Project owners need to beware of overkill when selecting an appropriate procurement model for a project and to not be tempted by the hottest new trend when there won’t be a good return on investment.
That was the key message delivered by Brian Maksymetz, veteran director of project development at Graham Construction, during a Toronto Construction Association webinar held recently. The presentation was titled Navigating the Tsunami of Collaborative Contract Models.
Maksymetz is an advocate of Early Contractor Involvement (ECI), which he explained is not a procurement model but rather a procurement philosophy that emphasizes contractor participation early in the launch of a project but only to the extent that it is a good fit.
It’s not one-size-fits-all, he said, and don’t be hypnotized by the “sparkle of this model or that model.”
“Last year it was Integrated Project Delivery (IPD) that was the bright shining light and this year it’s Alliance and next year it’ll be something else, and everybody kind of gravitates to that and thinking maybe we should be doing this simple sewer project with an Alliance,” said Maksymetz.
“It’s kind of overkill in some instances. So a key message is to choose the right model for the right project.”
The benefits to procurement models such as IPD and Alliance that entail extensive involvement by numerous parties during the early phases are well known, Maksymetz suggested, but it is costly for the owner to have multiple contractors, consultants, subs and trades involved in months of early meetings and in some cases the costs outweigh the benefits.
“Owners should use collaborative contract models where you can demonstrate a return on effort or return on investment,” he said.
“Use the right contract procurement model based on the risks and opportunities in the project.”
Discussing return on investment, Maksymetz said, “If you spend an extra million dollars hiring a contractor to get involved with your team, what value was created and can you show the finance department, ‘we spent $1 million extra but we generated $10 million in savings.’”
But there is always value in consulting with the contractor early on, he said, discussing ECI, with true three-party collaboration – that’s the owner, the designer and contractor.
“Your ability to influence the cumulative project cost is highest at the start of the project as you make the big decisions and declines as you spend more money” and as time passes, said Maksymetz.
The later that changes are required, the higher the cost of change, he said, and the greater effort it takes to make the changes with more moving pieces to implement the change.
Maksymetz distinguished between procurement models by identifying a “sweet spot” where the model fits the type of project, asking Graham colleagues Natalie Closs and Andrew Hill for their insights.
Closs said the sweet spot of design build is well-defined projects that are greenfield and less stakeholder-driven. The owner is not involved in detailed design and the builder is not involved in pre-design. Examples include new warehouses or retail, greenfield transportation projects, pipelines or transmission lines.
Hill said the sweet spot of progressive design build is projects with lots of risk transfer or projects driven by operation and maintenance costs. It’s appropriate when an owner knows what they want and requires involvement in designs. Examples are brownfield water treatment plants, complex transportation projects and hospitals.
Maksymetz said the sweet spot for IPD is projects in which input from end users and subtrades is a critical factor to a successful outcome. It’s particularly useful in subcontracted construction sectors, such as buildings and public facilities.
A fourth example was Alliance. Maksymetz said the right time to use Alliance is when the owner is having trouble attracting bidders to the job because the risks are hard to define. But the owner can end up allowing the designer and the contractor to come in and work in a risk-free environment, he said.
“We see a lot of projects going to Alliance now where, I’ll say it, the owner is giving too much away to the construction sector,” said Maksymetz.
Maksymetz later made a pitch for more use of qualifications-based selection, which among other benefits generally ensures that the contractor will assign its most qualified staff to a project.
“By connecting the construction to the collaboration opportunity, you’re going to get the A team,” he said.
Follow the author on Twitter @DonWall_DCN.
I agree with Brian and would add that in the case of municipal environmental infrastructure projects with an operations and maintenance component (O&M), the O&M provider needs to be part of the early engagement with the owner and design and/or builder. This helps eliminate or mitigate issues related financial and project risks and costs.