PENN STATE PACE CONFERENCE
Design and Construction
The Political Environment
THE NEED FOR CHANGE IN THE DESIGN
AND CONSTRUCTION INDUSTRY
Walker Lee Evey
WALKEREVEY@GMAIL.COM
703.231.4171 (CELL)
The Political Environment
Design and Construction is Important Because …
• Economic Engine that Drives the U.S. Economy
• 7.6 Million Jobs
• Over 5% of the Non-Farm Workforce
• $21.27 Per Hour Construction Average Wage
• 21% Higher than Average Non-Supervisory Job
• $1.16 Trillion Economic Activity, October 2007
• $500 Billion in 2006 for Materials and Supplies
• 11% of Total U.S. Manufacturing Shipments
• $36 Billion in Construction Machinery Purchases
• 11% of Total U.S. Machinery Shipments
• 788,000 Construction Companies
Source: Ken Simonson, Chief Economist, Associated General Contractors, 2007
The Political Environment
Design and Construction is Important Because …
• Economic Engine that Drives the U.S. Economy
• 7.6 Million Jobs
• Over 5% of the Non-Farm Workforce
• $21.27 Per Hour Construction Average Wage
• 21% Higher than Average Non-Supervisory Job
• $1.16 Trillion Economic Activity, October 2007
• $500 Billion in 2006 for Materials and Supplies
• 11% of Total U.S. Manufacturing Shipments
• $36 Billion in Construction Machinery Purchases
• 11% of Total U.S. Machinery Shipments
• 788,000 Construction Companies
Source: Ken Simonson, Chief Economist, Associated General Contractors, 2007
The Political Environment
This is the Public Perception…
but the reality is more complex and less pleasant
The Political Environment
What Complaints do I Hear?
• From Contractors:
• We only get evaluated on how low our price is
• No consideration of performance or quality in source
selection
• We are trapped in a system that rewards “gaming”
• Bid shopping by general contractors kills
subcontractors
• Owners don’t care who the subcontractors are
• Takes too long…can’t hold employees in limbo
• Owners act like they are playing a game
The Political Environment
What Complaints do I Hear?
•
From Owners:
• Contractors lowball bids then seek change orders
• We must constantly inspect to achieve quality
• Everything is an argument
• Bait and switch on key employees
• “Funny Math”… everything costs more
• Cannot predict final cost or schedule
• Architects and Contractors…constant turf battles
• Contractors act like they are playing a game
The Political Environment
What Complaints do I Hear?
•
From Politicians:
• Constant fights…We can’t trust “the system”
• We can’t predict price or schedule or budget
• We are trapped in a system that rewards “gaming”
• If we trust contractors or architects we will get burned
• We don’t have to micro-manage other acquisitions
• Constant change of owner leadership
• Everyone else acts like they are playing a game
• They wait until too late to tell us problems…no flex
The Political Environment
THE OLD WAY
Design-Bid-Build …
Contract
Plans
+
Specs
CONTRACT WITH ARCHITECT
Cost competition prohibited
By law
Two contracts are used to
accomplish design and
construction
+ Low Bid =
THIS IS WHERE
THE COST
COMPETITION
TAKES PLACE
Contract
CONTRACT WITH CONSTRUCTOR
EMPHASIS ON COMPLIANCE –it’s a product
The Political Environment
THE NEW WAY
Design-Build… a single contract is used to
accomplish design and construction
THIS IS WHERE THE ENTIRE COMPETITION TAKES PLACE
CONTRACT WITH DESIGN-BUILD TEAM
Great
Past
Performance
+
Innovative
Ideas
+
Creative
Approach
=
Contract
Within the Owner’s Established Budget
Plans
Specs
EMPHASIS ON BEHAVIOR! --it’s a service
The Political Environment
Two Ways to Accomplish Cost Competition
DESIGN-BUILD COMPETITION
$
TRADITIONAL COMPETITION
CONTENT
$
CONTENT
$
CONTENT
CONTENT
$
OR
$
CONTENT
$
CONTENT
$
CONTENT
$
CONTENT
$
KEEP DOLLARS CONSTANT
VARY CONTENT
CONTENT
KEEP CONTENT CONSTANT
VARY DOLLARS
The Political Environment
Two Ways to Accomplish Cost Competition
DESIGN-BUILD COMPETITION
$
TRADITIONAL COMPETITION
CONTENT
$
CONTENT
$
CONTENT
CONTENT
$
OR
$
CONTENT
$
CONTENT
$
CONTENT
$
CONTENT
$
KEEP DOLLARS CONSTANT
VARY CONTENT
CONTENT
KEEP CONTENT CONSTANT
VARY DOLLARS
The Political Environment
The Challenge to Industry
• General characteristics of the U. S.
design and construction marketplace
• Falling productivity
• Small company size and fragmentation
• Reduced wage competitiveness
• Increased international competition
The Political Environment
Productivity is Falling …
When Compared to Other Industries
The Political Environment
Historical Wage Advantage of
Construction is Disappearing
The Political Environment
Companies are Small in Size …
and that isn’t changing over time
The impact is an inability to fund research and development …
The Political Environment
New Technology is not being Adopted
As quickly as in other Industries
The Political Environment
Highly Skilled Employees are not
Being Attracted to our Industry
The Political Environment
Current Practice in the Design and
Construction Industry
“ The companies that do the best financially are often not
those that build the best, but those that are the best at
bidding strategically to win the job for the right to
subsequently induce owners to pay more than the amount
specified in the base contract.” 1
Essentially, contractors are incentivized to bid low to win the
job, which will subsequently give them the exclusive right to
bid high later. Unsurprisingly, many of them are very good at
it. Competitive bidding is therefore no panacea because it
fails to determine the final cost or quality of the job.” 1
1. Barry B. Lepatner, Broken Buildings, Busted Budgets, University of Chicago Press, 2007
The Political Environment
Where did we go wrong?
We devised a system based strictly upon
cost competition … as a result, companies
which spent monies on research could no
longer successfully compete.
The U.S. construction industry should have
invested in research … but they couldn’t
and now we must pay the price.
The Political Environment
Research and Development Numbers
• In the 1980’s … about 0.4% of sales on R&D
• Far less than Japanese construction companies
• Far less than other U.S. industries
• appliances (1.4%),
• automobiles (1.7%),
• textiles (0.8%).”
1
1. Barry B. Lepatner, Broken Buildings, Busted Budgets, University of Chicago Press, 2007
The Political Environment
Why do we have these problems?
• The world has moved on … we haven’t
• Design-bid-build - emphasis on initial cost only
• Process uses multiple contracts with unclear accountability
• Contracts based on conflict - punishment model
• Industry is fragmented across design/engineering/construction
• Dominated by small companies - lack of resources
• Lack of leadership in setting consistent industry goals
• Result: American technological leadership has been lost
The Political Environment
Why do we have these problems?
• The world has moved on … we haven’t
• Design-bid-build - emphasis on initial cost only
• Process uses multiple contracts with unclear accountability
• Contracts based on conflict - punishment model
• Industry is fragmented across design/engineering/construction
• Dominated by small companies - lack of resources
• Lack of leadership in setting consistent industry goals
• Result: American technological leadership has been lost
The Political Environment
Welcome to the Perfect Storm
– INTEGRATED DESIGN AND
CONSTRUCTION
– BUILDING INFORMATION MODELING
– SUSTAINABILITY AND ENERGY
EFFICIENCY … LEED CERTIFICATION
– COLLABORATIVE PLANNING AND
DESIGN
– LEAN CONSTRUCTION AND VALUE
MANAGEMENT
– EARLY AND EFFECTIVE
COMMISSIONING
– PUBLIC-PRIVATE PARTNERSHIPS
– BETTER BUDGET CONTROL
– LATEST MATERIALS AND TECHNOLOGY
– REDUCED WASTE STREAM
– OPERATIONS AND MAINTENANCE
IMPROVEMENTS
– FASTER, EASIER AND LOWER COST
MAINTENACE AND REPAIRS
– QUALITY DESIGNED IN - NOT
INSPECTED IN
– IMPROVED CONSTRUCTABILITY
The Political Environment
Welcome to the Perfect Storm
OWNER OBJECTIVES CIRCA 2008
–
–
–
–
–
–
–
–
–
–
–
–
BUILDING INFORMATION MODELING
EARLY AND THOROUGH COMMISSIONING
SUSTAINABILITY AND ENERGY EFFICIENCY
PUBLIC-PRIIVATE PARTNERSHIPS
LEAN CONSTRUCTION
BETTER BUDGET CONTROL
COLLABORATIVE PLANNING AND DESIGN
INTEGRATED TEAMS
LATEST MATERIALS AND TECHNOLOGY
REDUCED WASTE STREAM
OPERATIONS AND MAINTENANCE IMPROVEMENTS
FASTER, EASIER AND LOWER COST MAINTENACE AND
REPAIRS
– QUALITY DESIGNED IN - NOT INSPECTED IN
– IMPROVED CONSTRUCTABILITY
The Political
Environment
The Political
Environment
The Political Environment
b
The Political Environment
The Political Environment
The Political Environment
Design-Build Performance
• DESIGN-BUILD PERFORMANCE
(COMPARISON OF DESIGN-BUILD VERSUS
CM AT RISK, DESIGN-BID-BUILD)
– COST…………………………………………..6 % LOWER
– CONSTRUCTION TIME……………………..12 % FASTER
– PROJECT TIME………………………………33 % FASTER
– QUALITY……………………………………….HIGHER IN
ALL 8 MEASURED CATEGORIES
SOURCE: CONSTRUCTION INDUSTRY INSTITUTE / PENN STATE
The Political Environment
Research Study
CONSTRUCTION INDUSTRY INSTITUTE - PENN STATE
•
•
•
•
•
351 Projects
5K to 2.5M S.F.
Various types/Industry sectors
Compared performance between
D-B-B, CM at Risk, and D-B
Evaluated Cost, Schedule, Quality
The Political Environment
Benefits of Design-Build
DESIGN-BUILD = HIGH PERFORMANCE
DESIGN AND CONSTRUCTION
• REDUCES COST
•
REDUCES SCHEDULE
•
INCREASES QUALITY
•
MORE SATISFIED OWNER
•
FEWER CLAIMS &
LITIGATION
•
BEST VALUE TO THE OWNER
The Political Environment
Improved Contracting Methods
…the Pentagon Renovation Model
• Hire better contractors
• Give them incentives to
achieve your goals
• Set clear goals
• Operate as a team
• Measure progress
against goals
• Reward Achievement
The Political Environment
Design-Build is Coming
• The question is: In What Form?
• Haphazard?
• Driven by accident and circumstance?
• Inconsistent from state to state?
• Without the best interests of the industry and its customers
at heart?
OR
•
•
•
•
Consistent across the country?
Well thought out and logical?
Designed to ensure best outcome for all parties?
Led by industry leaders to ensure fairness?
• YOU MUST DECIDE!
The Political Environment
Pre-Solicitation Characteristics
• Acquisition Strategy Panels…focus and consolidate
planning…joint program and acquisition action
• Streamlined Documentation… communicate quickly
and accurately
• New rules…empower participation and rapid
decision making
• Operate organization as a matrix from the outset
The Political Environment
Solicitation Characteristics
•
•
•
•
•
•
•
Seek to learn best practices from others
Use “Preamble” document to clearly communicate your approach
Build to Budget *
Use two-phase source selection process
Use pure performance specifications
Meet with industry and communicate and learn from them
Not more than four evaluation factors
•Build an inclusive team including
customers, users, operators,
maintainers (and eventually,
competitors)
•Impose strict page limits on
solicitation and proposals
• Impose strict page limits on
solicitation and proposals
•Publish drafts for industry comment
The Political Environment
Source Selection Process
•
•
•
•
•
•
•
•
•
•
Use inclusive team for evaluation process
Evaluate competing teams…not just the prime
Phase one is a down-select, not a pre-qualification
Proposals never more than 50 pages long
Cost proposals must be to budgeted amount
Technical evaluators must read
cost proposals
Cost team must read technical
proposals
Require oral proposals in addition
to written
Evaluate oral and written proposals
50/50
Oral proposals test real life
problem solving ability
The Political Environment
Contract Characteristics
•
•
•
•
•
•
•
•
•
Use award fees and incentives to reward performance
Award fee evaluations based on objective data
Award fee decisions are made SUBJECTIVELY
Incentivize cost control
Aggressive IV&V or Commissioning
Use Earned Value Analysis to fit your circumstance
Monthly Program Reviews for entire team
Government must commit to performance and report
Aggressive use of metrics
The Political Environment
We Need Help from Congress
1. Require construction projects to be budgeted and funded for
both design and construction as a single block of money
2. Require design and construction to be competed and awarded
based on performance specifications
3. Promote “Build to Budget” by expressing a preference for its
use
4. Promote use of requirements that will increase technology
5. Promote the use of contract incentives
The Political Environment
This is the Public Perception…
but the reality is more complex and less pleasant
The Political Environment
QUESTIONS ……