Which Project Delivery Method is Right for you?
by Benny L. Hawkins
Choosing the delivery method for a project is one of the most important decisions an Owner will make. As with many important choices, this decision involves balancing risk with reward. In our business, we see three types of delivery methods most often: Competitive Sealed Proposal, Construction Manager at Risk, and Design-Build. While there are several variations on these three methods, and even a few other options that are in completely different categories altogether, these three methods form the backbone of project delivery in Central Texas.
Competitive Sealed Proposal
The Competitive Sealed Proposal (CSP) delivery method is the most traditional of the three methods. Around 60% of projects are delivered via CSP1. In this method, the Architect/Engineer (A/E) and Contractor are contracted with the Owner. The design is viewed and bid only after construction documents are completed by the A/E firm. As a result, this is typically the slowest delivery method of the three. While the competitive nature of the CSP bidding process usually results in a lower initial cost for the Owner, since the Contractor is not involved during the design phase, this method poses a greater risk of bid overrun. Without a strong connection between A/E and Contractor, this method can result in a lower quality project as well. With CSP, Owners experience a medium level of risk but a high level of control over the project. This method usually works best for Owners who do not have an extremely aggressive schedule and for whom a lower total bid price is a priority.
Construction Manager at Risk
Approximately 25% of projects are delivered using Construction Manager at Risk (CM@R)1. In this scenario, the Owner has separate agreements with the A/E firm and the Contractor, but the Contractor manages all of the agreements with the subcontractors. The Contractor charges a management fee for these services. Additionally, an advantage of the CM@R delivery method is that the Contractor is brought in at the onset of design to provide assistance that includes review of proposed budget and options for construction materials to meet project needs. This approach can minimize bid overrun and change orders, and promote quality of overall outcome. However, this method generally has a slightly higher cost to the Owner due to the Contractor’s management fee. While quality and budget control are promoted with CM@R, this method exposes the Contractor to a higher level of risk consequent to the requirement for agreeing to a “Guaranteed-Maximum-Price(GMP)” after issuance of bid documents and on the heels of having advised on probable construction cost through the design phase. An added “contingency” percentage usually is included in the Contractor’s GMP with provision for its return to the Owner if it does not have to be used to finance bid award and change orders. The CM@R method is a good choice for Owners looking to balance overall project quality control.
A variation of the CM@R delivery method is “Construction Manager Agency”, wherein the Owner assumes risk and control of hiring the subcontractors, while the Contractor is responsible for managing these firms. This method is not used very frequently because it exposes the Owner to unnecessary risk in being accountable for the performance of the subcontractors.
The Design-Build (DB) delivery method differs initially because of the simplicity of the contractual relationship. With this method the Owner selects a complete team including the A/E, Contractor, and subconsultants, and manages this team with a single contract. Perhaps the greatest advantage of the DB delivery method is speed; all team members are selected from the beginning of the project and the contractor can accelerate the schedule by beginning construction before design is completely finished. With the DB method the Contractor usually signs the contract and is in complete control, including over the design. As with the CM@R delivery method, the fully integrated DB team has the potential to minimize construction cost overruns and change orders by agreeing to provide “turn-key” delivery wherein change orders may be minimal or none. Although this method is gaining in popularity, it is currently used in only about 15% of projects1.
While each project brings a unique set of circumstances that must be evaluated in order to select the most appropriate delivery method, this decision is facilitated by a simple comparison of quality, speed, and price. To download a PDF of BLGY’s Quick Guide to Project Delivery Methods (shown above), please click here.
1Construction Management Association of America (August 2012). [Online publication.] An Owner’s Guide to Project Delivery Methods. Retrieved January 10, 2016 from cmaanet.org/files/Owners%20Guide%20to%20Project%20Delivery%20Methods%20Final.pdf