Mary E. Lee likes quick thinkers. And she needs one to keep the trust of voters who last year approved a $1.2-billion bond measure to expand facilities for the 120,000-student Los Angeles Community College District, one of the nation's largest. Lee, the district's executive director of planning and development, is among a growing array of public and private owners whose larger construction missions and tighter schedules are pushing them toward outside "program managers" to deliver the goods.
|(Photo coutesy of Gilbane)|
"The most important person whom I was looking for was the program director," says Lee, in interviewing E&C firm candidates crowding into the program management marketplace. "I wanted a person who could think fast and keep a lot of things together." Precluded by a 2000 California ballot initiative from spending bond funds for in-house capital program management, Lee, like other state school officials, had to seek outside expertise.
But other U.S. owners, particularly in fast-moving education, transportation and commercial markets, are choosing program management. The PM boom has accelerated project delivery, in many cases, and boosted practitioner revenue as well. Still, clients and even PM firms themselves admit that the approach's benefits may often be underachieved and oversold, with some potential players in both groups shying away. "As the [PM] industry has matured, it has become more focused on elaborate responses to RFPs, and figuring out how to maximize man-hours," says George Heery, an early practitioner as a founder of Atlanta-based Heery International. He now runs a consulting firm, Brookwood Group, also based there. "Today, owners are reassessing how the service is being provided and how to get a better result," he says.
|(Photo coutesy of Gilbane)|
Program management has been around for more than three decades, experts say, born out of a burgeoning public works market that needed better delivery of larger and more complex projects. The trend continued to grow as owners' construction staffs downsized and new demands surfaced, such as environmental and disadvantaged business rules. "These soft issues now have as much to do with getting the project done as anything else," says Robert Prieto, chairman of Parsons Brinckerhoff Inc., New York City, a major purveyor of PM services in the U.S. and, increasingly, overseas. "PM lends itself to situations where you have multiple constituencies, whether internal or external. You need someone who wakes up every morning and tries to balance all those things."
In fact, Los Angeles' Lee is intent that her newly hired PM, led by locally based DMJMH+N, balance construction and operations at the college district's nine campuses over the the next three years. The team signed a six-month, $1.8-million contract last August, with remaining work still in negotiation. Besides looking for an excellent supervisor, Lee sought team "depth," especially in cost analysis, architecture and environmentally sustainable design.
"Anytime you want to get new blood and new ideas in your system, that's a good way of doing it," says Raymond W. Holdsworth, president of AECOM Technology Corp., Los Angeles-based DMJMH+N's parent. "The advantage for a sophisticated client is that you have a full array of services to draw from–from consulting and planning on the front end to construction management operations on the back end." The L.A. contract drew about a dozen PM contenders. "We're seeing more and more people compete," says Holdsworth. He estimates that PM now makes up "significantly more than 10%" of AECOM's nearly $1.8 billion annual revenue.
Gilbane Building Co., Providence, has parlayed nearly 60 years of construction management work into a growing PM niche. More owners were asking it to broaden project responsibilities to include such services as financial feasibility, zoning, licensing and even moving, says William J. Gilbane, executive vice president. "About five years ago that led us into program management, which owners wanted because it gave them greater flexibility and more experienced, sophisticated talent," he says. PM made up 25% of the firm's $2.3 billion in 2001 revenue.
Gilbane's PM deals are assignment specific. In what was the state's first PM contract, the University of Rhode Island hired the firm in 1999 to help determine the budget and select a design team for a high-profile, $72-million convocation center and ice rink. Gilbane also helped garner 30% of private funding needed and developed the facility operator RFP. "Under the PM umbrella, we provided cm administration for the work but did not guarantee the price," says Gilbane.
For Paul M. DePace, director of the university's office of capital projects, using a PM was a necessity. "We knew a project this size would have caused us to staff up, then down," he says. Gilbane is also providing the university with an electronic turnover package that includes a complete set of layered CAD documents, all warranties and digitized pictures of key components. "It's the most economical way for owners to document their building for long-term operations and maintenance programs," says Gilbane. "PM is good because we can use all our knowledge to control the results. We have no excuse."
|GROWTH K-12 school work (below) and college expansions are hot PM markets. (Photo courtesy of AECOM/John Livzey)|
The school PM market has been an especially lucrative one for Heery. The firm has completed $30 billion of such work in the K-12 market since the late 1960s, with the niche now making up about 40% of its total PM revenue, claims Tony Gaydon, senior vice president. "We look at program management as a management strategy, not a construction technique," he says. "Funding is always an issue in schools, but when the big need arises, they may not have the proper staff that can manage planning and design." He adds that having PM "professionals" on board can raise the confidence level of a skeptical community used to cost overruns and delays.
But the school funding boom may be prompting too much impulse buying of PM and other services. "The school explosion is causing lots of unsophisticated owners, with lots of money, to spend," says Mani Subramanian, corporate director of project operations for Vanir Construction Management, Sacramento. "We try to get them to understand what they need." Holdsworth adds that some program management consultants try to "milk" unsuspecting clients. To prevent continual creep of the scope of work, "You have to have a fairly well-informed owner who knows what he wants out of the program," he says.
Staffing issues sometimes force exhausted clients to program management, even when they feel skeptical because of past problems. The sprawling 110,000-student Maricopa Community College District in Arizona had some costly contract glitches in the 1980s using PM. But Facilities Planning Manager Arlen M. Solochek believes it is still a better alternative to the "four-ring circus" that can result when construction parties blame each other for cost and schedule overruns and leave the owner to "referee," he says. District officials plan to give PM another try if voters approve a $500-million to $1-billion bond issue in 2004. In-house management of a previous construction program has been tough for the district's tiny staff. For the 2004 measure, Solochek envisions hiring several program managers, with some of the fee contingent on district satisfaction with project close-outs.
John Pennington, administrative director of construction compliance for Miami-Dade County public schools, may also consider PM because of a "bubble" of new work expected soon, although he has also had past problems. A manager hired in the early 1990s "was gone well before the program was over," he says. "We felt they weren't being responsive." Pennington says decisions by higher entities to use PM can often be "political issues, not technical ones."
Transportation owners are experimenting with PM to expedite huge road and rail projects. South Carolina pushed the envelope two years ago by awarding PM contracts to Fluor Corp. and Parsons Brinckerhoff to manage a state highway construction program vastly enlarged by new funds from the 1998 federal TEA-21 program. After a year of making "adjustments" in their relationship, the state and its PMs are seeing results, says Bob Probst, deputy director of finance, planning and administration for the state Dept. of Transportation. The state's expectations are now being "met or exceeded," he says.
Probst acknowledges added overhead in the arrangement, but he claims new efficiencies recoup the cost. "Some may view this as high risk, but to us it was the only way to move forward," he says. "We went from $300 million in projects a year to $1 billion, and we didn't have the resources to attract seasoned professionals into the state to work." While program managers are responsible for a project from beginning to end, Probst emphasizes that state officials "make the ultimate decisions."
Louisiana took a cue from its neighbor in awarding a PM contract last month, also to a PB-led team, to fast track $2 billion in new work, including $500 million of new bridges, that otherwise would not have been finished until 2031. With a PM approach, the state expects to complete the work by the end of this decade, says Blaise Carriere, deputy secretary of the state's Dept. of Transportation and Development. "We're negotiating a performance-based contract with the firm," he says. "Once we get started on a bonded [funding] approach, we can't go back. So they must demonstrate to us that the work can be done."
In California, the Orange County Transportation Authority will award shortly its first-ever PM contract, to Parsons Transportation Corp., for the $270-million widening of the Garden Grove Freeway. William E. DuVall, Parsons' vice president for construction services, says the arrangement augments the oversight capabilities of OCTA, a joint powers authority with a limited staff, and helps the county get around a state ban on use of design-build. The PM arrangement also eliminates the client's need to hire a separate design manager and construction manager. The PM consultant benefits from greater continuity of involvement, although not necessarily in terms of margins, DuVall says. And because PM generally results in integration of outside and client employees, it discourages a consultant from taking advantage. "When you have an integrated staff, you're always on display, so you can't overstaff it," he says.
Some other major owners are contemplating PM, even if slowly. The U.S. General Services Administration, which manages most federal building construction, has largely stayed away from the approach, says Robert Hixon, the agency's director of engineering and construction. "It's been difficult for us to be comfortable with the idea that PM has our long-term interests at heart," he says. Hixon notes that most private sector practitioners don't understand the government's need to build for the longer haul because of uncertain future budgets for maintenance and repair. "Someone that's on the project for three years won't ever be accountable 10 to 20 years in the future," he says. "That's what makes us nervous."
But GSA is very likely to soon join the PM club as it scrambles to execute what is rumored to be a $350-million program to expand and upgrade U.S. border security as part of the recent congressional supplemental appropriation. Jim King, director of GSA's border station center in Fort Worth, declines to share many details, but says the effort could affect 162 border stations. The work, to start this year, would be complicated by at least four different federal agency clients "and lots of debate on the scope," says King. "We would be looking to bring in a program manager to manage the overall effort and offer some consistency."
But some still aren't sold on PM. "What I've seen of PM is that it administers multiple services whereas design-build seeks to integrate those services," says Steven T. Halverson, CEO of The Haskell Co. and former chairman of the Design-Build Institute of America. While Haskell does perform PM, it is a small part of the firm's services and is not really marketed. But others say the approach may gain favor in an uncertain, recessionary economy. "Owners will want a delivery organization that is responsive to needs that will change in ways they don't understand right now," says PB's Prieto.
While there is no single advocacy or professional standards organization for PM, groups whose members offer the approach are trying to improve its image. The Construction Management Association of America recently began an awards program for PM and tries to promote experiences on high-profile programs, says President Bruce D'Agostino. "There are still many lessons being learned," he says.