Alternative delivery methods on the rise include construction management (CM) agency, CM-at-risk and design-build. There are also variations on these methods called program management and program management at risk. Depending on the state, some or all of these alternatives are available to districts unhappy with conventional design-bid-build general contracting.

Defining New (and Old) Delivery Methods

Alternative construction delivery methods generally aim to solve problems that crop up in the conventional general contracting method.Historically, a general contractor worked according to a design-bid-build method developed to facilitate decisions by unsophisticated owners. The process begins when an owner retains an architect to design a facility and organize construction documents into a bid package. General contractors interested in the project then evaluate the bid documents and respond with a total price, keeping the specifics to themselves. Administrators assign the project to the lowest bidder, as required by laws originally passed to protect against corruption. As building projects have grown more sophisticated, however, weaknesses have appeared in design-bid-build construction.

For example, a general contractor must estimate prices without talking to the architect. Yet, complex designs often make it difficult to understand design details without help from an architect. As a result, a low-bid general contractor will often discover that bid prices established for some components of a project have been set too low and issue change orders that reflect the true price of the work. By the end of the job, what starts as the low bid can be transformed into the highest bid. For school districts using strictly defined capital raised during bond issues, change-order price increases can prove disastrous.

Design-Build and CM Delivery Systems Help to Solve This Problem

In a design-build project, owners turn over design responsibilities to contractors that retain the architects. Teams of contractors and architects design and estimate the project. Several teams submit guaranteed prices. Just as in the design-bid-build general contracting method, the owner selects the low bid. If mistakes are made in the estimates, the contractor-architect team changes the design to hold the price or absorbs the cost increase.“This method is generally used for speed,” says Lin Redden, vice president and director of construction management with Atlanta-based Heery International, Inc., one of the largest K-12 school builders in the country.“But owners give up some control, and by turning over both design and construction, it can be costly to change your mind about something.”

CM alters the design-bid-build general contracting method by aligning construction managers with the owner and allowing close consultations with the architect. An owner begins a CM project by retaining the architect. As the design approaches completion, the owner brings in a construction manager, selected on the basis of qualifications, to evaluate and estimate the design. The CM, which is paid a fee for services, consults with both the owner and the architect and develops bid packages for each trade required by the job. The CM helps the owner select among trade bids and manages the construction process as an owner’s agent. Prime construction contracts exist between the owner and the trade contractors. While this system helps ensure more accurate estimating, the contractual relationships between the owner and the trades weaken the position of the CM during construction. If change orders or disputes arise, the CM can urge solutions, but only the owner has authority.

To solve this problem, CM has split into two delivery methods. The first is CM-agency, under which the CM operates as described above. The second, which has gained wide acceptance in recent years, is CM-at-risk. State legislation that enables schools to use alternative delivery methods generally favor CM-at-risk over CM agency. The CM-at-risk method begins much like CM-agency. The CM comes on board as the architects begin to develop bid documents, evaluates the design and prepares estimates. The CM collects a fee for these services. In this case, however, when the bid requests go out, the CM becomes the contracting agent for the project, just like a general contractor. The CM also develops a guaranteed maximum price (GMP) and shares all pricing information from the trade subcontractors with the owner and architect. This stands as the key difference between general contracting and CM-at-risk.

CM-at-Risk in Katy, Texas

The Katy Independent School District in Katy, Texas, recently completed construction of the $66-million Morton Ranch High School, the district’s fifth high school, using the CM-at-risk method. At the beginning of the Morton Ranch project, the 40,000-student district was in the midst of a $100-million-per-year construction program. Sabrina Ogburn, project manager for the district, wanted to ensure that the 480,000-sq.-ft. high school would be built on budget and on schedule, with no hitches that could throw off other projects and schedules.

“We wanted the top dogs on this job so we could be sure that disputes could be handled properly, without lawsuits, and that the work would be high quality,” Ogburn says. “We used the CM-at-risk method because we thought it would take the bad things out of the equation.”The architect came on board in June of 2001. In August, Ogburn selected the Gilbane Building Company of Providence, R.I., to provide CM services. The building was a repeat design with a few modifications. A series of meetings with school district personnel helped the architect and CM understand the nature of the project. The general contracting method does not permit such early involvement by a contractor.

As the architect completed drawings, Gilbane estimated pieces of the building — in 25 percent chunks, another distinct departure from the general contracting process, where estimates are done all at once with little appreciation for how the design evolved. Gilbane also commented on the design process, suggesting cost reduction possibilities and helping to value engineer systems as the construction documents were being prepared.

In February 2002, the team established the guaranteed maximum price and sent requests for proposals to trade contractors. Ogburn participated in the bid review process with principals from Gilbane. “We studied the bids and shook them out,” says Ogburn. “Shaking out bids means that we found duplications and eliminated them. This saved us $400,000, money that we would not have gotten back from a general contractor.”

Next the team turned to scheduling, again with Ogburn at the table. While sequencing the work of the trade contractors, more problems were recognized and solved. The football field design, for example, called for a sub-drainage system and irrigation lines. The design failed to make clear that Ogburn wanted the irrigation lines above the sub-drainage system. Initially, the team scheduled the irrigation contractor to arrive first, a common approach. “Because we were in the meeting, we noticed and said that this wouldn’t meet our long-term maintenance needs,” Ogburn says.

The change raised labor costs and the price of the irrigation system. But Gilbane found a way to defray the extra cost. With the general contracting method, a change order would have raised the cost — had anyone noticed there was a problem in the first place.

In the end, the project finished under budget. Ogburn attributes the smooth delivery to the strong relationships built with the CM-at-risk delivery method. “I can’t say enough about it,” she says.

“The major difference with the CM-at-risk method is the open book idea,” says Gloria Barrera, a vice president with 3D/I, a large Houston-based construction manager. “The owner knows where the money is all the time.”

Variations on Themes

For those who prefer the simplicity of general contracting, a number of companies have modified this approach. Heery International, for example, occasionally works through a prequalified bidding method, sometimes called competitive sealed proposals (CSPs).

In this system, general contractors submit bids along with qualifications. States that permit CSPs have removed the requirement to accept the lowest bid and adopted an approach that requires accepting the lowest qualified bid.

Heery also provides program management services, which are similar to the CM-agency approach. A program manager is selected through a competitive process based on qualifications. St. Johns County schools in Florida selected Heery to provide program management services in 1989, and Heery has been at it ever since. “A program manager comes in like a facility manager and executes an owners program,” explains Redden. “We’ll choose architects, manage competitive bid general contracts, negotiate contracts and manage construction. We’re paid a fee based on hours spent.”

While this sounds like a CM-agency method, the difference is that Heery executes programs from beginning to end. A CM-agency relationship generally begins as the architect nears completion of the design.

Heery has also developed a design-build delivery method that deals with deferred maintenance issues for school districts. “In Fulton County, Fla., we held a design-build contract for deferred maintenance under which we managed architects, performed work ourselves and managed trade contractors for set prices,” says Redden.The project moved through three phases. First Heery performed a facility assessment across the district and identified a dozen or more small projects: replacing handrails, fixing doors, repairing windows and so on. Heery and an architect estimated the work, set a price and handled each project. Second, Heery and an architect did another assessment and identified small projects that required permitting, such as installing ADA elevators and performing electrical work. A price was set and the work was carried out. Third, Heery looked at large deferred maintenance items such as renovating air conditioning systems and replacing roofs. Working with an architect, a design was developed, a price set and the work completed. Redden says the design-build approach can make short work of dozens of small to medium-size projects in school systems that have been forced for one reason or another to defer work.

Finally, Heery has developed a variation on CM-at-risk called program management at risk. “We did this for Wake County in North Carolina,” Redden says. “We handled planning, predesign and design for a series of schools. Under this approach, we essentially functioned like an owner.”

General contracting continues to have value for school districts with simple projects where low-bids can clearly be identified as quality bids. On the other hand, states that allow districts to use alternatives to low-bid general contracting have seen school construction move almost entirely to the alternatives of CM-agency, CM-at-risk, CSP and design build. “In Texas, you rarely see general contracting in K-12 schools anymore,” says 3D/I’s Barrera. “I haven’t heard of a general contracting school project in five years.”