What Is The Most Cost Effective Construction?

January 16, 2012 – 6:00 am

Recently I was asked if design-bid-build yields the “least expensive market” factor in change orders and/or any subsequent claims/litigation.  It is my belief this is a resounding “Yes.”, to the question.

By its very nature the design-bid-build procurement process is a competitive one where all of the competitors are bidding on the same scope of work.  This scope is fully defined in the plans and specifications, etc.  On a design build basis, this may not be the case.  Each bidder may have a different basis for the pricing.

The competitive nature of the design-bid-build market is such that the prices are the “best” each contractor, subcontractor and vendor can develop in order to win the job with the lowest price.  With each bidder quoting the same scope, it is a relatively straightforward process to determine the successful firm on the project.  On a design build basis, the lowest price may not be the best price because the scope has to be evaluated in conjunction with the pricing.

Change orders and litigation can be considered as a part of the cost.  On the design-bid-build projects we have observed change orders percentages can be quite low, in the range of one to three percent of the bid amount.  However we have a client where their change orders were in excess of twelve percent on firm price projects.   This high rate was due to their internal practices (and yes we did show them how to reduce the change orders and they did).

On design build projects it is not uncommon to see change orders or changes to the initial bids far in excess of the amounts stated above.  Whether it is an unforeseen scope (another discussion point), owner directive or another of a host of reasons, design build by its very nature is more costly when it comes to changed values from the initial bid amounts.

Litigation is a project gone wrong.  The projects we see in arbitration, litigation, etc. have been the result of owners, designers, managers, contractors, subcontractors and/or vendors that do not uphold their responsibilities to one another.  This applies across the board to design-bid-build and design build contract formats.  The sky is the limit when the project hits this stage.

Oh, by the Way… If an owner wants the cost effective solution I recommend design-bid-build.  If they want design-build I show them how to get the best value for the money they spend.

 

By Don Short | Posted in Construction | Tags: , , , , , , , , , , , , , | Leave a Comment

Is Theft in Your Bid?

January 13, 2012 – 6:00 am

Construction site thefts are always a problem, but I have noticed a significant increase in news media coverage lately.  This led me to thinking about how these thefts affect the estimate for the projects. 

Even if the thefts results in an insurance claim, there is still a deductible for the claim.  If your company views losses due to theft as an overhead cost, this will raise your overhead cost during the bidding process.  No matter how you look at it, thieves have a direct impact on the cost of a project.

There are several different types of thieves from the obvious person that sneaking onto the site and helping themselves to the employee or other trade on the project “borrowing” tools or material.  Another form of stealing is an employee padding their time cards.

One way or another an estimator has to increase their bid to compensate for the loss whether it’s decreasing the productivity rate (compensate for time card padding) or increasing line items in the estimate such as small tools allowance, overhead, or material costs.   In order to help keep these additional costs down, everyone at your company needs to take an active role in loss prevention.

By markmentele | Posted in Friday Tips | Tags: , , , , , , , , | Leave a Comment

Who And What Is BIM For?

January 11, 2012 – 6:00 am

If I were an owner I would love Building Information Modeling (BIM). I love looking at the nice 3D modeling, watching a fly-though on the computer screen.  BIM is great being baffled with the brilliance that is pretty pictures.  I would like to get a feel for how my project is going to look I would want to have BIM utilized.  I am not an owner – I am an estimator and during the bidding phase of the project I could care less about how pretty the fly-though looks and I would just be happy if the design firm would be able to put out a decent set of drawings on time and with no addenda.

By Justin Short | Posted in Construction | Tags: , , , , , , , , , | Comments (1)

Cheap, Not Inexpensive, In the Construction Market

January 9, 2012 – 6:00 am

Is there room in the construction market for cheap? After all, cheap really has a couple of meanings.

How about when cheap is low in price and worth more than its cost?  This has a place in the market for the buyer.  The phrase, “I bought it cheap!” can be thought of as bragging when this occurs.  While the buyer is happy, what about the competitors that lost out?  Did the cheap result from the low bidder making the biggest mistake?  Did it result from the low bidder cutting vendor and subcontractor prices with the intent of bid shopping after getting the job?

When cheap is low cost and shoddy the buyer may have the same thoughts on buying it cheap.  However, did they consider how it became cheap and the ramifications?  Did the cheap seller adhere to the specifications?  Does the buyer know that this may cause extra costs to be incurred in other areas?  What will the maintenance and operations associated with this version of cheap?  Perhaps quality and useful life didn’t enter into the selection process.

In both of these situations the competition to win the work suffers.  In the pre-2007 “normal” market this may have occurred from time to time without too many lasting ill effects.  The bidder that was usually goofy or unreasonably low would disrupt the market and then go out of business.   Since 2007 the “cheap” bidders have been far more prevalent in the construction market.  We are going to see some long lasting problems due to this.  It will not just be the contractors that suffer from these consequences.  It will be the buyers of construction projects that feel the effects too.

 Oh, By the Way… I am an advocate of competitive bidding and pricing.  However when less than astute business practices overrules basic sound bidding principles, it then degrades the entire industry.

 

 

By Don Short | Posted in Construction | Tags: , , , , , , , | Leave a Comment

Float Debate

January 6, 2012 – 6:00 am

I was reading the article on ENR about the Float Debate.  I have been told over the years that the float on the project belongs to the project not just one entity.  The owners and contractors both get to utilize the float, if any, on the project.  In the article there are some great points that counter the shared float of the project.  I do think that the float on the project should belong to the party that is assuming the risk of the project. What do you think?

By Justin Short | Posted in Friday Tips | Tags: , , , , , , | Leave a Comment

To Audit or Not?

January 4, 2012 – 6:00 am

Protecting the Owner’s GMP Interests

In some respects auditing a GMP contract for the owner should not be necessary.  The owner has placed their trust in a firm that has promised to look out for their interests on the project.  So why bother to audit?

Well, there are many reasons.  A simple reason would be to check for math mistakes in the billing amounts.  This audit would double check the supporting payment information to make sure the math was done correctly.  After all, mistakes can happen without being caught when the payment application was processed.

More complex reasons involve making sure the GMP Prime Contractor/Construction Manager was living up to their responsibilities identified in the contract.  An audit may not be necessary of the Prime/CM was conducting business in a transparent manner in the pre-construction, construction and close-out periods.

So why should an audit take place?  Think of it as a quality control/quality assurance program.  If the contract terms and conditions are being met then there is very little likelihood that things are going wrong.  By bringing in a third party to conduct the audit the owner and the Prime/CM can be assured that everything is in conformance to the contract.  If not, they can be corrected, hopefully in short order.

 

 

By Don Short | Posted in Construction | Tags: , , , , , , , | Leave a Comment

Happy Holidays

December 19, 2011 – 6:00 am

We extend our best wishes for a happy holiday season and a new year of joy, peace, and prosperity.

 

Our blog will resume January 4th.

By Don Short | Posted in Construction | Leave a Comment

Tempest year in review

December 16, 2011 – 6:00 am

The major types of projects that we saw in 2011 by quantity were split between privately funded and public funded.  By dollar amount the public money far outweighed the private money that was being spent.  Utility projects stayed unchanged for us.  The big gain was seen in the amount of claims that we have seen this year. We have seen more claims this year alone than in the last 3 years combined.  What projects have you been seeing lately?

By Justin Short | Posted in Construction | Tags: , , , , , | Leave a Comment

What Do The Most Successful Projects Have?

December 14, 2011 – 6:00 am

I recently attended a breakfast educational meeting.  It involved a panel discussion on construction. The panel members were an architect, contractor, subcontractor and an attorney.  It focused on project delivery methods and some of the problems associated with the various types.  The one common thread, for all of the problems discussed, was the lack of knowledge by one or more project participants was responsible for creating the problems.

  • If the architects and engineers do not do a reliable job of developing the plans and specifications, there will be problems on the job.
  • If the contractor and subcontractors do not understand what they are bidding on and do not know how to estimate the costs correctly, there will be problems on the job.
  • If the owner does not understand the design and construction process or cannot relay their expectations to the others, there will be problems on the job.

An owner, designer or contractor that does not understand the hierarchy of the plans, section, specifications, etc. will create problems that last for the entire project.  This, along with other basic knowledge, appears to be plague upon the market today.

Oh, By the Way…The most successful projects have a team of owners, designers and contractors that know their responsibilities and relationships between the parties.

By Don Short | Posted in Construction | Tags: , , , , , , , , , , , , , , , | Comments (1)

The Competitive Advantage Nobody Needs

December 12, 2011 – 6:00 am

I recently overheard a contractor bragging to others on how they could have a cost advantage over their competition.  This caught my attention.  So I listened.

It seems in their bidding practices they priced materials/equipment items that were not approved in the specifications.  They would not request these items to be approved in the bidding period.  They did not want to give away their bidding advantage to their competitors. After they were determined to be the low bidder they would press for the materials to be used instead of the specified items.

There are several reasons I believe this practice is totally unacceptable.

  • The first one is they are not bidding on the project scope the owner wants.  Given the owner is knowledgeable, the materials and equipment were selected for a specific reason.  They are subverting the owner’s intent and the designers’ specifications for their own gain.
  • The next is there is customarily a provision in the bid documents that substitution requests must be submitted prior to the bid so the materials can be evaluated.  If determined to be equivalent, then all bidders are notified.  This allows the competition to be on the same basis.  This enables the owner to decide the best pricing or most suitable contractor on the same scope of work basis.

There are more reasons, but the contractor using this bid approach will cost the owner more money for the project in the long run.

Oh, By the Way…  The contractor using this bid approach does not have a competitive advantage over their competitors.  I believe they have a substandard, underhanded approach to bidding the project.  What will happen when they are selected to perform the work on this basis?

By Don Short | Posted in Construction | Tags: , , , , , , , , , , , , , , , , | Comments (1)
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