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Reducing Construction Costs: Uses of Best Dispute Resolution Practices by Project Owners: Proceedings Report (2007)

Chapter: 6 Employing Standing Dispute Resolution Panels with the Bridging Method of Design and Construction Procurement

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Suggested Citation:"6 Employing Standing Dispute Resolution Panels with the Bridging Method of Design and Construction Procurement." National Research Council. 2007. Reducing Construction Costs: Uses of Best Dispute Resolution Practices by Project Owners: Proceedings Report. Washington, DC: The National Academies Press. doi: 10.17226/11846.
×

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.

Suggested Citation:"6 Employing Standing Dispute Resolution Panels with the Bridging Method of Design and Construction Procurement." National Research Council. 2007. Reducing Construction Costs: Uses of Best Dispute Resolution Practices by Project Owners: Proceedings Report. Washington, DC: The National Academies Press. doi: 10.17226/11846.
×

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

Suggested Citation:"6 Employing Standing Dispute Resolution Panels with the Bridging Method of Design and Construction Procurement." National Research Council. 2007. Reducing Construction Costs: Uses of Best Dispute Resolution Practices by Project Owners: Proceedings Report. Washington, DC: The National Academies Press. doi: 10.17226/11846.
×

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.

Suggested Citation:"6 Employing Standing Dispute Resolution Panels with the Bridging Method of Design and Construction Procurement." National Research Council. 2007. Reducing Construction Costs: Uses of Best Dispute Resolution Practices by Project Owners: Proceedings Report. Washington, DC: The National Academies Press. doi: 10.17226/11846.
×

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.

Suggested Citation:"6 Employing Standing Dispute Resolution Panels with the Bridging Method of Design and Construction Procurement." National Research Council. 2007. Reducing Construction Costs: Uses of Best Dispute Resolution Practices by Project Owners: Proceedings Report. Washington, DC: The National Academies Press. doi: 10.17226/11846.
×

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.”

Suggested Citation:"6 Employing Standing Dispute Resolution Panels with the Bridging Method of Design and Construction Procurement." National Research Council. 2007. Reducing Construction Costs: Uses of Best Dispute Resolution Practices by Project Owners: Proceedings Report. Washington, DC: The National Academies Press. doi: 10.17226/11846.
×

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Suggested Citation:"6 Employing Standing Dispute Resolution Panels with the Bridging Method of Design and Construction Procurement." National Research Council. 2007. Reducing Construction Costs: Uses of Best Dispute Resolution Practices by Project Owners: Proceedings Report. Washington, DC: The National Academies Press. doi: 10.17226/11846.
×
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Suggested Citation:"6 Employing Standing Dispute Resolution Panels with the Bridging Method of Design and Construction Procurement." National Research Council. 2007. Reducing Construction Costs: Uses of Best Dispute Resolution Practices by Project Owners: Proceedings Report. Washington, DC: The National Academies Press. doi: 10.17226/11846.
×
Page 26
Suggested Citation:"6 Employing Standing Dispute Resolution Panels with the Bridging Method of Design and Construction Procurement." National Research Council. 2007. Reducing Construction Costs: Uses of Best Dispute Resolution Practices by Project Owners: Proceedings Report. Washington, DC: The National Academies Press. doi: 10.17226/11846.
×
Page 27
Suggested Citation:"6 Employing Standing Dispute Resolution Panels with the Bridging Method of Design and Construction Procurement." National Research Council. 2007. Reducing Construction Costs: Uses of Best Dispute Resolution Practices by Project Owners: Proceedings Report. Washington, DC: The National Academies Press. doi: 10.17226/11846.
×
Page 28
Suggested Citation:"6 Employing Standing Dispute Resolution Panels with the Bridging Method of Design and Construction Procurement." National Research Council. 2007. Reducing Construction Costs: Uses of Best Dispute Resolution Practices by Project Owners: Proceedings Report. Washington, DC: The National Academies Press. doi: 10.17226/11846.
×
Page 29
Suggested Citation:"6 Employing Standing Dispute Resolution Panels with the Bridging Method of Design and Construction Procurement." National Research Council. 2007. Reducing Construction Costs: Uses of Best Dispute Resolution Practices by Project Owners: Proceedings Report. Washington, DC: The National Academies Press. doi: 10.17226/11846.
×
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The National Academy of Construction (NAC) has determined that disputes, and their accompanying inefficiencies and costs, constitute a significant problem for the industry. In 2002, the NAC assessed the industry's progress in attacking this problem and determined that although the tools, techniques, and processes for preventing and efficiently resolving disputes are already in place, they are not being widely used. In 2003, the NAC helped to persuade the Center for Construction Industry Studies (CCIS) at the University of Texas and the Alfred P. Sloan Foundation to finance and conduct empirical research to develop accurate information about the relative transaction costs of various forms of dispute resolution.

In 2004 the NAC teamed with the Federal Facilities Council (FFC) of the National Research Council to sponsor the "Government/Industry Forum on Reducing Construction Costs: Uses of Best Dispute Resolution Practices by Project Owners." The forum was held on September 23, 2004, at the National Academy of Sciences in Washington, D.C. Speakers and panelists at the forum addressed several topics.

Reducing Construction Costs addresses topics such as the root causes of disputes and the impact of disputes on project costs and the economics of the construction industry. A second topic addressed was dispute resolution tools and techniques for preventing, managing, and resolving construction- related disputes. This report documents examples of successful uses of dispute resolution tools and techniques on some high-profile projects, and also provides ways to encourage greater use of dispute resolution tools throughout the industry. This report addresses steps that owners of construction projects (who have the greatest ability to influence how their projects are conducted) should take in order to make their projects more successful.

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