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The complete 2006 Top 100 Design-Build / Construction Management special report will be available on Friday, June 9, 2006. For people involved in the construction business, this is a strange time. For designers, contractors and construction management firms, work is plentiful. For owners, the economy is good and funding generally is available to meet capital spending needs. But this robust market also has led to a situation where supply often cannot meet the demand for services and huge materials and labor cost swings are squeezing owners and construction firms. It has put pressure on construction managers to find innovative ways to ensure that, despite the market’s volatility, work can proceed without major mishaps.
Owners and construction firms are looking beyond the traditional design-bid-build to alternate project delivery to cope with the pressure, with many owners showing signs that they now may be willing to test different types of project delivery. In a survey by McLean, Va.-based Construction Management Association of America, 66% of the owners responding said they currently are using design-bid-build, but only 23% of those owners thought that approach brought the best value to the project, says Bruce D’Agostino, CMAA’s executive director. “It shows that many owners out there want to go with alternate project delivery, but are wary of pulling the trigger.”
One of the biggest concerns among owners is the amount of risk they bear in a market fraught with wild price and cost swings. “We did a survey of [public] owners’ concerns about project delivery and 57% said their primary concern was to control costs,” says Chuck Dahill, CEO of PinnacleOne. The 167 owners’ second major concern was controlling schedules, he says. “Many owners are beginning to understand the situation in the industry and are willing to pay a premium for [price and schedule] stability,” he says.
This has led many owners to consider alternate project delivery methods to insulate themselves from the volatile market. But owners that think they can rely on alternate project delivery to shift risk easily may be in for a surprise. “If you want to avoid risk, you’re going to have to pay for it,” says D’Agostino.
Some agency CMs believe that owners’ faith in risk shifting in alternate project delivery is misplaced. “CM-at-risk is a misnomer,” says Donald R. Boyken, CEO of Boyken International. “With prices the way they are, a CM is not going to go at-risk until they lock up their subs. So the owner is the one at risk until that time,” he says. “A guaranteed maximum price [GMP] rarely shifts the risk as much as the owner would like,” adds John Fox CEO of FoxCor Inc. “Contractors and subs have gotten smarter in qualifying their bids,” limiting their own risks against price spikes, he says.
In some cases, materials and labor price escalation has led to an alarming trend among some owners. “We’ve seen some smaller owners with fixed budgets looking to cut their soft costs on the design and management side to provide more money for increasing construction costs,” says Dahill. He says the more sophisticated owners understand that this is a time when they need CMs or PMs most to control costs and schedules. “They understand that a CM or program manager can save them a larger multiple on the project costs over the management fees they pay,” says Dahill. “A good program manager can save an owner five-to-twenty times its fee,” adds Fox.
American Know-How
A significant development in project management occurred earlier this year when the American National Standards Institute recognized CMAA’s certification program for professional construction managers as an ANSI standard. This recognition could have some surprising indirect impact on the profession. “With ANSI certification, having a professional CM may become a new consideration in the [International Standards Organization] 9000 program, leading firms from around the world to seek out CMAA-certified CMs to manage their programs,” says D’Agostino. But he acknowledges that this may increase the shortage of top CMs in the U.S.
Surprisingly, many CM and PM firms are finding opportunities abroad not because of pre-existing relationships with domestic clients, but because of the value foreign owners place on American-style management skills. “Most of our clients overseas like the way U.S. companies drive projects,” says Boyken. He says the American reputation of strong and effective management helped his firm land agency CM jobs to build an $80-million hotel resort job in Cancun, Mexico, and a $120-million hotel resort job in Anguilla. Boyken says that his firm also is working on a $1-billion expansion of the Atlantis Resort in the Bahamas, including a huge water park expansion.
Program management is making an increasing impact in the public sector. In some cases, a bad experience can lead an owner to use a reputable program manager. “We were called in by the city of Houston to do a forensic analysis on a troubled project,” says Janet Snyder, director of corporate development for Greyhawk North America. The firm’s dispute resolution group found mismanagement and corruption on the project, she says. “The city was happy enough to award us the program to oversee the renovation of 90 libraries.”
Program management also has reached into the private sector. “We are a contractor, but we started our program management group to handle jobs for clients that were simply too small to make sense for us to do on a contracting basis,” says Mike Lanier, vice president in charge of Hoar Construction LLC’s program management group.
For example, one of Hoar’s banking clients recently completed a merger, and Hoar was brought in to oversee the consolidation and expansion of the merged banks’ branch offices. “They had us do assessments, renovations, moving and consolidation of branches,” Lanier says. He adds that two more banking clients are involved in mergers and he hopes that will mean additional PM opportunities.
But one of Hoar’s most challenging assignments was in the wake of Hurricanes Katrina and Rita last year. “We had a banking customer with over 100 branches closed,” says Lanier. All but 35 were reopened within a few days. “But 15 were a total loss [and] we had to scramble to find modular bank facilities to get them online in a hurry,” Lanier says.
The biggest difficulty with the modular facilities was not obtaining or setting them up, but finding a quick and effective method to build and open secure facilities for safety deposit boxes. Hoar’s solution was telecommunications tower vaults. These precast concrete vaults are about the size of a trailer, so they were both big enough and secure enough to do the job. Hoar used them to house safety deposit boxes and other secure bank facilities.
“This shows how, coming from a contracting background, we bring a sense of urgency and a can-do attitude to jobs, not like PMs who come out of the architecture or real estate fields,” Lanier claims.
In the end, firms delivering alternate project delivery services have to focus on their first priority—the project. “Construction management, whatever the form, takes a different mindset,” says D’Agostino. “What you are really doing is working in the project’s best interest, protecting it from whatever threatens it. And sometimes, the project has to be protected from the owner itself.”
