Is Design-Build In Your Future?

February 17, 2005
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Some would attest that design-build has been the preferred project delivery process for mechanical contractors in the industrial and commercial markets, taking precedence over other processes such as plan-and-spec, which involve the "low bid" scenario. Design-build involves a single point of responsibility to the owner for on-time and on-budget jobs because the design is agreed to up front.

The News asked its contractor consultants to comment on some of the nuances of the design-build process. Their input provides a look inside some of the pros and cons of the process and what other contractors should look for if they are interested in adding design-build to their business model.

One of the best reasons to work on design-build projects: higher margins. "The margins are always higher because everyone seems to get what they want out of the project," said Hank Bloom of Environmental Conditioning Systems.

Jim Hussey of Marina Mechanical said that contractors should expect higher margins because they are doing more for the money. "The buying decision should be based on system performance, understanding client criteria, and then exceeding their expectations, not price," he said. "This introduces additional criteria like energy efficiency and life cycle costs. This generally leads to higher material to labor ratios and therefore higher overall margins."

"You as the contractor and designer are taking all the risk, so you can look for a higher margin, maybe 10 percent higher," said Mary Marble of J.A. Marble Co.

Time And Liability Issues

While design-build may offer higher margins for mechanical contractors, there are some factors that may not be as appealing, such as liability, planning, and administering the projects.

"If you are going to do design-build, you had better purchase errors and omissions insurance," said Hussey.

"Forget something like the reflected load off of that lake next to the building and you will be glad you are not self-insured for this risk.

"It is important to monitor the project and manage any unforeseen obstacles. There is also a lot more work in the role of design professional, i.e., coordination with other trades, recordkeeping, owner meetings, etc. More communication in general is needed."

Ann Kahn of Kahn Mechanical said risks are just part of doing business. "There is liability in every project," she stated. "We feel it is our responsibility to realize and accept that fact, stepping up to the plate and making the job right if the need arises."

"You are taking on the responsibility of the design and guaranteeing it will satisfy the client's needs," added Russ Donnici of Mechanical Air Service Inc.

"Many contractors believe that on a plan-and-spec job they have no liability - and many times that is the case. However, we are seeing more and more contract language that shifts more performance responsibility to the installing contractor."

Bloom said there needs to be adequate time scheduled for the planning process. "The upfront planning meetings are extensive because the customer has to be educated on different systems and technologies," he noted. "After the project is started, there will be less time required for meetings because trust has already been earned during the early stages."

But not all consultants agree that design-build is a more time-consuming process during the initial phase. Kahn believes that design-build is less time-consuming throughout.

"On plan-and-spec projects there is much more time involved in dealing with architects and/or consulting engineers and waiting for decisions they must reach within their own organizations or with the owner," she said. "On a design-build project, dealing directly with the owner results in quicker decisions, saving time."

Building Relationships

Having sole responsibility for the design and installation of a project brings responsibility and accountability. It also enhances the possibility for a contractor to build a lasting partnership with his or her customer.

"I believe there is a better relationship or the design-build project would never have happened in the first place," said Kahn. "This type of work demonstrates the ultimate in trust between the parties involved."

Aaron York of Aaron York's Quality Air Conditioning & Heating Inc. said that building relationships is a "good thing." "We have found that working with the owner/user promotes a long-lasting, tight relationship built on confidence, performance, and prompt handling of issues," he said. "This builds long-term customers with whom you may work for many years."

Donnici said that the design-build process involves fewer change orders - which can be a strong building block for a good relationship. "There are less change orders since you did the design," he noted.

"The only change orders would be if there is a change in the scope of work. In a plan-and-spec job, change orders are very common as deficiencies in the plans surface. It is common in the plan-and-spec market for a contractor of any trade to bid the plans as submitted at a low price knowing full well they won't work and then make their profit on the change orders.

"A good thing? Anytime you can have a better relationship with an owner/general contractor it's a good thing. And when you can take ownership of a project you design and reduce the change orders, it reduces the tension between all parties."

Marble agreed. "I think this is a good thing, too. Typically with plan-and-spec, the general contractor is more in tune with the owner. If you (the contractor) have more control over the project, then the owner and general contractor tend to work more closely with you."

But Bloom said it isn't always a good relationship if a general contractor is involved. "Not all general contractors like this process because it takes some of their power and some of their markup margins," he noted.

Trending Away From Competitive Bidding?

If design-build is such a popular process, will there be a move in the mechanical contracting business away from the plan-and-spec method? The consultants are divided on that topic.

Kahn said, "In the private sector, we see more design-build work than we did 15 years ago. There is a great deal of public work and many very large projects in our area, which will always be competitively bid."

York said that owners will continue to demand quality work, which bodes well for design-build. "I see more and more that owners are becoming disenchanted with the buck passing and poorer quality brought on by the lowest bid," he said. "The cost of going back to address these issues becomes more expensive than doing it right the first time."

Hussey doesn't necessarily see a trend toward design-build. "A lot of owners talk about design-build, but they actually solicit design-bid," he said. "This is the least desirable scenario, as multiple contractors must invest in design and due diligence to compete for a project. It's still better than plan and spec, particularly if you are good at communicating with the client and convincing them you have the best solution."

Donnici said the answer is simple - the trend will grow only if the number of design-build mechanical contractors grows. "The growth of design-build seems to be based on the ability of the bidders to do design-build work," he said.

To some, this may sound like an overly simplistic projection. However, some estimates currently peg design-build at above 30 percent of the total commercial HVAC market. As with most trends in HVAC, contractors wield a mighty sword.

If all it takes for design-build growth is more contractors to perceive the value of design-build services, then Donnici and our other contractor consultants may be leading the next big trend.

Publication date: 02/21/2005

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