Prediction: Design-Build to Flourish in 2007

January 8, 2007
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By the Chinese calendar, 2007 is the Year of the Pig. By those experienced in the field, 2007 should be labeled the year of design-build. All trends, indications, and research certainly point that direction. Some predictions include:

1. With a significant number of commercial and institutional building systems reaching their useful operating lives, look for design-build as a process to continue to gain momentum this year in renovation work and major mechanical retrofits.

2. With owners becoming more aware of sustainability and environmental issues, look for more design-build projects to be Leadership in Energy and Environmental Design (LEED) certified.

3. Though not all may agree, there are those in the field who strongly believe the use of under-floor air conditioning and heating systems will become more prevalent in the design-build arena. Because owners are continually faced with a need for reconfiguration of current spaces, under-floor air distribution is designed to make this relatively simple and cost effective.

4. Because “time is money,” the design-build process continues to meet most owners’ tight budgets. Conventional design-bid-build and plan-and-spec processes cannot necessarily say the same. In fact, this year there should be a significant increase in design-assist projects, a slight twist to the design-build process. Here the consultant leads the construction process with a contractor partner involved early to help make major decisions that affect constructability and ease of operation and maintenance.

Bottom line: If you are not involved or have not stepped into the design-build arena yet, this is the year to learn all about it and dig in. And, the sooner, the better. No one said design-build is easy.

“In our opinion, getting into the design-build arena and staying in the design-build arena are probably equally difficult,” admitted Steve Clay of TDIndustries, a multi-million dollar mechanical-electrical-plumbing (MEP) contracting and facility service company, with corporate headquarters in Dallas. “The pluses are you are able to provide your clients shorter schedules, as good - if not better - quality, and lower costs than any other conventional project delivering method. We believe design-build work typically provides higher margins than traditional work.”

KNOCK, KNOCK

There is no denying that opportunity is knocking in design-build.

Aircuity, a manufacturer of technology that is designed to analyze and help optimize, as the Newton-Mass.-based company puts it, "the comfort, health, and energy aspects of a building's indoor environment," recently reported some significant revenue opportunities for design-build contractors. The manufacturer studied samplings of commercial buildings equipped with its Optima System for nearly a year (June 2002 through April 2003). The reports were screened to include only test data from commercial office, educational facilities, and light industrial buildings, projects that are traditionally strong design-build candidates.

Some of the findings:

• Ninety percent of the buildings monitored had comfort and ventilation problems or issues. Reports with issues found pertaining to air cleanliness accounted for 31 percent of the flagged reports. Some of these problems could be pointed to any combination of improper equipment sizing, duct distribution sizing, duct installation or sealing, balancing, system charging, or system calibration.

• Sixty-one percent of the flagged comfort and ventilation reports were connected to temperature issues/problems.

• Forty percent had humidity control issues and/or problems.

• Twenty percent had indoor air cleanliness problems.

• And, the most surprising set of statistics had to do with the number of buildings found to be potentially overventilating and, thereby, wasting energy. The stats showed that 78 percent of all buildings surveyed showed the potential of being overventilated and thus could be a source of potential energy savings. Of these, 97 percent fell into the unoccupied hour category, and a full 70 percent exceeded the occupied hour maximum during the test period. (For the company's full report, go to www.aircuity.com/Marketing/documents/report_stats.pdf.)

Translation: Opportunities are present in design-build and equipment replacement installations. Smart contractors, like Orlando, Fla.-based Mechanical Services of Central Florida Inc. (MSI), plan to take up the challenge. MSI is heavy in design-build, operation and maintenance, and mechanical contracting.

Vice president Mike Dillard, for one, believes retrofits and renovation work is a perfect fit for design-assist, which he considers a "viable step" towards design-build.

"Many projects billed as design-build at the general contractor level are, in fact, plan-and-spec at the specialty contractor level," said Dillard. "However, the value that an experienced mechanical contractor can bring early in the process has the potential to make design-assist and true design-build processes more prevalent."

PLUSES FOR DESIGN-BUILD

Like Dillard, many others in the commercial and industrial building landscape believe design-build is the right process for the needed retrofits and renovations.

“This is less of a trend than a continuing reality,” expressed Joe Nichter, president of Tri-City Mechanical, a design-build contractor based in Chandler, Ariz. “The time frame differential between project concept and start of construction can cause significant cost changes - rarely reductions, of course. A longer pre-construction time frame results in a greater variance in cost.

“Many projects fail at the time of final pricing because cost inflation exceeded contingencies. Commercial projects, largely driven by the pro-forma cost/revenue formulas, cannot survive cost escalation.”

In the estimation of both Nichter and staff engineer Pete Menconi, the conventional design-bid-build process also introduces very high potential cost variances at the initial planning stage.

“Not only does the design process take a relatively long time, but one of the largest unknown cost factors, the city review and revisions, occurs at the end and usually require additional changes,” remarked Nichter. “The additional delays push out the start date for the construction phase. Again, time is money.”

According to Menconi, the design-build process, when performed through a contractor, requires a guaranteed maximum price from day one. All efforts of the design team are focused on designing a mechanical system that will maintain this budget.

“With the engineer being part of the mechanical team and not directly reporting to the architect, the communication usually shrinks the cost of uncertainties and installation problems are addressed during the entire process,” said Menconi. “As a result of the budget being established early, value engineering is usually kept to a minimum. In the normal design-bid process, the job is designed, bid competitively, and value-engineered, requiring the engineer’s review and approval.”

Added Nichter, “Design-build was the normal pattern of construction in the United States until the 1930s - and is still predominant in most other countries.”

TDIndustries’ Clay could not agree more. “There really are few negatives, if any,” he said, referring to the design-build process. “You must recognize you are now taking total responsibility for the entire system, and have no recourse for problems, as you are both designer and installer.”

TRENDS HELPING THE CAUSE

Many believe building owner buying trends are driving demand for design-build services. One such believer is Wendell Bedell, president of Building Services Institute, a national education and training company that, as it so dubs, “focuses on high impact sales, marketing, operations, technical, and executive management programs, and provides products, services, and support for the residential and commercial HVAC contractor.”

Bedell believes:

• Customers are becoming more sophisticated and changing their way of viewing their building requirements. Experience tells him that they’re becoming less concerned about lowest installed first cost, and more concerned about life cycle costs and value.

• Customers are placing more emphasis on productivity-related indoor environment conditions, such as temperature, mold, humidity, drafts, noise, and ventilation, and their ability to demonstrate work performance.

• High-tech buildings and high-tech HVAC equipment are becoming the norm.

• Customers are more aware of the effect of comfort on worker productivity and tenant turnover.

• Customers are becoming more involved in the selection process and look for partner-oriented contractors.

Translation: Now is the time. Not that stepping into design-build is a walk in the park.

“Making the leap to design-build requires commitment of resources and time,” said Dillard, noting the biggest resource needed is money. “You have to understand that while the project sales cycle overall may be shorter, your sales cycle may, in fact, be longer because you are involved much earlier. Don’t underestimate the amount of time it takes to produce designs in-house, or to lead a design effort with a trusted engineering firm or partner.”

Second, make sure your business plan has specific goals and actions and provides an organizational structure “that gets you to your goal,” said Dillard.

“And remember, the design-build process requires more sales effort to convince a customer to embrace it over the perceived safety of the plan-and-spec model.”

That is not to say one should stay away from the industry-accepted process.

“Design-build can be very rewarding and can bring you and your customers closer together, long-term,” offered Dillard.

Nichter noted that the design-build process is mostly the same as construction - meaning materials, methods, and a workforce are needed - but “with one difference.”

“You really need expertise on the front end,” advised Nichter. “Your preconstruction staff that does the initial sizing and estimating has to be able to fill in the blanks.”

Sidebar: Residentially Speaking

Though design-build (D-B) may be perceived more for the commercial and industrial sector, it has a place in the residential landscape. Just ask Joe Nichter, president, Tri-City Mechanical (Chandler, Ariz.).

“There are two trends,” he said, referring to residential D-B.

“One, there is increasing equipment efficiencies, which raise costs, and, two, decreasing heating-cooling loads due to improved building insulation and glass performance.”

Particularly in some of the “super size” homes, Nichter said loads, if they’re properly calculated, are 25 percent lower than just a decade ago.

“This can create a problem with sufficient air circulation rates for interior spaces,” said Nichter. “Apartment buildings and condos with limited outside surface exposures have the same problem. Energy codes are pushing for more efficient systems, and the design-build contractor had better know these requirements before quoting a guaranteed price on a job.”

Yes, providing energy efficiency for homeowners is one ever-continuous trend for residential D-B, believes John Trickel, mechanical engineer with the consulting firm of VGI Design (Des Moines, Iowa).

“Energy conservation is a leading trend right now,” he assured. “Everyone is interested in saving our environment or paying less for the same - or better - comfort.”

- Mark Skaer

Sidebar: Which Is More Difficult?

The NEWS asked several contracting firms involved in the design-process if it is difficult for an HVACR contractor to get into the design-build arena, or is it more difficult to remain in the design-build arena. Here are the varied replies.

• Mike Dillard, vice president, Mechanical Services of Central Florida Inc. (Orlando, Fla.): “The barriers to entry into the design-build arena are talent and money. It is difficult to find the right person to lead and execute the design-build process. And the right one will command - and be worth - a significant compensation package.

“You will also need to make sure that this person has the resources to execute the business plan, and the customer base with which to work. Most design-build work will likely flow from existing relationships, or some fairly involved qualifications process. Your company’s resume needs to include the key people and right structure to be successful.

“Design-build can be very rewarding and can bring you and your customer closer together long term. Conversely, it can be a challenge if there isn’t a complete focus on the project. Design-build takes a lot more management effort because the process is a lot more collaborative. And, as the leader of the design-build team, the buck stops with you. If something is missed, you will not - nor should you - be in a position to ask for changes resulting from design aspects you should have known about.”

• Joe Nichter, president, Tri-City Mechanical (Chandler, Ariz.): “The design-build contractor needs a degree of expertise in engineering and construction and sales that afflicts few in our industry. It’s a tiny fraction of 1 percent that can do this well.

“Larger firms can accomplish this by internalizing their engineering and putting together teams that fill in the blanks. Smaller contractors, or ones that are transitioning into design-build, have much trickier pathways because they have to use outside engineering talent, and this is expensive.

“Consulting engineers want to be paid for their efforts, while contractors consider estimating an overhead expense. Typical success rates in estimating bids vary from 20-25 percent, perhaps a little higher in design-build. An outside consulting engineer won’t do this much preliminary work for free. It’s a point of friction between contractor and outside consulting, and it’s a significant cost for the entrants to the field.

“Consultants have a habit of safety factors, and cannot be held at fault for this practice because they have no direct control over the installation process. However, large safety factors leave a lot of equipment and cost ‘on the table.’ A design-build contractor wants to operate precisely on the ‘just right’ line. It takes a lot of experience to know where that line can be found. Successful design-build contractors usually internalize the engineering and they refine their design practice to meet the needs of the contractor.

“The early-transition-phase design-build candidate is at great risk. The rewards justify the risk of transition, and the rewards are attractive, but that means the risks are substantial until you learn the trade. It’s not for the faint of heart because you bet the firm on every job.”

• John Trickel, mechanical engineer, consulting firm VGI Design (Des Moines, Iowa): “I would think it would be harder to break into because most cities have established relationships. It is much more difficult and costly to take on business from a competitor’s client, than it is to retain your client.”

For more on design-build, see the following Web-exclusive feature articles in this issue: “Experience Talks: Advice for Those Looking to Get into D-B” and “Predicting What Is Ahead in the D-B Process.”

Publication date: 01/08/2007

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