Design-Build competitions sustainable? 5

[Pinwards]

For those who aren't aware of the delivery model. We occasionally participate in Design-Build competitions, where the owner/client puts together a Basis of Design, detailing what they want (often a building or campus in our line of development work) and the budget available, then put out an RFQ to solicit teams to apply for the project. Teams consist of a Contractor lead, and architect, and all the engineers/designers necessary for the project. The client then narrows down the field to 3-5 teams, based on qualifications, then the chosen short-list of teams further develop their concepts, and create a Proposal detailing what they propose to build, and the price it will cost, then the owner selects one team to move forward with the actual design and construction. The non-selected teams get an "honorarium" (consolation prize) of X dollars to cover (some of) their costs for participating. Often the level of detail required for an accurate proposal and the level of design to wow the client and win the job means spending many times what the honorarium covers. Consulting fees are also part of the overall price for the project, which is also one of major factors in an owner choosing the winning team, so consultants try to keep fees low to help win the project. So even the "winner" often ends up with minimal, if any, profit. Losing teams are even worse off, having to divvy up the small honorarium amongst the whole team, to cover their costs. On the owner side I can see the advantages, getting to see several different concepts that meet their goals, before choosing which they like best. But how is this delivery method sustainable on the consulting side? Should we just not participate, and hope that ultimately enough consultants will abstain so the owner will no longer have this as an option in delivery method? I don't really have any specific questions, or answers, just hoping for a little discussion and curious what others have experienced with design-build competitions.

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[JedClampett]

And don't think that honorarium is given to the design teams because the owner is being a nice guy. It's there so that the winning team can legally steal ideas from the losers. The presentations belong to the owner and they can pick and choose as they wish.
I've asked your question myself. But there's almost someone who's willing to take the bait, if the chance is making a lot of money. And the contractors are in the same boat as the consultants. They need to guide and estimate the proposal which is an investment on their part.

 

[KENAT]

Look at it this way, that's exactly how large chunks of the 'machine design' side of engineering do things - though usually with no compensation for losing bids except on some government contracts.

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[GregLocock]

Can you identify why it works (or is accepted) for mechanical engineering manufacturing yet you feel it won't for buildings?

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[GMcD]

Greg- Buildings are not mass production widgets. Every building is model #1, Serial #1. There is minimal repeatability or economy of scale when a building project is being delivered. Background- my comments below are based in institutional projects - schools and hospitals.

I have been on both sides - being an Owners Advocate (Shadow Team) as well as participating as a consultant team member on Design-Build Pursuits. No, this project delivery method is NOT sustainable for the consulting engineers, for the very reasons the original poster alluded to. The Design-Builders and their team have a 1 in 3 chance of winning the job. Therefore, to be sustainable, the consultants should be getting some mechanism in their fees to make up for the two lost jobs. Never happens. The Design-Builders convince the consultants that they shouldn't have to do "fully detailed traditional design" and the Contractors/Sub-Trades will take care of many of the Code-ified details and materials selections, within the performance requirements of the Design-Build RFP. so the Consultant is convinced to take lower than "book fees" and that expectation that the Contractor and Sub-Trades will take care of the details is what they should expect as their profit margin.

The reality is that not all trade contractors have the experience or design background to take care of all those standard items and Code-ified things, and the consultants are pushed for ever increasing level of design detail through the design stages for "price certainty" and for the Design-Builder to squeeze out his profit through continued "value engineering " (read cost-cutting, as the reality, there is no value engineering at all). Example: Plumbing design is pretty well laid out and specifically stipulated by the local building codes - so the MEP consultant should expect to just draw a boundary around a washroom group and say "pipe/plumb to Code" and leave a list of plumbing fixtures that are required. Uh-Uh - the consultant ends up drawing it right out including the pipe drops and details because the Contractor can't seem to convince his estimator to draw and take off the water pipes and sanitary drains.

The problem is up here where I live, the Contractors are still not used to what design-build means and they still expect "the engineer" to show everything on the drawing so they can do a straight detailed take-off for estimating. The other side of the problem is that the design-build teams are generally all assembled for each project and the Design-Builders don't form consistent teams every time, so what I've seen is that over the course of 5 D-B Pursuits, there has been a mix of different team members every time.

The game on the design-builders' side is to deliver the absolute cheapest stuff that barely, or doesn't comply with the RFP performance Specifications, and grind down the consultants and sub-trades to maximize their profit. Then the Shadow Team gets to play Bad-Cop all the way through, while the Design-Builder has the Owner/Client by the nose through budget and schedule control. A bit of legalized blackmail.

I much prefer Shadow Teaming- power with minimal responsibility or liability. What is happening where I am is that by the time the funding agency adds up all the fees paid to the Shadow Team as well as what they paid for the project that got delivered, they could have saved money and got a better building using a traditional design-bid-build project delivery. Especially with Institutional projects. This may be a different story with simpler commercial projects - big box stores, office/warehouse projects etc. where design-build can show overall project cost savings through project delivery schedule economies and saving overall time from start to doors open.

 

[KENAT]

GMcD not all 'machines' are mass production widgets.

I've worked on multiple projects for one off 'machines'.

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[GregLocock]

If you are unable to set your business up to compete in that environment then walk away from that environment. Subsidising somebody else's business model should not be your priority.

I was hoping for a bit more insight than lolly shop economics to be honest. On the other hand some of the tales we get here on eng-tips makes me realise that many of these companies are run by enthusiasts rather than investors.



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[PEDARRIN2]

Design/Build is one way the US government (military) obtains projects on their bases, through the Corp of Engineers.

It is also starting to become an avenue for state projects.

This is in the hopes of having a better design at a better price because the contractors are on board with the design so there is an offset in engineering mistakes (designing something that cannot be constructed) and contractor gouging. They already are part of the project so they do not have low ball it, but will not gouge the price since a high fee will eliminate the entire team.

It can be successful for those teams that know how to play the "game" mainly because the documents in the request for proposal can be very extensive, somewhat contradictory, and somewhat vague.

 

[urgross]

When I worked for the COE, both in Engineering and Contracting, I hated the design-build model. I saw it used mostly as a way of meeting obligation dates from resource management, not based on any engineering or economic rationale, but for bean counters. Sure never saw it on MCA projects. Last MCA project I managed came in ahead of budget, ahead of schedule, and won COE, NSPE and AIA design of the year awards. Never saw that happen on a design-build. I have used a firm fixed price plus incentive firm task order construction for MCA, but never D-B. Fortunately, the COE won its internal federal dispute and many agencies, such as the one I now work for, will not use the D-B model. The D-B is a way to work around the Brooks Act, and I strongly feel, from a federal contracting and enginering background, the Brooks Act is the best protection the government has in making sure we get good design. Good design results in lower prices, as modifications after construction NTP typical allow the government to keep 30 cents on a dollar for getting placed in sole source situation.

The majority of design and construction problems I have seen on the federal side started before solicitation: bad work scope, incomplete or no site investigation, and budget that has no connection to the scope, schedule or needs. D-B will not cure that. Having a professional, qualifications based A-E prepare the Concept design (which does not count against Brooks Act limitations) and estimate does greatly reduce these problems. Most government engineering offices, as well as many Districts of the COE, do not have talent in all the CASME fields, hence are not going to be able to set scope, schedule and cost as well as a qualifications based selection A-E firm. I would prefer having multiple award A-E IDIQ for 2-step DB. If the bean counters aren't calling the shots, I'd much rather go traditional design-bid-build.

At least for federal, I've never heard of honorariums to also-ran. I'm familiar with the CAS and the GAAP; that may be acceptable to the GAAP, but not CAS. While being able to compete on qualifications is a big advantage for good A-E firms, having to maintain Cost Accounting Standards as well as the GAAP has been a large deterrent for many firms. That doesn't generally cause a problem until the contract goes above $500,000 and DCAA audit kicks in.

Staffing of selection boards can be problematic. As most federal agencies cannot afford to hire all disciplines, these frequently are hired on as contract personnel. As contract personnel cannot sit on source selection boards, many times the technical expertise cannot be used outside of advisory role. As selection board members are not supposed to discuss any details of the technical evaluation board, the "consultation" expertise is effectively eliminated.

When I was with the COE, predominant argument at that time (20 years ago) was that the model moved risk from the fed to the GC. In practice, I have never seen that occur, it's still 30 cents on the dollar for Uncle Sugar once NTP is issued.

 

[tys90]

We've worked on the design side of federal Design-Build construction projects after being selected by the contractor, who already has the contract. We are continually baffled by how the scope and budget is decided. urgross hit it on the head as to why this happens and why the design-build model is a very poor solution to construction.

A few times the scope wouldn't produce a functioning building but we aren't allowed to change it because it's what the whole contract is based on and any changes would result in a change to the contract, which everyone frowns upon since the supposed point of D-B is to reduce changes.

For the ones I've personally worked on, I estimated the government was paying, on average, a 50% premium on construction because their scope is so vague and contradictory, the contractors have no choice but to cover their butt when submitting bids to design-build it. We end up with a constrained design where our only goal is to make the darn thing function, no matter how ridiculous it ends up being.

 

[GregLocock]

a 50% premium over the best possible design is still probably a bit of a bargain compared with the more typical deals our government strikes when unconstrained.

The key to making DB profitable for the subbie is in understanding the scope, and having a good contract. If you can't get them, walk away.



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[GMcD]

Kenat - response to your post earlier in this thread- no offense to one-off manufacturing machinery, however the success of that type of engineering project can be measured by the output or specific performance of what the machine was supposed to produce/do. With Building projects, not so easy considering they are filled with free range humans who, by ASHRAE Standards, can only be satisfied 80% of the time as a good standard of acceptance. Energy metering and interior comfort of a building can be measured, but aesthetics and functionality? Tough call.

Greg: your earlier post- not sure what you mean by lolly shop economics- building projects and design-build project delivery can take a 20 page essay just to describe the theory of what it means for different types of building project types and end results desired. Suffice to say, the idea is that Design-Build led by a General Contractor or Construction Management Co with money is supposed to result in innovation, cheaper construction, and faster construction, while still achieving the Clients' RFP Performance Goals. Works well for commodity type projects like warehouses, low rise spec office buildings, big box retail stores and the like. Doesn't work so well when one-off buildings are desired on bad sites, and with unrealistic performance goals.

The clarity and specificity of the Owners' Basis of Design and RFP Performance specification is key to getting something that actually meets the original goals. Many, many times, this doesn't happen. In the last 5 years it seems to be that at least 90% of the Design-Build RFP's and pursuits I've seen come through the office have a fixed budget of "X", with the RFP and Performance Requirements requiring something that costs "X+Y", usually 20% to 25% more than what the RFP fixed price maximum also requires. "We want LEED Gold Minimum, with an Energy Utilization factor of less than 90 kWh/sq.M/year, with 30% over-ventilation, and include complete measurement and verification, enhanced commissioning, and all the good stuff with the lowest life cycle cost based on a 25 year amortization, but our budget is only "this", and by the way we only prefer these specific types of HVAC systems, and you can't use these other types of HVAC systems." Sure can be fun sometimes....

Greg said: "The key to making DB profitable for the subbie is in understanding the scope, and having a good contract. If you can't get them, walk away."

Easy to say, hard to do when a substantial portion of the building work between $15 million and $100 million is issued as design-build from the local government, and we are all competing to make the numbers or lay people off. A good contract would be great but I've had at least one design-builder dictate my fee to me during the pursuit as a take it or leave it, all the while being pressured by managing partners who "need to make the numbers....", with that fee being way lower than needed to even provide minimum level of legally required services as per our Provincial Engineering Association and the Authorities Having Jurisdiction.

And yes, I agree with one of your other comments - a lot of the MEP world procures projects based on managing partners' egos and the cachet of having a name Starchitects' project on the company CV and the marketing potential of the project. Fee management, quality control, and professional ethics takes a back seat many times.

 

[wannabeSE]

urgross

Can you help me with a couple acronyms. See the list below. I filled in the ones I know or guessed from the context, or googled.

COE - (US Army) Corps of Engineers
MCA - ?
NSPE - National Society of Professional Engineers
AIA - American Institute of Architects
D-B - Design Build
NTP - Notice to Proceed (guess)
A-E - Architectural and Engineering (usually refers to AE firms or services)
CASME - ?
IDIQ - Indefinite Delivery/Indefinite Quantity
GAAP - Generally Accepted Accounting Principle (from Google)
CAS - Cost Accounting Standards (from Google)
DCAA - Defense Contract Audit Agency (from Google)
GC - General Contractor

 

[urgross]

Sorry, after over 20 years working for the DoD, I'm prone to Orwellian govspeak. MCA is Military Construction Army, meaning major construction projects. CASME is an old COE term for Civil, Architecture, Structural, Mechanical, Electrical.

 

[cvg]

COE should be USACE or Corps, depending on the usage but the Corps generally does not use COE these days

 

[glass99]

I do lots of design build at the subcontractor level for facade projects. There are many reasons why it is done this way. Typically owners and GC's want a single point of responsibility if something fails. There is also perceived to be more expertise on the contractor side than with consultants. Of course, the consultant just finishes up working for the contractor and the contractor just pretends to be able to do engineering.

The advantages from a consultants perspective are:
- Projects are in and out the door cleanly. Involvement with a DB project is 12 weeks of calculation and shop drawings and a few questions in construction. Involvement in design bid build is half a decade of futzing around by the client, changes by the architect, crises because they ran out of money, hand holding, sitting in coordination meetings etc.
- You have a much tighter defined scope, so a fixed fee is matched by a fixed scope.
- You can move directly to solutions and implement them in a decisive way as opposed to guessing about what the contractors capabilities might be.
- More control over the details

The disadvantages from a consultants perspective are:
- Approx 50% lower fee (but 75% less work)
- Less control over the concept design. If its just an architect drawing squiggles for the concept, this can be a major problem.
- Being lower down the tree for payment. If the sub goes broke you are screwed.
- Short fuse projects can be more difficult to manage if God forbid you can't drop everything you are doing the minute they call.

My ideal project delivery is to do approx 75% complete documents for the owner, write a performance spec, and let the contractor do one last pass of engineering to tweek the details and final responsibility resting with the contractor. I also want tight control of who the bidding contractors are so I can work with them if there is an issue.