CONSTRUCTION MANAGEMENT A RISK MITIGATION AND COST SAVINGS TOOL

2Shook Construction Co.

CONSTRUCTION MANAGEMENT: RISK MITIGATION AND COST SAVINGS TOOL

INTRODUCTIONIn general terms, a construction manager (CM) exists to deliver a project on-time and on-budget and to provide a positive project experience to the client. This is accomplished by setting up the project to be successful with front-end planning and a clear establishment of goals and expectations, then establishing controls that manage potential risks during construction. Because risk mitigation is one of the primary reasons to use a construction manager, one could argue that each component of a CM’s role serves to do just that: manage risk.

With that said, this document illustrates specific areas of risk that are addressed by a CM. Although any potential risk mitigated could be seen as a cost-savings, this document also identifies specific hard-costs that the project can expect to save by using the construction management delivery method.

It is critical to remember that the earlier you are able to engage a construction manager the more value they will bring to the project.

RISK MITIGATION

EARLY BUDGET DEFINITIONOne of the most significant benefits of a construction manager is the early definition of the project budget. Rather than having a desired budget used as a target for design—but not validated until the project is formally bid, the CM will provide the owner with a Guaranteed Maximum Price (G-Max or GMP) at a pre-specified point in design development. Furnished via a formal amendment to the construction manager’s contract, this provides the owner security from potential cost over-runs.

CONSTRUCTABILITY REVIEWSA constructability review validates the means and methods for constructing the building to ensure that any potential issues are identified prior to the start of construction, when they are more easily addressed and resolved. This process also enables the CM to “simulate construction” and identify any opportunities to build the project more efficiently.

PREQUALIFYING SUBCONTRACTORSSubcontractors are put through a formal prequalification process to validate their financial stability, relevant experience and quality. This process provides a filtered pool of bidders that are both competitive and capable of building the project.

SAFETY AND QUALITY CONTROL MANAGEMENTThe construction manager will have a field superintendent on site anytime that work is performed. Their first responsibility is to safety and to ensuring the quality of work on-site. In the unfortunate instance that a safety incident does occur on site, the CM provides the client with a layer of separation that protects them from both liability and potential administrative obligations.

Similarly, if a quality issue were to arise with work in-place, the CM would work with the responsible subcontractor to redo the work with no impact to the project’s budget or schedule. Again, the client is insulated from any involvement in the issue, freeing them up for continued focus on their core business.

Construction Management: Risk Mitigation and Cost Savings Tool

3Shook Construction Co.

SCHEDULE MANAGEMENTEvery construction project will encounter unexpected challenges be it weather, scope changes, material shortages or any number of other potential issues. Rather than count the days lost and track the subsequent schedule impact, the CM will proactively manage slippage and will work with the designer and subcontractors to devise a plan that enables the project to meet the end date.

CHANGE MANAGEMENTChanges in scope are a reality of the construction business. Most will be caught during the preconstruction review process; however, potential changes also may arise because of favorable market conditions or owner-requested items. The goal is to minimize these changes and to ensure that when they do occur, they are valid to the desired scope and are priced accurately.

Change orders typically represent a tremendous area of risk for the client as it is difficult to verify the cost of these items. When legitimate change orders arise, the CM will formally estimate these items in-house or seek out competitive pricing to ensure item costs are valid.

COMMISSIONING The construction manager’s biggest contribution to the project’s commissioning is in maintaining schedule. Commissioning takes place at the project’s end after nearly all work is complete and subcontractors are beginning to focus on their next project. The CM will ensure that the commissioning activities are built into the project schedule—logically and intentionally—so that these items are addressed on time and the project is closed out quickly.

Construction Management: Risk Mitigation and Cost Savings Tool

4Shook Construction Co.

COST SAVINGS

VALUE ANALYSISValue analysis reviews examine literally hundreds of different aspects of the project, client and facility to determine the most efficient way to deliver the best finished product. This process considers everything from the function and operations of the building to the determined value of first cost vs. life-cycle cost and the specific materials that will be used to build the facility. This typically culminates in a formal workshop in which all project stakeholders come together to examine and vet the most promising value analysis opportunities.

BROAD AND COMPETITIVE SUBCONTRACTOR POOLThe CM will provide an extensive list of prequalified subcontractors to ensure the most competitive pricing for the project. Subcontractors bidding to a CM that they trust and have worked with previously typically provide more competitive pricing because the up front planning and coordination provided by the CM benefits all parties involved in the project.

Location: Franklin, OhioStatus: Complete Size of Project: 535,000 SF - 214 beds - 200 acres

The Problem Schematic Design Budget: $144,000,000 Original Budget: $122,000,000 Budget Variances: $22,000,000

Plan of Action Plan: Value Analysis Workshop (two-day) Location: Miamisburg, OH Attendees: Owners, User Groups, Program Manager, Architect, Engineers, Shook’s Preconstruction and Operations Team

Results Total number of items studied: 265 Total number of accepted items: 80Total value of items studied: $50,222,316 Total value of accepted items: $20,661,763

Final Outcome: On Budget

ATRIUM MEDICAL CENTERHEALTH AND TECHNOLOGY CAMPUS

Value Analysis Workshop Case Studies

Location: Dayton, OhioStatus: CompleteSize of Project: 484,000 SF - 180 beds - 15,000 SF Renovation

The Problem Schematic Design Budget: $157,874,000Original Budget: $136,710,000Budget Variances: $21,164,000

Plan of Action Plan: Value Analysis Workshop 1 of 4 (two-day)Location: Miamisburg, OHAttendees: Owners, User Groups, Program Manager, Architect, Engineers, Shook’s Preconstruction and Operations Team

ResultsTotal number of items studied: 106 Total number of accepted items: 51Total value of items studied: $55,863,570Total value of accepted items: $22,205,723

Final Outcome: Under Budget

MIAMI VALLEY HOSPITAL SOUTHEAST TOWER ADDITION

Construction Management: Risk Mitigation and Cost Savings Tool

5Shook Construction Co.

STRATEGIC PURCHASINGAfter the project has been bid and the primary subcontracting partners have been identified, there is typically a window of opportunity to bundle remaining packages. Subcontractors that understand this are likely to be awarded a portion of work and are often willing to pick up a larger scope at a net savings to the project.

MAJOR EQUIPMENT PURCHASINGVendors that frequently purchase items like switchgear, UPS’s, CRAH’s and generators will typically secure more favorable terms in pricing, lead times and project support. Organizations that do not procure this equipment may be taken advantage of without any awareness on their part. The CM will ensure that all major equipment purchases have been competitively reviewed for most favorable pricing.