When your company decides to expand, one of the first decisions you need to make that will set the tone for the rest of the project is how you should organize the project. There are numerous options for Project Organization, many of which aren’t covered in this article, and each of them have benefits and detractors that will impact your experience throughout the construction process.
A few big factors play into determining which option is the best for your company, so think through these and decide where your company falls:
- How flexible is your budget?
- How much time will you have to devote to managing the contractor?
- Do you have existing relationships with Architecture/Engineering firms or a Contractor that you trust?
- Is your project for a specific process/use, or could various businesses operate in the space if vacated?
- Does anybody in your company have strong construction experience?
Knowing where your company stands on these questions will go a long way towards clarifying what option is best for your project.
The Design/Bid/Build model is the most commonly used project structure (for better or worse) on most commercial (bank, retail, office) projects and almost all public projects. In this delivery method, the project owner hires an architect/engineering firm first to create sets of plans, and then that firm invites general contractors to bid on the project with the lowest bid signing a contract with the owner.
- Get multiple bids from general contractors as managed by the A/E firm, thereby driving down the initial cost of the project.
- Provides a partner, through the A/E firm, that can help you make decisions throughout the construction phase of the project
- Good for non-complex commercial projects.
- EXPECT CHANGE ORDERS. The contractors are solely bidding off of the plans that the A/E firm generates for them, and they are masters at finding holes in the plans and specs that they will not include in the initial bid, but will include as change orders at high margin down the road.
- Project costs are all closed book. When negotiating change orders the contractor has a leg up because they have the numbers in front of them.
- Expensive upfront costs to get to a hard bid number.
When to Choose Design/Bid/Build:This method is designed around low cost delivery, and as you’d expect, this comes with a few downsides. It is inherently adversarial given the way the contracted relationships are set up, so if you choose this method make sure you or whomever is managing the contractor has the stomach for a few change order fights. You should choose this option if you have existing relationships with architect and engineering firms that you trust to do a good job, the building is not for a specific process or function, and you don’t have the time or experience to manage a contractor.
The Design/Build delivery method is where the client contracts with one firm to handle the design and construction of the project. Most often the firm will not have all of the capabilities in-house and will contract with architects, engineers, or trades throughout the process. The contract with the owner is generally divided into a design phase and a procurement/construction phase, which allows the owner to decide whether or not they can move forward with the project when the price has been determined.
- Can save on upfront design costs to determine a budget or guaranteed maximum price
- Much shorter design phase, leading to expedited construction
- Greater collaboration on design from contractors, leading to better constructability and potentially lower costs
- Ability for open bid so the owner can see costs
- Design/Build firm holds all the information, which gives the D/B firm a leg up in negotiating price and change orders
- May not get lowest initial price
- No neutral party to advise the owner (though they could still hire another CM as Agent)
When to choose Design/Build: Design/Build is most effective when constructing a specialized building, such as for food processing, storage and other specialized uses. You should choose this option if your facility will be specific to a certain use or process, or if you need to design to a tight budget. If you do select this option, be sure to do your due diligence when Selecting Your Contractor, because you’ll be selecting one firm to work with and they will ultimately determine the success of the project, where in other options you’ll have more players to help keep each other honest.
Construction Manager as Agent
The Construction Manager as Agent delivery method is a third party that you bring on to be a consultant while you, the owner, hold all the contracts and therefore all the risk. The CM acts as a consultant from design through completion and handles quality reviews, change orders, billing, etc. – all the stuff that would generally fall under the owners responsibility. This method can be used in conjunction with design/build and design/bid/build as well, but most opt not to because of the extra cost. The contracts are generally in the form of a monthly fee or as a percentage of total contracts.
- Allows the owner to focus on running their business and not managing the contractor
- Brings in somebody with construction experience acting on the owners behalf
- Adds another layer of overhead to the project that may be unnecessary
- At the end of the day, the owner is at risk for the success of the project
- CMs can lack the authority to get contractors to follow their direction since they aren’t writing the checks.
When to Choose CM as Agent: Less complex projects with very few trades or projects with very clear scope splits and multiple GCs can fit well with the CM as Agent model. In these scenarios there often isn’t a need for one on-site manager and it could save you the costs of having a GC on-site. You should choose this option if you won’t be able to commit the necessary time or don’t have the experience/expertise to manage your contractor(s) and ensure that the project is running smoothly. At the end of the day, if nobody at your company has construction experience, you are going to have to put your trust in somebody; so, if you intend to still hire an architect and general contractor or a design/build firm, I would recommend saving the extra cost by finding a trustworthy Architect or Design/Builder instead.
Construction Manager At-Risk
This method is similar to Design/Bid/Build, but the contractor is selected before or during the design phase to act as a CM as agent on behalf of the owner. The owner will hold the contracts for the engineer and architect, but the contractor works with the owner during design development to select the A/E firm(s) and provides feedback to the firms about the design. Many times in this scenario the General Contractor’s fees will be pre-negotiated and the bid process will be transparent to the owner. In this scenario the GC solicits bids from multiple subcontractors for each scope of work in the project to keep price pressure down.
- Owner and CM’s goals are aligned to create better cooperation throughout the project
- Guaranteed Maximum Price provides protection for the owner
- Project is competitively bid to subcontractors with the owner getting final say on who to use, if so desired
- Don’t get a competitive bidding process from General Contractors after plans have been created
- Can cost more upfront to have the contractor act as a consultant during the design phase
When to Choose CM At-Risk: Generally, this is an alternative to the Design/Bid/Build format. You should choose this option if you are designing to a tight budget and already have a trusting relationship with a contractor. It is also a good option if the project is complex and difficult to budget. The project will be designed with an end budget in mind and the price can been updated throughout the design process to ensure that the price is on target.
Selecting the best project organization for your expansion won’t guarantee project success, just as selecting the wrong one won’t guarantee failure, but following these steps will better your chances for a smooth construction experience.