An owner wishing to construct a building hopes to achieve a finished project that meets its functional requirements and its expectations for design and quality, at the lowest possible cost, and on a predictable schedule. A contractor offering its construction services hopes to produce quality work, earn a profit, and complete the project in a timely fashion. Yet, the process of building itself is fraught with uncertainty: It is subject to the vagaries of the labor market, commodity prices, and the weather; despite the best planning efforts unanticipated conditions arise, delays occur, and mistakes are made; and the pressures of schedule and cost inevitably minimize the margin for miscalculation. In this high-stakes environment, the relationship between the owner and contractor must be structured to share reasonably between them the potential rewards and risks.
In conventional design/bid/build project delivery, the owner first hires a team of architects and engineers to perform design ser vices, leading to the creation of drawings and technical specifications, referred to collectively as the construction documents, that comprehensively describe the facility to be built. Next, construction firms are invited to bid on the project. Each bidding firm reviews the construction documents and proposes a cost to construct the facility. The owner evaluates the submitted proposals and awards the construction contract to the bidder deemed most suitable. This selection may be based on bid price alone, or other factors related to bidders’ qualifications may also be considered. The construction documents then become part of the construction contract, and the selected firm proceeds with the work. On all but small projects, this firm acts as the general contractor, coordinating and overseeing the overall construction process but frequently relying on smaller, more specialized subcontractors to perform significant portions or even all of the construction work. During construction, the design team continues to provide services to the owner, helping to ensure that the facility is built according to the requirements of the documents as well as answering questions related to the design, changes to the work, payments to the contractor, and similar matters. Among the advantages of design/bid/build project deliver y are its easy-to-understand organizational structure, well-established legal precedents, and ease of management. The direct relationship between the owner and the design team ensures that the owner retains control over the design and provides a healthy set of checks and balances during the construction process. Also, with design work completed before the project is bid, the owner starts construction with a fixed construction cost and a high degree of confidence regarding the final costs of the project.
In design/bid/build project deliver y, the owner contracts with two entities, and design and construction responsibilities remain divided between these two throughout the project. In design/build project deliver y, one entity ultimately assumes responsibility for both design and construction . A design/ build project begins with the owner developing a conceptual design or program that describes the functional or performance requirements of the proposed facility but does not detail its form or how it is to be constructed. Next, using this conceptual information, a design/build organization is selected to complete all remaining aspects of the project. Selection of the designer/builder may be based on a competitive bid process similar to that described above for design/bid/build projects, on negotiation and evaluation of an organization’s qualifications for the proposed work, or on some combination of both. Design/ build organizations themselves can take a variety of forms: a single firm encompassing both design and construction expertise, a construction management firm that subcontracts with a separate design firm to provide those services, or a joint venture between two firms, one specializing in construction and the other in design. Regardless of the internal structure of the design/build organization, the owner contracts with this single entity throughout the remainder of the project, which assumes responsibility for all remaining design and construction services. Design/build project delivery gives the owner a single source of accountability for all aspects of the project. It also places the designers and constructors in a collaborative relationship, introducing construction expertise into the design phases of a project and allowing the earliest possible consideration of constructability, cost control, construction scheduling, and similar matters. This delivery method also readily accommodates fast track construction, a scheduling technique for reducing construction time that is described below.
Other deliver y methods are possible: An owner may contract separately with a design team and a construction manager. As in design/build construction, the construction manager participates in the project prior to the onset of construction, introducing construction expertise during the design stage. Construction management project delivery can take a variety of forms and is frequently associated with especially large or complex
projects . In turnkey construction, an owner contracts with a single entity that provides not only design and construction ser vices, but financing for the project as well. Or design and construction can be undertaken by a single-purpose entity, of which the owner, architect, and contractor are all joint members. Aspects of these and other project delivery methods can also be intermixed, allowing many possible organizational schemes for the delivery of design and construction ser vices that are suitable to a variety of owner requirements and project circumstances.
Paying for Construction Services
With fixed fee or lump sum compensation, the contractor or other construction entity is paid a fixed dollar amount to complete the construction of a project regardless of that entity’s actual costs. With this compensation method the owner begins construction with a known, fixed construction cost and assumes minimal risk for unanticipated increases in cost. On the other hand, the construction contractor assumes most of the risk of unforeseen costs but also stands to gain from potential savings. Fixed fee compensation is most suitable to projects where the scope of the construction work is well defined at the time that the construction fee is set, as is the case, for example, with conventional design/bid/build construction.
As an alternative, compensation may be set on a cost plus a fee basis, where the owner agrees to pay the construction entity for the actual costs of construction whatever they may turn out to be plus an additional fee. In this case, the construction contractor is shielded from most cost uncertainty, and it is the owner who assumes most of the risk of added costs and stands to gain the most from potential savings. Cost plus a fee compensation is most often used with projects where the scope of construction work is not fully known at the time that compensation is established, a circumstance most frequently associated with construction management or design/ build contracts.
With fixed fee compensation, the builder assumes most of the risk related to unanticipated construction costs; with cost plus a fee compensation, the owner assumes most of this risk. Between these two extremes, many other fee-structuring arrangements can be used to allocate varying degrees of risk between the two parties. Sequential versus Fast Track Construction
In sequential construction each major phase in the design and construction of a building is completed before the next phase begins. Sequential construction can take place under any of the project delivery methods described previously. It is frequently associated with design/ bid/build construction, where the separation of design and construction phases fits naturally with the contractual separation between design and construction ser vice providers.
Phased construction, also called fast track construction, aims to reduce the time required to complete a project by overlapping the design and construction of various project parts . By allowing construction to start sooner and by overlapping the work of design and construction, phased construction can reduce the time required to complete a project. However, phased construction also introduces its own risks. Since construction on some parts of the project begins before all design is complete, an overall cost for the project cannot be established until a significant portion of construction is under way. Phased construction also introduces more complexity into the design process and increases the potential for costly design errors (for example, if foundation design does not adequately anticipate the requirements of the not yet fully engineered structure above). Phased construction can be applied to any construction delivery method discussed above. It is frequently associated with design/ build and construction management project delivery methods, where the early participation of the construction entity provides resources that are helpful in managing the complex coordination of overlapping design and construction activities.