construction cost symposiumgb13.org/umasssymp.pdfconstruction cost symposium march 2007 umass...

Construction Cost

Symposium

March 6, 2007

University of

Massachusetts

Amherst

Construction Cost Symposium March 2007 UMass Amherst

3/22/2009

Table of Contents

1 General Information .............................................................................................................. 1 1.1 Symposium Production Crew............................................................................................. 1 1.2 About This Document ........................................................................................................ 2

2 Part I — The Introduction .................................................................................................... 3 2.1 Introduction by John Mathews ........................................................................................... 3 2.2 Symposium Host, Jim Cahill.............................................................................................. 4 2.3 Symposium Panelists.......................................................................................................... 6

3 Part II — Presentations ......................................................................................................... 7 3.1 Estimating Through the Project Life Cycle— Craig Holmes, Sr. Cost Manager, DCAM. 7 3.2 Overview of UMass Amherst Bid Results & Estimates — Joseph S. Balzano, RA, UMass Amherst...................................................................................................................................... 14 3.3 UMass Historical Cost Trends— John Mathews, P.E., MPA, UMass Amherst ............. 17

4 Part III — Panel Discussion ................................................................................................ 18 4.1 Capital Planning and Project Concept Issues ................................................................... 18

4.1.1 Square foot estimates and reflecting a project’s true scope..................................... 18 4.1.2 Best methods for assigning costs for ancillary and unknown factors...................... 19

4.2 Design Process Issues....................................................................................................... 20 4.2.1 Steps for managing project scope ............................................................................ 20

4.3 Cost Estimating Issues...................................................................................................... 22 4.3.1 The Cost Estimator’s role in UMass projects .......................................................... 22 4.3.2 The need for summer construction schedules and the impact on project cost......... 23 4.3.3 Appropriate kinds of contingencies and escalation factors in percentages.............. 25 4.3.4 Best Value Engineering practices and their integration........................................... 26

4.4 Risk Management............................................................................................................. 27 4.4.1 Implementing Risk Management strategy in UMass projects ................................. 27 4.4.2 Contractors’ perceptions of “risky” projects and how they mitigate this in bids .... 28

4.5 Competitive Bid Processes............................................................................................... 29 4.5.1 How contractors decide to bid, and how UMass can take advantage of this........... 29

4.6 Alternative Methods of Construction ............................................................................... 31 4.6.1 CM at Risk versus Design-Bid-Build ...................................................................... 32 4.6.2 Advantages and disadvantages of CM at Risk......................................................... 33

5 Part IV — Open Q&A Session............................................................................................ 36


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1 General Information

1.1 Symposium Production Crew

Facilities and Campus Planning at the University of Massachusetts Amherst conceived of this Symposium as a way to solicit from the design, cost estimating, and construction community in Massachusetts the best and most current methods to control construction costs.

The University of Massachusetts is undergoing a large capital construction program. To prepare for this, the University seeks to improve its processes and methods for estimating and controlling construction costs. The Construction Cost Symposium was organized around a 20-member Panel of Experts. These notable Panelists were selectively invited from leading cost consulting, architectural/engineering, and construction management firms for their expertise and standing amongst their peers. These proceedings will guide us in enhancing competition in the bidding process, improving our ability to predict and control project construction costs, and better integrate cost estimators and cost estimating processes into our design and construction programs.

We would like to thank our distinguished Panel of Experts for their time and energy in attending the Construction Cost Symposium, and for Craig Holmes, from the Division of Capital Asset Management, for his fine presentation on cost estimating processes and the DCAM Consultants Estimating Manual. We especially thank Janet Holmes, Documentation/Process Analysis and Design Specialist, who diligently recorded the event and prepared this fine Proceedings document.

We are particularly grateful to members of our staff who helped organize the event. Most especially, Helena Sorenson, our Administrative Assistant, who did all the work, managed our time well, and made sure we were well fed. Joseph Balzano, Capital Project Manager, analyzed a large set of past projects for his outstanding presentation and overview of UMass bids and cost estimates. We would like to express our appreciation to John Mathews, Assistant Director of Campus Projects, for his presentation on historical cost trends, for his facilitating the Panel discussion, and for his vision that made this all happen.


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We want to recognize the staff of Facilities and Campus Planning, who helped behind the scenes to develop the long list of questions and identified and invited our distinguished Panel of Experts. Finally, we thank our host, James Cahill, Director of Facilities and Campus Planning, for his opening remarks and thoughtful problem statement. Without everyone’s efforts and dedication the Construction Cost Symposium would not have become such a success.

1.2 About This Document

This document is provided as a general review of the Symposium. It covers the presentation, panel discussion, and open question and answer period.

There are many direct quotes throughout the document. However, for clarity, readability, and ease of use, a significant portion of each speaker’s words has been paraphrased. Therefore, while every effort has been made to deliver an accurate account of the proceedings, some license has been taken.

Janet Holmes


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2 Part I — The Introduction

2.1 Introduction by John Mathews

John Mathews, the Assistant Director of Facilities and Campus Planning for Campus Projects at UMass, provided the following, opening remarks:

“A symposium is defined by Webster’s as, ‘A formal meeting at which several specialists deliver short addresses on a topic; or a social gathering at which there is free interchange of ideas.’ A very apt definition for our gathering today.”

John set out three goals for the Symposium, focusing on areas upon which UMass seeks improvement:

• Cost Effectiveness—To lower construction cost by improving competition during bidding

• Cost Predictability—To improve the ability during Study and Design to estimate future market costs

• Cost Processes—To improve project management processes to more fully integrate Cost Estimating into the Study and Design phases

“Gathered here today for this Symposium, in no small measure, are the facility management professionals, consultants, and construction managers on whom depends the success of higher education public construction for Massachusetts.”


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Present at the Symposium were the Panelists (see Section 1.4), and Facilities Directors and Project Management professionals from each of the five campuses of the University of Massachusetts: Lowell, Boston, Dartmouth, Worcester, and Amherst. Also present were representatives from the Division of Capital Asset Management (DCAM) and the University of Massachusetts Building Authority.

“If you don’t know where you’re going, you will wind up somewhere else.” Yogi Berra

One major challenge UMass faces was encapsulated by W.P. Hughes of the University of Reading: “Public sector projects tend to be inflexible and unresponsive when the environment [is] dynamic and uncertain.”

“We respond to this today by exploring fresh ideas that might suggest how to better manage the complexities of our project environments by exploring the issues and challenges of construction cost management.”

UMass Amherst intends to use the Symposium proceedings to re-evaluate and improve their project management procedures so that it can be responsive to the needs of a school’s unique environment.

2.2 Symposium Host, Jim Cahill

Jim Cahill is the Director of Facilities and Campus Planning at UMass Amherst. He currently oversees more than one hundred people and a $1 billion capital program. He encapsulated the purpose behind the Symposium, the current challenges to controlling construction costs experienced at UMass, and what, as a facilities professionals, we all hoped to achieve:

“I feel like I’m in good company in this room: We’re all dealing with some of the same things. We’re all qualified people … and yet we struggle to maintain costs on many projects.”

UMass believes in getting approval early for projects, and monitoring it from Design through Construction. Yet over the last ten years, he couldn’t remember when a project finished at or below the original estimate.

“We develop some need on the campus. Let’s say in this case it comes from a faculty group that has convinced a group of people that institutions should invest in a facility, asset. And they know what they need because they do the work, every day…. Then they write up a white paper and that’s what they’re good at. Along the way they talk to some colleague…and they develop a cost estimate with this person…who’s built a building just like this somewhere else.

“That document gets circulated. It may end up in the hands of the Board of Trustees. And then it ends up in the hands of the executives on the campus. The campus executives decide they need to talk to the campus facilities people…. Then we come along, we look at it, we evaluate it and go back to the [original] group.”


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At this point, Jim explained, the process starts to go awry. For example, perhaps the cost estimate is right but the size is wrong, and it’s only possible to build half of what your budget allows. Chances are, an accurate estimate of the cost of the project is by now quite outside their expectations. This usually happens before an estimator is brought in because the project has to be approved before money is spent on such a thing as a formal Study.

“You’ve got a few unhappy people already. Then you launch into a process, a Design process, you get the Designer on board. The Designer understands the budget and everybody tries their best to design this building and bring it in for the amount of money that the Owners say they have.”

Jim points out the budget is not recovered by Value Engineering, that simply will not provide enough savings. Real budget recovery comes always from scope reduction.

“You’ve got a lot of expectations built now. You told them already you can only build half, and now you’re telling them it’s even less than that. … Each phase we get through we’re faced with value engineering, cost reduction, scope reduction….”

When the project goes out to bid, it’s even more expensive. Each time new information comes in, the facilities people have to go back and realign expectations, the project moves further and further out in time, and becomes even more expensive.

“It hasn’t been a lot of fun in the last few years because we’ve missed a lot of numbers and yet we have a whole group of highly qualified professionals engaged in this activity. If I can walk away learning one thing that’ll help us predict the cost of a project, I’ll be happy.”

Between the distinguished panel of guests and the combined experience of the audience, there is every expectation of more than meeting the above goal!

Special thanks went out to John Mathews, Helena Sorenson, and Joe Balzano.


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2.3 Symposium Panelists

Russell Feldman, Principal TBA Architects, Waltham, MA

Rand Refrigeri, Chief Fire Protection Engineer Richard D. Kimball Company, Andover, MA

Peter Knowles, Exec. Vice President, Denver Office

Rider, Hunt, Levett & Bailey, Boston, MA

Delwyn Williamson, Senior Cost Estimator Daedalus Projects, Boston, MA

Mike Powers, President & CEO Symmes, Maini & McKee Associates, Cambridge, MA

Gregg Cohen, Senior Project Manager Simpson, Gumpertz & Heger, Waltham, MA

Charles McGrory, President DG Jones International, Woburn, MA

Jim McManus, CEO The S/L/A/M Collaborative, Glastonbury, CT

Timothy D. Mansfield, Senior Associate Cambridge Seven Associates, Cambridge, MA

Neal Fontana, Associate Faithful & Gould, Boston, MA

David Longo, Project Executive/Senior Estimator O&G Industries, Torrington, CT

Steve Pelletier, Director Pre-Construction Services Daniel O'Connell's Sons, Waltham, MA

Mark Philip Ray, Certified Professional Estimator MPR Consulting Associates, Manchester, CT

Craig Holmes, Senior Cost Manager DCAM, Boston, MA

Mike Fuchs, Vice President of Pre-Construction Dimeo Construction, Providence, RI

Christopher Musorofiti, Project Manager Gale Associates, Weymouth, MA

Joseph McCoy, Estimating Executive Gilbane, Boston, MA

Seamus Fennessy, Senior Associate Davis Langdon, Boston, MA

Pete Timothy, President A.M. Fogarty & Associates, Hingham, MA

Stephen M. Van Dyke, President Nault Architects, Worcester, MA


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3 Part II — Presentations

3.1 Estimating Through the Project Life Cycle—

Craig Holmes, Sr. Cost Manager, DCAM

Thanks went out to Jim Cahill and John Mathews for organizing the symposium, and Craig noted the high level of experience and expertise of the attendees.

“Special thanks to Ian Aitchison of Rider Hunt, without whose inspiration … to start building databases and work for DCAM, none of this would be as far developed.”

Originally the presentation was used to develop procedures to take the user right through the entire process of bringing projects into DCAM. (Note: The slides in the handout are more extensive than those in the presentation.)

As Jim pointed out, one is expected to produce a budget and a program long before professionals have had a chance to make formal evaluations from the design or estimating cycle. No real cost can be determined at this point.

“That’s a challenge, and the focus of the Estimating Manual. The process that we do is on the first part of the Design cycle. Because if you can get a budget, expectations and a building size more or less in line by the time you get to Design Development, you’ve got a 50/50 chance of getting the right answer. If not, as Jim noted, it’s very, very difficult.”


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The diagram in the first slide comes from Sergio Fernandez, JBF Associates, (November 18, 2005), who provided project management services for Hilton Hotels. During the early stages of pre-Design, it’s easy to make changes. The impact on cost is marginal.

“At this point, it’s all on paper.”

By the time the project is in Schematic, it becomes much more difficult.

By the time you get to Design Development, you can only use Value Engineering to reduce costs, and this will amount to no more than 5-10% of the budget, as Jim observed.

“I just halved a data center, so instead of forty-thousand square feet of computer space, they now have twenty-two. Note, again, reflecting Jim, the project is always about comparing against a budget, right from beginning, even if that budget isn’t particularly well established.”

The client must participate very early in the piece on scope, budget and expectations. If one can balance the budget by the end of the Study Phase, cost can be managed; if not, there will be “pain” somewhere further along in the procedure.

Designers primarily focus on the design and the program. However, a project has four primary competing priorities: needs, budget, time and regulations. In addition, the proposed site will present advantages and disadvantages that must be addressed at each phase. The time to choose the final site is early on, before any design is done.


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“So we (Craig Holmes, Janet Holmes and Mike Williams, Director of Programming at DCAM) built the process that actually manages priorities and events during the Pre-Study Phase. In DCAM’s world, we do a Pre-Scope Assessment, and then we actually produce what’s called a Pre-Study brief and a DCAF, which is the capital allocation form. That effectively becomes our authorization to go ahead with the project. After which, we have the appropriate regulations to go through the Designer Selection Board, and then set the objectives and the work plan with the Designer, all before he’s actually done anything!”

This is a long way past the “white papers” that Jim talked about which came from a colleague at another school who had put up a similar building. The message to the designers is that this is what we want you to do.

“Don’t even think about picking up a designing pen yet!”

One of the most challenging aspects of this early phase is limiting any design work outside of the broadest concepts. All too often the client and the design team get caught up in their enthusiasm for a sexy concept and disregard competing factors.

You have to do better than designing to such things as square foot rates when you don’t have all the information needed for an end result that fits User Needs.

“The Designer and the Cost Consultant and the Client, at this pre-design stage have to be closely working to get budget, scope and program expectations in line. … In fact, we’re busily working with Legal on re-drafting DCAM’s Study Contract to reflect this.”


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It is important to remember that this is a data-gathering period: as many factors as possible should be solidified during this time. Then specific objectives, solution alternates, consensus solution, and finally the Study submission can be revisited.

One project that didn’t follow these steps was a mental health hospital. The Designer’s nominal allowance of $5 million for site work turned out to be $31 million when his design was applied.

“This was a particularly irritating project.” (Laughter from the audience, primarily from those in the DCAM section.) “All of this could have been well advanced by the remote Cost Estimator and the scope could have been built into the site selection early on in the piece.”

At this point, after all this pre-design work and investigation by the Designer has been completed, it is most important to come back to the Client and verify the scope, objectives and budget limitations. This way, everyone is on the same page. This results in a project with far fewer surprises.

“What’s happening is our Study documentation is three-quarters of the way through Schematic by the time we’re actually done, because to get the necessary approval and certification, we have to have a fairly detailed level of estimate. That is typically more than you’ll get in a sketch-plan type Study.”

The optimum time for multiple alternatives comes after all parties have agreed upon the objectives that come out of the revised scope and budget.

Square foot rates are the most generally used metric in the industry, but the accuracy limitations are not universally understood. Broad square foot rates have a wide range of accuracy, as there are many factors affecting them.

During the Study, DCAM uses high-level estimates. Estimates increase in accuracy through subsequent phases, until final bid or CM GMP (Construction Manager’s Guaranteed Maximum Price) finalization. The levels are NOT interchangeable. Square foot rates in particular are always good to talk about, but cannot be relied on. They should cover a complete range, as many factors affect their accuracy.


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Bid

Constructio

n Contract

Clos

e Out

Historical

Cost Analysis

Design and Cost Planning Phases Construction Management Phases

Rates/SF and CF, programmed space, multipliers to GFA, cost models, budget estimates

Elemental Cost Plans/Estimates, budget and indirect costs, designed space

CSI Estimates, Bid Analysis & Rate Schedules

Conversion for Bid

Convert back for analysis

Progress Payments, Change Orders &

Settlements

Schematic Design

Design

Development

Constructio

n Documents

Study

Order of Magnitude, Unit Measures, Global Rates/SF, loadings or allowances for all “soft” costs

DCAM uses the Elemental model for planning, modeling and design control; the CSI model is used for contracts, bids and construction management. To provide historical data, it is necessary to incorporate construction cost changes back through the UNIFORMAT II rates. The built-up rates allow you to build a detailed model to see how changing program areas and program types affects cost. UNIFORMAT II and CSI Masterformat are completely different and cannot be easily cross-referenced. Each format has a different measurement basis and purpose. DCAM builds rates for different types of program construction for use in cost modeling.

DCAM has a formalized structure for Total Project Cost (TPC), which includes the Estimated Construction Cost (ECC). Most outside estimates only address the ECC. For different procurement, such as an RFP or CM at Risk, many of the soft costs are intermingled between TPC and ECC. Specialist firms who do estimates may not cover all of these comprehensively and estimate components may be left out.


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CM at Risk presents unique challenges in estimating since the contractual cost is based on an incomplete design. DCAM is still developing formal milestone checkpoints and contractual changes to ensure proper monitoring throughout this procurement method.

“How come DCAM only has 70% of the initial ECC estimate in the TPC? The diagram shows the makeup of contingencies and allowances. There will be at least 30% added onto the final cost, and this must be accounted for in the budget up front.”

Cost estimator participation at each phase is recommended as follows: Study—cost modeling and exist conditions impact; Schematic Design—cost advice for alternative major specifications; Design Development and Construction Documentation—cost advice and detailed estimates; Bid and Construction—bid evaluation and Change Order cost advice. DCAM insists on early cost estimator participation in pre-design tasks.

“Any cost modeling tool must allow means to change, depth of detail, model costs, and value engineering. DCAM’s historical cost database provides underlying information for cost modeling.”

The tool Craig uses, an interactive Excel sheet shown on the following page, incorporates six Fitchburg State College buildings that were available for the entire project. A requirement of 77 thousand square feet was needed for a new science facility for Fitchburg State College. The old building, Condike, was available for renovation along with five other possible buildings. This sheet helped show various options in real time.

“It took the decision-maker audience about 40 minutes to switch into the Excel tool and then it worked very well.”

(At this point Craig switched over to a live laptop to demonstrate making changes through the Fitchburg Excel sheet.)

Design Contingenc

y

C.O.

Cont.

10%-15% 10%-15%

(say) 5% 5%

Escalation Contingency

(say) 8%

Estimating Contingenc

y

Estimate or Actual Costs

Pre-Design thru Schematic

At completion of CD

At completion of Project

Design & Mgt. Fees


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Craig and the decision-makers at Fitchburg began experimenting with moving wet labs and classrooms to various existing buildings and a proposed new building. For each proposed move, renovation or new building, a price was calculated.

“By the time we were finished, about two hours later, we had considered seven or eight schemes, and the only difference of opinion was how to renovate one of the older buildings. The expectations were set this way, and solidly! The first pass estimate was over $70 million and the preferred solution ended up at about $35 million—and only 3 thousand square feet of program had to be found at the end. We are monitoring the project cost closely to see if this finished product matches the model. So far it is within about 7%. I’ve used this method on 3 or 4 big projects now and so far it’s wound up about 5% over or under, and it improves every time.”

Almost all the professionals in the industry in Massachusetts practice effective cost management during the Construction phase. In DCAM, cost management has become an intrinsic part of early Design, as DCAM staff believes the point of cost management is to be within scope throughout the whole project management process.


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3.2 Overview of UMass Amherst Bid Results & Estimates —

Joseph S. Balzano, RA, UMass Amherst

Joseph S. Balzano is the Capital Project Manager for Facilities and Campus planning at the University of Massachusetts Amherst. He is working on a nanotechnology research and manufacturing facility, a geosciences cold storage room to store ice core samples from the arctic, and a biochemistry lab in our bioresearch program high rise.

This presentation focused on bid estimates and results that he’s seen over the last 3 years, from FY 2004-07, specifically the estimated data on 65 of 109 projects. All of these projects are publicly bid through UMass Amherst.

“Here on campus we do many different types of projects. We have Chapter 30 work, Chapter 149 with and without filed sub-bids. … The majority of our work is vertical construction.”

Joe broke the 109 projects into two major types: exterior envelope and partial building renovations, although they do handle other types as well.

UMass primarily schedules projects to be carried out during the summer months as it’s down time. This is a tough timeframe, and results in the bidding falling mainly between April and May; tough time for bid comparisons. The big question is: How can we better balance this bidding schedule?

UMass does many Prime Bidder (general contractors) projects. On average, there were four-and-a-half bids per project. This number isn’t bad but when you look beyond general construction, there are far less bids for filed sub-bids, such as MEP and elevator. They’re lagging behind in competition. Another question Joe has is:

“How can we improve our competition in General Contractor bids and sub-trades?”

Out of 109 projects, almost 90 got 3 or more bids. However, only about 50 of those had a less than a 10% range. It’s not just the number of bids but the range or how they’re spread out. UMass needs to establish a satisfactory range for bids.


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The filed sub-bid trade breakdown is only slightly more than 3 bids on average. Electrical isn’t too bad as UMass has tried to improve competition, but HVAC and plumbing are still a problem. They’re not getting any projects with less than 30% bid range here in western Mass. There is poor competition for masonry, miscellaneous metals, roofing, and painting.

“Can we get contractors in certain trades to travel out here?”

Out of 65 finished projects, he looked at under- and over- budget comparisons; 10% stood out as a good estimate to budget ratio. They’re under budget in two-thirds of their projects. But, they were well under more than 10% and well over 10%, which is disturbing.

“It’s the magnitude at which we’re under or over budget…. That’s a critical piece of the picture. …Why is this so off?”

In the under- and over- category of Filed subs, the projects were all over not under, and way over estimates in Electrical, etc.

“What degree of accuracy are we getting overall from our design team?”


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In summary, the issues are:

• “When is the best time to bid and how early?”

• “Are 3-4 bids good enough?”

• “Prime contracts average over 4 bids but filed Sub-bids are still only about 3. How can we improve our Bid competition?”

• “50% of Prime Bids are within 20% of each other; but on 50% of Filed Sub-Bids we struggle to get within 40% difference.”

• “How can we improve our estimating process?

• “How can we improve on getting the percentage of over and under down?”

Question: Did you plot how close to Amherst the contractors were?

Answer: “Proximity? No. It’s something we can go back and add. I’m trying to add this information to a database. It’s something we are definitely in need of.”

Question: Do you have any idea what Mt. Holyoke competition is like?

Answer: No. He’s fielded a lot of phone calls but some contractors don’t have a good sense of what’s going on, they’re not hearing about it enough, they didn’t know soon enough. Part of the problem is the distance, trying to pull contractors out, etc. Boston has a much greater number.

Question: Re: the discrepancy between Prime and Subs: Is Prime absorbing some of the differential?

Answer: Yes, in the competition piece, but he wants more info.

Question: Does UMass have a procurement department?

Answer: Yes, but they don’t know all the players, so they’re trying to improve.


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3.3 UMass Historical Cost Trends—

John Mathews, P.E., MPA, UMass Amherst

John examined cost trends for new buildings from 2000 through 2006 and found that UMass new construction costs have grown 46%, DCAM 31%. That appears to result in a higher increase in costs at the UMass campus in western Massachusetts.

This particularly applies to specialist projects from 1998 to 2004, such as roof repair: UMass escalation 32%, DCAM 17% since 2000.

The data seem to indicate that UMass generally experiences 10% higher construction costs for new construction than DCAM escalation factors would otherwise indicate, and 30% higher for renovation projects.

“On strictly historical trends, we have some pretty good numbers: We’ve seen cost escalations of 61% from 2003. And on Fire Alarm historical trends, 67% escalation from the year 2000 and DCAM’s manual says 31%, so we’re roughly twice. What this shows is in each category we have a confidence level of +- 15%, but the overall trend of the renovation projects and our new building projects we seem to be experiencing is about a 10% faster escalation on new projects, and every category was above DCAM’s by 30% on renovation projects. I won’t conclude anything on that.”


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4 Part III — Panel Discussion

The following topics were presented for the panel’s consideration:

• Capital Planning and Project Concept Issues

• Design and Cost Estimating Processes

• Risk Management

• Issues with making bid processes more competitive

• And challenges for alternative methods of construction

4.1 Capital Planning and Project Concept Issues

The Whole Building Design Guide defines project scope as “the work that must be done to meet a client's program goals for space, function, and level of quality. In many ways, scope management is the foundation on which the other project elements are built. From project inception, project scope defines the boundaries within which the delivery team and the external stakeholders work. Effective scope management requires accurate definition of a client's requirements and a systematic process to monitor and manage all the factors impacting the client's program throughout the project delivery process. Being able to provide an estimate at this stage that accurately reflects the total project cost perhaps years in the future is one of the most difficult problems encountered by project managers.”

4.1.1 Square foot estimates and reflecting a project’s true scope

Questions:

We’ve heard this morning of the role that conceptual SF cost estimates play at this stage. Are they the best method to use in providing project budgets at programmatic and study stages, are there better ways? Are there ways to improve upon their accuracy to better reflect a project’s true scope, building configuration, and future market conditions?

Answers:

Charles McGrory: Get a team together. Form a charette, have a cost workshop with a designer and cost manager at the white paper stage of each project. Involve site engineers, etc., to develop the project early on. It would be best if the team takes a project on through Design, Bidding, Document. Will give insight into project.


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Jim McManus: Some clients have a formal pre-design phase for programming, benchmarking, working on scope, etc. You need to look very carefully at net-to-growth and have a structured benchmarking session, particularly against other buildings. There’s a lot of data out there. We break down SF cost by specific line items; use SFA and %, distribute cost, make sure it’s in balance. Look at specifics to come up with cost model early. We use CSI, not Elemental to go all the way through to final estimate, it’s easier.

Mike Powers: Agree; best cost estimates was when cost model was expanded rather than changed. Comparables work in Real Estate markets, NOT construction design market, there’s too much uniqueness. The spread of cost for tech facilities can be as much as $500/SF. Best Schematic estimates can be discussed, challenged, etc., right from the beginning. Don’t change estimating philosophies mid-stream.

Seamus Fennessy: The schools looking to different areas for cost examples get into trouble—big difference between West Coast versus East. What does building look like, feel like? Where will it go? Get an idea. Don’t select a low-quality statement and go out and hire the most expensive designer you can find. Set up a meeting without a designer, and go through owner’s expectations and quality statement for a budget. Remember, if it’s an ivy league, for example, it will have lots of wood paneling, if it’s UMass it may not have a lot of wood paneling (laughter). We use controlled quantities and we can establish order-of-magnitude quantities for every building system within the building and those identify how many CFMs there are and modify as necessary. All this affects budget. We use controlled quantities, which can be established early on. You can use it as a dollar price to modify CFM.

Rand Refrigeri: Distinct difference between cost data on construction and cost data on renovations. It’s much more difficult from an MEP standpoint and Filed Sub-Bids to try and predict something that can be tried and true on renovation projects. Have a feel for what’s being done. There’s plenty of historic data (Means) on new, but it breaks down on renovations. It’s good to have input on cost models from all the experts. Having those people early on would help establish SF cost.

4.1.2 Best methods for assigning costs for ancillary and unknown factors

Question:

How best do we assign costs for ancillary and uncertain factors like code improvements, infrastructure improvements, buildings where projects are inhibited by existing uses, and other project specific items that are unknown at concept planning? How does one define the unknown, which of these early uncertainties should be scoped by estimators, and what should be more thoroughly discovered by designers?

Answers:

Joseph McCoy: Get a budget team together early for a workshop, made up of all the experts—from engineering, design, construction side with estimators. Develop budget early on in a more thoughtful way. Won’t capture everything, but you’ll give it some thought, not in a vacuum, in a cube, but as a team. Have boards up to capture them together. Team approach is key.

Peter Knowles: Agrees. Secret is not to get each one of the costs identified, but to get each item itself identified. You can easily miss components of items, so break them down by components. Get a team together to brainstorm issues.


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Russell Feldman: Risk allocation is involved in every aspect of a project. You need to talk about uncertainties at this level, also talk about the risk here, e.g., bid competition vs. bid spread. Different contractors look at risk differently. Think how to contractually deal with risk. Go after specific items and clarify them.

Stephen VanDyke: Most projects on campus are small, and there is no Study phase for these. Others have done it, so it sounds great to get a team involved, but it won’t happen on the smaller ones.

John Mathews: We’ve been using Schematic Design for these to get the architects and engineers on board. We’re finding the earlier we can do discovery, the firmer the estimate.

Craig Holmes: Buildings that have remediation, access, asbestos, etc., issues keep coming up in DCAM. You have to consider going through the building with a specific expert, then you need a specialist firm estimator/engineer and have this built in as a lump sum.

Peter Knowles: One of the main implications in failure to get a correct budget is the owner not accepting what the experts are telling him/her. All sorts of political agendas creep into projects. Constant issue.

Tim Mansfield: Designers have to believe what they’re being told by the experts as well. We turn a deaf ear to what we’re being told. There is no silver bullet determining estimating costs. Take the 2003-04 escalations in construction cost. Who wasn’t affected by that? At that point it’s damage control.

4.2 Design Process Issues

Walter Wawruck in a landmark, 1983 paper, titled “Managing Project Scope,” writes, “Fulfilling the scope objective is the primary test of effective project management performance. It takes precedence over the constraints of deadlines and budgets. The failure to manage and control project scope (during design) is a principal reason why projects fail. He writes that it is the project manager's duty to ensure that the work of the creative professional is examined for fidelity to the client's requirements, and for compliance with the agreed standards of quality. The purpose [of design reviews] is to evaluate the decisions taken by technical specialists - not to review the correctness of the technical work. He states that there is no convenient single indicator of performance when it comes to scope.”

Except, we might ask, did the client feel that its money was spent wisely, and how well did the expenditure of those funds, managed by us, fulfill the client’s original design intent?

4.2.1 Steps for managing project scope

Questions:

What are checkpoints or steps along the way for managing project scope during design, and what role can the cost estimator play in helping project management to monitor and control project scope at those steps?


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Design Process Issues: Fulfilling scope objective is most important. Failure to manage scope is the biggest reason why projects fail. Regarding compliance and quality, did the client feel that its money was spent wisely, and did the funds as used fill the client’s request? What are the steps to manage scope along the way?

Answers:

Seamus Fennessy: Cost estimating must take a cost-planning role to check cost as you go, as opposed to just a chop-and-burn role. Engage cost consultants early. They should work for owners, and checking designs, manage changes by the owner, and feed the information back and forth. Architects need to use cost consultants better as well. Budget overrun problems happen a lot with high profile, international designers. Suppose you put a price per SF on an exterior wall with a stone facade, and the designer doesn’t listen to you and switches to special materials, e.g., 3-D stainless steel, you’ve just doubled the cost of that exterior wall. The first time the owner knows about the change in cost is at Schematic.

Mike Powers: We’re about to enter a pretty exciting time in the relationship between design firms, contractors and clients. Schematic Designs are going to be very different

in the future. Many firms have started experimenting with 3-D designs, much more pictorial approach. Designers are going to be able to walk you through three-dimensional designs a lot earlier. Will not have same issues we have with static renderings. And the estimating model will be involved in this approach. From a client standpoint, the participatory process will be even more fun, easier, and cost-effective. Will help a lot with decisions. Designers need to talk to the client, define it, before picking up a pen to design. One of the best pieces of advice that anyone in the design industry can give is to spend a couple of weeks talking about the project, understanding where the mysteries are. We haven’t even begun to talk about the fourth-dimension of these tools, the quantities—that will be a real change. More communications will be needed.

Mike Fuchs: When the Construction Manager puts that first budget on the job, everyone has to believe it! Design to that budget. We’ve seen a lot of wishful lines put on paper, and it turns out to be that plus. Everyone has to buy into that process as a team. Craig hit on it: The further you get into the project, the more difficult change becomes.

Steve Pelletier: Early on a team has to act as a team, so that every scope item is discussed, and if it has relativity, give it a number, unit rate, allowance, etc. The basis to design has to be in the forefront, and be honest with each other. Compare the next-stage design with the basis for the design. Admit when it’s true, “Yeah, I did add 2 classrooms.” Need a train of continuity. The Designer pulls the team together but the owner has to be very involved. They need to be decisive, and not waver. Owner is too often a big part of the problem.


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4.3 Cost Estimating Issues

4.3.1 The Cost Estimator’s role in UMass projects

Question:

As a follow-up, Craig’s presentation this morning recommends where and how cost estimating and cost estimators should be integrated into the design and design review processes. What part of this presentation is most relevant to UMass in this regard? What would you add? Make it UMass specific, what do you see them doing to play a stronger role in Design Development and Schematic Design. Many of you have been involved in our Design Program, and understand the role cost estimators currently play. What are the two or areas that you think they could play a stronger role?

Answers:

Jim McManus: The cost of the project changes every day during Design. Every time we put a line on paper it has an impact. To control cost you have to be aware of decisions on a very intimate level. Details seem to have obvious answers but it’s not always obvious as the project goes forward. Rest of the team has to participate with the cost decisions, not just the cost estimator; otherwise it can get out of control real quickly.

Tim Mansfield: Part of Craig’s presentation has become the theme of this discussion: How early should the estimator join the team? Traditionally, the cost estimator frankly comes in too late in the process, even at Schematic. A buy-in with owner early on is good, but we’re all hearing today that having the cost estimator in early is just as important.

Neal Fontana: Yeah, I’ve just recently done a couple of projects with Craig. We’ve come on at cost modeling stage, and it’s helped considerably. The owner decides they need to change the Program, the space, and we modify the cost model weekly, sometimes daily. By the time we got to Schematic we’ve been right within budget. Get the cost estimator in early.

Joseph McCoy: Some of the key words I think were “early” but also “often.” There can be milestone snapshots, but you can have several months between milestones. Capture issues by tracking logs, Excel, a cost trend log, etc., so it doesn’t hit you by surprise. Estimates need to capture weekly team meetings. Use teleconferences, whatever works logistically.

Peter Knowles: The question was how to improve cost reliability. I’ve never worked for UMass but I have opinions on lots of things. (laughter) Owners need to get away from milestone estimating, away from the philosophy of doing the pain in the neck deliverable and once it’s done, you put it in a drawer. It’s the best tool you can use, and not enough people understand this. Whoever prepares this, it can be used to control the cost of every component of the design. Not many people do it, but it can be done. Owners and design teams need to regularly and consistently cover cost.


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4.3.2 The need for summer construction schedules and the impact on project

cost

In his paper “Analyzing ‘Market Conditions Cost’ As A Variable To The Pre-Construction Estimate,” Walter Lehner from the American Society of Professional Estimators writes about an undefined, and difficult to assess, project cost reflected as a “higher than normal overhead and profit” that contractors put on bid projects for certain segments of the market.

This “market conditions cost” shouldn’t be confused with material and labor escalation, he writes, but reflects positive and negative profit shifts in the market from the “normal” contractor profit margins put in bid estimates. Lehner found that this profit shift does not apply across the board for all construction projects, but is more applicable to certain market segments or conditions.”

For example, he writes, “municipalities upgrading educational facilities who limit work to summer months due to absent student populations fit this profile, and may see this profit shift. School districts—or universities—unwittingly flood the market with this segment of work. Once a limited pool of state-certified contractors and sub-contractors are loaded up with a significant backlog, they may not bid any more projects for the summer. This exacerbates the lessening pool of remaining contractors who bid this segment of work. If already “heavy-backlogged” contractors do decide to bid the project, they may place an exorbitant overhead and profit margin in the bid proposal hoping for a “home run” in profits.”

This market conditions cost is not new to estimators; it is really “insider” information, Lehner writes. But, it is important to recognize that a “market conditions cost” does exist. He believes that the problems with estimating this cost becomes obvious because the ability to read market conditions six months or a year from today’s current condition is tantamount to almost guessing.

Questions: Either because of our volume of work, or our summer construction schedules, have we created a market segment or microclimate for construction at UMass campuses that is driving up our costs for construction? Or, conversely, are these market conditions costs a more common problem statewide for other public agencies?

Either way, what are the best approaches to beat the additional costs for this market segment?

Answers:

Neal Fontana: As an estimator I can say that you do have a backlog of work, but no matter what, you bid. Depending on the volume and the market there is an overhead in profit that’s marked up.

Rand Refrigeri: Having been involved in the construction market up here for quite some time I can say that, yes, you are paying quite dearly for summer construction. Peak bidding time is April/May, but contractors are already set with their projects by that time. They’re putting more profit on their jobs by then so they can get the labor. And you have a labor issue as well; this isn’t Boston. Best control is to get out there early.


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Jim McManus: Since it is a thin labor market, what if year-to-year you invited local contractors—not only the generals, but the major subs as well—to discuss what you’re future plans are? Let them know what’s coming up, what to expect. Also, invite people who have never worked here and explain what processes are involved in UMass projects so they have an idea of what to expect. There may be a lot of people out there that see the university as a big bureaucracy, something unapproachable, something hard to deal with. Eliminate that concern or impression and you might just find a more active bidding climate.

Tim Mansfield: I would agree with that. We’re starting to see that some projects become very active, heated moments for people. You might be cutting out some of your market because it isn’t understood. This proactive approach reduces risk, gets rid of some of the nervousness. You would have an ability to keep everyone on the same page and reduce the nervousness about what to expect from UMass.

Neal Fontana: It’s also very important to have a schedule that fits the work. For demos, for example, have them start in the winter and finish in the summer. This would help to keep to the schedule, and keep it within cost. Start as soon as you have an idea of the scope of the job.

Russell Feldman: Reinforcing this, we’ve all encountered the perfect storm. There has been a high-level of bankruptcies throughout construction due to Katrina, Iraq, etc. I served on the Construction Reform Commission that wrote the new rules and they’ve changed significantly for subcontractors and GCs. The discrepancies in estimates at the sub-trade level are more a factor of the “rules of the road” changing. One of the positive outcomes of this is that a lot of the bad guys are out of the picture; they’ve disappeared. The net effect however is a much smaller pool of bidders. It is particularly a problem at sub-trade level. One suggestion is to affirmatively reach out to new bidders, even to those who aren’t necessarily experienced in the public sector. The kind of strategic thinking that folks here have been talking about is very useful. Also think about bringing them to DCAM to get them certified. People at the sub-trade level aren’t used to all the paperwork, so right now they’re holding back. Bring them in earlier, deeper. Extremely good opportunity.

Mike Powers: I know from working in the private sector that there are advantages of getting quick turn-arounds during down times as opposed to waiting until summer. Get bid documents out in early February or early March. Do this and it will be like the Oklahoma gold rush. (laughter) The subs aren’t waiting for long-lead or short-lead items. As we all know, manufacturers don’t stock things anymore. Do this and they can organize to get things into their schedule much earlier, which may save you 2 to 4 weeks. The subcontractor may work with you to get in at night to finish the job. You’ll have a much more efficient construction period. They can do paperwork, ordering, etc. There is something to be learned from Joe’s slide that showed all the bidding in April. I would question whether April allows enough time for them to get deliverables.

Joseph McCoy: There is too much competition for subs to bid. There is so much work out there. We need to attract subs and remove obstacles—even perceived obstacles—on projects, make it easier for them. The thing about Amherst is that it’s really a city in the country. You’re impacted both on the remoteness of some of the larger projects, and the site logistics are like a small city. Make it as easy as possible for the subs: parking on site, time of operation, whatever can be considered, brainstormed, should be talked about.


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Seamus Fennessy: By bidding all your projects at the same time as all the other

institutions you put subs under pressure. The subs continue to get work year-round. Get your bid documents into their hands much quicker. At the same time they’re bidding for summer work, their estimating crew will be out working on another 50 or 60 million dollars of annual work. Some of your summer projects can wait till the fall. You don’t want to get them at their capacity for bonding. Shorten payment cycles, get payments out quickly and get a reputation for paying quickly.

After Lunch the Panel Discussion Session Continued

4.3.3 Appropriate kinds of contingencies and escalation factors in percentages

Question:

What are appropriate contingencies & escalation factors (percentages) to carry on projects with respect for a given project’s specifics, for example: new construction vs. renovation projects? What is the estimating process to derive these appropriate cost factors?

Answers:

Stephen Van Dyke: UMass could have specific contingencies based on this campus, fleshed out with some due diligence. There’s a wealth of knowledge that could help. The state Building Inspector said they could levy a range of extra charges.

Delwyn Williamson: I would be reluctant to give a set percentage on markups. There’s a variance on any particular project; each project should be evaluated on its own merits.

Jim McManus: Contingencies should be identified. Inflation is built into a bid, and you should emphasize you do not want those contingencies (inflation, design, estimating) should be shown extra, so that your estimate is shown in current dollars.

John Mathews: Gets sense that they’re getting a standard percentage rate from cost estimators. Do they look at specific project costs? Should UMass advise these estimators re: specifics.

Seamus Fennessy: There are industry standards for what you use during Design Development, Schematic Design. As a consultant you have to carry a Guaranteed Maximum Price (GMP), usually decided at mid-point.

Peter Knowles: You don’t want to be adding contingency amounts to peculiarities for UMass projects. Limit them to specific considerations at certain phases: Design, Schematic and Construction.

Neal Fontana: Consider general conditions: parking, pricing, etc.


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4.3.4 Best Value Engineering practices and their integration

“Value Engineering was developed at General Electric Corporation during World War II and is widely used in industry and government. Organized value engineering efforts analyze the functional requirements of systems, equipment, and facilities for the purpose of achieving essential functions at the lowest total cost, consistent with the client’s intent for functionality and performance, quality, and maintainability. The program reduces the Government’s acquisition or ownership costs while maintaining the necessary level of performance.” (From the Department of Defense, Value Engineering Program)

Questions:

What are “best practices” in terms of “Value Engineering” processes, and when and how should they be integrated into design programs? At what stages? Where do we end the process of re-programming or begin value engineering on a project?

Answers:

Mike Fuchs: If at Schematic or earlier there is a budget issue that seems to be leading down the path of Value Engineering, we’re recommending pulling a design team in to develop a list of alternates, versus waiting, hoping that the job will evolve into a DD set of documents that may fall into budget or that other factors such as competitive bids will bring the job into budget. Inevitably they don’t. This gets you into crisis management, knee-jerk value engineering which costs everybody money. It costs the owners money, still they don’t get what they want. It costs the design team money. And at the end of the day it costs the contractor and the construction manager money because when you throw Value Engineering out on the table without considering and analyzing all the factors inevitably something isn’t taken into consideration and you don’t change the value that was put on the table. We’ve been trying to advocate it early on, and develop a list of bid alternates or something much more defined, even if it’s just a narrative that goes through the entire design discipline that everyone has had a chance to look at.

Mike Powers: Value Engineering is very misunderstood. It’s gotten a negative connotation. It’s not the thing you do to fix a job at the end. The design industry has to do a better job of educating our clients on cost benefit analysis. You need to look at alternatives. Need to explore the universe of options available to the client. I personally think the best thing a client can tell you at the end is that you have a completed job that works exceptionally well for them and they feel that they got more for the money spent. You get the most impact from Value Engineering when you do it at the beginning of a job.

Peter Knowles: I agree a hundred percent with Mike. If you’re doing Value Engineering during DD, you’re not doing Value Engineering, you’re really doing cost reduction—we shouldn’t kid ourselves that it’s Value Engineering. It’s a process that’s quite descriptive, with achievable goals. It’s very different from saying, “Oh, we have to cut five million out of the job.” If you’re over budget, you can do cost cutting later in the project.


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Joseph McCoy: True, formal Value Engineering according to SAVE—the Society for the Advancement of Value Engineering—takes two to three days and involves the entire team. When we’ve had formal Value Engineering meetings with private clients it’s involved the users, the design team, the contractors, sometimes the subcontractors, facilities, and it’s a very strong atmosphere of brainstorming. Nothing should be pooh-poohed, it’s a time of creativity when ideas are put out there that could be first cost-adds, and life cycle of operational cost reduction. That’s the formal definition. Informal Value Engineering is when a cost estimator reduces cost in his head. Again, this needs to be done early on in the project.

Steve Pelletier: Don’t do Value Engineering on the fly. Create the budget based on the information available at the time. Following a reconciliation of the budget—within two to four weeks following the creation of the budget—then begin Value Engineering. Don’t spread it out to be constant re-estimating from one budget to the next, don’t wear out your welcome in the marketplace.

4.4 Risk Management

4.4.1 Implementing Risk Management strategy in UMass projects

“Managing a project’s costs encompasses more than just cost estimates—it also includes Risk Management. Risks on construction projects are typically financial in nature. Therefore, early in the project an assessment of risk is crucial to establish the budget parameters within which the project must be completed. The calculation of project contingencies should be based on an assessment of the risk surrounding the project, such as site issues, availability of bidders, method of procurement, AND general market conditions. As risks are mitigated, in other words, as site investigations are performed, programs finalized, and designs completed, contingencies can be reduced.”— Washington State Department of Transportation

In the Washington State Department of Transportation, a workshop team uses “systematic project reviews and risk assessment methods to identify cost and schedule risks. Market forces are treated as risk events in the workshop. The probability of these events occurring and their potential impact to project costs are estimated. These assessments include the availability of skilled labor, supply of materials, the number of bidders affecting competition for the work, the type, size, and 'packaging' of the work and its influence on the number of bidders, and how the timing of the advertisement influences bidders and their responses.”

Questions:

How should UMass integrate a Risk Management strategy on its design projects? Who should participate? At what stages of study and design is it appropriate to evaluate risks?

What project or market conditions do Contractors today perceive as Risky, and how does this perception of risk affect whether they bid on a project? In particular, which UMass projects are seen as more risky to contractors than others? How do they determine a price for risk in their bid?

Answers:

Steve Pelletier: Itemize the potential risk in the budget. Then develop a game plan early to diffuse the risk and make it more manageable so that it can be budgeted properly.


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Joseph McCoy: Cost drivers need to be identified early on. If you’re building a parking garage and it’s pre-cast, that’s the biggest cost driver. If you need to have that garage built in six months then you have a major risk factor because it’s probably not going to happen with the lead-time on that particular material. Timing has impact. Identify what the building elements are so you can discuss them.

Seamus Fennessy: In smaller-scale projects risk is covered by design contingency but this is not true of large projects, e.g., highways, tunneling. That level of service might not be necessary at UMass.

Mike Fuchs: After an estimate—whether it’s a hundred thousand dollar job or a hundred million dollar job—we sit down for a day and go through line item by line item and assess risk on each one. We find it very effective to take this time to attach risk contingency to each line item. (This is with the owner, the construction manager and the architect or, depending on the job, the architect and consultants come in for a portion of the meeting.)

David Longo: There are certain disciplines of work that have more risk analysis. My background is civil engineering, site work and utility work. Get as much geological info in advance as possible. The site needs a lot of risk assessment; get as much info as you can up front to reduce risk. Too often geotech is the bastard child, left to the end, and surprises at this stage can be very costly.

4.4.2 Contractors’ perceptions of “risky” projects and how they mitigate this in

bids

Questions:

What project or market conditions do Contractors today perceive as Risky, and how does this perception of risk affect whether they bid on a project? In particular, which UMass projects are seen as more risky to contractors than others? How do they determine a price for risk in their bid?

Rand Refrigeri: Something I’ve run into is the “unanticipated event,” such as occupants of the building showing up unexpectedly. This really affected cost. And we had to look at liability, too, which can affect the schedule. We had to take extra precautions if occupants returned early or continued to live on site during the work.

Peter Knowles: Anecdotally, the amount of risk a contractor builds into his price depends on how many other bids are on the plate. If he has many opportunities out there, this affects the entire price, not just risk.


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Tim Mansfield: Again, this relates to the season of bidding, and the most effective time to bid should be considered.

Craig Holmes: In DCAM we found that escalation risk gets put on as a standard escalation, but if you actually look at it month-by-month it’s pretty much sinusoidal. There are peaks, so the average for the year might have been 6 or 8%, but for one trade it might go up 15% in one month; the next month in that same trade it might only go up 3%. If you’re a contractor trying to predict escalation and you’re seeing, not an average 6-8% but a range between 3-15% you’re going to price the risk at 15%. So we’re actually getting escalation risk up to 3 times higher than the going escalation. If the escalation had been pretty static, predictable, it would have been much easier to pick. These are implicitly built into the estimates, too, making it hard to break out. There are more variations in the bids with jobs with volatile materials as well. When copper, for example, goes up, everyone starts to worry about how high and they will continue to build in risk at the escalated prices.

Russell Feldman: I wonder if, in effect, the owner is requiring every bidder to make the worst possible assumption about where materials will be at construction? As an owner, it might be best to take the risk off the bidder and possibly lower the premium the owner has to pay.

Christopher Musorofiti: We’ve started to do this on public construction, specifically on a project in Needham.

Seamus Fennessy: An Auburn school had a clause limiting liability on steel. That job was done at $2000/ton in a contract where the contractor’s liability was limited in the contract. In Cape Cod, albeit a smaller project, they paid $3500/ton just because the risk for escalation was taken away from the contractor and put on the owner.

John Mathews: UMass Building Authority did this to control the risk of rising steel prices in purchasing the new boilers on the new, Central Heating Plant project.

4.5 Competitive Bid Processes

4.5.1 How contractors decide to bid, and how UMass can take advantage of

this

Greg Stack from Northwest Architectural Company in a recent article entitled “Schools Losing out as Construction Costs Soar,” wrote that the cost of new elementary schools in the Pacific Northwest has risen as much as 68% since 2001. “School construction is a risky business for contractors, he writes. It is by law (CM aside) a low-bid competitive situation. From a contractor’s viewpoint this forces down profit margins, and they must work with the lowest-bid subcontractors — subs they may never have worked with before. They must comply with many public procurement laws. They are subject to onerous contract conditions that shift much of the risk to contractors. They must operate on tight schedules. They must go through multiple layers of bureaucracy to get construction changes approved. They are strictly limited on the markups they can charge for changes” — and the list goes on.

Stack writes that all of these factors make school construction less attractive to contractors. “Many recent projects have had only one or two bidders, with some subcontracting categories receiving no bids at all. When this happens there is no way to control costs, and we see a spike in bid prices beyond the underlying escalation”, he writes.


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Stack recommends that Owners and designers “find ways to make school projects more attractive to contractors. Thorough documents, lowering risks, fair contract conditions, and a reputation for fair treatment of the contracting community is a must to make (school) projects attractive to bidders in a competitive market.”

Questions:

How do contractors make decisions to bid a State project, and which of these factors can we affect? What are some ways we can use as State agencies to improve our communication with the construction market for upcoming bid opportunities?

Answers:

Jim McManus: Direct communications with the industry. Explain the process. Let them know what your expectations are, let them know the bureaucracies. Being fair is a key element, extend courtesy to unions. Let them know what to expect on projects. Reaching out to these groups goes a long way.

Steve Pelletier: Once you’ve notified subcontractors you have to make sure they build into their schedule any conflicts on your campus and other projects in the area. DON’T make them pay for or have to travel for documents. There are some subcontractors that won’t pay a dime for documents. They won’t go out of their way to get them. Make them free, accessible, readily available, complete and concise. Have them shipped out.

John Mathews: Is there an ideal time for contractors to pull together documents?

Steve Pelletier: From a general contractor or CM point of view? We like a four-week period of document availability. This allows a pre-bid meeting following the issuing of the documents. The bidders have a chance to look at the documents and develop questions. Have a pre-bid meeting on site, with the architects and engineers available to field questions. Then put out the addenda so that they’re available to the bidders at least seven days before the bidding. You can’t come out at the last minute with another addenda and another addenda. You’ve seen some public projects in which the addenda are bigger than the original document. (laughter) Those jobs are not ready to bid.

David Longo: The proactive approach is best. An even earlier approach might be bringing in contractors you’ve already had on projects, get them in at the start. Get it right from the horse’s mouth. Ask them to critique how you did before, how was the project management in terms of schedule? Ask what they’d change. Some subcontractors who haven’t been here before may not want you to know everything.


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Russell Feldman: Invest in your subcontract community. Get your subs certified, work to support this community. You’ve got some competitive advantages (to city projects, for example). Over that dreadful summer, you’ve got housing. If you can make that housing available, you may be able to attract people from outside the region, and let them live here while they work.

John Mathews: Are you suggesting that we have something out here that pulls in uncertified subcontractors, walks them through the certification process, and somebody will be here from DCAM?

Russell Feldman: Absolutely.

John Mathews: Okay, that’s a good idea. We wonder how far out in time do we have to go to get on contractors’ bid schedules? 3 months? 7 months?

Jim McManus: For what I call the “summer slammer”? More time. Give them as much time as is available. That’s the type of job you need to bid on early enough to be able to procure the work, get all the drawings together, all the equipment on site. Subcontractors can’t be invited in April to bid on a $3 million summer slammer and be expected to perform well.

Steve Pelletier: Give them as much time as possible.

Christopher Musorofiti: You need more than 14 weeks lead-time.

Mike Powers: To get the subs to want to work with it really comes down to payment and treatment. You can develop that kind of atmosphere at UMass. Especially small subcontractors: it’s more difficult for them to wait to get paid. If they’re paid well and treated well they’ll put a priority on UMass work, and they won’t have to decide on specific projects, but be open to all projects. They’ll care about the quality of the work, too, they’ll like the payment stream. The best case studies done around the United States show that clients who have done this well, who provide that kind of re-commitment to the quality master craftsmen that we used to get and we don’t see enough of anymore, increase the value and quality of their projects. I do think it starts with money.

4.6 Alternative Methods of Construction

The Mass.Gov website states that under CM at risk, a public agency may benefit from:

• The participation of the CM in design and phasing decisions so that costly design details or phasing plans can be avoided.

• The CM's ownership of the construction budget through early cost estimating leads to a Guaranteed Maximum Price, or GMP, for the work.

• Another benefit is the ability to "fast track" the start of construction by bidding early trade contracts which the CM will ultimately incorporate into the final GMP.

• Finally, CM at risk leads to a spirit of cooperation between the owner, architect, CM and trade contractors due to a defined allocation of project responsibilities.


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4.6.1 CM at Risk versus Design-Bid-Build

Question:

Is CM at risk better able to control the price of market factors and the costs of construction, including contractor profit margins, than a design/bid/build approach, and if so, how?

There is a consensus here that sooner to bid is better. Some of the benefits of CM at Risk are fast tracking, spirit of cooperation, and more bidders. Is CM at Risk better able to control prices and risk than Design-Bid-Build (DBB) approach, and if so, how?

Answers:

Seamus Fennessy: No. You’re going to carry a GMP contingency. A lot depends on the Construction Manager (CM). There are a lot of CMs who do many, many change orders. 700 on one in particular! 30% change orders is the wrong design team. There is a lot of value if there is a fast track, etc., and if you’ve got the right CM, it saves cost, but if you get a bad one, you’re in the same position as you are with a bad general contractor. To speak for the CMs, certainly there is a lot of value in having one on board for a complicated project or one involving new construction technology.

Mike Fuchs: Counterpoint: ninety percent of our work is done as CM and I would probably have to disagree wholeheartedly with everything (Seamus) said—except the last bit. The value comes in especially in the more complicated jobs if you can put the plan together to build the job and outline all the logistics for the it, and really spell that out to a sub-bidder who can then rely on the CM to put it in place in the fashion in which it was outlined in the bid process. Versus the bid process being a set of documents that’s thrown out and it’s every man for himself, the electrician thinks he can do the job faster than the CM. There are too many places for argument built in. Plan it up front prior to the subs actually bidding on the project. I’ve never heard of a CM asking a sub for a GMP with contingency but I’m sure people do it. If you’re truly a CM with an open-book process, I don’t see a liability.

Question:

Is there a difference between a CM going out to bid for the subs or procuring them with a Chapter 149? Is there a difference in the price?

Mike Fuchs: Joe and I talked about the UMass subcontract bidding prices compared to using filed sub-bids but the analysis wasn’t clear. “We can entice people to the table to compete out of the area to do work.” For the North residences we brought people out of the area because there wasn’t labor here to do the work. I can’t tell you if your initial bid will be lower than a filed sub-bid, but the final cost will be lower, just because some of the filed sub-bid regulations ask the general contractor to do the staging. It’s an old law. We put more money in staging than a mason will, so those things trade off. There are a lot of factors that have to be rolled into it.

Peter Knowles: I’m going to agree with both my colleagues. (laughter) There certainly are advantages with having the CM involved. Does the CM procurement method help control costs? I’m still out on that. I think there are regional differences. I don’t see that it does control costs. I think there are many advantages to going that way, but I’m not sure cost control is one of them.


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Craig Holmes: I’d add a couple of things to Peter. First, what we’ve seen on the Hill with large projects is that there has been considerable variance on the subcontract bids as would be found in filed sub-bids. However the process provides transparency to the client and consistency for the CM, even when the lowest bid is not the one selected. The challenge is that when a CM is given authorization to start the job with the GMP as yet undefined, the state of “What should have been agreed upon when the drawings are complete” can be too fuzzy. Shared savings, finishing the job on schedule result in lower costs. If the letting of a series of subcontracts before the GMP instead shows increasing costs, then this becomes part of negotiating the size of the GMP. DCAM’s 24-floor tower rehab project (in Boston) has to be managed as a CM at Risk because we don’t have all the information at the beginning.

Joseph McCoy: All my colleagues made good points both for and against CMs. We do more and more under “special projects,” but the fact of the matter is that early planning and working as a team, as long as you have the right team in place, working with a CM gives you an advantage. Early on you as the owner have to make the decision based on the complexity and size of the project which way to go.

Tim Mansfield: There is another variable here, and that’s the quality of the documents themselves. As we all agree, there is no such thing as a perfect set of construction documents. So even going to a hard bid has imperfect documents. There are a variety of documents you can put out there, there is no set rule (about content) for CM documents. On one GMP project, a particular set of documents can function quite well; yet on another different type of building or a difficult site, that same set of documents may be problematic. There’s a nuance of what the documents say that has to be taken into consideration.

4.6.2 Advantages and disadvantages of CM at Risk

Questions:

What are the advantages and disadvantages of CM at Risk to a State agency? In particular, what economic advantages outweigh the sole negotiation of a GMP with a CM, and what tactics can an Owner implement to strengthen their hand in those cost and price negotiations? As a public agency, are their models where 2 GMPs have been obtained from two CMs at the same time?

Answers:

Seamus Fennessy: The renovation project at the College of Pharmacy in Worcester used 4 GMPs. This does get a good level of competition into the CM contract for the general conditions. The CMs were asked to compete on a common set of documents. There would have been a GMP contingency allowance in this case.


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Jim McManus: We’ve seen a couple of interesting contractual arrangements. You can do a two-stage GMP, where there’s an “initial contract GMP” obviously with a reasonably healthy contingency. Then when the documents are complete there’s a carefully defined final GMP to relate to the actual buyout of the subcontracts and the General Conditions amount. There is also a separate GMP guarantee in the General Conditions cost so that all the various elements are pretty well covered. Not every CM is willing to participate in this contract but several have and it’s worked very well. In controlling costs, you get to see what the costs are in a CM at Risk project. The big advantage of CM at Risk, to my mind, when it comes to controlling costs is that you get to see what the costs are. When you go to a low bid general contractor you get one number. You don’t know how that money is getting spent. With a CM you can follow the money.

Charles McGrory: We’ve done several projects in which the CM is bidding General Conditions as early as Schematic Design and the other part is subject to a later GMP. CM knows scope of the project and he’s committed to the General Conditions pricing and the rest is an open book. The CM will show you the sub bids. He’s working with the subs on the GMP. Select a CM early, know the scope of the project, and keep to the General Conditions. This is not a “cost-plus” since eventually he’ll give you the GMP when the drawings are sufficiently developed. The CM’s part of the contract is essentially fixed with that initial General Conditions bid.

Russell Feldman: That’s pretty much the way the statute is structured, so that it’s specifically General Conditions and other factors that are put in the CM’s proposal for a GMP project. But as I recall the statute also stipulates there’s nothing earlier than 60% documentation requiring a GMP. And I’m not sure that statutorily you could compete for a full GMP.

John Mathews: I don’t believe statutorily that you can have more than one CM at the table to compete for GMP. Is there anything that prevents us from going out to seek competitive GMP fees for construction? Conversely, looking toward the estimators and designers, are you in a stronger bargaining position or can the CM turn to you and say, “That’s the price, I don’t care what you found.” How do you negotiate on a level playing field with a CM?

Mike Powers: A lot of our work is CM as preferred delivery choice, except in the public realm (on large projects). The big advantage of a CM is that this is really about people. Designers are hired based on experience, chemistry; this is a big change, you’re hiring the people not the firm. With CMs, we spend a lot of time in the interview process with the client really trying to understand what team the CM is giving us so that we can basically eliminate confrontational situations. We want someone who’ll work with us and knows the type of project. It is about people.


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Mike Fuchs: Just to add to that, you get a chance to meet the people, where in a big job you’re going to get the hard-nosed project manager that’s looking for every penny he can squeeze out of a job. Re: the negotiation factor, if you’re working with a true CM, who’s used to the open book process, we’re out soliciting competitive bids just like you’re soliciting competitive bids from general contractors from subs. We’re opening these bids with recommendations about accuracy of pricing. And I hate to say this but if I think something is worth a dollar and all the estimators think it’s worth a dollar and six subs says it’s three dollars, it’s three dollars. We can try to find out why, but those are the guys that are going to put the work in place. The subs usually know the correct cost, so you’re getting the best of both worlds. You wind up with a team you have confidence in and one that can get the lowest cost.

Peter Knowles: A couple of issues that we run into in Denver—one hates to keep beating up on the contractors (laughter)—we’re finding more and more frequently that CMs are choosing only to bid with people they feel comfortable or familiar with, and we’re losing the competitive edge. The owner doesn’t always get the lowest price. And where CMs are convincing owners they need to self-perform great portions of the work, the costs are escalating incredibly. For example, if you self-perform the concrete trade, in essence, 30% of the job has not been competitively procured. There are some downsides to CM in my opinion and those are 2 real instances that we’re working through right now on many projects.

Mike Fuchs: But most educated owners don’t allow the CM to perform work unless they competitively bid it open book.

Craig Holmes: The weakness in this is when it comes before the GMP. Once you have the package nailed down in content you’re okay.


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5 Part IV — Open Q&A Session

Question: Regarding bringing in a broader team early on in the project and using cost estimators as a tool, owners need to believe, but as an owner, the cost estimate has been wrong every time. Do you have any examples of projects in which this worked, particularly in the government sector? This environment is complex, dictated by regulations and statutes.

Seamus Fennessy: Had one with Brown University, they developed project in house, had geotech based on comparable buildings on site. They didn’t like what they heard because it was significantly higher than they estimated. And then eventually this was reconciled and they were able to proceed with matching expectations to similar projects.

Tim Mansfield: For a private client, contractors are brought in very early, first design presentation, and Value Engineering happened at the very beginning. Estimate develops tangentially with design. $4M project came in .5M over at start. They nailed the price down to $4.1M and it seems to be holding. Very positive experience. Compromises all the way along the line. Study phase in DCAM has become much more developed, and gets into Schematic Design phase level of detail.

Craig Holmes: DCAM has done this on several projects. You can skip doing detailed pricing during Schematic Design this way.

Charles McGrory: Some of us have an advantage with our background in Quantity Surveying. QS’s use this process, and it would be very useful in this country.

Steve Pelletier: It’s becoming more common that CMs are invited earlier. We’re providing pre-construction costs; have had clients for whom they’ve done this for during Feasibility.

Jim McManus: This is becoming more commonly used. Job went from $52M down to $48M, even though cost estimates came in higher in the beginning. An initial GMP came in at $52M and was subsequently reduced as project went forward. There is a CM on the project more often in both public and private jobs.


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Question: Scope changes are hard when it relates to quality, not additions, etc., to programming. Is it a good idea to talk to the client about the range of cost based on material and other design decisions?

Peter Knowles: We’ve done that by attaching a range of cost with a narrative, so the client knows what to expect for the money.

Question: We have design guidelines that begin to describe the kinds of things UMass is looking for in their buildings. So UMass is assuming a level of quality that the designer may not know about. E.g., thicker copper in plumbing. Should the owner talk to the team and present these issues to clear assumptions?

Seamus Fennessy: Yes. You can’t just present broad scope.

Craig Holmes: Specify at detail or single line level, and then have the cost consultant walk it through piece by piece with the client. There should be a review of the site and particular conditions applying to this specific job in the beginning, so you’re not dealing with a nominal square foot. Program has to be driven off number of people, number of labs, etc., otherwise it runs off the rails based on loose expectations.

Mike Powers: When a designer comes on board it is his/her duty to assess the project; you want to make the project as exciting as it can be. Institutions make the most difficult clients because of the number of end users. The cost model is really important but the experimentation with this model is equally as important.

Neal Fontana: We just went through several cost models at DCAM and it went right through to Schematic Design, and it depended on everything being factored in.

Charles McGrory: Team approach at the beginning is the best approach you can have. Get everyone to sit together, so everyone is pulling in the same direction. There will be less opportunity or need to blame.

Question: Today’s symposium painted a rosy a picture of how everyone came together as a team and everything worked, but the reason we’re here is because on our projects, even though teams came together early in many cases, the numbers kept escalating until they were significantly higher, 30-50%. Would you address this?


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Craig Holmes: A lot more traditional designers are involved so that at the end of each phase, they throw down a whole bunch of drawings and say, “Do this.” You do have to experiment and go back to the client, not every 4 months, but much more frequently, every month at least.

John Mathews: I have yet to see a cost estimator on the campus but we keep getting cost estimates, so this team approach would work.

Craig Holmes: Cross train a lot of people as cost estimators. DCAM also has house doctor cost estimators. Bringing specialists in helps, e.g., roof specialist house doctors.

Russell Feldman: DCAM has assembled teams of house doctors and they become part of their team for a specific project. You can put a high level team together to establish the budget using DCAM’s approach. This team then develops an RFP for a comprehensive design. The team better define the project, which turns into a 15-20 page document for the designers to look at. Teams can be very comprehensive and detailed, e.g., Hazmat folks, and this defines the decisions before the project begins.

Question: We’re still dealing with pre-design as this vague sort of one-off deal, couldn’t we formalize this process to think of this as a holistic phase?

Craig Holmes: We’re writing the book (DCAM Study Manual) because there is a need to formalize it. The process has to start way back at the capital-spending plan, and each project moves through recognizable milestones.

Question: Private sector experience says that pre-design goes beyond Schematic Design, and yet fees and effort and time isn’t allowed for this kind of significant development.

Craig Holmes: This is where the Quantity Surveying techniques come in.

Rand Refrigeri: The problem happens in small growth creep between preliminary development and design. We could spend a great deal of time nailing down numbers but we’re still trying to predict something. You can’t count beans and widgets that far in advance. You might want to think about what experts you want to put in and when.

Tim Mansfield: We’re moving away from snapshot, over-the-transom estimates. The fee structure will have to change. It is changing slowly, but we need a new paradigm.

Mike Powers: This whole emphasis on the up front work is fine, but the most important element is to get inside the designer’s head. If it’s done in an office in another city and those conversations don’t take place you see these scope creep items. You need people meeting together and doing the estimate together so that everything is accounted for and doesn’t stay in the designer’s head.

Mike Fuchs: We want to sit down with everyone, user groups, facilities people, as well. Things can be recognized early on if people pay attention to each other. You want to avoid the “W” factor. We can get together and plan and come to an agreement and all go away and problems come up out of the trough. Get all the details hammered out. It makes people accountable.


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Peter Knowles: Milestone estimating is absolutely worthless. It’s written into every contract in this country. It’s reactive, why would you want this? You want proactive cost control. This means having those individuals who implement the project in the same room with the guy who did the estimating, and constantly reviewing and reporting budgets.

Joseph McCoy: We had a continuous estimating schedule. Addressed materials, then mechanical issues. After every job we have a lessons learned phase and these are gone over at the kickoff of any new project. We keep clear lines of communications between all parties. Face-to-face communications are best.

Question: How much new learning needs to take place for this integrative approach? (LEED for example.)

Mike Powers: Sustainable design concept should be practiced on every project. The client needs to think about the percentages when it comes to future use of building. You need a LEED-certified philosophy approach to the design process. The client has to decide how high you want to pay: from 0-7%.

Question: Re: Basic services vs. LEED-plus: Any payback in admin costs on pre-construction?

Seamus Fennessy: Pre-design provides more benefit and less change orders. Also avoids RFIs.

Last Question: John Mathews: What do you for construction administration for fees?

Jim McManus: Putting someone on site right off pays at the end, for example. They’re raising the fee structure and this has to go to administration. Owners are demanding it. There’s a positive payback.

Tim Mansfield: Allow one-third for SD/DD, one-third for CD, and one-third for a full-time employee all the way through Construction Administration. It’s a lot of money, and owners always ask if this is this necessary. Frankly it is, and the way the industry is going, it pays off.

Craig Holmes: Have an architect on site with authority, or you’ve lost the value of that administrative person.

Russell Feldman: Think of risk allocation. This approach increases your ability to defend decisions.