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(Don’t miss my blog post “Project Delivery Methods for Design and Construction: More Than You Ever Wanted to Know“)
Contracts and project delivery methods are intertwined – but their relationship is often misunderstood. Thoughtful selection of the best delivery method for the project should come BEFORE contract negotiations. Each project structure has its pros and cons. Only AFTER the ideal delivery method is chosen should contract preparations begin.
Often developers and owners pick their project team and leap right to the selection of contract forms. They default into one of several possible project delivery methods. This is a missed opportunity. We can help you consider the best delivery method for your projects, and then negotiate a suite of interrelated contracts to help implement the delivery method you choose.
Why Are Project Delivery Methods so Important for Chicago Construction Projects?
There are many ways to structure a construction project. There is no “best” project delivery method, no “one-size-fits-all” option for all projects. The best delivery method depends on the kind of project and the goals of the project participants.
Sometimes, the speed of project completion is key. Other times sticking to a strict budget is most important. Sometimes the quality of the finished building predominates over concerns for both cost and speed. In other cases, project owners are most concerned with single-point responsibility, and hire one party to both design and build the project.
Owners and developers pick the project delivery method. Factors they should consider include the project participants, their strengths, relationships and experience working together, the tightness of the budget, the kind of project, whether it must be complete by a date certain, and the risk each party is prepared to assume.
Helping You Structure Your Project
Project participants – particularly owners and developers – should consider the range of available project delivery methods before starting contract negotiations. Each method has its pros and cons. We provide counsel on the unique risks and rewards of various options for structuring projects, including these common delivery methods:
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Design-Bid-Build:
In this ‘traditional’ method the project owner enters into two separate contracts: one with the architect (or engineer) lead designer, and another with the contractor builder. The design plans are usually complete before the contractor is selected, so owners can obtain more accurate price estimates from the contractor – a real advantage for cost-conscious owners. Drawbacks include slower delivery time due to the sequential (rather than concurrent) phasing of the design and construction effort, and often a lack of contractor input during the design phase. The designer typically helps the owner administer (i.e., police) the interactions between the owner and contractor. This is a real advantage for owners who only occasionally build, and thus lack the knowledge to accurately monitor the contractor’s progress, the quality of its work, and what it should be paid each month. However, making the designer police the contractor puts them into an – intentionally – adversarial relationship which can lead to disputes.
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Design-Build:
In this popular delivery method, the owner hires one party – the ‘design-builder’ – to supply both design and construction services. Anyone can serve as the design-builder. For example, the property owner can hire a developer, which can in turn hire both the designer and contractor. Or the project owner can hire a contractor, which can then directly hire the designer. And on designer-led design build projects, the owner can hire the architect (or engineer) lead designer, which can then hire the contractor. These are all ‘design-build’ projects because the owner contracts with just one party for both design and construction. Owners realize many advantages in design-build projects, including having a single party be responsible for both design and construction problems. This means no ‘finger pointing’ between the designer and builder. Design-build projects can usually be delivered faster due to the concurrent (rather than sequential) phasing of the design and construction effort. And, they often cost less. This is because designers and builders can realize certain efficiencies when they are on the ‘same team’ contractually.
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Construction Management:
Project owners often hire construction managers, who can assist them in a variety of ways. The construction management (CM) delivery method is a spectrum of possibilities, not a single method of project delivery. Inherently flexible, it has many varieties. In the ‘CMa’ variant, the CMa serves as an agent and advisor to the owner, but the owner enters into contracts with its contractor builders directly. The CMa provides consulting, coordination, and management to the owner, all in exchange for a fee. By contrast, in the ‘CMr’ or ‘construction manager at risk’ variant (which also known as ‘CMc’ or ‘construction manager as constructor’), the CMr provides early project advice, including during the design phase, to owners in exchange for a fee. Eventually, the CMr contracts with trade contractors directly, much like a general contractor. The CMr has much greater project involvement, collects a much greater fee, and has much greater liability exposure to the owner for cost, schedule, and quality problems compared to a CMa.
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Multiple Prime Contracts:
In this delivery method, the owner acts as its own general contractor and hires multiple trade contractors directly. The owner realizes savings, as it pays no general contractor a markup fee. However, the owner’s direct contractual relationship with various trade contractors makes it ultimately liable for management and coordination problems – risks often borne by general contractors. Claims that one contractor interfered with another, or caused its work to be performed less efficiently than planned, often lead to ‘extra cost’ claims against owners. Owners are rarely able to manage and coordinate complex projects successfully. The multiple prime contractor approach can be workable on small or simple projects, or when the owner is very sophisticated and has an experienced internal project team. In complex projects, owners sometimes hire a CMa to manage the multiple prime contractors. In very complex or expensive projects – like hospitals – the CMa might be comprised of a joint venture between companies with different specialties, like an engineering firm and a general contractor.
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Many Other Variations
Project delivery methods can be customized. Projects can be “fast-tracked” if speed is more important than cost and control. The owner, designer, and contractor roles can be filled by joint ventures, bringing further resources and experience to the project. Shared design responsibility is possible through bridging, design-assist, and value engineering approaches. For those not faint of heart, cutting-edge project structures – like integrated project delivery (IPD), in which the owner, designer, and constructor can all share risk and reward by signing a single three-party contract – are options. Project delivery methods are flexible and limited only by the creativity of those who structure projects.
Can Project Delivery Method Affect Disputes?
When design and construction claims arise, the dispute can often be traced to the parties selection of a project delivery method inappropriate for the project owner’s budget, its and goals, and the project participants’ capabilities. For example, if a project owner who only occasionally designs and builds elects to enter into “multiple prime contracts” rather than hire a single general contractor, the owner’s lack of experience managing the trade contracts and subcontracts could very likely lead to disputes with the multiple contractors. A project owner who seldom designs and builds might be much better off to hire a single general contractor, and to hire an architect to help the owner administer the single construction contract.
At Baker Law – Design and Construction Counsel, we like to help project owners and real estate developers select the most advantageous project delivery method by identifying the goals which matter most to them – whether it is speed of project delivery, quality of design and construction, not exceeding a fixed budget, having “single point responsibility” should any problems arise, or other project goals – and then designing the web of construction contracts which form the project delivery method to serve those goals. Selecting the best project delivery method, and implementing it with smart design and construction contracts, is a good way to increase the likelihood that the project owner or real estate developer will have their project delivered on time, on budget, and without claims.
How Do You Choose the Right Project Delivery Method?
The right delivery method for your project will depend on what its criteria are. Take a close look at the following:
- Budget: How much do you have to spend? If budget is a concern and you have experience with these types of projects, the multiple prime contracts approach lets you act as your own general contractor by hiring multiple trade contractors directly.
- Your experience: Have you built a lot of similar projects? If not, the design-bid-build method can enable the architect to monitor the contractor’s progress as well as the quality of their work.
- Schedule: What is your intended timeline for completion? If you’re concerned about speed, design-build projects can usually be delivered faster.
No one knows your project goals better than you, so let these honest insights help you make the right decision. If you need advice in this area, Baker Law can help.
Jeremy can provide valuable insights – earned from involvement in many projects, big and small, and in resolving myriad design and construction disputes – to help you select an advantageous delivery method for your project.
To learn more about construction project delivery methods in Chicago, contact Baker Law today.
Project owners and developers should consider the range of available design and construction project delivery methods before starting contract negotiations.
