| What Design-Build Should Be: The "Fully Integrated Firm" |
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As published in HEALTHCARE DESIGN magazine, September 9, 2009 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. 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. 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 un-substantive qualities, and none of these firms can guarantee value as a core offering. 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. |
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