Earned Value management: mitigating the risks associated with construction projects - Risk Management - Brief Article

Program Manager, March, 2002 by Quentin W. Fleming, Joel M. Koppelman

The owner starts the process by authorizing what is called the "preliminary design" for the project. The owner will contract with an independent design firm to create a design definition sufficient to allow a Design-Build firm to bid on the total remaining effort, including both the final design work and construction work.

Just what constitutes a preliminary design will vary from project to project. But the preliminary design is typically described as representing the 20 to 35 percent point in the design process. Some projects increase or decrease these percentage values, and the exact point is an arbitrary one at best.

Once the designated preliminary design point is reached, the owner will typically issue a formal Request for Qualifications response from firms with experience in Design-Build contracting. Prospective firms in Design-Build--often construction firms--will either complete the final design themselves or subcontract outside for the completed design. Or, many experienced Design-Build firms will employ some combination of participation from designers and constructors. Most critical, however, is the fact that the Design-Build firms have a proven track record in this type of construction. The assumed savings in both time and money to the owner come from assigning a single point of responsibility with the use of Design-Build.

An initial "big-list" of potential Design-Build contractors will be evaluated based on their responses, and then reduced down to a "short-list" of only qualified contractors. From the short-list, the owner will solicit formal bids with a Request for Proposal. The short-list of final contractors will represent perhaps only three or four contenders. Because this final bidding process places a financial burden on the qualified prospective bidders, and to keep all of them in the bidding process, an accepted practice emerging in some quarters is for the owner of the project to grant a small "honorarium" to the short-list of final contractors. Such honoraria simply defray some of the costs of bidding. The owner will then make a final selection, awarding a single contract to a firm to complete the final design and perform all of the construction effort on the project. Design-Build begins.

Proponents of Design-Build suggest that this approach provides substantial benefits to the owner. Among the described advantages are:

* A single point of responsibility for both the final design work and the construction.

* A shortened time-table for overall project completion.

* Total project costs known at the outset.

* Higher quality.

* Innovations in the construction process, which are then incorporated into the final design.

Perhaps one of the most important benefits is the potential reduction of final construction claims that have resulted from the "professional" differences of opinion between the architects and designers vs. the constructors. If this point is in fact true, claim reductions alone could save considerably in the overall final costs to the owner.