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ConstructionPro Week, Volume: 2 - Issue: 20 - 05/17/2013

Does Fast-Track Construction Jeopardize Cost Control?

By Bruce Jervis

 

One of the perceived benefits of the design-build method of construction is the ability to “fast-track” the project. By procuring design and construction services from a single source, it is possible to commence construction before all of the design details have been completed. Shorter total elapsed project duration may save the project owner money.

 

Fast-track construction poses a challenge, however, when it comes to cost control. On a recent federal project, the contract price was to be “definitized” through negotiations once the design-build contractor had completed 95 percent of the construction documents. The government paid for construction work through a series of contract modifications authorizing “additional undefinitized funding.”

 

Despite good faith negotiations, the parties never could agree on a fixed or definitized contract price. There was no enforceable not-to-exceed maximum price. The government was responsible for all of the contractor’s reasonable construction costs.

 

How could this have been handled differently, in a manner which would be fair to the project owner and contractor alike? If it is not possible to “definitize” a price for the work, is it realistic to establish a not-to-exceed cap? Would the project owner really leave the remaining construction work incomplete once that cost ceiling was reached? I welcome your comments.

 

COMMENTS

The art of successfully completing a fast track project, in my opinion and experience, is accomplished through well managed expectations. Most federal projects will not allow work to proceed with undefinitized cost, however on occasion this can be managed through phased funding. Most often, a true fast tracked project must be established through a cost of work plus fee with a GMP format based on clearly defined expectations. The GMP is proposed and defined as an IGMP (Interim GMP) based on appropriate unit cost for the type of construction which must be supported by actual final costs from several other appropriately similar projects. The IGMP should be formatted to reflect the design build process with subsections for the various milestones in order for the overall team to keep tabs on the progress and budget ramifications. Federal work is notorious for scope creep, so the scope of work must be very clearly defined within the clarifications and assumptions which may include sustainability requirements, photographs of representative finishes, and at least initial design concept drawings. Within the contractual language, the design process must be clearly defined with milestones such as “structural design permit set”. Further, it must be established that once a milestone is achieved, it becomes the “locked in” basis of remaining design work for the purpose of minimizing changes to work once it has been released. The burden must be placed on all parties of the contract in that design work must be submitted in a timely fashion, the AHJ must respond likewise in a timely fashion, and the release to proceed with construction of each phase of work does not occur until all associated pricing and schedule impact is clearly defined and approved. This sets clear and definitive deliverables for each party. It should be understood that there is a higher personnel demand on the designer, contractor, and the owner when pursuing such a project necessitated by both the ever-developing design and the simultaneous proactive thinking at a detailed level by all parties. This model of construction project requires a true “team mentality” for all parties involved to be successful. This kind of work is not for the lethargic, pessimistic, or timid. Good Luck! - JH
Posted by: Jon Hendrickson - Friday, May 17, 2013 11:57 AM


I have used "Guaranteed Max (Not to Exceed) Price" very successfully, for Design/Build projects for years.

I complete my own Conceptual Estimate to establish what I think the NTE price should be, prior to agreeing to the D/B Contractor's price.

We have always been able to arrive at an agreeable cap.

It is not that tough to do, and we feel that process offers the best combination of Term and Total Project Cost.

If Scope is changed, during the COC of Design or Construction, you can justify the resulting difference, [increase or decrease], and write the appropiate Change Order.


Posted by: Gerry Comer - Friday, May 17, 2013 12:05 PM


Fast tracking requires a hierarchy of decision sequencing based on/founded in the construction process and base building systems. A good PM can lead the way through this process, but only if the owner is a responsible and knowledgeable partner. Often the owner's lack of understanding/appreciation of the significance of the decision levels leads to misunderstanding and conflict....plus there is always the challenge that a bad idea, no matter how well done remains a bad idea....sometimes design changes late in the project are because the quality of the idea is coming to light as the work progresses. D/B often places a premium on construction and schedule issues to the detriment of thorough development of the idea before starting. There are advantages to taking time to get the objective right in advance. For that reason some projects and project types are better D/B or FT candidates than others. Saving money, time and achieving a quality result with D/B is not automatic.


Posted by: Marshall Wilson - Friday, May 17, 2013 12:29 PM


The Projects that I did using design build process were successful, IF the Owner, Design Team, and Contractors all were working toward the common goals of a fast track,quality build, within budget project. The key was selecting the ENTIRE team before design starts, empowering all with meeting the goals, empowering to look at the big picture and most important establishing communication hierarchy and protocol to be certain ideas and issues are vetted. This allowed management to deal with schedule, quality control, and cost control without having to refree adversarial issues that result from competitive bid projects. For it to work well every team member must commit to supporting the project!
Posted by: Barclay Davis - Friday, May 17, 2013 2:08 PM


In the established scenario above,the GOV should not have proceeded without a fixed limit, or not to exceed limit. The door was opened for a never ending battle over rising construction costs during the project. The owner, is this case, must then terminate for convenience in order to stop the bleeding. An after thought would have been to set milestones in the project schedule for the funded activities and re-evaluate as more funding came in. This then defeats the advantage of fast track due to lengthy negotiations, in which the contractor will be maintaining office and overhead along with subs doing the same. The contract would then more than likely take twice as long to complete, putting the owner and the mission of the building at risk. Fast track in design build, in my opinion, can only work with a fixed limit. A PM can only control costs so long without putting the contracting company at risk and more than not, his job also. An equitable adjustment is an option only if the contracting company chooses to build at risk. I have never seen these types of projects come out clean on anybody's effort.
Posted by: Wendell Leonard - Monday, May 20, 2013 12:48 PM










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