Project Delivery Methods – Which Is Best for Your Projects?
Posted: April 18, 2016 | Project Management
By Tom Porter, JD, DBIA
Excerpted from the book Profit, Risk & Leadership
A delivery model is defined by Michael Kenig in AGC Project Delivery as a “comprehensive process of assigning the contractual responsibilities for designing and constructing a project.” AGC Project Delivery identifies four standard delivery models: Design-Bid-Build (DBB), Construction Management at-Risk (CMR), Design-Build(DB), and Integrated Project Delivery (IPD). Following is a brief summary of how these different project delivery models factor into the services offered by a contractor.
1. Design-Bid-Build. DBB is the most traditional of the delivery models currently used in the U.S. The Owner first enters into a contract with a design professional firm, which creates the project design. DBB is most commonly paired with low bid procurement. As a result, the design, set forth in construction plans and specifications, is put out for bid. The contract for construction is then awarded to whichever general contractor (GC) has submitted the lowest priced bid, provided that the bid is responsive and that the Owner is satisfied with the low bidder carrying out the work.
Under this delivery model, the core services being offered by the GC are jobsite supervision and specialty trade work. There will likely be some elements of project management services as well, although they may be provided primarily for the GC’s own benefit, not necessarily as a required service contractually owed to the Owner. In traditional DBB delivery, the contractor provides no programming or design, no preconstruction, and no ancillary services.
DBB is dependent on jobsite supervision, good subs, and estimating that produces a smart and successful bid for low-bid procurement. Owners use DBB primarily because of the familiarity and the lower cost. Both public and private sector Owners are under continual pressure to get more value for less cost. Some of the drawbacks of DBB are that while it may provide a low initial price, the ultimate cost to the Owner may be the poor quality delivered by the low bidder or a higher incidence of change orders, claims, and litigation.
With a selection process that emphasizes low price, the aggressively-priced general contractor has limited incentive to “play nice” with the Owner or the design professionals. In fact, you could almost say that the DBB system is intended to place the builder in an adversary relationship with the designers, who are expected to protect the Owner from the low bidder’s temptation to shirk on quality while performing the work.
DBB also delays selection of the builder until after the design is complete, which means that preconstruction services cannot be provided, at least not by the same firm that will build the project. In spite of these negative considerations, DBB, particularly when paired with low-bid procurement, remains the most commonly-used delivery method in the U.S.
2. Construction Management at-Risk. CMR is a delivery model that became prevalent in the U.S. starting in the 1970s. CMR typically involves preconstruction services, which means that the Owner cannot wait until the design is complete to select the contractor. Thus, under CMR delivery, the at-risk construction manager (CM) is selected earlier, ideally concurrent with the designer.
Competitive estimating by the contractor that generates the lowest number on bid day is no longer the critical competency under CMR. Instead, the skill and experience in providing preconstruction services, such as conceptual estimating, are influential in getting picked as a construction manager.
The change in selection method can alter dramatically the dynamics between the Owner and contractor. I noted above the tendency of DBB to generate claims and litigation by or against the GC. The CM, by contrast, has worked with the Architect/Engineer (A/E) professionals – at least to some extent – during the design phase. It wants to keep a favorable relationship with the Owner and the Owner’s trusted A/E to improve the chances of being selected for the next job.
The CM, unlike the GC, may not have an incentive to see change orders issued – the CM at-risk is not indiscriminately loyal to the Owner. The CM at-risk is often working under a guaranteed maximum price (GMP), which requires it to contain the project cost or bear the overrun. Therefore, the CM at-risk must protect the budget on its own account, lest the GMP be exceeded. It must also decide where to strike a balance between Owner and subcontractor interests.
3. Design-Build. The DB delivery model is characterized by a single point of accountability to the Owner for both design and construction services. Whereas both DBB and CMR have the Owner entering into separate contracts with the design professionals and the contractor, DB involves a single contract between the Owner and the design-builder. The design-builder in turn assembles a team that can deliver all the required services to the Owner.
The core services offered by the design-builder thus encompass all those included in CMR – plus the design itself. There are many variations in how a DB team could be organized. The lead entity holding the Owner contract could be an architect, an engineer, a contractor, an integrated design-builder, or a joint venture among firms of different capabilities, with the remaining services provided under subcontract arrangements. In practice, it’s most common for a contractor to be the lead design-build entity, with the A/E services being furnished under a subcontract.
Some of the services and ingredients for success in DB are the same as in CMR and DBB. A DB team needs to provide effective project management, jobsite supervision, and trade construction work. Also, there can be quite a bit of similarity in the preconstruction services offered by the CM at-risk and the design-builder, respectively. But the design-builder has some added responsibilities and challenges. It must also deliver the design; this means managing the work of the design professionals, plus taking responsibility for its timeliness and quality.
Although a challenge, the responsibility for the design also gives the design-builder the opportunity to mitigate risk. Issues in the design may be the largest source of risk for a GC or CM, and it is risk they do not control. The design-builder, by contrast, has the chance to minimize design risk if it selects strong design professionals and effectively manages their work. That is, the design-builder need not be stuck with technically flawed or unduly expensive concepts originating from the designer. There is an opportunity to work out these issues within the DB team and to agree on a solution that works for everyone.
4. Integrated Project Delivery. IPD is the newest and least common of the basic delivery methods in the US. Certain private Owners, frustrated with the inefficient and adversarial nature of construction, experimented with an approach that puts emphasis on promoting collaboration among the key project participants: the Owner, the A/E professionals, the lead contractor, and key specialty trades. The defining feature of IPD is a multi-party form of agreement signed by all of these participants. The agreement provides for shared financial incentives, collaborative decision-making, lean construction methods, and provisions to discourage or prevent litigation.
The services required of the contractor under IPD are similar to those involved in CMR. The contractor under IPD – while not leading the creation of the design as in typical DB – does have a high level of participation in the design process, more than is conventional in CMR. The ingredients for success in IPD include a passionate commitment to collaboration. Participants in IPD also require flexibility in adapting to new and evolving roles. If any member of the integrated team can comment on any facet of the design, and then participate in a collective decision-making process to resolve the matter, IPD is surely no place for a “segregated services mentality.”
Parties who have participated in IPD projects have tended to report positively on the experience. Some early case studies show these IPD projects have met or exceeded Owner objectives, including favorable budget, schedule, and safety outcomes. It is unknown whether these successful results will continue consistently as IPD grows in use. If one tried to find a single word that sums up a successful project delivery method, the word might be “teamwork.” I am hopeful that as our industry moves forward over time, whether or not the IPD delivery model as such takes continued hold, the level of effective teamwork will rise, thus helping to achieve positive outcomes for Owners and all other participants in the construction process.
This sums up the four methods of project delivery in use today. The method best suited for your project depends on the complexity of the project, as well as the preferences of the Owner and management team. Ultimately, you have to decide what style of project delivery offers the best control you need for success – to finish on time and within budget.
This is an excerpt from the book “Profit , Risk and Leadership” by Tom Porter: a unique book that explains how to make money, manage risk, plan, organize, and lead toward the achievement of set goals. To find out more go to www.bnibooks.com.
About the author: Tom Porter has worked in the construction industry for over 30 years. He is a graduate of Michigan Law School and holds a DBIA certification. Tom is recognized as a leading expert in project delivery. He has served as a speaker and instructor for industry organizations such as DBIA, AGC, the American Bar Association, and the American Arbitration Society.