11 minute read
ALTERNATE DELIVERY CONTRACTING
Construction projects for buildings and structures are increasingly moving away from traditional procurement towards alternate delivery channels. Major buyers of construction services—such as the United States Army Corps of Engineers Alaska District, the Anchorage School District, Southcentral Foundation, Cook Inlet Housing Authority, and several private owners—are all utilizing alternate delivery to varying degrees. When executed correctly, alternative delivery contracts have the potential to produce high quality facilities while reducing project risk and maximizing project benefits.
Risky Business
The traditional contracting method for construction is the design/bid/build model. Under this system the project owner first hires the design team, who complete the design. The fully designed project is put out for bid. The general contractor is chosen based on the lowest price. Finally, the project is constructed. This is a tried and tested model, but it has weaknesses.
Clients, designers, and contractors all go into a project hoping for a great outcome. The client is excited to have a new or remodeled facility. The contractor and designers would like to make money and develop good relationships with the prospect of future projects together and with the client. Unfortunately, the traditional system often sets up an “us versus them” environment, with each player feeling under siege. The client paid for a design, agreed to a construction contract, and now they can’t understand why they are being asked for more time and money. The contractor agreed to a price based on the bid documents and feels the owner and designers are making new and expanded demands. The designers feel their designs are under attack, with the contractor wanting to make too many changes or offering lesser quality substitutions. The result is too often misunderstanding, hostility, and legal claims.
On fixed price contracts, almost all issues resulting in extra cost or time fall into three categories: scope creep, change in conditions, and force majeure. www.akbizmag.com Alaska Business March 2022 | 59
In 2019, Watterson Construction Co. completed construction of a building designed to be a pre-engineered metal building; changing to a traditional steel structure reduced the cost by $400,000.
Watterson Construction
Of these three risk groups, force majeure is the hardest to control. A force majeure event is something that is outside the control of the owner, designers, or contractor. Examples of force majeure events are earthquakes, floods, fires, wars, and pandemics. Over the last two years the effect a pandemic can have on supply chains has been a frequent topic in the news. The Alaska construction industry has seen impacts ranging from the inability to procure appliances and shortages of basic construction materials to strained labor pools. Another example of how a force majeure event could affect a project is a labor strike. If the steel fabricator supplying the structure for the building is shut down by a strike, it could have a devastating effect on the project schedule and budget.
Change in conditions occurs when something is uncovered during construction that was unexpected. Most changes in condition are discovered during two phases of construction, sitework and demolition. Examples of unexpected conditions that might be discovered during site work include pockets of unsuitable soils that were missed during the geotechnical investigation, abandoned buried structures or utilities, or buried trash. Examples of unexpected conditions that might be discovered during demolition include previous structural modifications not shown on the record documents or hazardous materials such as asbestos or lead.
Finally, scope creep: in the simplest terms scope creep, or expansion of scope, occurs when work is added to the contract. With some scope creep, all parties agree that it is extra work. For example, if the client secured more funding and moved up a future addition to the current project, that is clearly new work. Scope creep
gets contentious when there is a difference of opinion as to whether the work is included in the original price. These disagreements can get ugly, as each party is entitled to their own interpretation of the documents.
Three Alternatives
Alternate delivery methods are an effort to control for risk and improve project outcomes. By working together, the project team identifies and plans for project risk. There are three main types of alternate delivery procurement: best value, construction manager/general contractor (CM/GC), and design/build.
Best value procurement is an acknowledgement of the adage “you get what you pay for”—when least cost is the only factor considered, other aspects often suffer. Best value considers factors beyond the bottom line, such as experience, capabilities, past performance, safety record, proposed schedule, and proposed project team. By recognizing the importance of nonmonetary factors, best value contracts improve the likelihood of a positive project outcome.
Like design/bid/build, under the CM/GC model the owner or client typically first hires the design team. Unlike design/bid/build, the general contractor is then hired prior to completion of the design documents. The contractor is often hired when the documents reach the 35 percent or 50 percent milestone. The contractor is initially hired only to provide preconstruction services. The guaranteed maximum price (GMP) for construction services is negotiated later. CM/GC contracts usually include a clause that allows the owner to hire a new contractor for construction if the owner and contractor are unable to come to a mutually agreeable GMP for the physical construction of the project.
In a design/build contract, the contractor and designers are hired as a team. Design/build contracts can have the GMP set with the initial contract, or it can be set at a later design stage.
Both CM/GC and design/build enjoy the same benefits as best value, but they go further. Both CM/GC and design/build bring the contractor onto the project team during the www.akbizmag.com
401 E. Van Horn Road FAIRBANKS, ALASKA www.crpipeandsteel.com
LARGE INVENTORY
Low Temp Pipe Large OD Pipe Low Temp Plate Slotted Pipe Pipe Piling H Piling Beams Rebar
Following the construction manager/general contractor model, a contractor is hired on before a project’s design is finalized, allowing the general contractor to spot issues or advise the project owner on potential efficiencies or cost savings.
Watterson Construction
design phase. This has the benefit of providing expertise about current labor and material market conditions, constructability, logistics, scheduling, and budget. For example, on a CM/ GC project Watterson Construction Co. completed in 2019, the building was designed as a pre-engineered metal building. At the time there was an unusually high demand for preengineered buildings, so Watterson advised the client and design team about the market conditions. Acting on the market condition information, the team worked together to change the structure to a traditional custom structural steel structure. As a result, the building was completed months sooner and the cost was reduced by $400,000.
Keys to Success
Alternate delivery projects are not immune from problems. Most problems can be avoided by following a few keys to success. Pick the Right Contract Type for the Project
The first thing that must be done to set a project up for success is for the client to select the right contract type. Not every project is a candidate for alternate delivery. There are projects that would be a good fit for best value but a disaster as a design/ build. What are the restrictions outside the control of the project staff? These can include limitations placed on the project by funding sources, the clients’ corporate policies, and politics. If the grant or bank funding the project requires traditional design/bid/build contracting, the decision is easy. If the president of the organization dislikes design/build, selecting that as a contract type would set the project on an uphill path.
Next, the client must look at their own organization. How much interaction do they want with the designers and contractor? How well defined is the project scope? Who will be the end user? And how interested is the user group in being involved? Projects with poorly defined scopes benefit from more interactive contracting processes. Owners who don’t want to be intimately involved in the design process may benefit from selecting a design/build contract. Owners also
need to decide if they want to be the connection between the designers and contractor or if they want to have a single point of contact. Clients who want to simplify their interactions with the project team may prefer design/build over CM/GC. In CM/GC the client is the arbiter between the contractor and designers; in design/ build the contractor and designers are a combined entity. Select the Right Team
The Alaska design and construction community is full of excellent firms and professionals, but there are also owners who are known to be hard to work for, slow to pay, or litigious. There are contractors who are known for bidding low and then making their profit by generating large numbers of change orders (a change to the contract, usually for additional money), or they may be perpetually late finishing projects. And there are designers who have a reputation for not listening to their clients or the contractors. Projects benefit from knowing which firms have proven records for working collaboratively, fairly, safely, and finishing on time. Communicate
Set clear expectations for the project. A well-crafted request for proposal, or RFP, is a key to a successful project. A poorly written or rushed RFP will cause problems from the minute it is released. The RFP needs to clearly set out the project requirements, expectations for all the project participants, and proposal requirements. Finally, provide comprehensive definitions for each pricing item. Defining pricing items makes comparing bids easier and prevents surprises when the client thinks a cost is included under a set fee item, but the contractor included it under a cost plus a fee item.
All parties must be sure they understand the expectations. If there are questions, they need to be asked and addressed. It is not only important for the designers and contractor to understand what the owner is expecting; the end user must understand what has and has not been contracted for. It is a common occurrence for the user group or maintenance crew to be unhappy with a design if they are not included in the procurement and design process. www.akbizmag.com General | Commercial | Design Build | Construction Management
6591 A Street, Suite 300 | Anchorage, Alaska 99518 907.562.2336 | davisconstructors.com
The exterior (top) and interior (bottom) of a project for which Watterson Construction Co. was the general contractor under the construction manager/general contractor model. Acting on market condition information, Watterson was able to reduce the cost of the project.
Watterson Construction
Communication is not only about sharing expertise but listening to the input of others. By valuing the experience of the whole team, better projects are built. Participate
Have the right people involved in project development. On the client’s side, the end users and maintenance individuals should be involved. From the contractor it is important to have not only the estimation team but also people who have field experience and the people who will manage the project during construction. These people have valuable insights into constructability, the labor market, and logistics.
Finally, the decision makers must be involved. Having a team working together is great, but if no one is empowered to make decisions, nothing can move forward. Stick to the Schedule
Lastly, create a reasonable schedule and stick to it. The schedule should consider the client’s need by dates, the capabilities of the design and construction firms, and material lead times. Once a schedule is set, stick to it. Make decisions on time, finalize designs on time, agree to a GMP on time, and then finish the project on time.
Utilizing alternate delivery contracting can yield excellent results when expectations are clear, the team gels as a cohesive unit, each member’s expertise is respected, and everyone participates. The results can be highquality, in budget, on schedule, and produce stronger professional relationships.
Ryan Watterson is the Preconstruction and Development Manager for Watterson Construction. Watterson has twentythree years in the construction industry, including experience as a laborer, intern architect, contractor’s quality control manager, and estimator. He can be contacted at rwatterson@wccak.com.
