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Reducing Construction Costs: Uses of Best Dispute Resolution Practices by Project Owners: Proceedings Report 6 Employing Standing Dispute Resolution Panels with the Bridging Method of Design and Construction Procurement Summary of a Presentation by George T. Heery Architect and President, Brookwood Program Management Brookwood Program Management is involved in the design and construction of buildings, as opposed to large infrastructure projects. Our largest project has been about $300 million. For all of our projects, whatever the project delivery method, we include a standing dispute resolution panel in our contracts, similar to the Dispute Review Board that has been previously described. My comments focus primarily on methods to protect the interests of the owners of building projects ranging in value from $10 million to $300 million, such as the one shown in Figure 6.1. In construction procurement, before selecting the project delivery method, an architect, or engineers, it is important to clarify the owner’s “posture” or “purchasing instruction.” Most owners fall into one of two categories: (1) those who can prudently rely on relationships with contractors in buying and designing construction and (2) those who cannot or should not rely on these relationships. Companies or owners, such as Walmart, that are repeatedly constructing the same projects can establish relationships with a few contractors and prudently rely on them to control projects, cost, and quality. On the other hand, public sector owners and many major corporations who construct more varied projects are headed for trouble if they rely on relationships. My focus is on procedures specifically for those owners who cannot and should not rely on relationships to produce a quality project. Figure 6.2 illustrates the basic phases of design and construction: schematic design (SD); design development (DD); preparation of the contract documents, consisting of the working drawings and specifications (CD); the bidding or negotiation and awarding of the construction contract; and then the construction. There are four parties involved in this process: the owner, the owner’s architect or design consultant, the construction contractor, and the program manager (which may be an internal or an external program management group). A traditional method for design and construction procurement, where acquisition of the project site, site analysis, the development of program requirements, receipt of planning approvals, and selection of an architect take place before schematic design, has four fundamental flaws. First, this system takes too long and, from the owner’s perspective, costs too much before a fixed price is established. For example, a $50 million classroom building project may take 18-24 months and cost $2 million before a fixed price is established. The owner is at risk during this entire time. The second flaw is to assume that architects and engineers know the most about construction technology and practical, cost-effective, construction methods. Actually, that level of knowledge is in the purview of specialty subcontractors and building product manufacturers. The third flaw is that virtually all construction contracts that are prepared for a lump-sum bid are based on the assumption that the contract documents are free of errors and omissions. Developing error-free contract documents is virtually impossible.
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Reducing Construction Costs: Uses of Best Dispute Resolution Practices by Project Owners: Proceedings Report FIGURE 6.1 Typical projects. FIGURE 6.2 Basic phases of design and construction. The fourth fundamental flaw is that responsibility for the project is divided among the owner, designers, contractors, and program manager. Not having a single point of responsibility can lead to finger-pointing when problems arise. Typically, the owner will find it difficult to resolve issues and has to step in and pay some or all of the costs involved in fixing the problem. An alternative to the traditional method of design and construction procurement is the design/build method. One advantage that the design/build method has over the traditional design-bid-build process is that design/build integrates construction knowledge into the design process. It also provides a single point of responsibility for post-construction problems. Design/build, however, has its disadvantages. A typical design/build contract has an inherent conflict of interest between the owner and
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Reducing Construction Costs: Uses of Best Dispute Resolution Practices by Project Owners: Proceedings Report the architect-engineering (A/E) team. It can be difficult for the owner to obtain “apples-to-apples” prices among the competing bidders for a project. The owner only has three tools to control a project: competition; contract documents, and the purse strings. In my opinion, competition is the most valuable and the least appreciated of those tools. A method called “bridging” can be used to resolve these issues. Bridging was created to improve on design/build and provide benefits to the project owner. In bridging, the owner’s architect or design consultant and the program manager work in the traditional way with the owner to complete the schematic design. After the design is reviewed and approved, the contract documents are prepared for a design-build form of contract, and the owner issues a request for proposals (RFP) which consists of the form of agreement between the owner and the contractor and the typical bid documents. In a typical design/build project, the design is about 45 percent complete at the design development stage, while engineering might be 25 percent complete. In most projects that use bridging, the design is 60 to 70 percent complete, while the engineering is only about 10 percent complete. The advantage of bridging is that it allows the owner to tie down every part of the design that needs to be tied down before the RFP is issued, and leave other items open. For example, the bid documents might include the performance specifications and requirements related to the foundation of the building so that the owner’s representatives can review contractors’ bids and compliance with codes, but not include the actual design plans for the foundation. Or, if there are very specific requirements, such as a gold doorknob with the director’s initials in it, or detailed cabinet work, the owner would include those specific designs in the contract bid documents. Under bridging, the owner will invest about the same number of hours and effort that would typically go into a traditional design development. However, the design is more complete while the engineering is less complete. The owner is then in position to take proposals for design-build even though the majority of the design has been completed. Bridging has a two-step award process (Figure 6.3). The first step for the design/build contractor is to complete the construction documents, i.e., complete drawings and specifications used for both building permitting and construction. According to the bridging contract, the owner is entitled to everything stated in the design development/RFP contract documents and in the construction documents. In case of a conflict, the contract documents prevail. When and if the owner wants to proceed with the project, the authorization for construction is given. This is the second step in the award process. During the construction phase, the program manager and the owner’s design consultant (who is completely separate from the design-build contractor’s A/E) carry out construction in the standard fashion. Bridging provides a number of benefits to the project owner: A more enforceable fixed price contract obtained in about half the time and at about half the front-end cost compared to any other method that truly provides an enforceable price contract; Net overall construction cost savings for an equal product, typically in the 5 to 10 percent range; Significant reduction in exposure to claims and unexpected change orders not requested by the owner; and Clear and single responsibility for correcting post-construction problems and glitches.
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Reducing Construction Costs: Uses of Best Dispute Resolution Practices by Project Owners: Proceedings Report FIGURE 6.3 Bridging method. CASE STUDIES EMPLOYING BRIDGING AND A STANDING DISPUTE RESOLUTION PANEL Three bridging projects recently completed by Brookwood Program Management illustrate how bridging and use of a standing dispute resolution panel can help owners to save time and money and avoid disputes and change orders (see Table 6.1). According to the statistics collected for the Georgia Institute of Technology project, only the pre-design schedule changed during the process. Actual completion and beneficial occupancy was one month ahead of schedule. The total time for final design and construction was 19 months. The actual cost was lower than anticipated, and the resulting $100,000 surplus enabled Georgia Tech to get the extras it wanted and contribute to a bond retirement reserve. There were no contractor-initiated change orders and no claims against the owner. The Morehouse College Student Housing project finished 1 month ahead of schedule and the actual costs came in under budget. Morehouse used the $915,000 surplus to buy additional items for the activity rooms, the study carrels, and other spaces. There was only one contractor-initiated change order due to unusual weather conditions. However, there were no claims against the owner and no additional costs to correct post-construction problems. The Georgia State University project finished one month ahead of schedule after 23 months of design and construction time. There were no contract-initiated change orders or claims against the owner. All three of these projects show how bridging can benefit owners by significantly reducing risk and post-construction problems and enabling greater savings and scheduling efficiency. In all cases, bridging was combined with a standing dispute resolution panel requirement. However, the dispute resolution panel can be used effectively regardless of the chosen delivery method. RESOURCES Brookwood Program Management Publications. Available online at www.brookwoodpm.com. Terry, J., and K. Hebblethwaite. The Bridging Method. Available online at www.ediltd.com/html/the_bridging_method.html.
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Reducing Construction Costs: Uses of Best Dispute Resolution Practices by Project Owners: Proceedings Report TABLE 6.1 Georgia Institute of Technology Morehouse College Student Housing Georgia State University High-Rise Graduate Student Housing Pre-design schedule for completion (full beneficial occupancy September 2003 September 2003 August 2002 Actual completion for full beneficial occupancy August 2003 August 2003 July 2002 Total time of final design and construction 19 months 19 months 23 months Pre-design total project budget (hard/soft costs with site work) $21,155,860 $20,735,000 $32,013,936 Actual total funds utilized (hard/soft costs with site work) $19,643,685 $17,287,860 $29,604,365 Total project cost per “bed” — $36,362a $64,919b Total project cost per square foot of gross floor area (including site work) $148 $90.50 $120 “Dividend” funds within budget made available to user $100,000 $915,000 $608,070 Owner/user initiated change orders as percent of total project budget 0.04 2.7 3.3 Total number of contractor initiated change orders 0 1 0 Total cost of contractor initiated change orders $0 $63,740 $0 Total number of claims against owner/user 0 0 0 Cost to owner of post construction problems $0 $0 $0 a400 square foot per “bed.” b532 square foot per “bed.”
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