Design and Construction The Political Environment

Design and Construction The Political Environment

THE NEED FOR CHANGE IN THE DESIGN AND CONSTRUCTION INDUSTRY

Design and Construction The Political Environment

THE NEED FOR CHANGE IN THE DESIGN AND CONSTRUCTION INDUSTRY

Walker Lee [email protected] (CELL)

PENN STATE PACE CONFERENCE

mailto:[email protected]

The Political Environment

Design and Construction is Important Because …

• Economic Engine that Drives the U.S. Economy

• 7.6 Million Jobs

• Over 5% of the Non-Farm Workforce

• $21.27 Per Hour Construction Average Wage

• 21% Higher than Average Non-Supervisory Job

• $1.16 Trillion Economic Activity, October 2007

• $500 Billion in 2006 for Materials and Supplies

• 11% of Total U.S. Manufacturing Shipments

• $36 Billion in Construction Machinery Purchases

• 11% of Total U.S. Machinery Shipments

• 788,000 Construction Companies

Source: Ken Simonson, Chief Economist, Associated General Contractors, 2007


Design and Construction is Important Because …

• Economic Engine that Drives the U.S. Economy

• 7.6 Million Jobs

• Over 5% of the Non-Farm Workforce

• $21.27 Per Hour Construction Average Wage

• 21% Higher than Average Non-Supervisory Job

• $1.16 Trillion Economic Activity, October 2007

• $500 Billion in 2006 for Materials and Supplies

• 11% of Total U.S. Manufacturing Shipments

• $36 Billion in Construction Machinery Purchases

• 11% of Total U.S. Machinery Shipments

• 788,000 Construction Companies

Source: Ken Simonson, Chief Economist, Associated General Contractors, 2007

RECENT HEADLINE…..

Construction Unemployment Rate Hits 27.

1 Percent

The construction unemployment rate jumped to 27.1

percent and construction employment dropped to a 14-

year low as another 64,000 construction workers lost

jobs in February, according to federal employment

figures released Friday.


This is the Public Perception… but the reality is more complex and less pleasant


What Complaints do I Hear?

• From Contractors:

• We only get evaluated on how low our price is

• No consideration of performance or quality in source selection

• We are trapped in a system that rewards “gaming”

• Bid shopping by general contractors kills subcontractors

• Owners don’t care who the subcontractors are

• Takes too long…can’t hold employees in limbo

• Owners act like they are playing a game



• From Owners:

• Contractors lowball bids then seek change orders

• We must constantly inspect to achieve quality

• Everything is an argument

• Bait and switch on key employees

• “Funny Math”… everything costs more

• Cannot predict final cost or schedule

• Architects and Contractors…constant turf battles

• Contractors act like they are playing a game



• From Politicians:

• Constant fights…We can’t trust “the system”

• We can’t predict price or schedule or budget

• We are trapped in a system that rewards “gaming”

• If we trust contractors or architects we will get burned

• We don’t have to micro-manage other acquisitions

• Constant change of owner leadership

• Everyone else acts like they are playing a game

• They wait until too late to tell us problems…no flex


Plans Specs+ = Contract

EMPHASIS ON COMPLIANCE –it’s a product

Low Bid+

Design-Bid-Build … Two contracts are used to accomplish design and construction

CONTRACT WITH ARCHITECT

Cost competition prohibited

By law

CONTRACT WITH CONSTRUCTOR

Contract

THE OLD WAY

THIS IS WHERE THE COST

COMPETITION TAKES PLACE


+ = Contract

Plans

Specs

EMPHASIS ON BEHAVIOR! --it’s a service

InnovativeIdeas

Creative Approach

Great Past

Performance+

Design-Build… a single contract is used to accomplish design and construction

Within the Owner’s Established Budget

CONTRACT WITH DESIGN-BUILD TEAM

THE NEW WAY

THIS IS WHERE THE ENTIRE COMPETITION TAKES PLACE


Two Ways to Accomplish Cost Competition

$

CONTENT

CONTENT

CONTENT

CONTENT

CONTENT

CONTENT

CONTENT

CONTENT

KEEP DOLLARS CONSTANT VARY CONTENT

CONTENT

$

$

$

$

$

$

$

$

KEEP CONTENT CONSTANT VARY DOLLARS

OR

TRADITIONAL COMPETITIONDESIGN-BUILD COMPETITION


Two Ways to Accomplish Cost Competition

$

CONTENT

CONTENT

CONTENT

CONTENT

CONTENT

CONTENT

CONTENT

CONTENT

KEEP DOLLARS CONSTANT VARY CONTENT

CONTENT

$

$

$

$

$

$

$

$

KEEP CONTENT CONSTANT VARY DOLLARS

OR

TRADITIONAL COMPETITIONDESIGN-BUILD COMPETITION

BOTH

METHODS OF

COST

COMPETITIO

N

ARE EQUALLY

VALID


The Challenge to Industry

• General characteristics of the U. S. design and construction marketplace

• Falling productivity

• Small company size and fragmentation

• Reduced wage competitiveness

• Increased international competition


Productivity is Falling … When Compared to Other Industries


Historical Wage Advantage ofConstruction is Disappearing


Companies are Small in Size …

and that isn’t changing over time

The impact is an inability to fund research and development …


New Technology is not being AdoptedAs quickly as in other Industries


Highly Skilled Employees are notBeing Attracted to our Industry


Current Practice in the Design and Construction Industry

“ The companies that do the best financially are often not those that build the best, but those that are the best at bidding strategically to win the job for the right to subsequently induce owners to pay more than the amount specified in the base contract.” 1

1. Barry B. Lepatner, 1. Barry B. Lepatner, Broken Buildings, Busted Budgets, Broken Buildings, Busted Budgets, University of Chicago Press, 2007

Essentially, contractors are incentivized to bid low to win the job, which will subsequently give them the exclusive right to bid high later. Unsurprisingly, many of them are very good at it. Competitive bidding is therefore no panacea because it fails to determine the final cost or quality of the job.” 1


Where did we go wrong?

The U.S. construction industry should have invested in research … but they couldn’t

and now we must pay the price.

We devised a system based strictly upon cost competition … as a result, companies which spent monies on research could no

longer successfully compete.


• In the 1980’s … about 0.4% of sales on R&D

• Far less than Japanese construction companies

• Far less than other U.S. industries

• appliances (1.4%),

• automobiles (1.7%),• textiles (0.8%).” 1

Research and Development Numbers

1. Barry B. Lepatner, Barry B. Lepatner, Broken Buildings, Busted Budgets,Broken Buildings, Busted Budgets, University of Chicago Press, 2007


Why do we have these problems?

• The world has moved on … we haven’t

• Design-bid-build - emphasis on initial cost only

• Process uses multiple contracts with unclear accountability

• Contracts based on conflict - punishment model

• Industry is fragmented across design/engineering/construction

• Dominated by small companies - lack of resources

• Lack of leadership in setting consistent industry goals

• Result: American technological leadership has been lost


Why do we have these problems?

• The world has moved on … we haven’t

• Design-bid-build - emphasis on initial cost only

• Process uses multiple contracts with unclear accountability

• Contracts based on conflict - punishment model

• Industry is fragmented across design/engineering/construction

• Dominated by small companies - lack of resources

• Lack of leadership in setting consistent industry goals

• Result: American technological leadership has been lost

Why do we have pro

blems?

BECAUSE OF THE

WAY WE D

O

BUSINESS


– INTEGRATED DESIGN AND CONSTRUCTION

– BUILDING INFORMATION MODELING– SUSTAINABILITY AND ENERGY

EFFICIENCY … LEED CERTIFICATION– COLLABORATIVE PLANNING AND

DESIGN – LEAN CONSTRUCTION AND VALUE

MANAGEMENT– EARLY AND EFFECTIVE

COMMISSIONING – PUBLIC-PRIVATE PARTNERSHIPS– BETTER BUDGET CONTROL – LATEST MATERIALS AND TECHNOLOGY– REDUCED WASTE STREAM– OPERATIONS AND MAINTENANCE

IMPROVEMENTS– FASTER, EASIER AND LOWER COST

MAINTENACE AND REPAIRS– QUALITY DESIGNED IN - NOT

INSPECTED IN– IMPROVED CONSTRUCTABILITY

Welcome to the Perfect Storm


OWNER OBJECTIVES CIRCA 2008– BUILDING INFORMATION MODELING– EARLY AND THOROUGH COMMISSIONING – SUSTAINABILITY AND ENERGY EFFICIENCY– PUBLIC-PRIIVATE PARTNERSHIPS– LEAN CONSTRUCTION– BETTER BUDGET CONTROL – COLLABORATIVE PLANNING AND DESIGN– INTEGRATED TEAMS– LATEST MATERIALS AND TECHNOLOGY– REDUCED WASTE STREAM– OPERATIONS AND MAINTENANCE IMPROVEMENTS– FASTER, EASIER AND LOWER COST MAINTENACE AND

REPAIRS– QUALITY DESIGNED IN - NOT INSPECTED IN– IMPROVED CONSTRUCTABILITY

Welcome to the Perfect Storm

ONLY DESIGN-

BUILD WILL M

EET

ALL OF THESE

OBJECTIVES

DBIA “We Teach How”

The Political EnvironmentThe Political Environment


b




• DESIGN-BUILD PERFORMANCE(COMPARISON OF DESIGN-BUILD VERSUS CM AT RISK, DESIGN-BID-BUILD)

– COST…………………………………………..6 % LOWER

– CONSTRUCTION TIME……………………..12 % FASTER

– PROJECT TIME………………………………33 % FASTER

– QUALITY……………………………………….HIGHER IN ALL 8 MEASURED CATEGORIES

SOURCE: CONSTRUCTION INDUSTRY INSTITUTE / PENN STATE

Design-Build Performance


Research Study

• 351 Projects• 5K to 2.5M S.F.• Various types/Industry sectors• Compared performance between

D-B-B, CM at Risk, and D-B• Evaluated Cost, Schedule, Quality

CONSTRUCTION INDUSTRY INSTITUTE - PENN STATE


• REDUCES COST

• REDUCES SCHEDULE

• INCREASES QUALITY

• MORE SATISFIED OWNER

• FEWER CLAIMS & LITIGATION

• BEST VALUE TO THE OWNER

Benefits of Design-BuildDESIGN-BUILD = HIGH PERFORMANCE DESIGN AND CONSTRUCTION

The Political EnvironmentImproved Contracting Methods …the Pentagon Renovation Model

• Hire better contractors

• Give them incentives to achieve your goals

• Set clear goals

• Operate as a team

• Measure progress against goals

• Reward Achievement


• The question is: In What Form?

Design-Build is Coming

• Haphazard?• Driven by accident and circumstance?• Inconsistent from state to state?• Without the best interests of the industry and its customers at heart?

• Consistent across the country?• Well thought out and logical?• Designed to ensure best outcome for all parties?• Led by industry leaders to ensure fairness?

OR

• YOU MUST DECIDE!


Pre-Solicitation Characteristics

• Acquisition Strategy Panels…focus and consolidate planning…joint program and acquisition action

• Streamlined Documentation… communicate quickly and accurately

• New rules…empower participation and rapid decision making• Operate organization as a matrix from the outset


Solicitation Characteristics• Seek to learn best practices from others

• Use “Preamble” document to clearly communicate your approach

• Build to Budget *

• Use two-phase source selection process

• Use pure performance specifications

• Meet with industry and communicate and learn from them

• Not more than four evaluation factors

•Build an inclusive team including customers, users, operators, maintainers (and eventually, competitors)

•Impose strict page limits on solicitation and proposals• Impose strict page limits on solicitation and proposals•Publish drafts for industry comment


Source Selection Process

• Use inclusive team for evaluation process• Evaluate competing teams…not just the prime• Phase one is a down-select, not a pre-qualification• Proposals never more than 50 pages long• Cost proposals must be to budgeted amount• Technical evaluators must read

cost proposals• Cost team must read technical proposals• Require oral proposals in addition

to written • Evaluate oral and written proposals

50/50• Oral proposals test real life problem solving ability


• Use award fees and incentives to reward performance

• Award fee evaluations based on objective data

• Award fee decisions are made SUBJECTIVELY

• Incentivize cost control

• Aggressive IV&V or Commissioning

• Use Earned Value Analysis to fit your circumstance

• Monthly Program Reviews for entire team

• Government must commit to performance and report

• Aggressive use of metrics

Contract Characteristics


We Need Help from Congress

1. Require construction projects to be budgeted and funded for both design and construction as a single block of money

2. Require design and construction to be competed and awarded based on performance specifications

3. Promote “Build to Budget” by expressing a preference for its use

4. Promote use of requirements that will increase technology

5. Promote the use of contract incentives


This is the Public Perception… but the reality is more complex and less pleasant

STOP ME

STOP ME

BEFORE I SPEND AGAIN!

BEFORE I SPEND AGAIN!


QUESTIONS?

QUESTIONS ……

Documents

Design and Construction The Political Environment