Engineering Inc - November/December 2017 - 42

GUESTCOLUMN

Does Collaborative Delivery Cost More?
BY MARK ALPERT AND DOUGLAS HERBST

or owners considering collaborative project
delivery approaches, such as progressive designbuild (PDB) or construction management at
risk (CMAR), cost is often the biggest stumbling block. At some point after the contract
is awarded and some design is completed, the
collaborative delivery firm proposes a guaranteed
maximum price (GMP). But what happens
when that price exceeds the owner's approved budget?
In that case, some owners may conclude that PDB or CMAR
costs more than traditional public bidding of projects. Moreover,
despite the efforts of the parties to reconcile the cost and scope,
some owners opt to exercise their contractual "off ramp," terminate
the project agreement and re-procure the project via public bidding.
What can both parties do to avoid the owner taking the offramp? The industry best practices in this article will enable owners
to get the projects they seek for the prices they can afford.
UNDERSTANDING COLLABORATIVE DELIVERY

Comparing the traditional design-bid-build (DBB) and collaborative delivery approaches can be problematic. DBB involves a lump
sum price offered through a public bidding procurement process,
with the bid price set as the contract price. Some owners tend to
think the low-bid competitive process will result in the best price.
The public bidding procurement process is predicated on awarding
a contract to the "lowest responsible bid." In some circumstances,
the low-bid winner may seek to make up for an artificially low bid
using change orders and claims during construction. One could
ask if the bidders should have bid more, why don't they? While the
low-bid price is important, the final price is most important as it
determines the owner's satisfaction of construction cost and value
achieved.
Lastly, it should be understood that for DBB, the cost elements
of the bid price such as general conditions, materials, equipment
and labor, contingency and fee are not seen by the owners but are
included in the lump sum bid.
The collaborative delivery methods considered in this discussion
are almost always priced on a cost reimbursable basis up to and
including the GMP. With either PDB or CMAR procurement,
there may be a limited cost proposal which would contain various cost elements, including pre-construction services for CMAR,
design through an agreed upon completion percentage for PDB,
and the CMAR or PDB fee or markup on the construction. The
GMP is the price to construct the project (and finish the design
for PDB), and it is provided to the owner on an "open book" basis,
typically when the project design is 60 to 90 percent complete.
Throughout the design phase of the project, the construction firm
provides input to the design team, with the intent that the design
will align a construction cost within an owner's budget.
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NOVEMBER / DECEMBER 2017

Best practice for collaborative
delivery is to provide continual
cost estimates throughout the
design phase to address trends,
quantities and features while
allowing the owner to decide
which scope elements and quality considerations it can afford.
Transparency of costs through the
design phase most often leads to
owners getting the project they
want at a price in their approved
capital budget. Many such
Mark Alpert
arrangements include a shared
savings provision that serves as an
incentive for all parties to deliver a
project for less than the GMP.
No such opportunity exists
with a DBB procured project. In
DBB, there is no negotiation over
the price; it is simply accepted by
the owner as the bid and contract
price for the project. While DBB
has many positive attributes, most
notably the transparency related to
public bidding, collaborative delivery revolves around value for the
Douglas Herbst
final price correlated with owner
decisions during design, including project scope and quality. Moreover, collaborative delivery incorporates a negotiation over project
scope, quality and price. Clearly, the negotiation of the project price
is the biggest challenge with CMAR and PDB.
To address the scenario described in the opening paragraph, several best practices should be considered by owners and collaborative
delivery firms. These practices encompass both the procurement of
a collaborative delivery firm and the contracting basis to be utilized:
PROCUREMENT AND CONTRACTING
BEST PRACTICES

* Validate an owner's budgetary estimate before procurement and
adjust it as appropriate during the design phase. Owners should
confirm the basis of their estimate is current and adjusted to midpoint of construction. In addition, owners should update their
estimate and align it with the design as it progresses, as well as
updates to the project schedule since the estimate was prepared.
Sometimes the owner's initial budget cannot be substantiated and
can lead to challenges that will need to be addressed for the project to be delivered within approved budgets.
* Perform a project-specific risk assessment before procurement. Revise

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