Project delivery methods


1.    Definitions

GC: General Contractor
DBB: Design – Bid –  Build
CM-A: Construction Manager – Advisor
CMR: Construction Manager – at risk.  Also know as CMAR, CM@R, Cmc,
CM/GC, and GC/CM
GMP: Guaranteed maximum price

2.    Project Delivery Methods

There are no industry wide accepted definitions of project delivery methods and each method may have several hybrid variations to suit specific projects.
A.    DBB:  This method involves three roles in the project delivery process – owner, architect, and GC, in two separate contracts. “Traditional” is frequently used to describe DBB.  Competitively bid, lump sum construction contracts are based on complete and prescriptive contract documents prepared by the Architect.  These documents include drawings, specifications, and supporting information which establish the quality level of the project. The design, bid, build phases are in linear sequence.  Accelerated delivery can be achieved, as in CM, but is a variant of the traditional DBB.  With competitive bidding, the marketplace ensures economic discipline and yields the lowest cost.

i.    Well established and documented roles.
ii.    Contract documents completed in a single package before construction begins.
iii.    Design and construction decisions made in advance of start of construction.
iv.    Construction planning and pricing based on completed documents.
v.    Complete specifications define clear quality standards.
vi.    Details of finished product agreed to by all parties before construction begins.
vii.    GC driven by competitive bidding to find the lowest qualified trade contractors.
viii.    Total cost not known until design and bidding are complete.
ix.    Lower construction cost than CMR.
x.    Lowest risk to Owner.

B.    CM-A: actually a true management method as well as a project delivery method.  Many variants depending upon the size and complexity of the project.  CM acts as advisor to Owner throughout construction and never shifts his role to vendor.

i.    Given authority of the Owner.
ii.    Allows Owner to step back from the project.
iii.    CMA Assumes financial authority.
iv.    Can be lowest construction cost or highest construction cost depending on the project and CMA arrangement.
v.    Easily accommodates accelerated delivery.
vi.    Wide variation of roles.

C.    CMR: This method involves a construction manager who takes on the risk of building the project. This method involves three roles in the project delivery process – owner, architect, and CMR in two separate contracts. The CMR oversees project management and issues like a GC.  In the design phase, the CMR provides input on construction related design issues and prepares cost estimate at 50% and 90% design completion.  If estimates are over budget, CMR recommends cost saving measures which is duplication of the Architect’s contractual function but can be valuable on large or complex projects.  The CMR provides a GMP at which point the CMR changes roles from the Owner’s agent to a vendor and becomes the GC and must protect its own interest above the Owner’s interest.  The GMP is the sum of the CMR’s cost estimate, CMR’s contingency, and CMR’s overhead and profit.  GMP is typically set 30 days after the Owner designates the “GMP document set” but this time frame is flexible.

i.    GMP is established before documents are final so contingency is highest.
ii.    CMR easily accommodates accelerated delivery.  The can be beneficial on complex projects but of little use for most since the time savings happens with initial construction tasks and does not compress the critical path of the schedule once general construction begins.
iii.    Cost overruns can still be passed on to the Owner.
iv.    CMR typically hired during the design phase.
v.    Design, bid, build phases can be overlapped, if needed, on large or complex projects.
vi.    Pre-construction services may add value on large or complex projects.
vii.    Negotiated CMR fee reduces incentive to thoroughly bid trade contracts and tends to increase total cost.
viii.    Since CMR may not have its own in-house forces and their associated expertise, value engineering is often delegated to third party vendors.
ix.    Total project cost, GMP, is a mix of trade contract bids, allowances, and estimates.  The project, as a whole, is not competitively bid.
x.    CMR selections based on factors other than total cost.

Higher cost than DBB.  Can be lower or higher than CM-A.
More risk to Owner than DBB.
Most appropriate for large or complex projects.

3.    Who used the various delivery methods?

In Texas K-12 construction, 66% DBB, 30% CMR, 3% CMA, 1% other.

4.    Which is the least expensive delivery method?

All methods are not best suited for any one specific project.  Each proponent of each delivery method claims his is the least expensive.  It is easy to say things that can’t be proven and hard data is elusive since projects are let with one method or another and not priced comparing different delivery methods.  There is some guidance:  the Construction Financial Management Association (CFMA), and others, publish that they “can find no systematic differences between CMR and DBB.”  In specific elementary school projects, we can look to Florida where the same prototype plans are built over and over by both CMR and DBB methods.  CMAA, an organization promoting CM, reports that  eight times out of ten, DBB was less expensive than the CMR for Florida public schools.

There are many GCs pushing their CM services but virtually no CMs pushing their GC services.  To the builder, there is more profit and less risk in CM.  The additional profit comes from the Owner and the CM’s reduced risk is passed to the Owner.

5.    Which method provides highest quality?

CM-A is most likely to maintain quality since the CM-A typically has no financial gain in cost reductions or quality compromises.

In both DBB and CMR, quality is set by the specifications, not by the delivery method.  In DBB, the GC has financial incentive to reduce quality and pocket the savings.  With CMR, once the GMP is established, the CMR also has the same  financial incentive to reduce quality.  The GC has no opportunity to reduce quality.  The CMR does have the opportunity to reduce quality by making recommendations in his best interest.  In both methods, the builder’s field personnel may be less than enthusiastic to maintain quality in situations that increase their cost.

CMR has a unique situation caused by the CMR providing a GMP before construction documents are complete.  If estimated packages come in above the amount allowed for them, the CMR is pressured to reduce quality or scope so they fit within the GMP.  The CMR protects itself by including larger contingencies.

6.    Risks to the Owner

Owners are motivated by quality, cost, schedule, and exposure to risk.  DBB risks to the Owner are well defined and financial risk is ultimately passed to the bonding company on bonded projects.  Contractual procedures are in place to insure that the GC is not paid in excess of actual work in place and retainage is typically held by the Owner until the project is complete and accepted. The GC is driven by the competitive marketplace to identify the lowest cost qualified trade contractors.  The GC must control mark-ups and contingency or they will not be successful.  Any creative accounting on the part of the GC does not affect the cost to the Owner.

The CMR can pass mark-ups and excess contingencies on to Owner since their role is not competitively bid.  CMR may bond or may have his subs bond.  Requiring subs to provide their own bond can significantly reduce the pool of prospective bidders.  Since the CMR is not competitively bidding the project as a whole, they may not be driven to thoroughly bid trades.  The fee quoted by a CMR is sometimes only part of his final gross margin and fees are difficult to compare between various CMRs because of creative accounting.  One CMR may include all his O&P in his fee while another may put his superintendent, field office, bonding expense, insurance, and many other expenses in the construction budget to make his fee seem smaller.  Since there is no comparison of total project cost, as in DBB, the CMR may pass mark-ups on labor, inflated trade contracts, excessive rental charges, and other items to the Owner.