Stop the Madness
A subcontractor’s Perspective
Construction projects are highly complex, collaborative, interdependent, long-lasting, team efforts whose exact final cost is, in point of fact, impossible to estimate. It has never been a matter of skullduggery or incompetence that leads to contentious extras, cost overruns, or busted schedules as many industry patrons have come to believe. It’s actually the nature of the complex construction project, whose already high risk quotient is exacerbated when the owner and contractor enter into a “hopeful”, “one-way”, “fixed-price” contract designed to protect the owner from the unscrupulous, incompetent contractor. This insanity must stop!
Since the beginning, low bid, fixed-price contracts were invented to keep crooked public servants honest. What has evolved is an industry standard contracting system that leads to “over estimating”, “underperforming”, and the “catastrophic failure” of otherwise hard-working, competent contractors. The underpinning beliefs that support “fixed-price” contracting have never been reexamined by the industry but are now being renamed and reaffirmed by government entities and private sector owners alike.
It appears that owners are still trying to keep contractors “honest” by designing “tougher” contracts. I recently asked Tom Soles, Executive Director, Member Services for SMACNA, if his members are seeing any changes in the risks they are experiencing. His response is in line with concerns I am hearing across the country:
“Owners of construction projects are focused on compressing schedules for their projects. They are also pressing for earlier cost certainty. As a result, contractors are often pressured to commit to a contract cost as early as schematic design, with little negotiation for addressing late changes. This has also led to cuts in design budgets and schedules, leading to the delegation of design to the HVAC and sheet metal contractor, who are now in the position of owning more risk than they have in the past.”
Government Entities – “Still Crazy After All These Years”
The New York Daily News reports:
Jan. 1, 2020 — ALBANY — Gov. Cuomo approved legislation Tuesday granting the city the power to streamline capital projects and cut costs through a contracting method known as “design-build.”The much-heralded technique allows city agencies to issue a single request for proposal and contract for the engineering and construction of capital projects. The bill also forces private contractors to cover any extra costs that come with unexpected changes or delays to a project.
“Design Build means less red tape and more new-and-improved libraries, roads, and bridges. Now we’ll be able to save time and money on critical projects that truly matter to New Yorkers,” the mayor said as he thanked the governor and legislators for passing the bill.” Cuomo himself is a major proponent of design-build.
“In his approval message, the governor touted his use of design-build to fast track state projects including the expansion of the Javits Center and replacing the Tappan Zee Bridge.The process “increases efficiency by enabling the project’s owner, designer and builder to closely collaborate from conception to completion and provides crucial time-savings,” Cuomo wrote. The bill gives union projects a leg up by allowing the city to use design-build authority for any large project with a collective-bargaining deal in place.”
We must stop letting politicians and lawyers manage our industry. Collectively, we are at fault if we continue to play along with a one-sided contracting tradition that puts every contractor at greater risk.
The design-buildmethod of contracting puts total control of a project in the hands of the contractor, and for that reason alone, is a positive advance. But, in the lawyer’s (owner’s) mind, design-buildholds the contractor fast to an agreed upon total cost (without consideration of any variable risk factors) and takes away any “blaming the other guy” (owner’s designer’s changes) for schedule delays.
Do not be fooled.If you are flattered by being given “total control” of your project by the State of New York (or any other owner), consider this. They don’t necessarily believe you’re a better designer, they’re just trying to get you to assume more risk. Contractors cannot assume any more risk in a highly complex, collaborative, interdependent, long-lasting, team effort whose exact final cost is, in point of fact, impossible to estimate.
When I asked Guy Gast, Iowa Division President, The Waldinger Corporation about the risk issue he said: “What we call design build or alternative procurement is actually a risk transfer tool for owners, whose challenge has been to deliver schedule and price certainty. The only time contractors really have control is the day they sold the job. After that, we go back to competing for resources, delivering technology and building solutions amidst a variable cast of performers. And if you’re s sub, this cascading falls of price and schedule certainty can drown even your best efforts.”