Risk & Reward in the Project Procurement and Delivery Process
Traditional barriers prevent adoption of new approaches in construction and its supply chain. If everyone agrees there’s a better way, what holds the industry back?
For more than a generation, there’s been a robust discussion in construction and design circles about the value of more collaborative project delivery methods. Entire books detail the benefits of integrated project delivery (IPD), design-build has its own advocacy organization and construction firms are looking at ways to fold best practices into projects regardless of project type. Still, adoption of alternative delivery methods is, at best, a slow march.
What looks good on paper is subject to significant pressure in practice. According to project owners, part of the problem is that, given the risks associated with building assets that will have 50-year lifespans or more, the inertia to stick with tried-and-true methods is real.
“We primarily use construction manager at-risk (CMAR) and it goes well,” said Alexander Kohnen, Vice President for Facilities Development and Management at Arizona State University. “Some stakeholders at ASU prefer having closer relationships to designers and they don’t see a reason to change. To me, it’s all about hiring the right team for the project.”
Indeed, project partners across the delivery chain will be the first to admit that culture changes slowly. The industry is built on centuries of working a certain way. In fact, many owners noted there’s even a level of fear to being on the bleeding edge and trying something different.
“It’s hard to do,” said John Bruno, Vice President for Global Real Estate at Workday. “Having something go wrong is a major risk. And for GCs, their relationships are based on delivering results. If a team takes a risk and it doesn’t work, that reputation is going to take a hit.”
Realizing the most value from alternative delivery methods means having all stakeholders on board. Northern California healthcare provider, Sutter Health, thinks it’s found a way.
“Decision-making on the owner’s side may seem fast to the owner but slow to the project delivery team. That’s because operational leaders on the owner’s side typically only have a few hours a week to devote to decision-making on a capital project due to the demanding full-time operational jobs that dominate their priorities,” said Digby Christian, Sutter’s Executive Director of Project Delivery, who has been a champion for IPD. “On our projects, we use the Last Planner System to create highly detailed workflows. This enables us to clearly explain to our operational leaders exactly what decision is needed, when it is needed, and, critically, why it is needed that soon. Christian says that this approach alone has allowed Sutter to keep projects on schedule.
“You can expedite decision making by two weeks simply by clearly explaining to one person why we need their decision right now,” he said. “To save two weeks in the construction phase, you might need 20 people to meet in-person for an entire day. If the industry would embrace the criticality of clear workflow paths that include the decisions that are needed by owner-side operational leaders, there is much to be gained. Detailed construction workplans that exclude the work of making design and operational decisions are missing perhaps 80% of the schedule risk.”
“In the past 16 years, we have invested significantly across 30 projects,” Christian said. “The industry’s overall record shows that fewer than 30% of projects meet or beat their schedule and budget goals. At Sutter, our track record is nearly 100%. We achieved this by shifting from selecting solely based on price to selecting based on the quality of the teams, their experience and their ability to trust and collaborate. We work with these teams to achieve the right balance of scope, schedule and cost that meets our needs as an owner. This way, we gain a deeper understanding of the projects before seeking funding. Our projects are at or below normal market costs and yet they open as scheduled, on time or even ahead of schedule. This record has remained unchanged through the pandemic and the catastrophic impact it had on worker capacity and supply chains. We incur no financial premium, and in return, we receive rock solid quality with no delays.”
Another benefit Sutter has observed is that this process helps to ensure speed to market.
“We’re under pressure to go faster. We can achieve this if both we and our key market vendors are willing to invest in long-term partnerships,” Christian said. “The best balance of speed, cost and quality can be found with the very best teams. If vendors can provide us with repeat access to their top talent, there’s an opportunity to build on those partnerships and collaborate on future projects. We can further accelerate by increasing the level of standardization in our care spaces.”
For many customers, trust is a key issue on major capital projects and, in many cases, that extends to knowing the team working together on a project will gel. Moreover, while changing the industry might yield benefits, those longer-term goals may not be aligned with a customer’s short-term aims.
“Project goals and what defines success on a project might differ from what our industry-changing goals are,” said DPR CEO George Pfeffer. There are models for doing things differently, but scaling these practices across organizations in any part of the supply chain has proven difficult.
“Our industry tends to learn slowly,” Christian said. “In 2012, at Sutter, we felt like we had it figured out, but the industry still isn’t adopting the practices we implemented from 2007-2012. When I present today about how we’ve solved significant problems, it’s still considered cutting-edge. It makes me think about the fragmented nature of the industry.”
Some of that can simply get chalked up to risks and the pressures to avoid them, leaning on long-established processes that offer a refuge from perceived risks.
“I believe the industry could undergo a faster evolution if contract terms and financial incentives were better aligned with the owner’s goals, particularly in terms of on-time project delivery and staying within budget,” said Christian. “While good intentions are valuable, it's the influence of market dynamics that has the potential to drive significant transformation.”
“I definitely believe that GCs have the opportunity to improve project delivery,” Christian said. “I’m often surprised that the best practices of GCs typically don’t scale nationally across their companies. The same holds true with design firms. For me, a very practical and achievable goal for our industry is to develop more mechanisms to share knowledge and lessons learned.”
“If you think about it, our industry is not set up to truly share info effectively,” said DPR’s Matt Murphy. “From antitrust laws we have to respect to a general competitive spirit, we’re used to keeping great ideas close to the vest. We have to find ways to share how we navigated the most difficult problems so we can scale industry-wide solutions.”
For customers, too, there are opportunities. “Owners should consider elements of their designs they can standardize,” said Mike Medici, President and Managing Partner at SmithGroup. “We are building a one-off in almost every situation. Instead of having to treat those elements like new on every project, there would be a playbook for delivery. You can move so much faster.”
Standardized elements and a design-for-manufacturing mindset is one area that is beginning to gain wider adoption, especially as stakeholders across the delivery chain consider how prefabrication can be applied. Prefabrication can offer supply chain advantages, as well – and the supply chain is another area where collaboration and trust have to be addressed.
Sam Huckaby, Chief Development Officer, EMEA for Vantage Data Centers gave an example of this related to procurement.
“There are owners who won’t sign off on steel prices from GCs early on, assuming the GC is trying to make a buck,” Huckaby said. “To me, you have to trust GCs are getting you the best price. Have you picked the right partners to trust them enough to give you the best price based on the market?”
Mark Barkenbush, Vice President for Facility Services with Banner Health agrees: “Early coordination when it comes to the supply chain is good, but when you get right down to it, the traditional process is a lot of shifting risk and just deciding who’s going to carry more of it.”
Collaboration on things like procurement show that, regardless of project type, there are ways to break down traditional barriers.
“You want to give people the things they’re best at doing,” Huckaby said. “In the same context, we don’t want to have our manufacturers doing things they’re not good at. They make their money cranking out base models of their stuff. So that changed how we approached procurement.”
Huckaby described how, with long lead times for electrical equipment like transformers, there was an added risk to schedule and cost of having customizations done on the factory floor. Instead, the project team – customer, designer and contractor – determined custom elements could be handled by electricians on site. That ensured timely delivery of equipment and with the contractor ready to move upon arrival, schedule was preserved.
“The question is, how do you help people think outside of the normal process?” Huckaby said. “We all work at scale so we can learn what’s affecting production lines. There are also situations where you can get production slots with manufacturers before you have all the details. With steel, you can commit to a mill order and still have flexibility when you need to make a choice on fabrication.”
“We’ve all gotten smarter about supply chain management,” said Ray Trebino, a DPR business unit leader. “For example, we’ve learned that where we thought a procurement chain was only three layers deep, there might actually be nine. Moreover, we know that an impact in any one of those steps impacts the supply chain and the project. You need to understand all of the supply chain layers and have mitigation processes for all of the steps to minimize impacts.”
“Vantage has its own procurement team that gets its own equipment,” Huckaby said. “There are still other things that need to get purchased. But our buying power is larger than most think and as we’ve gotten bigger and bigger it’s helped. GCs, with their relationships, can likely also leverage scale to customer benefits.”
In a pinch, this could even be a help with local jurisdictions.
“There’s definitely a need to educate jurisdictions,” said Avi Halpert, United Therapeutics’ Vice President for Corporate Real Estate. “We have a pressure to get things up and running even while there is work still being done. Working together with our GC partners, we believe we’ve found solutions we can put in place in buildings that are temporary, but also safe. Being able to demonstrate that is key.”
That type of approach can begin to break old models and it’s possible now is the time to do so.
“The Roaring 20s followed a pandemic and a war,” said Troy Thompson, Managing Partner at SmithGroup. “We’re in a similar political and cultural moment now. If we say all this is a decade-long issue, it changes how we think of things today.”
“As owners, we have to define what is most important,” Huckaby said. “If we clearly define what is important to us, then our project teams can make decisions based on that.”
Posted on October 27, 2023
Last Updated October 20, 2023