Owners Guide to the Design and Construction Process – part 4
Thursday, March 27th, 2014
The Traditional Method
In this method, when the Owner has spelled out his requirements and budget for the new structure, he is ready to hire the architect. Depending on the Owner’s familiarity with the construction process, the requirements might be spelled out by his own staff and/or outside consultants. Whoever is involved consults with the architect and defines the project needs.
This puts the project into the design phase. Using this method, the Owner’s money is spent up front without knowing the total cost of the project. The resultant drawings and specifications become part of the contract documents.
Next, the Owner must decide whether he is going to ask for bids from a selected list of general contractors or negotiate with one general contractor on a cost-plus-a-fee or fixed-price basis. The more usual choice is to preselect qualified bidders. The other choices are discussed later in this text.
If the Owner intends to follow a competitive bid procedure, he (or the architect acting as his agent) issues copies of bid documents, consisting of plans, specifications, and instructions to bidders, i.e., general contractors interested in bidding on the job. A specific date, time, and place for the opening of the bids is set.
Each bidding contractor then decides which elements of construction he will subcontract to others, and initiates a subcontractor bidding process, estimates his own costs, and develops his bid amount for the project. The Owner then awards the contract on the basis of the qualified lowest bid, or sometimes a higher bid if it appears he will get better performance or product for his money. In the construction phase, the Owner typically depends on his architect for inspecting the work performed by the general contractor and his subcontractors. The architect usually limits his inspection to on-site observations – just enough to assure himself that the intent of the plans and specifications has been carried out and that the general contractor’s requests for payment represents work that has been done. The architect makes a final inspection when the construction work is completed, at which time retainage and final payment will be paid to the contractor.
The government authorities must be informed when the building is ready for their final inspection for an occupancy permit so the Owner can occupy the structure.
During construction the Owner or architect may decide that a particular configuration, material, or method different from that described in the contract documents is desirable. The architect negotiates with the general contractor to define the nature and price of these changes. This traditional approach to the building process stems from the age old purchasing practice of establishing performance and specification criteria for any material, supply, equipment, or service, and then forming a basis for procurement through competitive bidding.
It seems logical to use the bidding process to achieve the best possible return for the cost. The Owner/purchaser wants to be able to assure management, directors, and shareholders that he has made the best possible buy.
However, there are few owners that have on-staff people who are qualified to make construction management or purchasing decisions for a new building project. Assistance must be contracted with outside people. And when appropriations for capital expenditures have been approved, one wants to avoid the complication of “going back to the well for more.”
Unfortunately, most owners do not have the expertise to evaluate the cost implications of the architect’s designs and drawings. The design could be impractical from either a construction or function standpoint. There could be simpler and more economical ways to produce the same result. But the Owner (and often the architect) may not know this.
Typically the Owner does not discover these alternatives until after the bid phase, if ever. Changes this late in the process cost more in both time and money.
Availability of materials, new construction techniques, manpower, and skills are all factors in the building process. Knowledge of these often are not privy to the architect, and he, therefore, is not in a position to most efficiently control the building process.
There are many different construction processes. Architects tend to have their favorites, and don’t always know them all. When design, bidding, and construction are separated, it is rare to come up with documents that fully express the Owner’s wishes to the general contractor. The contractor is presented with instructions that he could have improved upon if he had understood the intentions behind them early enough. In addition, the successful low bidder may have the lowest price on masonry and carpentry, but not the lowest HVAC or electrical quotes, thereby, costing the Owner more than what could have been negotiated. The chart below demonstrates bidding price differences.
CONVENTIONAL BIDDING PROCESS
|SUBCONTRACTORS||BIDDER #1||BIDDER #2||BIDDER #3|
|Bldg & Erection||$180,000.00||$160,000.00||$145,000.00*|
|*Sum of low bids||$655,000.00|
Low bidder can shop for the low bids after the award—but who gets the savings? The Contractor—not the client. ($655,000 is 6% below low bidder)
JOSEPH Construction Company can get all the low bids because Subs know JOSEPH Construction is going to build your project.
As a bid project that he has no prior responsibilities, the low bidder, is often very quick to point out errors or omissions in the drawings that will cost you more. This filters down to his subcontractors too. In other words, if your general contractor is not responsible for design and engineering, you have a split of responsibilities that decreases efficiency and increases time and costs.
During the traditional method of construction, there are no incentives for the contractor to reduce the cost of building. In fact, there are often large incentives to increase it. For example, it is common practice in some sections of the Industry for contractors to bid jobs low and make money on changes and “extras.” In negotiations for changes and extras, the general contractor tends to side with subcontractors against the Owner. He, after all, will probably work with the same sub on another job, while his future commitments to the Owner beyond this contract may be negligible.
While a general contractor may have a good management control system, such a system operates to help make a profit for the contractor and not necessarily to provide information and control for the Owner. Unfortunately, what is most economical and best for one is not necessarily what is most economical and best for the other.
Summary of Traditional Contract Method
In the traditional building process, responsibilities are fragmented by separating planning and design from construction. Costs are determined by several contractors who bid competitively.
These two characteristics—fragmentation of responsibility and competitive bidding—tend to create two general problem areas. First, the Owner’s intentions are communicated only to those involved at the planning and design stage. This means that contractors are not responsible for executing the Owner’s intentions. They are only responsible for executing the working drawings, which almost always contain ambiguities subject to various interpretations.
Second, the competitive bidding process automatically requires the contractors to do everything the cheapest way instead of the best way. It is in the Owner’s best interest to make intelligent compromises between “cheapest” and “best,” but at the bidding stage he loses control over these decisions. To achieve an acceptable product, the Owner may have to pay for costly “change orders” later.
Third, we have all witnessed the construction industry evolve into an adversarial, confrontational business with our energies misdirected away from our ultimate goal of constructing a quality product, on time and within budget. Often the different parties involved in the Traditional Method project develop an adversarial, confrontational attitude in which everyone is working to stay out of litigation or preparing for it.
In short, while the traditional process seems like the logical way to control quality and costs, in actual practice the Owner tends to lose control over quality and final cost. And instead of controlling costs, the competitive bidding procedure tends merely to postpone the day when actual costs finally are learned. There are alternatives to the traditional method. Every construction project is unique. Each should be evaluated after full consideration of all available alternatives in order to develop the lowest possible costs for meeting the building program requirements. Let’s examine these alternatives.