How to Select a Project Team: The Difference Between Design-Build and Design-Bid-Build

The first jet airplane flight to Honolulu in 1959 ushered in a flurry of construction activity. Hawai’i had long been a desirable tourist destination, but the introduction of the jet airliner made it much more accessible to tourists and greatly increased the demand for hotels and other accommodations. Many buildings along the Gold Coast, all built in the late 50s and early 60s, are among the oldest high-rise buildings in Hawaii. But there are also hundreds of buildings that were built in the 70s and 80s, and nearly all of them are facing the fact that they need major upgrades.

Painting, spalling, roofing, plumbing, electrical and fire alarm systems are among the major capital projects being undertaken by condominium owners’ associations statewide. These projects can cost millions of dollars — money that associations rarely have just sitting in the bank. Property managers are also not normally construction specialists. So where should you start?

WHAT DELIVERY METHOD WILL BE USED?
Typically, we see the people charged with starting these projects calling on contractors to help them plan their projects. After all, they have likely been dealing with the same plumbing company for years, so, why not call them for a quote to re-pipe the building? The same holds true for electrical projects, fire alarm, roofing, etc. Contractors have expertise in building things and fixing things. This works well for maintenance, but when it comes to installing new things, there is another step required — the design and permitting phase. This is where a choice of delivery methods comes into play, with the two predominate methods being design-build and design-bid-build.

WHAT IS DESIGN-BUILD?
Chapter 464 of the Hawaii Revised Statutes requires professional architect and engineering guidance on every commercial design project. The only exception to that is minor repair work and work up to $35,000 on a 2-story building and up to $40,000 on a single-story building. This requirement, along with the fact that many building owners and managers call contractors for design guidance, has prompted many contracting firms to employ architects and/or engineers on staff to fulfil this statutory requirement. Other contracting firms partner with engineering consulting firms to design and oversee projects. In this process, the building owner or manager contracts with a building contractor to both design and build the project. Thus, the name “design-build.” There are some less reputable contracting firms who do their own designs and pay a rogue architect or engineer to “stamp it.”  This practice is illegal, but our firm still receives 3 or 4 calls a year from companies that want to know how much we charge to “stamp” drawings.

WHAT IS DESIGN-BID-BUILD?
When I started in this industry in 1983 there was no such thing as design-build. The process always started with the hiring of an architect or engineer.  The design professional sat down with the owner or operator and developed the criteria for the building construction or repair project.  After the scope of work was developed a fee for professional services was negotiated, a contract was signed for design, and then the design work began.  There were design milestones, meetings and presentations accompanied by design sketches, renderings and physical models of the project.  Budgets were established along the way. Cost estimating was done either in-house by the professionals or by a professional cost-estimating firm. Our firm, for example, produced detailed cost estimates that were expected to be within 10% of the actual bid cost.

After the design documents were produced, the project went out for bids. Various contractors would pick up the paper documents from the Plans room. These were often voluminous sets of plans, when rolled would be the size of a tree. Contractors would pick up plans and do detailed take-offs to produce their bids. Since the low bidder was often the winner, contractors would look for any drawing discrepancies they could use to their advantage later if they won the bid.

WHY THE SHIFT FROM DESIGN-BID-BUILD TO DESIGN-BUILD?
Unfortunately, a combination of factors soured some building owners on the design-bid-build process. Bids coming in way higher than expected, inordinate change orders due to plan omissions, and unscrupulous contractors looking to cash in on minor discrepancies all worked together to put pressure on the status quo. Owners were rebelling against change orders and cost overruns. Contractors blamed the design professionals for all the ills that were plaguing the system.

Contractors responded to owners’ requests for no change orders by proposing that the design process should be under their direct control. This, they said, would control costs and guarantee a project delivered on time, and at or under budget. This was the beginning of the design-build era.  Some offshoots of design-build system include cost-plus and cost-plus with a guaranteed max price. All these methods of contracting have the same premise; the contractor is in control of the design and therefore is in control of the final cost.

ADVANTAGES AND DISADVANTAGES OF EACH PROJECT DELIVERY SYSTEM
Advantages of Design-Bid-Build:
– Owner maintains control over the project design. All major design decisions are dictated by the owner and carried out by the professional that works directly for them.
– Design professional’s loyalty and duty is to the owner of the project.
– You get apples-for-apples comparison of bid prices since all contractors are bidding on the same set of plans.

Disadvantages of Design-Bid-Build:
– Costs can be higher than expected if the design professional does not reign in their creative instincts.
– Contractors take advantage of small (or large) plan discrepancies to create change orders.
– Change orders can create delays in project schedule.

Advantages of Design-Build:
– Construction time can be shorter as the design and the construction phases can somewhat coincide with each other.
– Change orders can be minimized as the contractor is in control of the design.
– Overall construction costs can be lower because the contractor is an expert at cutting costs.

Disadvantages of Design-Build:
– Contractor is in control of the design. The focus will be on cost savings, potentially at the cost of quality materials and workmanship.
– Changes to the design can be more expensive because the contractor is moving quickly and changing direction may require abandoning materials already purchased.
– If the focus is on lowest cost, design flare may be compromised and replaced with low cost, locally- available materials.
– If you are pricing a design-build project between several contractors, there is no way to know if you are getting apples-for-apples. In fact, you most likely are not, and you really don’t have a way to measure value objectively.

Both design-build and design-bid-build have the possibility of change orders for unknown conditions. Our firm once had a plumbing project in a building which had one extra plumbing stack that wasn’t shown on any drawings. That condition could not be known until the project was underway and the walls were opened. We have also run into various code issues with electrical wiring and flammable building materials. Again, these are conditions that could not be known in advance, despite the project delivery type.

CONSTRUCTION MANAGEMENT
Regardless of the project delivery type, some form of project management is required. There are also several ways to accomplish this. Traditionally, management of the project was handled by the design professional, either an architect or engineer. They gathered the bids from contractors, analyzed the bids, scheduled meetings with the owner and contractor, answered the construction questions, etc.

With the advent of design-build, these duties of the design professional started to be diminished as the contractor started offering these services as part of their package. Then owners started to realize that they did not have anyone on their side watching out for their interests.

Thus, construction management firms were born. The construction/contract management puts a buffer of expertise between the owner and the various entities working on the project. Whereas in the 80s the architect or engineer was always that trusted person or entity, the construction manager can now also take on that role.

One approach is not necessarily better than another. Good construction management often comes down to the person doing it. Do they have a collaborative approach? Do they balance theory with practicality? Do they get along well with others? Do they see both sides of an issue? These factors often trump head-knowledge.

WHAT SHOULD YOU DO?
So which delivery system is better?  The clear answer is…it depends.  it depends on the players.  The owner’s personality as well as the personalities of the people involved. It really comes down to a people issue. Who do you know? Who do you trust? What are your priorities? How sophisticated is your project? Each project delivery system has its pros and cons. The best one is the one that works well for the people involved on all sides — owner, designer and builder.