The Top 100 Construction Project Delivery Firms
While alternative delivery systems such as construction management-at-risk and design-build have been used in only specific markets or under certain circumstances, they now are being considered as viable methods to the traditional design-bid-build delivery model. This trend is particularly evident in the public sector, as many state and local laws now allow alternative project delivery.
The market for alternative project delivery in 2016 shows some interesting trends, as can be seen in the rankings in ENR’s Top 100 Construction Management-at-Risk (CMR) Firms and Top 100 Design-Build (DB) Firms. The Top 100 CMR firms had a combined revenue of $120.25 billion in 2016, up 16.8% from the $102.97 billion reported in 2015.
But what is striking in the Top 100 CMR revenue numbers is that international projects rebounded by 48.7% in 2016, after dropping 40.2% in 2015. In the domestic market, CMR rose 13.2%, to a record $104.94 billion, in 2016.
The DB list provides a different contrast between domestic and international project delivery. Overall, the Top 100 DB firms had a total revenue of $103.08 billion in 2016, down 3.9% from 2015. However, revenue from domestic DB projects grew a healthy 5.8%, rising to $76.93 billion, in 2016. On the other hand, international DB revenue dropped 24.1% in 2016, thanks in part to a falloff in huge engineering-procurement-construction projects in the international mining, power and petroleum markets.
Use of alternative project delivery methods is likely to grow in the future. “Design-build now has a proven track record of success, which makes owners more willing to use it on their projects,” says Lisa Washington, CEO of the Design-Build Institute of America, Washington, D.C.
Washington says that alternative project delivery has made great strides in the public sector, noting that all 50 states now have legislation that allows at least some form of design-build on public projects. Further, 42 states allow broad public-sector use of the delivery method, she says.
But there are some holdouts among states. “There are a variety of reasons why eight states only allow limited use of design-build,” Washington says. For example, she notes that Pennsylvania still operates under its 1913 Separations Act, which requires multiple primes, and that Iowa’s architects have opposed broad adoption of design-build.
However, the big target for design-build is New York City. “New York state now allows it for public projects, but New York City does not,” Washington says. Design-build is being used in states surrounding the city and on some major Big Apple projects, such as the renovation of the Jacob K. Javits Convention Center, she notes.
One beneficiary of this trend toward alternative project delivery in the public sector has been PC Construction, which has done major water and wastewater projects using both design-build and construction management-at-risk. “The water and wastewater infrastructure market continues to grow in its use of integrated delivery to construct projects via design-build and CM-at-risk,” says Kevin
McCarthy, CEO. “This is a win-win for everyone: The owner gets the most qualified team, and the contractor can focus on collaboration with the project’s end goals in mind.”
Transportation also is a growing market for alternative project delivery. Washington notes that, in the past 15 years, the sector’s use of design-build has surged 800%. Firms say the growing use of alternative project delivery marks a break from a low-bid mentality in which the lowest responsible bidder is awarded the project.
“While design-bid-build remains a [common] delivery model, many owners are shifting to design-build and public-private-partnerships [P3s] as they look for the best overall value,” says Thomas Iovino, CEO of OHL North America. “Customers are taking a step back and evaluating all aspects of the bid, including schedule, management approach, key personnel and record of past performance.”
CCA Civil also is benefitting from the surge in alternative project delivery. The firm primarily competes in the heavy-highway civil construction market and works mostly for public owners. “In the near term, CCA Civil sees a significant shift from traditional bid-build to design-build projects,” says Charles J. Montalbano, president. He says owners in that sector are making a concerted effort to get much-needed infrastructure projects underway as soon as possible, and the vehicle of choice is design-build. “We are also seeing an uptick in P3 projects,” he says.
Integrated project delivery (IPD), in which the project team shares risks and rewards with the owner, is slowly gaining traction. “Many progressive owners have adopted a ‘better together’ approach to complex projects. We are advocating IPD approaches to organizing and executing projects, achieving better value for all participants as an integrated team,” says Mike Ford, a member of DPR’s management committee.
Ford notes that DPR executives Dean Reed and Atul Khanzode have co-authored a book with Stanford University professor Martin Fischer and attorney Howard Ashcraft that offers the first comprehensive look at the IPD system. He says the book, “Integrating Project Delivery,” explores the essential steps for integration and combines key structural, process, technology and human-behavior components necessary for successful IPD projects.
Structure Tone also is working with IPD. The Penn Medicine New Patient Pavilion project in Philadelphia is under an IPD contract, and the contractor’s LF Driscoll group is part of the project team, which includes HDR, Foster+Partners, BR+A, Balfour Beatty and Southland Industries. “The project is significant in its scale alone—at 1.5 million square feet—but also because it’s one of the first major IPD projects on the East Coast,” says Bob Mullen, Structure Tone CEO.
Design firms also are increasing their embrace of alternative project delivery. “Our clients are exploring collaborative delivery approaches such as integrated project delivery, CM-GC, progressive design-build or some form of alliance agreements as a mechanism to develop and deliver projects. We see better alignment by all the parties when these delivery approaches are used,” says Eric L. Keen, president and CEO of Omaha-based engineer-architect HDR. It reported more than $83.6 million in contracting revenue this past year, all from design-build work.
For many design forms, use of alternative project delivery is a market necessity. “For some clients … there are several delivery methods to choose from: design-build, design-build-operate-maintain, construction management, construction management-at-risk and P3s,” says Sam L. Claassen, CEO of St. Paul, Minn.-based engineer Short Elliott Hendrickson Inc. (SEH).
“The key in choosing a delivery method best suited for the client and project is lining up the priorities of a project with the diversity of options available,” says Claassen. When it comes to risk and innovation, design firms must understand the trade-offs of each delivery method and determine which is most important for the client and the project, he observes. “Companies which only offer one form of project delivery will be left behind as clients are expecting more,” he says.
However, many design firms complain that bidding on projects that call for alternative project delivery is often expensive and unrewarding.
“Design competitions via P3s or design-build, with small stipends or no stipends, is a major trend on the rise. Firms are getting pressure to contribute more up-front work—for free—and with detailed solutions, which will take us down a path of no-win,” contends Mike Medici, president of Detroit-based architect-engineer SmithGroupJJR.
Washington responds, “Owners need to be educated on design-build procurement practices, focusing on qualifications. Too many owners do not focus on qualifications-based selection but rely too much on price.” Owners should not expect detailed design, except from short-listed design-build teams, she notes. “And short lists should be limited to no more than three bidders,” she says.
Further, Washington says there is a growing trend, particularly in the public sector, to award stipends to losing bidders. In the past, public agencies resisted stipends as a waste of taxpayer dollars. “But they are coming to realize that the best way to attract qualified teams is to provide stipends, so they are becoming the norm on public projects,” she explains.
The problem of finding and keeping sufficient staff has been the bane of the industry for several years, and firms providing alternative project delivery services are particularly worried.
“With our design-build delivery model, we look to hire a specific type of expertise. There is a shortage of those associates,” says Dave Bangasser, CEO of Opus Design Build LLC. He says the firm is looking for ways to leverage expertise that is in short supply by hiring people with more specific skill sets that are available. For example, Opus is hiring estimators and schedulers to do some of the tasks that project managers are ultimately responsible for managing. “This [approach] frees up their time to apply their specialized expertise to more high-value tasks.” Bangasser says.
But Opus also is looking at new benefits to attract and retain young people. According to Bangasser, the company is the first in the industry to offer Gradifi, a student loan and tuition reimbursement assistance program, as part of its benefits package. Under the Boston-based program, companies contribute directly to reduce the principal of younger employees’ student loans, allowing them to pay down their loans more quickly.