4 Things Owners Should Watch For On New Healthcare Projects
As director of project strategy and implementation for LePatner & Associates LLP, a law firm that serves as construction adviser to healthcare facility owners and design professionals, I’ve worked on many healthcare construction projects, assembling project teams and directing and coordinating their work from the outset of planning to completion of construction.
So I’ve become very familiar with the problems that commonly plague construction projects and the best ways to mitigate them.
As healthcare organizations build, it’s important that they not fall into the traps that, for decades, have marked how the construction industry does business. We see several prevalent problems in the construction industry: unwarranted cost overruns and project delays, projects using standard form agreements, and so-called “fast-track” projects that incorporate a “guaranteed maximum price.”
In the best of times, the construction industry wasted upwards of $100 billion each year—more than 10 percent of the $1 trillion construction industry—by engaging in these practices. And, today, following the recession, little to nothing has been done to curb these problems.
To properly manage costs and to properly protect their interests, healthcare organizations must proactively address these issues. Owners can protect themselves from cost overruns and missed deadlines; they just need to know and understand these four facts of the construction industry.
Fact #1: “Fast-track” projects rarely deliver what they promise. Because they require construction to begin before the overall design is fully complete and coordinated, fast-track projects often experience delays waiting for final design information after construction has started, the impacts of which can add 20-30 percent or more to the base contract’s price.
Fact #2: Similarly, guaranteed maximum price (GMP) contracts are generally a ploy to win bids, not to save owners money. In fact, many owners soon discover that the “M” stands for “minimum,” not “maximum.” Since every GMP is based on incomplete and prematurely issued design documents, it inevitably contains exclusions and fails to address critical issues such as concealed conditions and MEP coordination, all of which is resolved during the contractor submittal process or in the field. This is a recipe for extensive cost increases and delays.
Fact #3: Time after time, we’ve found that standard form agreements do not adequately protect owners’ interests. Even when augmented with riders prepared by counsel, these agreements often still fail to protect owners from the impacts of incomplete designs, fast-track schedules, cost overruns, delays, and other extended costs of resolving claims during and after a project. Instead, owners should insist on complete and coordinated construction documents for bidding, and use what we call “true fixed-price” contracts tailored to the specifics of a project.
Fact #4: Today, owners can learn with increased accuracy whether a design will meet their budget and should no longer rely on a construction manager’s pre-GMP estimates, which are notoriously rosy. Owners should consider hiring independent cost estimators with a deep understanding of constructability, design, and market prices to provide accurate pricing throughout the design phase and before soliciting contractor bids.
To read more from C. Bradley Cronk, see “How To Keep Healthcare Construction Costs In Check.”