Low Bid Doesn't Work: Exploring Alternative Delivery Methods in Oklahoma's Construction Industry
The allure of the hard bid method in Oklahoma's construction scene, commonly termed "low bid," appears straightforward on the surface: receive sealed bids from contractors and award the project to the lowest bidder. However, while this approach offers transparency, it invariably invites a myriad of challenges that can compromise both the quality and overall success of a project.
The Downside of the Low Bid Approach
1. Pressurized Start: From the onset, the low bid system sets all parties on a defensive stance. Subcontractors quote as low as feasibly possible in hopes of securing the project through the general contractor. This precarious balance often means overlooking project scope, compressing schedules, or reducing profit margins to a bare minimum – just enough to cover overhead without the promise of substantial gain.
2. General Contractors' Dilemma: General contractors face a parallel challenge. Aware of their competition with other contractors with similar overheads and profit expectations, their strategy typically revolves around identifying the lowest bidding subcontractor and maintaining the tightest possible schedule. This ensures minimal division one overhead in relation to competitors.
3. Bid Buyout Conundrum: After winning a bid, a process known as "bid buyout" kicks in. It's a mad scramble to identify contingency gaps in the initial bid or rectify overlooked elements to augment the overhead or contingency. This proactive hunt for a financial cushion is essential, anticipating unforeseen challenges during the project lifecycle.
4. Cramped Schedules and Supply Chain Woes: With the pressure to adhere to a tight schedule, sites often become overcrowded with subcontractors working over each other. The rush trickles down to the submittal process, leading to hasty approvals and triggering a cascade of subsequent issues. The haste often results in material supply chain disruptions, causing further project delays.
5. The Contingency Quagmire: An initial lack of contingency places general contractors in a precarious position. When unexpected challenges arise, they often lack the resources to address them unless they divert funds from other essential project scopes. Significant issues can rapidly deplete these diverted funds.
6. The Domino Effect: This pressure-cooker environment culminates in a less-than-ideal project outcome:
- Subcontractors: Stressed due to squeezed schedules and finances.
- GC Project Teams: Under duress due to looming deadlines and financial constraints.
- Clients: Frustrated by schedule overruns, unexpected change orders, and projects that barely meet the minimum standards.
A New Era of Construction: Alternative Delivery Methods
As we move past the limitations of the hard bid system, several alternative methods emerge:
Design-Build in Oklahoma: A Double-Edged Sword
The design-build method has been steadily gaining traction in Oklahoma's construction sector. At its core, this approach offers a seamless integration between design and construction, with both services falling under a single contract. This unification, in theory, promises streamlined processes, faster project completion, and potential cost savings. However, the actual implementation of this method in Oklahoma has exposed some pitfalls, primarily when low-bid tendencies infiltrate the process.
Design-Build: How It's Supposed to Work
In the ideal design-build scenario, a contractor is awarded a project and subsequently brings on board a designer. The ensuing design process should be a collaborative effort between the client (who obviously has a vision for the final product), the designer, and the contractor. The contractor typically offers insights into construction means, methods, and potential cost-saving measures.
Where Design-Build Goes Awry
1. Reverting to Low-Bid Mindset: One of the major pitfalls of design-build in Oklahoma is when it's executed in a predominantly client-directed manner. Instead of harnessing the advantages of the integrated design-build process, projects often first employ a "budget to design" approach rather than the more prudent "design to budget" methodology. Once the design phase concludes, there's a regressive shift back to the low-bid mentality when subcontractors are being vetted. This duality nullifies the inherent benefits of design-build, essentially making it no different from the traditional hard bid method.
2. The Essence of True Design-Build: Genuine design-build is a far cry from low-bid processes. It requires rigorous collaboration between the owner, designer, and contractor. The primary goal is to identify risks and innovations during the design phase, devise strategies to mitigate or allocate costs to these risks, ensuring that the final product aligns with the client's vision while remaining economically viable.
3. Subcontractor Qualification and Value: Contractors, having been in the field, possess an innate understanding of which subcontractors are best equipped for specific job scopes. Often, the best-fit subcontractors come at a premium. While their quotes might be higher initially, their expertise and efficiency can lead to fewer delays, minimal change orders, and an overall smoother construction process. Opting for a cheaper subcontractor might appear cost-effective in the short term but can manifest in escalated costs due to schedule overruns or frequent change orders.
Design Build Conclusion
Design-build, as a construction methodology, offers a compelling alternative to the hard bid approach, especially in the context of Oklahoma's evolving construction landscape. However, its success hinges on a disciplined adherence to its foundational principles. Incorporating low-bid tendencies into design-build not only dilutes its potential benefits but also compounds the challenges prevalent in the hard bid method. For design-build to truly revolutionize the construction industry in Oklahoma, there needs to be a holistic understanding and commitment to its ethos, keeping low-bid tendencies at bay.
Design-Bid-Build: A Closer Look at a Traditional Method in Oklahoma's Construction Landscape
Design-Bid-Build (DBB) stands as one of the foundational pillars in the construction industry, particularly in Oklahoma. On the surface, the approach seems logical: a client collaborates with a designer to conceptualize a project, and once the design is near completion, it's handed off to general contractors for bidding. Yet, despite its widespread use, DBB often encounters challenges that render it no more effective, and at times even less so, than the conventional low bid (or hard bid) method. Let's delve into why.
The Workflow of Design-Bid-Build
1. Initial Vision: The client partners with a designer, typically an architect, to draft the blueprint of their envisioned project. This design process can be exhaustive, culminating in a detailed representation of the client's aspirations.
2. Bidding Phase: Once the design reaches near-completion, it's circulated among general contractors for bidding. Either the client already has a preferred contractor in mind or selects based on the bids received.
3. Execution: The winning contractor takes the reins from here, translating the design into a tangible structure.
Inherent Shortcomings of Design-Bid-Build
1. Fixed Design, Flexible Budget: Since the design is finalized before the involvement of a contractor, there's little room for cost adjustments. The contractor, now at the helm, is forced into a low bid mindset, striving to execute the project within the budget. But, due to the disconnect between design and real-time market costs, staying within budget becomes a herculean challenge. This can lead to corner-cutting, which compromises the quality.
2. Architect-Client Tunnel Vision: While architects are an invaluable asset in the construction domain, the DBB model limits their interaction solely to the client. Absent is the vital feedback loop with contractors, who can provide real-time market pricing and practical insights. Architects, in their pursuit of perfectly manifesting the client's vision, might inadvertently craft designs that are budget-inflated or logistically challenging.
3. Budget Surprises: There's a recurring narrative where clients, enamored by the detailed designs, later confront the harsh reality of bids that far exceed their anticipated budget—sometimes by staggering margins of 50% to 100%, or even more. This financial mismatch can derail projects, leading to extensive delays or even indefinite postponements.
4. Contrary to Best Practices: The DBB model, in essence, pushes a "budget to design" philosophy, which starkly contrasts with the more prudent approach of "design to budget." At Stronghold, we've observed and experienced the pitfalls of the former and firmly advocate for the latter. Crafting a design with a preset budget in mind ensures feasibility and minimizes the risk of financial overruns.
While Design-Bid-Build has deep roots in Oklahoma's construction history, it's essential to critically assess its viability in today's dynamic market landscape. While every construction methodology has its merits and demerits, it's imperative to adopt practices that ensure project feasibility, maintain quality standards, and uphold fiscal responsibility. At Stronghold Construction, our commitment to these principles guides our approach, ensuring we deliver unparalleled value to our clients.
Construction Management (CM): The General Contractor Owner Representative
Here, the construction manager acts as a consultant to the owner, overseeing the entire construction process. This method promotes transparency and helps owners make informed decisions.
Consultant Role: In the traditional CM model, the construction manager acts primarily as a consultant during the design phase and coordinates and oversees the project during the construction phase.
Owner's Risk: The owner holds contracts with the designers and the individual trade contractors, bearing most of the risk. The CM provides advice but does not contract the trade work directly.
Construction Management at Risk (CMAR or CM Risk):
A variant of CM where the CM commits to delivering the project within a guaranteed maximum price. This aligns the CM's interests with the owner, ensuring the project stays on budget.
Contractual Responsibility: Unlike traditional CM, the CM at Risk model holds contractual responsibility. The CM promises to deliver the project within a Guaranteed Maximum Price (GMP), effectively shifting some of the risk from the owner to the CM.
Design Influence: The CM is involved early in the design process, providing input on cost, scheduling, and constructability. This early integration can lead to a more efficient and cost-effective project.
Shared Risk: The owner still holds a contract with the designer, but the CMAR model brings the construction manager into the fold earlier, ensuring a more collaborative approach and distributing the risks
Construction Manager/General Contractor (CM/GC) Methodology: Something New With A Twist, But Is It Better?
CMGC is an up-and-coming method primarily being promoted by Florida State University. In recent years mainly used by $100M+ firms, but very smaller firms have experienced or attempted to use this option.
Widely unknown to most, this method has also been recently approved by multiple federal entities, including the Department of Transportation, and multiple states have legislated this method as an approved method for federal procurement. This method more so than any other focuses on collaboration between teams.
Team Structure Breakdown:
The owner independently contracts the Design Manager (DM), as well as the Construction Manager General Contractor (CMGC) team, and an Independent Cost Estimator (ICE).
The distinguishing feature of this model compared to others is the ICE, which provides an additional level of assurance for the owner against potential overpricing by the contractor or design manager.
The benefit of this method is that not all members of each team need to be from the same company. The Design Manager may include architects, engineers, environmental experts, and their own quality control. Meanwhile, the CMGC fulfills roles such as estimator, scheduler, project manager, superintendents, etc. These roles can be filled by subject matter experts.
The ability to mix and match across teams introduces a unique diversity and expertise level to the entire team, unparalleled in other methods.
Program Function Process:
The owner identifies several projects they wish to complete within a specific timeframe and budgetary constraint.
Projects are identified, clustered, and prime contracts are issued to the team members based on the program's needs and desires.
An early win project is selected to ensure the model's efficacy, align owner processes, and serve as a problem solver for the primary teams. This early win project is crucial to iron out issues on both the team and owner sides, with the induced stress serving as a test for the CMGC team.
After establishing the early win, an after-action report is essential to highlight sustainment and improvement traits across the team. Now in the "walk" phase, the team revisits the collective scope to commence the design process for multiple work packages. Early contractor involvement is paramount during this design phase. As soon as one job is ready for construction, the CMGC team mobilizes while the Design Manager finalizes the design for the next project in the work package. This ensures a seamless transition from one project to the next, optimizing time and resources.
The overarching goal of this approach is to diminish time and cost by grouping several programs into one comprehensive group.
Risk and Innovation in CM/GC:
Every project within a work package maintains an independent risk log.
For every identified risk, there's an associated budgeted cost, especially if the risk is deemed unmitigable.
The collaborative team first identifies all conceivable risks associated with a project. They then strategize to mitigate as many of these risks as possible.
Risks that remain unmitigated are then allocated a cost, which is incorporated into the project's Gross Maximum Price (GMP) or its specific micro-GMP.
The team is tasked with identifying innovative solutions to both cost and scheduling challenges.
The aim is to determine the optimal approach (termed the "Cadillac package") for each project and then track reductions in either cost or schedule, with the intention of applying these savings to subsequent projects.
Whether the innovation pertains to reducing costs or hastening the schedule, the primary objective remains achieving the project's requirements in the most efficient manner possible.
CM/GC budgeting deviates significantly from other methodologies. The baseline assumed cost for the entire program is established initially.
Target reductions are set for each work package and individual project, and consistent efforts are made to achieve savings beyond these targets, either in cost or schedule.
Fixed Program Budget:
Once an owner stipulates a program budget, this figure remains immutable.
Savings accrued from one project are channeled into another project, which can either address additional requirements or even fund an entirely new project.
By maintaining the program budget's constancy, all stakeholders – the contractor, design teams, and ICE – are assured that any savings realized will not curtail their anticipated volume of work. Instead, these savings are reinvested to achieve more with the same budget.
What's The Downsides?:
Team Collaboration Tested:
At the very beginning of a CM/GC program we see the "Early Win" project to set the standard and work out any possible issues. At this point in the program, if the (3) separate prime teams cannot work together or collective resolve issues it will come to light here.
Big Egos will crash the program - This method is a shoulder to shoulder, collaborative effort while the CM/GC team is leading the means and methods of performance. The idea is that the contractor can identify the methods of performance so the DM team can create design documents to mirror the preferred performance model. But if the teams cannot come to an agreement about performance, design, workflow, etc.. the program stops here.
There's a lot of 'Type A" or large egos in the construction industry, and some teams will struggle to check their ego at the door to find common ground with their partnered teams.
Understanding Of The Method:
With most teams being unexperienced in this model, the initial portion of the program will raise tensions as most teams will attempt to push for progress while not understanding rolls and responsibilities. This is why it's so important to this program that a master schedule is created in detail for each work package with rolls and responsibilities as early as possible to ensure the entire team is collectively on the same page.
"Low bid doesn't work" isn't just a catchy title; it's a call to action for our industry in Oklahoma. While traditional methods have their place, exploring alternative delivery methods can usher in an era of innovation, quality, and true value. As Stronghold Construction, we believe in constantly adapting, learning, and above all, delivering the best to our clients. We're excited about the potential these alternative methods bring and are committed to navigating their challenges with expertise and integrity.