Brown Brown & Associates 'What's New' Blog

Approximately 90% of the projects we have performed have been awarded through early contractor selection, i.e., during the pre-construction phase and before the drawings are completed. There are a number of advantages to utilizing the GMAX method as opposed to the traditional “hard bid” approach. I have generally defined pre-construction and the two methods herein, and offered a few key contrasts between them.

DEFINITIONS

* Hard Bid Selection: In this method, the contractor is not involved in the pricing until the design documents are completed and essentially ready for permit. A bid competition is held between selected contractors, each of whom submits a pricing proposal based on the architect’s drawings and specifications. With occasional exception, the successful contractor is chosen based on low price. As a general rule, the contractor bids will include only the scope of work as shown specifically in the documents – nothing more, nothing less. This option is perhaps best employed when the owner is familiar with what his end cost should be, is not under a time crunch to get the project started and completed and has sufficient contingencies set aside to accommodate change orders required during construction.

* Pre-Construction Selection: Here, the contractor is interviewed and selected early in the design process, based on key elements that vary from project to project. These often include references (from other owners), experience (in the specified type construction), financial strength, proposed fees and general conditions expense, personnel, value engineering, and the like. Typically, the contractor submissions also include a conceptual estimate and schedule, based on preliminary information and schematic design. Thereafter, the contractor becomes a member of the project team early-on, and works with the owner and architect to bring a “contractor’s eye” to the pre-construction and planning phase of the project. This option is best suited for the owner that needs to get started as soon as possible with construction, desires an extra level of accountability in the “design vs. reality” comparison and is interested in minimizing unwanted “surprises” during the construction process.

* Guaranteed Maximum Price (GMP): At virtually any point in the pre-construction phase, the contractor can rely on the conceptual estimates and preliminary information to establish a guaranteed maximum price (GMP) for the construction of the project. The contractor guarantees that the project will not cost more than the maximum price established at the time the contract is executed, based on a well-defined scope of work. Depending on the level of design completion at the time the GMP is developed, an identified contingency is recommended to guard against unforeseeable conditions and/or to allow the owner some flexibility for future changes. We encourage an owner to wait as long as possible to establish the GMP so that the contingency is reduced as much as possible. This type of project delivery method provides realistic goals for the project team well in advance of the design completion and construction start, and ensures a project that meets the owner’s expectations.

PROJECT COST

* Successful budgeting always focuses on the “end cost” as opposed to the “front-end” cost. While some might argue that the hard bid approach is the “cheapest” method of construction, we believe the pre-construction approach is clearly the most cost-efficient and comprehensive in the end.

* The hard bid estimate includes only what is shown in the documents, i.e. what is not shown, yet may be ultimately required, is not included. This can result in unexpected, rising costs as the project proceeds through construction. In the pre-construction approach, the team (owner, architect, and contractor) establishes a “target” budget and it is the contractor’s job to ensure, through his input and advice, that budgets are managed and maintained through the design process – from day one to day last.

Either method will produce your project for a specific cost. We believe it is best to have a firm handle on the cost before construction begins. With the pre-construction approach, the owner can have their cost guaranteed up front. In the hard bid scenario, the final cost may not be truly known until completion.

PROJECT SCHEDULE

* As part of the hard bid submission, the contractor also proposes a schedule for construction operations. Until bid submission, much like the cost estimate, the amount of time proposed for the work is unknown to the owner; little consideration is often given to the owner’s special needs, timing, or logistics issues, as they are rarely known by the contractor until right before construction start.

* A key responsibility of the contractor chosen during the pre-construction stage is to assist the owner in developing a “master schedule” for the entire effort (design, construction, furnishings and equipment, programming, etc.) that coordinates all aspects of the project together. As it is best to know the cost in advance, it is equally critical to refine the plan of execution before it begins.

PROJECT QUALITY

* In the hard bid competition, bidders are focused primarily on price – plain and simple. It is merely a competitive pricing situation. The contractor’s knowledge of project quality is reflected only by what he perceives in the design documents.

* The contractor selected during pre-construction will have visited the existing facility and discussed the owner’s intentions for the project a number of times. Through this interaction, the contractor is provided with an intimate sense of the quality expectations of the owner in terms of materials, equipment, finishes, systems, operating logistics, and the like, and can advise appropriately.

* The contractor’s overall intent should be to ensure that the owner’s expectations are met, i.e., that what you think you are getting is what you actually receive. The only expectations that can be fully met are those that are fully known. Having your contractor on the team early in the process simply affords the opportunity to match expectations with results.

INTANGIBLES

There are countless intangibles that contrast the different methods of contractor selection. I have listed only a few as examples.

* Competition – Some believe pricing will be higher without competitive hard bidding between the contractors; such opinions overlook the fact that competition is a key element in the pre-construction approach as well. Contractors perform the majority of their scope of work (typically 75% or more) through subcontractors. Part of the contractor’s responsibility in the pre-construction approach is to identify and qualify trade firms to bid on the project in advance. When the time comes for final pricing, these firms are already pre-selected to competitively bid on the project, as opposed to being hurriedly solicited and expected to bid quickly in a hard bid scenario. In our experience, the subcontractor bids are more competitive when pre-selected and qualified beforehand – and their performance is better when selected for the job.

* Comprehensiveness – Owners get a better value when their contractor’s efforts are comprehensive. The best way to ensure this is clearly the pre-construction selection method. Being involved early in the process, the contractor becomes a member of the team (as opposed to an “outside party”) and, accordingly, has a more complete knowledge of the project requirements before pricing ever occurs. By the time the final price is set, the project has been planned thoroughly – not only construction itself, but also how it will interact with the owner’s needs and desires, and construction can start in short order. In essence, with fewer secrets come fewer surprises. It’s best to identify challenges early so they can be properly planned for.

* Constructability – While often an overused term in our business, this essentially means managing the project’s capability to be constructed in a cost-efficient, timely manner, without the encumbrances of difficult details, material price increases, delivery problems, weather impact, etc. The contractor selected early can identify, manage, and plan these items for you before it’s time to build.

* Confidence – Building programs often are a source of great concern for owners because construction is not something they do every day. In a sense, your contractor will be representing you by the manner in which he conducts his business. By selecting your contractor early, and working with him in the pre-construction phase, you have the opportunity to develop a sense of confidence in his capabilities and professionalism in advance.

* Chemistry – A key element in any construction project is relationships. Early selection promotes the opportunity to evaluate and develop an enjoyable working relationship with the contractor’s proposed personnel. Given the fact you will be working with the construction firm for many months, or in some cases several years, this is a critical element.