Glenn Azzinari, Partner
If you own or manage commercial real estate, you’ll have a daunting decision to make when the time comes to build out your space or undertake a major renovation. The same challenge applies if you are a major commercial tenant and your landlord has authorized you to renovate the leased premises. In either case, once you’ve decided to proceed, your next decision may be the most crucial: choosing the right delivery method for your project.
Like so much in life, making the correct decision involves a careful balancing of risk and reward. And let’s be clear, there is no one right answer. But to make an informed decision, it helps to have a good understanding of the options available to you.
For our purposes, let’s call the decision maker the “project owner.” Whether you own the property, manage it for another, or lease it from a landlord, the basis analysis is the same: deciding how to move forward with the work. This post isn’t intended to cover every delivery method available, but to focus on three of the most commonly used methods as well as mention a newer method getting a lot of attention.
Let’s first run down what many consider the big three:
Design-Bid-Build: This method is the most traditional, typically involving three discreet project stages: first, arranging for a design professional (architect or engineer) to draw up the plans, then bidding the project using those plans, and finally selecting the winning bidder to construct the project. While many consider this a tried and true approach (indeed, many public projects are required to use design-bid-build on the theory of reliable pricing), the downsides are also well-known. For one thing, this method often takes the longest from start to finish. And since the designer and constructor have their separate zones of responsibility, this method is prone to certain inefficiencies (to use a polite term). This problem is actually baked-in by the nature of design-bid-build: the designer typically designs to make his or her life easier (and the associated design risks smaller), and the builder ends up having to work with a set of plans that may not be optimal from a construction standpoint.
Construction Management: Under the CM approach, the project owner typically enters into separate contracts for the design services and the construction work but uses a construction manager to (in theory) shift away certain risks. In a typical project using the CM concept, the construction manager will serve as the owner’s consultant during the design phase but then assume some of the risks of construction performance as if the CM were more of a general contractor. Typically, the CM enters into the major trade subcontracts as the owner’s agent and then runs the project to completion. On the plus side, the CM approach injects a contractor’s perspective into the planning and design process. But if you pick the wrong CM, your project typically pays the price. Since the CM’s fee is “at risk,” the CM’s motivation during construction may – in reality – shift from serving the owner’s interests to protecting the CM’s financial position.
Design-Build: Under this approach, a single entity runs the show: the design-builder, which sometimes is one and the same (but may also be a joint venture or consortium formed to execute the project). The advantage here is one-stop shopping, as the design services are combined with the construction work under a single contract. When this method first gained prominence, many in the industry would refer to design-build as a “turnkey” project: the project owner would award the project to a design-builder and then wait to be handed the keys. The design-build approach has several advantages, including reducing the project’s length, cost efficiencies (since the designer should be working closely with construction group) and a single point of responsibility. But some project owners find they may want more input and control than afforded by a typical design-build process.
All three of these methods make sense in certain contexts, but a new kid on the block is getting a good deal of publicity. Known as integrated project delivery (IPD), this approach pulls together all relevant project participants (project owner, architect, engineer, general contractor, major subcontractors and even key suppliers) and has them all sign a single contract for the project. The IPD approach will be the subject of a future post since even many industry insiders may not be familiar with it.
The bottom line is there is no “one size fits all” solution when it comes to project delivery. Every construction or renovation project is unique in its own way, and the project owner has to consider any number of variables as you weigh your options. As a project owner, the key is to choose the right one for your situation and tailor it to meet the specific needs of your project.