Construction Sale: 20 Percent Off
- By Michael Fickes
- November 1st, 2009
If you have a backlog of deferred maintenance or a new building program ready to roll out, now’s the time.
“Many construction companies today are looking for projects that will enable them to hang on to their people and weather the recession, even if they can’t make a profit,” said Martin Sharpless, AIA, vice president with the Gilbane Building Company in Laurel, MD.
Gilbane purchases or directs the purchase of more than $1B in construction trade services and construction materials for mid-Atlantic construction projects every year. Right now, said Sharpless, bids are generally 20 percent less than normal.
Moreover, Sharpless warned, virtually every contractor looking for work has gravitated toward institutional markets such as higher education, and not every contractor that can build commercial structures can build facilities for colleges and universities.
Be Aware of the Pitfalls
So while today’s market offers exceptional buying opportunities for colleges and universities, it is also fraught with peril. Experts say, for example, that a contractor inexperienced with particular kinds of campus buildings might submit a low bid that ignores important issues. If that contractor wins the award, change orders could run costs well above the original estimate.
Worse, experienced but unethical contractors might lowball a project to get the award and then attempt to make up the difference by submitting change orders.
What’s a Facility Department to do? How can you take advantage of available savings, while ensuring quality? Here are some suggestions.
First and foremost, Sharpless said, when buying at discounted prices, don’t spend the savings right away. “Until you’re sure you won’t need those funds to cover change orders or changes in scope, protect those savings in a contingency account,” he said.
Beyond hanging on to contingency funds, public schools required to award projects to low bidders can also prequalify general contractors before sending out RFPs. Some schools can benefit by selecting construction managers (CM) and design-builders instead of general contractors.
In addition, a relatively new design technology called building information modeling (BIM) is helping to ensure quality, efficiency, and cost control today.
Of course, these steps should be combined with appropriate due diligence measures such as reviewing the financial stability of bidders and requiring performance and payment bonds from winning bidders.
Prequalify General Contractors Before Accepting Lump Sum Bids
Many public schools must award projects to the lowest lump-sum general contractor bidders. While most observers agree that the traditional design-bid-build general contracting system will produce the lowest possible prices for construction today, the system can also cause problems. What if a bid is too low? What if it underestimates the scope of a project or shortchanges the schedule?
“North Carolina State University prequalifies prospective bidders to keep unqualified low bidders out,” said Scott Noble, a senior project architect with Heery International, Inc. in Atlanta.
To prequalify, a school can advertise for contractors to request prequalification materials. Essentially, those materials request answers to questions such as:
- Have you ever carried out college and university construction projects? If so, please describe the project, scope, and budget, and provide a reference.
- Have any legal claims been made against your company? Please describe.
- The project you are interested in bidding on will cost about $20M, according to preliminary estimates. Have you carried out projects of that scope and size? If so, provide details.
“The most difficult part of the process is to avoid the temptation to disqualify contractors and to focus only on qualifying them,” Noble said. “It isn’t about disliking a contractor; it’s about finding qualified contractors.”
A matrix chart scores the responses. When complete, the chart indicates which applicants have met the requirements and are qualified to bid.
“Be careful,” cautioned Noble. “Those who don’t prequalify will want to know why; you’ll have to explain the decision with the facts.”
Noble also says that even prequalified contractors may submit bids that include errors. “Suppose five bids come in,” he said. “Four are about the same price, but one is $250,000 lower. Of course, you can’t ask the contractor to redo the bid, but you should ask to have the bid certified as containing everything necessary to do the job. If that can’t be done because of a mistake, the contractor will probably back out.”
Get CM Help
For private schools and public schools permitted to select among delivery methods, Bill Mykins, a vice president with Washington, DC-based Brailsford & Dunleavy, a facility planning and program management firm, whose specialties include higher education, recommends using a CM for complex projects.
“A CM can help phase and sequence projects,” Mykins said. “Working with the architect, a CM can help identify conflicts in the plans and suggest solutions.”
A CM can push schedules ahead, continued Mykins. Instead of waiting for the architect to finish the drawings, prepare bid packages, request proposals, and select a general contractor, a CM can commission site work and get started.
“Starting with a GC before the drawings are complete can set a project up for financial failure by producing a lot of change orders,” Mykins warned. A CM can prevent that.
“You can get going even faster by commissioning a design-build group to do the job. A design-build project today can take advantage of low architect and engineering fees, contractor fees, and subcontractor fees available in this market.”
Mykins recommends organizing a design-build project by short-listing three firms and asking each to develop and present a conceptual design, paying each a couple thousand dollars to cover costs. “Design-build is a good delivery method today,” he said.
BIM, Design Assist, and Managing Costs on Major Projects
As CM on Virginia Commonwealth University’s (VCU) $138M School of Medicine in downtown Richmond, Gilbane is working with a design, carried out with BIM, to organize design-assist work and the early purchase of key building systems — all to hold down costs.
Designed by a renowned team including Ballinger, a Philadelphia-based architecture and engineering firm, and I. M. Pei Cobb Freed & Partners of New York, plans call for a 12-story building.
“We are working as a CM at risk on this project, and we’ll eventually develop a GMP (guaranteed maximum price),” Sharpless said. “But we are starting by defining the budget with the owner and design firms. Next, we’ll bring in the mechanical, electrical, plumbing, curtain wall, and pre-casting contractors and ask them to advise the architect about industry standards.
“Using the three-dimensional BIM system makes it easier for all the participants to visualize the overall building and individual systems. BIM also reduces conflicts, while automating and ensuring take-off quantities used to request estimates.
“The architect maintains its professional stamp, but the design assistance enables us to get the details right from the beginning.”
It also enables the purchasing team to purchase major materials, components, and systems at the most economical time — like during the middle of the current recession instead of next year when prices may be trending up.
Now Is the Time
Repeat: If you have a backlog of deferred maintenance or a new building program ready to roll out, now’s the time. Construction prices are coming in at a 20 percent discount. Just be careful to apply the right firms and tools to the process.