facilities institute july 9 - 12, 2012 houston, texas

Facilities InstituteJuly 9 - 12, 2012Houston, Texas

www.NAEPnet.org


A Primer on Standard Costing Methods for

Construction Projects

Presented by

Tom Vaughn, CEO


Agenda

• Defining Terms• Construction Cost Components• Four Common Contract Types

‒ Definition/What’s Included‒ Delivery Methods Associated with Each‒ Pros/Cons‒ Best/Least suited projects

• Market Forecasting


Defining Terms

Management Options

DeliveryMethods

SelectionCriteria

Contract Types


Defining Terms

• Delivery Methods1. Traditional (Design-Bid-Build)

2. Competitive Sealed Proposal (CSP)

3. Construction Manager at Risk (CM at R)

4. Design/Build

5. Job Order Contract (JOC)

• Selection Criteria1. Low bid

2. Best value

3. Qualification based

• Contract Types1. Lump Sum

2. Cost + Fee

3. Cost + Fee with GMP

4. JOC (unit price)

Price Only

Qualifications Only


Construction Cost Components

• Four Basic Components‒ Preconstruction Phase Fee‒ Construction Fee‒ General Conditions‒ Contingency

• Type of Contract dictates which of these components are included


Preconstruction Phase Fee

• Preliminary Budget & Schedule• Constructability Reviews• Ongoing Scheduling – Design & Construction• Ongoing Budget/Cost Consultation• Coordination of Construction Documents• Bid Package Strategy• Obtaining Bids• Compensation: Lump Sum/Cost Plus or GMP


• Profit• Home Office Overhead

‒ Estimating‒ Accounting‒ Human Resources‒ Legal

‒ Corporate Safety‒ Executives‒ Interest Cost‒ Income Tax

Construction Fee


General Conditions (Everyone’s Definition is Different)

On-Site Project Management Bonds & Insurance

Field Offices & Office Supplies

Temporary Project Utilities

• Safety Coordinator/ Assistant

• Project Executive• Office Engineer(s)• Project Expeditor(s)• Asst.

Superintendent(s)

• CPM Scheduler• Superintendent(s)• Project

Manager(s)• Project Support

Staff• Out-of-State

Project Specific Travel

• Builder’s Risk Insurance

• General Liability Insurance (unless ROCIP)

• Payment & Performance Bonds

• Other Project Insurance as required

• Partnering Costs• Job Photos/Videos• Project Specific Signage• Postage/Special Shipping• Project/As-Built Drawings• Project Milestone Events• Move-In/Out, Office Set-up• Employee ID Systems• Small Tools, Storage Trailers• Monthly Trailer Rental• Mobilization/Demobilization • First Aid Supplies• Reprographic Services• Monthly Office Supplies• Remote Parking Expense• Project Reference Manuals• Security Systems/Watchman• Safety Material & Equipment

• Dumpsters• Project Electricity• Monthly Phone/

Internet• Phone/Internet

Install.• Street Rental &

Barricades• Fencing• Covered Walkways

• Temp. Water Distrib. & Meters

• Temp Electrical Distrib. & Meters

• Site Erosion Control & Project Entrances

• Project Water• Temp Toilets• Temp Fire

Protection


Contractor’s Contingency

• Bidding• Cost Escalation• Ooops• Scope• Unforseen Conditions• Design• Owner


Lump Sum Contract

Contract Type Selection Criteria Delivery Method (s)

Lump Sum(Fixed price, Stipulated

sum)

100% on Total Construction Cost

Traditional (Hard Bid)

0-100% on Total Construction Cost& Other Factors

Competitive Sealed Proposal (CSP)

Qualifications & Cost

Design/Build, Construction Manager at Risk

Definition – Build X project for Y dollars. Bid is based on Contractor’s interpretation of the major items of work and quantity/scope of each item. Contractor paid only the lump sum dollar amount.



Lump Sum Contract

What is Included?

Preconstruction Phase Fee NO*

Construction Fee•Home office overhead•Profit

YES

General Conditions YES

Contingency NO*

*Only what’s clearly on the plans & specs


Lump Sum Contract

• Traditional (Design-Bid-Build)‒ Owner selects the Architect/Engineer to

design the project.

‒ Once Construction Documents (CDs) are fully complete, the Owner requests lump sum prices from general contractors to perform the work.

‒ Selection of the General Contractor is based on the lowest price submittal and award is made to a single contractor.

• Characteristics‒ Delivery is in three linear phases resulting

in the longest time duration.

Owner

General Contractor

A/E

S u b c o n t r a c t o r s

Design Bid Construct


Lump Sum Contract

• Competitive Sealed Proposal‒ Similar to Traditional, the Owner selects an A/E

to design the project. ‒ Once CDs are completed, the Owner solicits

proposals from contractors to perform the work.

‒ Selection is based on a combination of price and other factors that the Owner deems in its best interest, such as project team personnel, schedule, contractor’s past experience, etc.

‒ Doesn’t always result in lowest price.

• Delivery Schedule is in three linear phases:

Owner

General Contractor

A/E

S u b c o n t r a c t o r s

Design Bid Construct



Lump Sum Contract

Possible Selection Criteria

• Price

• Safety Record

• Quality Control Program

• Past Similar Projects

• References

• Management Team

• Sub Contractors

• Financial Strength (bonds)

• Value Added Services


PROS

• Easy – no cost accounting or confusion

• Open, aggressive bidding• Single point of responsibility for

construction

CONS

• No design phase assistance• Longer project duration• Lack of flexibility• Price not known until done

• Adversarial relationships

Lump Sum Contract

BEST SUITED LEAST SUITED

• Smaller projects• Simple projects• Completely designed

• New projects

• Multi-phase or complex jobs

• Time sensitive


Cost Plus Fee/GMP Contracts

Contract Type Selection Criteria

Delivery Method

Cost Plus Fee

orCost Plus Fee with GMP

(Guaranteed Maximum Price)


Design/Build*


Construction Manager at Risk* (CMR)

Cost Plus Fee – Contractor is reimbursed for actual cost of labor and materials, plus charges a fee (typically an agreed-upon lump or % of total labor & material costs) for home office overhead & profit.

Guaranteed Maximum Price (GMP) – The CMR or Design/Builder agrees beforehand that the cost of the work will not exceed a specific figure, known as the GMP. The CM is allocated some contingency to pay for construction changes within the design intent. Changes beyond design intent require approval of all stakeholders.

*Can also be lump sum.




What is Included?

Preconstruction Phase Fee YES

Construction Fee•Home office overhead•Profit

YES


Contingency YES


• Used with CM at Risko Owner selects A/E separate from CM. o CM is selected based on fees, general

conditions costs and qualifications. o CM provides preconstruction phase

services and works in a cooperative relationship with A/E.

o CM guarantees construction price at some point during design.

o Pricing/costs are open book.


• Delivery Schedule is three phase non-linear:

Construct

DesignSelect

Owner

A/ECM Agent

Sub Sub Sub Sub


PROS

• Builder Selection Flexibility

• CM provides preconstruction services and works in team concept with A/E & Owner

• Opportunity phase/fast track job

• Team concept

• Better opportunity to maximize MWBE subcontractor participation through bid package initiatives

• Change flexibility

CONS

• Price is not guaranteed at time of selection

• Owner must have more involvement in the process

• Selection is more difficult

Cost Plus Fee: CM at Risk

BEST SUITED LEAST SUITED

• Larger new or renovation projects that are schedule sensitive, difficult to define, or subject to change

• Smaller projects


Example Cost Plus Fee (CM at Risk) Project

Emerging Technology Center, Texas A&M University


Why it Worked Well at Texas A&M University

• Complex Project• High End Design

• Fixed Budget

• Early Packages‒ Utility Re-Route

‒ Earth Work



• Design/Build Delivery Method‒ Design and Construction are

accomplished through a single entity. The Design/Build entity includes a builder, architect and engineer.

‒ Selection is based on best value determination.

‒ Pricing at selection may be fee and general conditions based or lump sum.

Sub Sub

Owner

Self-Perform

Design/Builder

• Delivery Schedule is two non-linear phases:

Design ConstructSelect

Sub


PROS• Speed• Selection flexibility• Single point of responsibility• Team concept

CONS• Speed• No check and balance between A/E

and Contractor• More difficult for Owners to manage • Potential adversarial relation-ship

between Design/Builder and Owner (if lump sum)

Cost Plus Fee: Design/Build

BEST SUITED LEAST SUITED• Projects that are schedule

sensitive• Projects that are difficult to define• Projects that are less schedule

sensitive


Example Cost Plus Fee (Design/Build) Project

MD Anderson Cancer Center

Mid Campus Building 1 and

Parking Garage


Example Cost Plus Fee (Design/Build) Project

MD Anderson Cancer Center, Mid Campus Building 1


Why it Worked at MD Anderson Cancer Center

• Accelerated Schedule

• Known and Trusted Builder and A/E Team

• Known Owners Expectationso Not just what was in writing

• Proactive, Daily Owner Involvement


YES• Estimate errors• Market fluctuations• Normal weather delays• Construction mistakes• Quantity errors• Subcontractor performance

NO• Design changes• Added scope• Design errors• Unforeseen conditions• Natural or man-made

disasters

What is GUARANTEED about a GMP?

“A Guaranteed Maximum Price on a particular scope of work”


Unit Price Contract

Contract Type Selection Criteria Delivery Method

Unit PriceQualifications

& CostJob Order Contract

(JOC)

• Predetermined price for major items of work. The Contractor’s price per unit multiplied by the total quantity to create the total cost for each major item of work.

• Based on the Contractor’s interpretation of the major items of work and the quantity of each item.

• Contractor is paid based on the actual quantity constructed of each major item of work.



Unit Price Contract

What is Included?

Preconstruction Phase Fee NO*

Construction Fee•Home atlive overhead•Profit

YES


Contingency NO*

*Only what’s clearly on the plans & specs


Unit Price Contract

• Job Order Contracts‒ A process for contracting for the minor construction,

repair, rehabilitation, or alteration of facilities when the work is of a recurring nature but the delivery times, type, and quantities of work required are indefinite.

‒ Orders are priced based substantially upon pre described and pre-priced tasks contained in an Owner’s specified Unit Price Book.

‒ The prime contractor bids a “coefficient” or multiplier which is applied to these unit prices to determine the actual rates.

‒ Selection is based upon the combination of experience, qualifications, past performance, technical ability, financial stability, reputation, and price which provides the overall “best value.”

Owner

JOCContractor

A/E or Consultant

S u b c o n t r a c t o r s o rE m p l o y e e C r e w s


PROS• Flexible• Fast

CONS• Difficult to manage• Difficult to compare

proposals

Unit Price Contract

BEST SUITED LEAST SUITED• Small projects• Repeat work• Schedule sensitive

• Large projects• Poorly defined scope


SUMMARY: Comparison of Different Contract Types

Contract Type Selection Criteria Cost Components Delivery Method (s)

Lump Sum100% on Total

Construction CostConstruction Fee General Conditions

Traditional (Design-Bid-Build)

Lump Sum0 -100% on Total

Construction Cost & Other Factors

Construction Fee General Conditions

Competitive Sealed Proposal (CSP)

Lump SumQualifications

& Cost

Preconstruction Fee Construction FeeGeneral ConditionsContingency

Design/Build, CM at Risk

Cost Plus FeeQualifications

& Cost



Cost Plus Fee with GMP




Unit PriceQualifications

& CostConstruction Fee General Conditions

Job Order Contract


Market Factors: What Contractors Consider

• Perceived Risk• Perceived Quality of Owner & A/E

o Quality of planso Paid on timeo Prompt resolution of changes

• Difficulty/Complexity of the Project• Time• Retainage & Payment Terms• Location – Availability of Manpower & Materials• Cost of Materials & Labor


Materials Costs* (Last 10 Years)

• Diesel 246%• Asphalt 124%• Iron Ore / Steel Scrap 164%• Lumber 4-9%• Copper Ore 309%• Gypsum 28%• CPI 24.5% vs. PPI for Construction 52.1%

*Source: AGC, Bureau of Labor


Labor Costs

Industry Facts• The average craft worker is 47• The average entry age into the

industry is 29• Craft training is at an all-time low• Construction productivity was at an

all-time low• 20% of the workforce is expected

to retire within 3 years• Future building growth is projected

to exceed anything seen in previous generations

The Bottom LineWhile the construction workforce is aging and less productive due to lack of training, the demands on our industry increase and become more technical every year.

We must do more to recruit, train and retain craft workers to meet the demands of our industry.


Pick the Right Contract Type & Delivery Method

• Before starting the selection process, determine which contract type and delivery method will provide “best value”

• Factors to consider:− Project size and complexity

− Time allocated for the construction

− Competitiveness of the current/local construction market

− Desired flexibility

− Availability of contractors and subcontractors in the local market

• After deciding on key factors, evaluate the various delivery methods and formally adopt the method you deem “best value.”


Resources / Credits

• Dorsey, Robert W., Project Delivery Systems for Building Construction, AGC of America, 1997

• AGC National, Project Delivery Methods


Thank You

Tom Vaughn

713.243.8300

[email protected]