Ronald van Warmerdam(This is a long read) Even with experience and practice and through lecturing at the university, it is difficult to reason about the above question for both students and professionals. Why? Multiple aspects come into play when thinking about organizing and selecting the proper delivery system for a construction project: the traditional design-bid-build (DBB) system or an integrated system (D&B). Maybe a variant, like early contractor involvement (Dutch: Bouwteam) or Design, build maintain, etc (DBFMO)
I did not find a “to the point” paper or article that covers the question. Winch, the textbook that we use for our course “hides” multiple arguments related to the question in different chapters. Several papers deal with components like project success, project definition, project failure, delays and budget overruns, the principal-agent problem, risk allocation, etc. You only have an overview after you have read them all.
To support your reading I made this post.
Why do I think it is so important to discuss this specific topic early in the course? For me, the choice of a proper project delivery model is the core of a management strategy, and the choice needs to be made early in the process. You need to make the choice early to be able to design a management approach and delivery model and to know how you need to describe the project. Do you need a “traditional brief” or do you need “output specifications” for a D&B model?
Let us first see what we can find in literature.
A project delivery method is an important choice in the process of designing and constructing any facility. It is a method for clients “to deliver and finance constructed facilities” (Miller, 1999). In the construction industry, different kinds of project delivery methods are used. The traditional way (Design-Bid-Build; DBB) of first designing with a design team and then constructing a facility according to the completed detailed design is the DBB method. (Hale et all, 2009). Design & build, D&B is a delivery method where one legal entity or consortium is contractually responsible for both the design and the construction of a project. (Songer et all, 1996).
In DBB the client first chooses – often through tendering – a team of designers to design the facility and to compose the building specifications. The specs are – mostly through tendering – handed over to a selected contractor for execution and delivery, often awarded the job for the lowest price. During construction, the design team controls the contractor on the quality of delivery on behalf of the client. DBB is often called the traditional model and the typical document needed to tender a design team is the brief or program of requirements and the document to tender the contractor is the building specification. The price of the thing will be known (to the client) after the contractor hands over his offer.
In D&B the client chooses a consortium (in the literature referred to as contractor) – often through tendering – to take care of everything related to design, construction, and delivery. This model is also called the “integrated model” because the contract integrates design and execution. The client needs to be able to define the future result in a complete way early in the process before the design is made. He/she needs to be confident that the thing can be delivered and will be according to specifications and his/her wishes. That is a difficult thing because delivery is often years later and defining without a design is wicked. The project definition is therefore very important and needs to be ready before tendering starts. The consortium will, besides designing and constructing take over the responsibility of all related activities like detailed engineering, permits, subcontracting the design partners, quality control, and proof of performance. The typical document needed to tender a D&B consortium is called output or performance specifications, sometimes combined with an architectural ambition document. The price will be known early in the process, after the consortium hands over the offer, often combined with a (sketch) design.
Where do you start to analyze the problem of choosing the best model? I use a paper by Liu, indicating that (1) responsibility, (2) the owner’s willingness to be involved, (3) the owner’s in-house technical capability, (4) risk allocation, and (5) the owner’s willingness to control over design are the owner’s five highest-ranked key characteristic factors affecting Project delivery Systems decision-making (Liu et al, 2014).
This is an interesting list because all characteristics point to the client. (and not the manager or the architect).
Responsibility
Let us, therefore, look at the client. Is your client a public client or a private client? Is it a professional client or someone who is a one-time builder? This could hugely influence the project delivery choice.
Before we describe different clients let us look at the nature of the building industry related to product development. If you want to buy a car you can go to the shop that sells the brand you like. The thing is ready to go. Designed and constructed by one company and sold as a final product. No sensible person would come up with the idea to design a car himself and then find someone or a whole supply chain to make it. Way too expansive and way too difficult! On the other hand, the car industry resembles the building industry: extremely fragmented, having long, often international, and multiple supply chains with hundreds of advisors, suppliers, transporters, consultants, buyers and sellers, designers, etc. Remember that it is not only about the components that make the car but also the equipment and robots for the assembly lines are needed as well and this is an industry on its own…..
In the building industry, we hardly have off-shell products or brands selling finished buildings, roads, bridges, etc. except for some countries where prefabricated (components of) houses are made in factories, loaded on trucks, and assembled on site. The building industry, like the car industry, is an intertwined supply chain with all its stakeholders connected through agreements, contracts, quality control, international and national standards, rules, laws and regulations, quality testing, insurance, liability, warrants, etc. Clients need to understand that they will be part of this complex world when they (re)develop a building and that everything is connected through contracts and of course through payments.
A private, professional client, for instance, a project developer or a housing corporation knows the market well, understands the supply chain, and knows his possible future buyers. The professional client could be – for instance – specialized in apartment buildings or office buildings. For instance, project developers are able to develop at their own risk because they have the experience. Winch refers to this as “in-house capability”. (Winch, 2010, p.101). There is maybe no need to outsource it all in a D&B contract. On the other hand, if the project is not that complex to define and repetitive, for instance, a “regular” office building, even if the client has the experience why not outsource it? Allocate the risks to the contractor and secure your profit early in the process. In practice, you see developers do both: in-house project management and outsourcing to the market. Remember that even if you steer a project “in-house” multiple agents need to be selected, hired, and contracted. I will come back to this.
Public clients, for instance, the bigger municipalities and governments, have departments of professionals developing public buildings and maintaining them. The variety of municipal buildings is often large, from schools to concert halls, from city yards to community centers, from a theatre to sports facilities, from parks to roads, and from public space to cemeteries. If the capability and capacity are present in the client’s organization, these clients could manage projects well using the traditional (DBB) way. However, we see many governments commission projects in a D&B way. They have their arguments for it but sometimes it is just policy (Zeegers, 2014).
Housing corporations are professional organizations in the building industry. Dutch social housing corporations have maintenance departments and often development departments too. In the past, most housing projects in the Netherlands were delivered in a DBB way. But nowadays social housing corporations use a variety of delivery models to construct new buildings for instance early contractor involvement. The last is especially for the refit of the existing building stock.
Willingness?
It is remarkable that Liu, in defining the five factors mentioned above, uses the word willingness for the client to be involved and to control. It suggests that clients want to be involved, during the whole process and especially during design. For me, there are several reasons why clients could be willing to be involved or not: project definition, trust, control, and policy.
Many clients are not able to define the outcomes of a project at the start. Most clients are not able to imagine a building without a design. Maybe clients are, therefore “forced” to choose for a DBB. It gives them the opportunity to think further about their requirements, aims, and goals after the architect is chosen. Through DBB they can discuss with the architect (and the technical design team) possible solutions, and design variables. They can also “play” with cheaper or more expensive proposals, and able to allocate parts of the budget for a specific goal. They can rethink requirements or maybe come to the conclusion that the program of requirements was not so good after all. This is not possible (or at the expense of additional costs) using the D&B model. We know from literature and practice that the dialogue between the client and the design team is often needed to create better solutions or to improve design proposals. Design discussions are needed to solve the information asymmetry between clients and designers, unveil hidden solutions, and disclose private knowledge. (Winch, 2010, p.229).
In the above-mentioned research, Liu also mentions as characteristic “the ability to state clear end user’s requirements” as a factor affecting the choice of a delivery method, but this argument is not prioritized in the five. I find that simply stated, quite remarkable.
There is a second reason why clients are willing to be involved and that is trust. We will read and discuss a lot about trust and trust-related issues during the course. Outsourcing work comes with a typical problem: the principal-agent problem. Are you sure, you select the best parties for the job? (In literature: Adverse Selection). And will they always act on your behalf, and act trustworthy the whole time they work for you, or will agents try to take advantage? (In literature: Moral Hazard) .Winch states that “architects sometimes appear to care more about their own reputation than meeting the client needs” (Winch, 2010, p.75). And what to think about contractors sending in an abundance of change orders during execution and delivering inferior quality.
In house capability
As explained above the building industry is an outsourcing industry and clients will need to close multiple contracts during the process. All performed tasks mentioned in contracts need to be scheduled and controlled, payments need to be made, and delivered quality is checked. If quality is not met or agents deliver their output over time the process will be hampered, payments postponed or penalties imposed. This all needs to be managed and if problems occur, they need to be solved. For clients outsourcing and contracting come with a lot of work, obligations, risks, and knowledge about the typical contractual provisions and laws in the building industry. If a client chooses a DBB contract because he wants to be involved in the design process the outsourcing task is his/her obligation and more comprehensive related to the D&B model. Many clients have the in-house capability to do this.
Control
The question is of course, will a D&B model free the client from the principal-agent problem and release the client from outsourcing obligations? I think not. In her paper about monitoring the performance of D&B contracts Zeegers (2013) addresses the system of clients’ obligations on control, quality, and performance checks, organizing auditing, payments, and deductions on payments, etc. I found her conclusion specifically interesting. She states: The building industry is not fully ready for this new type of work (that is D&B) because contractors are still organized in a traditional way. The organizations are more focused on troubleshooting than on prevention through proactive work. (Zeegers 2013).
Policy
We will discuss risk in week three. I would like to discuss one last consideration influencing the choice of a delivery model; the client’s policy. Since the beginning of the century, the Dutch government increasingly used D&B contracts for large projects. This is driven by the policy of the Dutch Government following the slogan “The market delivers” (Zeegers, 2014).
Especially in infrastructure, the integrated model is popular and covers a large part, maybe more than half of the projects tendered. For me, that is also understandable because of the nature of the projects. Specifications for a road, for instance, a bridge, dyke, or highway are easier to define than for instance a museum or a town hall. In addition more and more outsourced to the market including finance, maintenance, and operation. Even if it is extremely difficult for the client to define a project at the start the choice to outsource is political instead of weighing different models with arguments or pros and cons.
During our course, we will showcase success cases and cases of failure of both models.
Literature:
Bingsheng Liu; Tengfei Huo; Qiping Shen; Zhiyong Yang; Junna Meng; and Bin Xue. (2014). Which Owner Characteristics Are Key Factors Affecting Project Delivery System Decision-Making? Empirical Analysis Based on the Rough Set Theory.
Miller, J. B. (1999). Construction project delivery systems: Public/private infrastructure, Aspen Law and Business, New York.
Pramen, P. Shrestha; James T. O’Connor and G. Edward Gibson Jr.(2014). Performance Comparison of Large Design-Build and Design-Bid-Build Highway Projects.
Songer, A.D.; Molenaar, Keith R. (1996). Selecting Design-Build: public and private sector owner attitudes.
Winch, Graham M. (2010). Managing Construction Projects. Wiley-Blackwell.
Ronald van Warmerdam
