What design-build should be: The ‘fully integrated’ firm
Design-build, whatever that may mean, is being heralded as the future of the AEC industry. It lies at the core of the AIA's Integrated Project Delivery (IPD) model, among others. Almost all “design-build” projects today are orchestrated patchworks of separate architecture, engineering, and construction firms who, outside of an occasional project, operate primarily under standard project delivery models, such as Construction Management (CM).
There are very few firms that truly integrate architecture and engineering, much less construction. Only a “fully integrated” firm is capable of unencumbered collaboration, and only a fully integrated firm will develop the kind of internal culture necessary to motivate the difficult detailed work required to exploit every opportunity for increasing value and efficiency.
Individual firms, even under carefully orchestrated and highly complex arrangements, have their own separate business objectives and profit incentives that inhibit this kind of collaboration. Further, only a fully integrated firm can design, warrant, and deliver a project; provide reliable cost guarantees in a timely manner; and offer the client a value-based decision making process.
What is the problem?
The public has become acquiescent, healthcare leadership has become despondent, and facilities personnel, while frustrated, have built their careers managing the ill effects of a system plagued by disincentives to perform. At the core of the issue are divergent business objectives among architecture, engineering, and construction firms, requiring them to compromise project performance in favor of individual profitability. The system has become replete with protectionism, and most practitioners today have experienced nothing other than this culture of distrust and complacency. Firm profitability is a simple matter of time versus fee, and is in direct opposition to the investment of time necessary to seek out and exploit opportunities for value and efficiency.
Often, such opportunities lie in the coordination of disciplines, but such coordination requires not only collaboration, but investment of uncompensated time. Further, any resulting reduction in cost for the client represents a potential reduction in fee for the firms. In short, there is no incentive to perform.
Cost controls within the CM system have completely broken down. The evolution of the AIA Contracts since the 1970s has all but alleviated the architect's responsibility for project costs, leaving them with an inverted incentive to drive project costs up. Construction managers, who have emerged as fee-based firms, have no ability to affect the architect's work or to control the scope of the project, which is what drives the cost. CMs are typically subservient to the architects and engineers, and often depend on these firms for future work; they are reluctant to challenge design decisions, even when they may enhance value for the client. CMs have therefore proven ineffective at cost control.
What is the solution?
What is needed is an industry transformation toward fully integrated AEC firms capable of providing and warranting a complete project, including a fixed cost. The industry is moving away from CM, but so far, every other proposition has the same conundrum: how to set a fixed project cost and motivate the team to stay within it.
Lean, IPD, and Consensus Documents all require a preliminary target cost. Why a “target,” and not a fixed lump sum? The answer is that these patchwork teams are not willing or able to warrant the work of the other firms. This fact has forced these so called “integrated” contracts to ensure participants a baseline of profitability regardless of performance. Most arrangements dispense with fee compensation for design firms based on total cost, which can alleviate the inverted incentives for performance, but rather replace it with direct reimbursement for time and overhead, which eliminates accountability altogether.
The theoretical motivating factor in these arrangements is shared profits, or pay for performance. They have failed to negotiate what is required: mandatory performance and the threat of shared failure. It is no surprise that firms are resistant to this kind of accountability. What happens when there is no profit to share? What happens when parties disagree about the definition of “performance?” Shared profit is a “hygiene factor” that may motivate some additional effort, but it will not transform an industry.
That will require a potential-reward/potential-threat scenario, such as the kind present in a guaranteed lump sum agreement. Only a fully integrated organization can both produce and guarantee a complete project.
Under this model, firms would be forced to compete based on quality and value. This competitive landscape would give stronger firms an advantage and would lift the entire industry. Today, clients are forced to select firms based on relatively unsubstantive qualities, and none of these firms can guarantee value as a core offering.
The fully integrated firm-Putting the client in charge
One of the greatest problems inherent in the CM process is the lack of reliable cost information made available to clients in a timely manner to allow them to make value-based decisions. Estimates are never reliable because they cannot be verified or enforced. Only a guaranteed price can be reliable, and only a fully integrated firm can provide a design and a corresponding guaranteed price at the same time.
Additionally, a fully integrated firm can provide accurate, reliable, and guaranteed cost information starting from the onset of the project, allowing clients to decide how they wish to allocate their financial resources. Under the CM process, clients rarely get any guarantee of cost, and if they do, it is so late in the project that they are left little choice but to pay it regardless of its relative value.
Architects and engineers are undisciplined and unchecked in their practice of embellishing a project with elements that the client may not want, or may not want to pay for if they were aware of the cost. Project costs are not broken out in a way to allow the client to choose to incorporate elements that they consider a value, and to exclude those they don't. Value engineering at the end of the design phase is a destructive process that yields only marginal savings and further reduces value.
Fully integrated practice, on the other hand, puts clients in charge of making these strategic decisions about the use of their resources, by informing them with reliable information from the beginning and throughout the project. This is even more critical in light of the onset of LEED and other green building trends which present clients with difficult cost/value decisions.
What are the obstacles?
The progress toward a fully integrated model is stymied by regulations that protect its opponents from competition, by a client base that is unaware of the mechanisms that prohibit its use, and by industry-leading firms whose business models are dependant upon maintaining the status quo. While little regulation directly prohibits the engagement of fully integrated firms, much regulation indirectly excludes the choice by requiring the selection of architects separately from constructors. This selection process, originally outlined in the Brooks Act of 1972, makes the choice of using a fully integrated firm virtually impossible. Also known as Qualifications Based Selection (QBS), this process was intended to encourage firm selection based on merit rather than on fees. But the unintended consequences include the rise of the flawed CM method and the commoditization of architect's services. HD
Alan Gray Burcope, AIA, MBA, LEED AP, is Vice-President, Project Development at HBE, based in St. Louis, Missouri.
Healthcare Design 2009 September;9(9):48-51