there may be a project delivery or contract method that is better suited for success.
• Risk tolerance of the organization. Where does the organization want to place the financial risk and it is comfortable with the associated shift in control?
• Program Volume. Considering the current capital spend plan and the facility year master plan, which project delivery method(s) aligns best with the organization’s programmatic and strategic business goals?
• Level of sophistication. What sort of processes and controls exist to manage stakeholders and the project team? Are technology solutions in place that can be leveraged and encourage one project delivery or contract method over another? Consider things such as 3D modeling capability and the opportunity for Design Assist, the ability to precisely track budgets and perform audits of GMP contracts, and having a strategic sourcing and procurement program that supports competitive bidding.
• Project management experience. The experience and skill sets of Owner project managers vary considerably. Many organizations require their PMs to be expert contract administrators while others expect design and/or construction expertise to perform professional design reviews and inspections. Organizations may seek PMs with exceptional estimating, scheduling, and procurement/contracting skills. Others may outsource project management to a third-party Owner representative.
• Program staffing and organizational structure. One way in which project delivery and contract methods vary is in the amount of oversight needed or level of administrative burden placed on the Owner. Department staffing and organizational structure have a considerable impact on the success of a project and how that project is executed.
• Capabilities of contractors in your market. I have a close client that has a main campus in a rural part of its state. It is often difficult for the client to secure project interest from qualified general contractors and even more difficult – sometimes impossible – to source “local” subcontractors. Certain project delivery methods require a level of experience and acumen that may further limit your pool of qualified contractors.
• Funding Source. Often times the funding source may have requirements and regulations associated with them that dictate the project delivery and contract method. A lender may require the certainty of a lump sum contract. A bond issuance or P3 funding arrangement could require traditional design-bid-build with maximum bidder participation. Although uncommon, a private donor on a private project may require the use of a particular contractor which could mandate a negotiated project delivery method. Often times, multiple funding sources are secured for large capital projects which means compliance with terms and conditions and the appropriate project delivery and contract methods may be onerous and restrictive.
It is important to note that none of these variables should be addressed in isolation. Owners should consider these variables collectively and assess their program in its entirety to determine the best fit. Certainly, if an Owner is seeking the benefit of a specific project delivery method or contract method, all of these drivers may be addressed for proper alignment. However, many of these drivers may be difficult to modify. Aligning the organization with a particular project delivery and contract method is a greater task than aligning the project delivery and contract method with the organization.
While each project strives to achieve excellence in project cost, schedule, and scope or quality, most projects and organizations have a top priority that must prevail above all others. For the retail market, it is often speed to market (schedule); in health care it is often quality (infrastructure reliability, air quality, etc.); and in manufacturing it may be project schedule, as the manufacturer plans to startup a new production line. Knowing the top priority may highlight the appropriate project delivery method for the organization.
It is important to determine the which project delivery method(s) is the right fit and which contract method(s) is best aligned with your organization. But be sure to identify all of the drivers that will impact the success of your program. An analysis of completed projects will provide insight into how the program has performed in the past and may identify which methods are most successful in your organization.
As you look forward, remember that there is rarely a one-size-fits-all solution. The characteristics, priorities, and drivers of your organization and your project will bear greatly on the success of the project delivery method and contract method imposed.
Jay Snyder is Senior Consultant with FMI Corporation and has been a professional in the real estate development and construction industry throughout his career. He is also a tenured board member of a city Planning & Zoning Committee and a city Board of Adjustments.