New Healthcare Construction Projects: Why Use Design-Build?

There are three main reasons that have led the healthcare industry toward consideration of the design-build delivery method in some form or another for new construction projects:

1. The healthcare industry is looking for more guarantees earlier on in the process.
2. The design-build process is becoming more trusted by the clients in general. This trust is based upon the growing number of success stories documented throughout many markets and for many project types.
3. The institutions are interested in a collaborative approach that maximizes the quality, scope, and creative ideas while minimizing the costs.

Let’s examine each in detail.

1. The healthcare industry is looking for more guarantees earlier on in the process.

Healthcare construction clients want to create a team that can give them the confidence to move forward with projects, knowing that they have a good definition of the scope and price of the work. The healthcare industry typically has a somewhat bureaucratic structure that makes the owner’s management team accountable to many others on up the chain of command, for example, a board of directors or stock holders.

Design-build allows the owner’s management team to present project solutions with confidence and say, “This is our intended scope, this is our maximum cost, this is our completion date, and we have guarantees.” This is possible only with a single-source approach that includes a design-build leader and a full complement of capable players focused upon the task.

In years past, the methodology of design-bid-build had gained credence partly on the often mistaken premise that by using different companies for design and construction, the potential for corruption was avoided. It was a mindset similar in many ways to the government approach - if you let competitors bid for a project, you get the best price, and no one can say you played favorites.

The problem, however, is that at the end of the day, where you sign off on the deal is not ultimately what the project will cost you. Once an owner has signed a contract for design-bid-build, it doesn’t mean he’s done spending money. Research by Penn State has shown that the final cost likely will run higher and project delivery will be 33 percent slower. Plus, your bid number will be based on a precise set of documents and if it turns out that something was overlooked in the design, there is a lot of finger pointing and blame assigning, in addition to the higher costs.

If you have ever witnessed what takes place in the conference room of a contractor hard-bidding a project in the moments before he calls his number to the “bid runner” waiting outside the owner’s bid location, you would very quickly understand why the low bid is a crap shoot. A majority of the bids arrive to the bid team within minutes of bid time and there is no feasible way to analyze the different scopes or qualify some of the low bidders. In today’s competitive marketplace, the contractor usually is compelled to incorporate the lowest subcontractors’ bids into its final price. This methodology is inherently flawed, leading to mistakes within subcontractor scopes and prices, which lead to requested extras and conflicts between the three primary parties — owner, architect, and contractor.

This methodology also forces the contractor to maintain a very rigid and often self-serving interpretation of the construction documents. It will sometimes lead to a deliberate investigation by the contractor searching for errors and omissions in an effort to increase the cost of the project and lessen the problems created by the hard bid process. I have often heard the claim by some general contractors that “I’ll make my money on change orders.” This is clearly not in the owner’s best interests.

A design-build approach allows a single team to be more thorough developing the design in conjunction with a corresponding estimate. In a competitive design-build process, the owner should select a team based upon best overall value, which might include design solution, team personality and experience, and cost and schedule. The winner’s proposal establishes the baseline for the project with the promise of owner-involved reevaluation and conformation. Ultimately, guarantees are given to the owner at an early stage in the process but, more importantly, these guarantees come with no strings attached.

2. The design-build process is becoming more trusted by the clients in general.

As more design-build projects are successfully completed, greater trust is building among all owners, including healthcare clients. In years past, there was some skepticism about having design and construction coming from the same source; some people felt it was a conflict of interest. In the past, some people who called themselves design-build specialists were in fact just general contractors who latched onto the design-build label but not its principles or practices. These cases generated negative publicity for the design-build methodology. Now, however, agreements are entered into with confidence that all the partners can be trusted. The real players in the market have a true design-build collaborative philosophy and work together with the owner in an open book arrangement. At Clayco, we really act as the owner’s advocate as we go through the process.

The results justify the increasing faith in, and use of, design-build for healthcare projects. Design-build not only produces savings for the owner/client, but ultimately for healthcare consumers as well. How? Certainly, the consumer’s price point drives everything. Cost, insurance problems, and other factors all put pressure on healthcare organizations to deliver a better product at a lower price. Simply put, design-build offers healthcare clients the best value for the lowest cost, without the headaches and heartaches that often accompany other approaches.

3. The institutions are interested in a collaborative approach that maximizes the quality, scope, and creative ideas while minimizing the costs.

Design-build solves problems before the design is completed, without sacrificing aesthetics, functionality, or quality. The difference is that the design team can rely upon real input from the contracting vantage point as design decisions are made. It is even better when the owner can make educated decisions regarding alternatives as the process moves forward. With design-bid-build, an architect can suggest design solutions and specifications but cannot fill in the missing parts concerning real costs and schedule impacts associated with potential options.

Design-build gives the owner a guaranteed price and a more efficient building at a lower cost because the true approach to the final solution comes from a collaborative and all-inclusive analysis. The process puts the project first and the individual players second, “Let’s all work together to reach the best possible solution through a process of evaluating many alternatives.”

One of our projects now nearing completion serves as a good example to illustrate some of the best practices that the design-build approach provides. Clayco broke ground less than a year ago on a 27,724 s.f. surgery center attached to the existing St. John’s Mercy Hospital in Washington, MO. As of the writing of this article (early June), our company is anticipating a completion of September 2005. This all was achieved while the hospital remained fully operational.

This was true design-build collaboration from the start. Clayco took a concept that was handed to us in the form of an RFP (request for proposals) and bettered it by looking at how the project impacted the existing facility and the existing functions that had to continue during construction. For example, the routing of the mechanical and electrical systems was proposed to run above the ceiling of the existing operating rooms – in a facility that was already short of operating rooms. We devised an alternative routing plan that not only saved money but eliminated the need to disrupt the existing operating rooms.

The project was designed collaboratively. We gave the owner a guaranteed maximum price within two weeks of our initial proposal submission. We provided some fairly sophisticated conceptual design drawings that eventually were incorporated into the architect’s design documents.

The project was designed with expansion in mind. It is a one-story structure but is engineered and built to allow up to six floors to be added above. St. John’s planned ahead when it built the original hospital and always intended to build an annex like the surgery center, which will become the new main entrance to the hospital and its operating room complex.

By completing the work in phases, Clayco has been able to meet the owner’s need to remain open for business without any loss in the quality of healthcare.

The whole philosophy behind design-build is that it’s not important whose idea becomes the answer or who gets credit (or blame, for that matter). The important thing is that the right answer is found by bringing all ideas onto the table, where they can be discussed, analyzed, and good decisions made — those that work best for the client and the project. Success in design-build takes collaboration, creative thinking, and an open mind, all done with one criterion: put the interest of the project first.

At Clayco, we help the owner define up-front the groups with which we need to meet, and we determine who has the final authority for approval. This is paramount; invariably as the process evolves, there will be some differences of opinion, but decisions need to be made. If we are constantly revisiting previous discussions, we will never get to the goal. We assign roles, responsibilities, and tasks early on to individuals and to entities, whether it is an executive board, a project committee, or one person who can act to keep things moving forward.

Healthcare can differ from other project types in several ways:

• Typically, a larger pool of interested groups are involved — patients’ advocates; doctors; administrators; specialty services such as research laboratories and imaging departments; operating rooms; and more.
• More specialized equipment and mechanical systems are in play.
• Government requirements and regulations regarding healthcare must be incorporated.
• Many projects are not new construction; instead, they are renovations, expansions, or remodeling where the facility must remain operational, safe, and patient-friendly.
• The larger number of owner participants and the presence of more specialized requirements often result in longer durations for preconstruction and design. The schedule must be carefully planned to mesh early construction activities with a phased or packaged document issuance approach. Emphasis upon portions of the project that can be finalized early without jeopardizing the final design solution is essential.

It’s paramount that you have a team approach to find solutions that work from a functional planning and design standpoint as well as a constructability standpoint. There must be open communication; everyone needs to feel encouraged to throw out different ideas. Each member of the team brings a unique perspective, and all the team members must respect each other. Flexibility and adaptability are key words. This can help minimize the cost and/or the interruption of services.

Ultimately, the owner’s goals take priority. Many times, owners don’t always understand through the design process what their options are. The owner must be an active participant in the design process to help insure that the finished project is exactly what they wanted.

One extremely hot market in commercial real estate that overlaps the healthcare industry is medical office buildings (MOBs). A variety of circumstances are supporting the MOB market:

• The healthcare industry model is changing altogether, moving more toward decentralization. We will always have regional medical centers, but the growth in ambulatory surgery and outpatient services is now the prevailing influence.
• MOBs are an attractive product for investors; the vacancy rate typically runs about five percent, versus 20 to 30 percent on office buildings.
• Leases in MOBs usually are long-term. Doctors tend to stay in one location for many years.

For these reasons, more people are looking to buy and/or finance this type of product, which helps increase value in MOBs. Earlier this year, Clayco established a healthcare facilities group to address this growing market. Led by Michael Parnas, the group is targeting large physician groups, which may need 30,000 to 100,000 s.f. of space. These projects and clients are perfect for the design-build approach.

However, it is more complicated than just a simple case of supply and demand. You can’t justify these projects in just any region; MOBs typically are located near hospitals, and all of them must blend with their surroundings aesthetically and be supported by the correct demographic.

A good example of meeting unique challenges can be found in the design-build of RollingRidge Center, a project on which our company is nearing completion in Naperville, IL, a Chicago suburb. This three-story, 40,000 s.f. medical office building includes a pharmacy and radiology center on the first floor and physicians’ offices on all three floors. It includes state-of-the-art mechanical systems that provide additional flexibility for tenants with wide-ranging equipment needs, including on-site radiology and MRI services.

The owner wanted a masonry exterior rather than painted concrete or stucco, so RollingRidge Center incorporates a technique in which brick is set into pre-cast concrete panels. This provides a premium look at an economical price. This integral masonry is superior to stamped and painted concrete or stucco, and since the Naperville community witnessed the wall erection, it has changed its building codes and no longer allows the stamped masonry exterior.

As I mentioned above, the nature of healthcare now requires ancillary services, such as imaging, laboratories, and more.

This unique set of needs can best be met with design-build, again, for a couple of good reasons:

• The greatest cost savings will occur in the earliest stages of design development. Sometimes that’s the hardest thing for a client to grasp. They may think, “We have a good healthcare architect, let’s have them complete the design first,” and believe that’s the way to proceed. But what they have not considered is how the architect is making his design decisions and what assumptions or projections he is inherently assigning to the project without any certainty or verification by the construction element that will someday be interjected into the process.
• The most efficient physician offices and their associated ancillary services are housed in buildings that have been designed from the inside out. Retrofitting medical practices into existing space that once was used for other purposes (even other medical purposes) simply doesn’t work.

Among the best practices that Clayco brings to a healthcare project is an extensive amount of business modeling up front before there’s any significant commitment of dollars. Compare this with the more traditional approach where an architect presents a conceptual design, then the project proceeds, focusing on cost but perhaps taking the wrong path down the wrong road (an inefficient design), typically paying design fees along the way. Many owners simply cannot afford the financial risk of spending up to $100,000 with an architect, only to learn that they can’t afford what they want and need.

The Clayco Health Care Facilities Group has a program that takes this risk out of the equation with detailed business modeling that can project several scenarios. Historically, many physicians lack the understanding of business operations and construction necessary to make good choices. We help them get their arms around a project, bring early-on value, and help them understand that entire process and the feasibility of the overall project.

When a client is dealing with one company, as in a design-build project, there is a real interest on the design-build contractor’s behalf to ensure that proper coordination is accomplished among all involved parties. After all, the contractor is “on the hook” for the whole project; he’s guaranteeing price and delivery and, really, the one who is taking the overall risk. It only makes common sense that a design-build contractor will provide solid accountability to a client.

In summary, the design-build approach to healthcare projects provides owners guarantees, savings, superior results, and reduces the risk of capital by providing the client a single source of direct accountability. It provides the flexibility to shape the project into the best final solution utilizing all of the necessary professionals from the beginning. Clayco’s number one priority on every project is the potential to create another satisfied client that will hopefully generate more opportunities, which is the true key to business success.