If you have read the previous blogs, you have already heard me grind my axe on this subject. This subject is complex, a bit controversial and certainly there are a “thousand shades of grey” when it comes to design/build delivery. I am NOT splitting hairs; the difference is important, and sometimes critical.
While I am opinionated I do not intend to be judgmental about the use of the term design/build. Many of the largest and highest-quality design/builders will occasionally use a faux design/build delivery (design/build in name only) due to their sophisticated analysis of market conditions. The great majority of inexperienced, small and low-quality design/builders consistently use faux design/build delivery because, on the surface, it seems like an easy way to enter the design/build marketplace. On the surface, faux design/build is, in fact, pretty easy. Like an iceberg, under the surface it is plenty risky.
The intention of this particular blog is to create clarity between true design/build and faux design/build. Honestly, I write from the perspective of the designer – specifically the architect – in the design/build project. Let’s start with one key definition; the “design/builder” is the builder that holds the prime design/build contract from the client. The design/build contract puts one legal entity, the design/builder, responsible for both the construction and the design. Typically a design/build contract includes a maximum guaranteed price, which the US Government calls a “firm fixed price.” One key distinction is the designers work for the design/builder, not for the design/builder’s client.
These days design/build is frequently used as a delivery strategy for Government projects, but it is also popular with many other client types. Design/builders that bid on design/build projects can produce the project in either true design/build or faux design/build. Many clients don’t seem to care, or even know which is used, so long as they have only one entity (the design/builder) that is responsible for both the design and the construction. The differences between true and faux design/build can be significant to everyone concerned with the project, however.
There are two steps to create true or faux design/build. The first step occurs at the bid stage. The design/builder may choose to estimate the bid, using a variety of technologies and/or historical data. Estimates vary in their ability to replicate actual market conditions. If the design/builder is estimating all or part of the bid, they aren’t talking with construction subcontractors or designers to get the most accurate bid numbers, and they are well on the way to faux design/build. If they win the project based on estimates, they are betting the market conditions and their estimates will match each other. That bet creates risk for the design/builder, the designers and the project client.
Again, there are many shades design/build, but the true design/builder will bid part or all of the project by discussing the project in great detail with construction subcontractors and the design team, to figure out the best/most efficient/least expensive way to create the project. Often, parts of the project will be negotiated or hard bid to subcontractors, so the bid isn’t a “guestimate,” it is an actual, hard price that the project could be designed and constructed with. There is less total risk by using this strategy, but it takes much more effort, street smarts and sophistication from the design/builder, the design team and the construction subcontractors.
For example, one anomaly of a bid number is that subcontractor hard pricing may not accurately reflect actual market conditions if there is a long delay between the time of bid and the time of subcontract award, if the bidders aren’t sufficiently hungry to give the most competitive number at the actual time of the bid, or if the bidders don’t understand the project. If any of these conditions are present it is possible that the best price is the estimated price.
However, all estimated prices lead you back to a shadow world, similar to a casino floor or stock exchange – you are betting that you are smarter than the market, and sometimes you win on the market – sometimes you lose. Estimates usually represent a higher risk/reward ratio. (Higher risk of failure is proportional to a higher reward if successful.) Sometimes the design/builder with the lowest price has made the biggest math error. Sometimes the design/builder with the lowest price bids a number less than his actual known costs, betting that he can drive the cost lower during design or construction, and/or make up the difference with change orders.
The second step occurs at the design phase, after the design/build project is awarded, but before it is designed. No matter if the design/builder’s bid is estimated, negotiated or bid among subcontractors, there is still time for a faux design/build bid to become true design/build project. The difference is the interaction, or not, between the construction subcontractors and the design team.
If there is a high level of interaction between the subcontractors and the design team, if the primary subcontractors (mechanical, electrical, plumbing, civil, steel, etc.) are able to have firm fixed price contracts and order long-lead items prior to the completion of the design, if the design team is able to quickly get to accurate and well coordinated final construction documents on the first try, if the design/builder is able to buy much of the project out before the end of design, if the design/builder is able to shave 10% or more off the construction schedule due to the efficiencies of the design/build process – that is true design/build.
One sophisticated variation on the design/build process is to use multiple bid packages. Typically the first bid package needed is the civil and underground package. As the first bid package is being constructed, a second bid package might be nearing design completion. Design/builders need to expect to pay more for each bid package produced because each one increases liability and costs the design team additional effort, particularly for coordination.
In my experience, particularly with US Government projects, the majority of design build is faux design/build, or design/build in name only. To the design team, faux design/build looks just like traditional design-bid-build. To the design team there are no advantages and several additional liability risks with faux design/build. If the design team has to complete the design with little or no interaction with construction subcontractors – that is faux design/build. Faux design/build also has relatively few advantages to the design/builder or the project client.