In the world of design and construction, “procurement” refers to the contractual method used to execute building projects. It does not refer to the actual pouring of concrete or framing walls with studs. “Procurement” refers to the type of teamwork organization that is put in place by contract in order to purchase design and construction services. Contracts are written instruments that bind people together for (hopefully) mutual benefit. The particulars of this binding can have a significant impact on the project outcome.
Construction projects have an owner, a designer (the architect) and a contractor. We assume here that the owner does not build with her own forces. She must hire others to execute the project. A second assumption is that the designer is not the same as the contractor. Because the owner does not design or build, and because the designer only designs and the builder only builds, three entities are needed to procure a project.
Procurement method alternatives developed as construction entities sought better and better ways to deliver projects. These options were not always a necessity. Back in the day. people built their own houses. Churches built their own cathedrals. Kids built their own forts and tree houses. As buildings became more complex, tasks became specialized. What got lost? Trust.
Briefly, design-bid-build refers to a procurement method where an owner hires an architect, contractors submit competitive bids based on the design, and the winning contractor builds the building. Design-build is when the contractor and architect contractually bind themselves to work together, and then enter into a single contract with the owner deliver the building. Construction Manager at risk is when a contractor guarantees a price based on preliminary drawings from the architect, then helps to figure out how to make that price work by providing cost input during design. Negotiated bid is when an owner hires a contractor early in the design phase, hoping the contractor’s cost guidance during design is more valuable than the market forces that drive design-bid-build. We advocate for a fifth option: Integrated project delivery, discussed below.
As design teams get bigger, as contracting teams get bigger, as owner stakeholders get bigger, the chances that projects are built through the efforts of people working together for the first time also grows. Most owners are willing to pay a fair price for design and construction services. An owner who trusts their designer and contractor to provide their services at a fair price need not worry about harnessing market competition. It is the fear that a non-competitive procurement process will lead to an inflated contract sum that causes owners to rely on market competition.
The market is good at getting firms to sharpen their pencils, but it can entice firms to contemplate mischievous ways to lower their price, or make their price appear low. For this reason, bid analysis- when an architect scrutinizes a bid to determine it is responsive to obligations- is an important part of design-bid-build procurement. Designers and contractors are both sensitive to the fact that construction documents are (shorthand) representations of buildings, and are thus susceptible to errors and omissions, or at least ambiguity. Does a note requiring coping at brick walls also apply to stud walls? Does the fact that an air handling unit requires electricity mean the contractor must bring electricity to it, even if the electrical drawings do not indicate so? A contractor who intends to interpret ambiguity or omissions in his favor is not a contractor who intends to meet the owner’s quality expectations. The market can fall short by allowing for unscrupulous bidding.
The market can also fall short (for the owner) by allowing price gouging. If three bidders are all busy with work, their bids will be high. They do not need the work. They might as well ask for as much as they can. Cost and price become separated.
The procurement question, then boils down to this: how can an owner get the most competitive pricing while also getting the building she expects? The various procurement methods discussed above all have their place on a continuum of trust versus competition-based price. Working with a trusted friend is easy. Figuring out how to trust a stranger in a marketplace rife with anonymity is the harder task.
Integrated Project Delivery
We have been aware of integrated project delivery (IPD) for about a decade. Opportunities to use this procurement method have been practically non-existent in Maine. By coincidence, we have two projects coming up where IPD is a real option.
IPD, defined in the AIA C191 “Standard Form Multi-Party Agreement for Integrated Project Delivery”, is “a project delivery approach that integrates people, systems, business structures and practices into a process that collaboratively harnesses the talents and insights of all participants to reduce waste and optimize efficiency through all phases of design, fabrication and construction.” That is a mouthful.
In a word, IPD is a process for open and collaborative work, where trust comes from transparency in business dealings. Many owners, designers and contractors work in an environment of trust and transparency. IPD puts it in writing.
For example, each party to an IPD agreement can inspect the accounts of their partner parties. IPD requires open books. Everyone knows what everyone’s labor and material cost are, and what everyone’s profit margin is. The agreement protects against price gouging.
Another example: IPD expects all parties to work together toward a common goal: the building the owner expects and can pay for. If the electrical contractor sees there is an air handler in the project, he must acknowledge that air handler requires electricity.
A final example: A roofer questions whether stud walls get coped on top, or just the brick walls. The architect says both get coped. This all happens before the contract price is set and construction begins. The final price includes coping at stud walls. If the ambiguity is caught after the contract price is set, the team works together to resolve the issue.
The management, accounting, and process controls enumerated in the C191 agreement are extensive. IPD does not create transparency-based trust out of thin air. What it feels like is a system that offers trust through contract language. To paraphrase the turnpike sign we all know and love, IPD is the way construction projects should be.
Interested in exploring Integrated Project Delivery with us? Contact Mike Sealander, AIA at 207.266.5822 or email me.