In many instances in the retail and restaurant industry, the question is not whether to build or not to build, but what method of contracting will achieve the best contractor for the best price. As the construction industry has matured, so have the available contracting methods.
The traditional approach of "design-bid-build" has left much to be desired in the face of ever-shrinking schedules and construction budgets. This method usually results in a separate contract between the owner and an architect, resulting in the development of construction documents, including plans and specifications detailing the work that is to be constructed by the contractor. A separate contract then is entered into between the owner and the contractor, which incorporates the design documents developed by the architect during the design phase. While the traditional approach may still be effective in many instances, much of the opportunity for cost savings is lost or unrealized because of the owner's inability to get back much of the costs once a contract has been negotiated with the construction contractor.
Another part of the traditional method is the construction manager/agent approach. Under this arrangement, the construction manager (presumably someone with extensive construction experience) "steps into the shoes" of the owner and acts as the owner's agent with respect to the design and construction aspects. The construction manager can be inserted into the process at any time during the design and/or construction phases. Presumably, the earlier the construction manager steps in, the more opportunities the owner would have to effect cost savings.
Over the years, alternative methods of construction have developed which help save on design time plus provide a greater opportunity for cost savings during the construction process. This article deals with two of the more common alternative contracting methods used by owners in an effort to save construction time and dollars.
Construction Manager/General Contractor (CM/GC)
Under this approach, the owner will contract with a contractor typically through a Request for Proposal (RFP) or Request for Qualifications (RFQ) prior to or during the design phase. This method is generally referred to as a CM/GC approach. The RFP or RFQ includes qualifications-based criteria to allow the owner to make a choice between competing contractors. The purpose of this contract is to obtain preconstruction services during which the contractor will review the architect's design work and advise the owner and architect regarding constructability and practicality of alternative design approaches, value engineering and other possible cost savings, cost estimating, scheduling, approaches to subcontracting, availability of skilled workers during various schedule alternatives, and other similar issues.
While the CM/GC contract provides for the preconstruction services compensation, it does not provide for the construction costs, as those cannot be determined at the early design phases. The owner and contractor will typically provide that at a predetermined point during the design, or upon completion of design, that the contractor would offer a contract price which generally results in a Guaranteed Maximum Price (GMP). If the parties agree on a price (usually a GMP), the contractor continues with the construction. If they cannot agree, the owner can negotiate a contract with another contractor based on the design or bid the work. In that case, the contractor only receives compensation for the preconstruction services. This approach has been increasingly utilized in Oregon in recent years, and has become popular particularly in the public contracting arena. However, it is also becoming more and more popular in the private contracting arena because of its advantages.
The second alternative which, in reality, is not a new alternative but has become to be used with more frequency, is the "design-build" approach. Under this approach, the owner enters into a single contract with a design-builder to both design and build the project. Given the streamlined management structure of the design-build approach, lines of responsibility and accountability are especially clear, and project communication and coordination can be expected to be effective. This approach is probably most appropriate for projects where there are many likely changes or difficulties with the construction site and projects with very sensitive schedules and virtually no "float."
The Advantages of Alternative Contracting Methods
There are some distinct advantages to alternative contracting methods, although they should not be deemed a panacea for every construction problem or potential problem. In selecting between the available alternative methods, careful consideration should be given to all of the factors involved in a particular construction project because each construction project is unique to its particular locale and end result desired by the owner.
The following are seen as advantages to alternative contracting methods:
- will likely lead to faster project completion;
- project costs are likely to be reduced;
- more discretion in contractor's selection;
- constructability and practicality issues are addressed earlier in the process, allowing for more opportunity for cost savings;
- selection of a contractor will still be made based on selection, but will be based upon evaluation criteria other than price alone.
The following disadvantages are seen in these alternative contracting methods:
- the contract amount will not necessarily be the lowest price;
- the selection process takes more time than a bid process;
- issues have not been fully clarified in a design-build situation relating to the contractor's licensing requirements as an engineer/architect.
As can be seen from the above description, there are a number of alternative contracting methods available to an owner making a decision to build or expand an existing facility. Each of these alternative methods should be reviewed with each construction project to determine the best method for the particular project.