Early and Often

Perhaps the most important basic understanding necessary for the members of a design-build team to be successful is the concept of “win-win.” In simple terms, this refers to a situation where one benefits, not necessarily through someone else’s loss.

By its very nature, traditional design-bid-build usually puts the participants’ financial interests at odds with each other and is most likely to produce a win-lose or lose-lose outcome. Depending upon the competitiveness of the bidding process, a specialty contractor may have to put his profitability at risk in order to secure a bid. Unfortunately, many specialty contractors then plan to “poor boy” their work by cutting corners, or plan to make the project profitable for themselves by an onslaught of change orders — something that in the long run will spell doom for the specialty contractor who lives by these practices.

When a construction project heads down this road, there’s a winner and a loser. In a worst-case scenario, they will both end up losing. This translates to lost money on the job, and for the general and owner it will likely mean additional cost, missed schedules or poor quality.

Design-build, on the other hand, can eliminate the losing proposition from the equation. When a competent, experienced specialty contractor becomes part of a design-build team, it gets “ownership” in the outcome of the project. The specialty contractor has the opportunity to give input to the project design which, based upon its experience and expertise, will allow it to work more efficiently and save costs where appropriate, while contributing additional value to the finished product that the owner is going to receive. When a design-build project is done correctly, the specialty contractor, the general and the owner all come out ahead.

In economics, this may be referred to as the Nash Equilibrium (named after John Forbes Nash, a Princeton University mathematician and the subject of the 2001 movie, “A Beautiful Mind”). Any participant in a game or situation takes into account what effect his or her decisions have on all other participants. When this occurs and all participants develop a strategy that benefits the entire group, a win-win situation develops. Not everyone in every possible permutation wins exactly the same thing or an equivalent amount. Bear in mind that it is impossible to create win-win situations, or to execute a design-build project, when participants are selfish or don’t care whether their personal gains result in someone else’s losses.

If the contractors in a project (general and specialty) have a history of mutual trust and understand the concept of win-win outcomes, design-build can result in a higher quality product with lower cost and better schedule.

Traditionally in design-build, the MEP specialty contractors (mechanical, electrical, plumbing) are brought into the team process early in the life of the project. This is a good thing; however, the skills and experience of the other specialty contractors (steel, drywall, painting) is often times not utilized, resulting in an inferior project outcome. The MEP’s are generally brought in earlier than other specialties because: 1) the value of their contracts are usually relatively significant compared to the overall project cost, and/or 2) their work is utilized by or generally visible to the building occupants on a daily basis, whereas the work of the steel contractor is for the most part “out of sight, out of mind” in a finished building.

John Cross of the American Institute of Steel Construction, has detailed five levels of involvement that steel fabricators may experience in design-build projects. Cross defines these as:

1. Provider — No different than that of bidding work on a traditional design-bid-build project. A design-build team has performed the design work and will coordinate construction, but the steel is still let out to bid.
2. Resource — The design-builder invites the fabricator to comment on the bid drawings before they are released for bid. The comments that are made will still “be shopped” to the lowest bidder. No guarantee exists that the fabricator investing time will be the fabricator selected to perform the work.
3. Ally — Early in the process, the design-builder invites the fabricator to meet with the project team to evaluate the project. Often the fabricator will be asked to provide a conceptual estimate of the structural steel on the project that will be used by the design-builder as part of the negotiated fee for the project. The steel will still be a bid item. The fabricator who has worked on the project will often be granted the right of matching the final bid.
4. Partner — Selected to be part of the team on the basis of quality, the steel fabricator working in concert with a structural engineer will provide preliminary framing options and a conceptual estimate for all the steel on the project as early as a 10 percent design level. Value engineering input is provided early in the life of the design where significant changes can be implemented at minimal cost. Steel for the structural frame, always on the critical path of the project can be ordered early in the design cycle. The fabricator takes control of the risks associated with project performance by designing to a price rather than pricing a design.
5. Member — The fabricator is a member of the team before the proposal stage of the project. His participation in the design-build team results in the greatest opportunity for saving time, saving costs, and increasing project quality. While the risk for the fabricator may increase, the potential for reward increases as well with the potential sharing of incentives and project profits among team members.

Value-Added Opportunities

Sanpete Steel, an AISC member steel fabricator based in Moroni, Utah, was involved in a design-build project some time ago where the company’s role was that of a “provider.” On this six-story health-care facility, the MEP subcontractors were “members” of the design-build team, with essentially unlimited input into the building’s design. The project design included an architectural feature which included multiple rolled steel sections not uncommon in projects on which Sanpete Steel works. However, being a “provider,” Sanpete was brought into the project after the design had been completed and had no input into the feature’s design. Unfortunately, the architect had designed a portion of the structure to be made from a steel section that could not be rolled to the radius called for. By the time Sanpete was brought in, things were too far along to change the design economically. This resulted in significant additional cost to the general contractor as well as a negative impact on the project schedule.

Had Sanpete Steel been a “member” of the design-build team, or at least a “partner” in the process, the steel specialty contractor could have alerted the architect and general contractor early enough that the problem could have been avoided saving both money and time. Rather than a win-win outcome where the design could be changed before adversely affecting the project, the outcome was lose-lose because the general contractor lost on both cost and schedule, and the steel specialty contractor lost credibility with a valuable client through no fault of its own.

Experienced steel specialty contractors have valuable experience to bring to the table. They thrive on bringing that experience to bear on problems still on the drawing board rather than solving problems that arise in the field. They also have an excellent understanding of their own fabricating strengths and weaknesses. When they can guide the design toward taking advantage of their strengths, everyone wins. For instance, each steel fabricator has limits on the size plate or structural shape that it can handle or process efficiently. Generally, these factors can be changed without altering the design parameters of the structure, but can significantly alter the cost at which the fabricator can perform the work.

Further, the steel specialty contractor has an understanding of the availability and price fluctuations of various structural shapes and sizes that usually the general contractor does not have. Including the fabricator in the design-build team early in the process enables them to pass these potential savings on to the team. Because of its understanding of steel pricing in recent years, Sanpete Steel was able to purchase inventories to position projects favorably. In one design-build project, the steel fabricator was able to pass the savings on to the project. But in another instance involving a design-bid-build project, the fabricator purchased the steel before it had obtained the bid, putting it at risk in the hope of obtaining the bid, which it did. In this case, because the fabricator had assumed the risk unilaterally, it was not compelled to share the savings with the project.

Early involvement by the steel specialty contractor can also benefit the structural design. Including the fabricator early enough to influence the column spacing or to allow purchase directly from the mill will save the project money. Steel sections come in standard lengths, generally in five-foot increments. If a building project is designed with column line spacing corresponding to standard beam lengths, wastage can be kept to a minimum, which saves money. For example, if the column spacing is set at 31 feet, then the fabricator will buy 35-footers and four feet of every beam will be wasted. If the fabricator is included early enough to allow beams to be purchased directly from the mill, they can then be purchased in one-foot increments.

Increased Risk, Increased Control

In every type of construction contract, someone takes on risk and someone has control. Different types of construction contracts or project delivery methods shift this risk and control between the owner and contractor. An underlying principle is that he who takes on the risk must also take control, and design-build permits the steel fabricator, or other specialty contractor, to take on risk while still retaining control. For an experienced fabricator, taking on risk is not scary as long as the fabricator is allowed to take control.

Similarly, in any business transaction or contract, there are two main goals for both parties: to maximize profit to be realized and to minimize the costs involved. Construction contracts are no different — earn a profit/benefit that is too low, or drive costs too high, and you will soon go out of business. What makes it even more difficult in the construction industry is that it is a fiercely competitive business with tight margins, and bidding processes that take no prisoners. Either you win an ample number of profitable bids, or you die.

But these two goals are not mutually exclusive. Profit cannot be maximized without controlling costs, and controlling costs will not necessarily guarantee a profit. But both make each party to the contract very self-centered, looking out only for himself. Small wonder then that, in highly complex processes that construct highly complex buildings, simplistic contractual models have been found to be less than satisfactory over the long haul, with contract extras, claims and litigation being commonplace. In fact, in a panel discussion on the subject of at what point to include the specialty contractor in the design-build process at the 2008 Design-Build Institute of America Conference in Las Vegas last November, it was said that high-performance buildings are the best reason to bring specialty contractors in early.

Steel specialty contractors, such as Sanpete Steel, have a goal of zero change orders on every project. Fewer change orders reduce the cost of a project, and, as a specialty contractor, fewer change orders put the specialty contractor in a more favorable light with the owner and the general contractor. In reality, bringing the steel fabricator into the fold early reduces a project’s risk for all the members of the team.

When the steel specialty contractor can utilize its experience and knowledge of the steel industry to make a design more cost effective, it can share the gain with the members of the design-build team (win-win). Design-build project team members are selected on the basis of having a successful history with the other team members — projects that have resulted in win-win outcomes. It is unlikely that an owner or general contractor would select a specialty contractor with whom they have experienced win-lose projects in the past. It is definitely in the specialty contractor’s long-term best interest to ensure that design-build projects end up as win-win situations.

In his highly successful book Stephen R. Covey defines “Think Win-Win” as Habit Number 4 of The Seven Habits of Highly Effective People. Covey says that win-win agreements or solutions are mutually beneficial, and require of the participants the characteristics of integrity and maturity.

A win-win relationship, and design-build partners, must have courtesy, respect and appreciation for the other party and his point of view.

Design-build projects by their very nature should be win-win propositions. However, they can only truly be win-win if all the specialty contractors are treated as members or as partners where cooperation, compromise, and group participation lead to all participants benefiting. As a general contractor becomes familiar with a specialty contractor’s experience and gains trust in his abilities and character, the general should become more and more willing to include the specialty contractor earlier in the process.