Best Practices Commercial Building Construction US

(disclaimer: this document is solely the opinion of George Wilkinson and Wilkinson Building Advisors and does not represent that of any of its clients or employees)

Introduction

This is the second in a three part series addressing best practices and ethics in the AEC business community (“Architecture/Engineering/Construction”)

Taken in the broadest sense, construction in the US is a multi- trillion/year industry. Yet in the commercial building sector, how buyers and sellers contract is deeply flawed and the issues are structural and persistent. These flawed processes, often encroach on the boundaries of ethical business behavior. Setting the issue of outright corruption aside, what are some the key characteristics of this situation:

• Sellers of services and outcomes often do not know the cost basis for a transaction during the early stages.
• Buyers of services and outcomes seldom know what cost basis to expect, particularly during the early stages when budgets are estimated 
• Reporting of costs and sales prices during and after transaction ∂oes not follow widely accepted business practices.
• In many cases, the buyers of services lack direct and applicable business experience;  this can often be attributed to infrequent engagement with the market.
• The market is a cacophony of noise (to the buyer’s ear) as various participants compete to become the center of the project operational whee
• The professional resources in the construction marketplace are deeply siloed.
• Design and problem solving methodologies vary widely, and the risks are opaque to buyers.
• Creativity is often overrated; sometimes proven solutions can carry the day.
• Design (when needed) is often non-linear; “what if” cycles often are needed to discover an appropriate and effective solution.
• No service provider silo has earned the right to be the master builder, the defacto “center of the wheel.”

Indeed, this is a tangled web. It leads to common complaints about the design and construction industry: i) it unexpectedly cost too much, ii) the schedule was longer than estimated, and 3) the “product outcome” was a surprise.

Let’s examine this riddle

This author lays blame and potential for constructive change at the feet of the buyers. Afterall, the entity that holds the money has overwhelming influence. Among the issues listed above, here’s what can the buyers do.

• Look for the horizontal function
• Recognize the temporary organization
• Insist on verticals
• Recognize that facts are facts
• Insist on normalized costs
• Embrace the “looks like” discovery process
• Keep the egos at bay
• Measure, measure, cut; avoid early time compressions
• Don’t lose mission in the details

Look for the horizontal function

Knitting together functions across silos is a core managerial requirement. Architects used to claim being the Master Builder.. a huge and nearly impossible task across the current complexities. During the sales cycle, builders, brokers, and design professionals often compete for the buyers attention and commitment.Buyer beware! There is no substitute for demonstrated competency, not just by the firm seeking the business but the actual professionals proposing to do the work.

As service providers (architects, design-builders, et al) and Owners seek to make good business deals, each should vet the other in connection with emerging marketplace imperatives:

• Innovative team communication systems are not optional: eMail is fast becoming dysfunctional, awash is annoying distractions

• Place-based operations need to be scrutinized; old model office environments can be burdensome rather that productive

• The design services “DPE multiplier” needs to be evaluated; layers of partner compensation and build-in overhead can drive shocking numbers, e.g. $160/hr billing rate for an unlicensed intern ($40 in the check after deductions); productive business models are driving down the DPE)

Insist on horizontals

Horizontal organizations in the planning, design, and construction industry (“the industry” for purposes of this essay) are in the forefront on the solution to the tyranny of silos. These organizations make it their mission and value proposition to knit together the pieces into the whole. Further, off-loading unfamiliar duties to horizontals allows the buyer to run their business during the project period.

It is this writer’s opinion that risk management forces in the marketplace have segmented otherwise obviously unified functions. For example, it is virtually impossible to forecast costs and check business plan feasibility withoutan interwining of design and construction skills and knowledge. Construction operations insurance and design liability insurance drive designers and builders into their own well-defended corners.

Recognize the temporary organization

Most businesses engage the planning, design, and construction industry infrequently. Thus, by definition, the “project” organization is temporary. Executive care must be taken to engage and facilitate the right cast; some will be active only during the project period, some will be from the outside. Operational responsibility that will be ongoing after the project period must be considered; vetting qualifications (in addition to aspirations) must be carefully accomplished.

For most organizations, this is no small matter. Skill sets and knowledge basis are fundamentally different during the project period as compared to operations that follow.

But after the project period is completed and the investments are made, operations must carry forward successfully.

Recognize that facts are facts

Examination of actual cost histories is a bedrock standard of practice when budgeting. Buyers must navigate the mine-field of sales price vs cost. Guessing often carries a large margin of error (>30%). Further, cost histories when used as budgeting guides must classify costs is useful ways. The schedule of values documents used in common AIA contract forms can be misleading and often not helpful to either the architect-of-record or the buyers (aka the “Owner”).

This essay advocates a relationship with a fully vetted horizontal: direct experience in similar work including actual cost records; use non-disclosure agreements (NDA)as needed to protect proprietary information.

Insist on normalized costs

The industry commonly uses the Masterformat classification system for contracting. This is the de-facto standard for contracting within the industry (i.e. a general contractor doing a deal with a subcontractor) BUT, the Uniformat classification is system is the best system for classification of costs when planning and budgeting . Thus, Masterformat histories are not maximally useful useless classified as Uniformat. Recently buyers are commonly making the distinction as a best practice.

Unfortunately, deception (or misunderstanding) can buried in the numbers. For example, cost centers and terms such as general conditions, general requirements, qualified costs, owner contingencies vs contractor contingencies, basic services vs addition services, and not-to-exceed cost basis just to name a few. The professional services, project team has a duty to be transparent

Embrace the “looks like” discovery process

As the old saying goes: “beauty is in the eye of the beholder” and that is usually true in the world of building design. In fact, the right look (aka “beauty”) is one of the reasons a buyer hires an architect or interior designer. To the extent the buyer wants to influence “the look”, talk is cheap, imprecise, and usually ineffective. One tried and true approach is to identify (and often visit) examples that embody the look. It’s worth noting that hiring a designer that has a demonstrated history of producing “the look” is a role for the executive buyer.

Keep the egos at bay

For some business leaders, guiding a project is an exciting process; sometimes it is a nearly a personal endeavor; Identity and judgement become inextricably intertwined. Advice to the executive buyer: if you are spending someone else’s money, leave the choices to the carefully selected design professionals and the building committee.

Don’t lose the mission in the tactical details

As concepts expand rapidly into details, the lead buyer is well-advised to establish measurable outcomes and stick to them. “You can’t manage it if you can’t measure it.”

Measure, measure, cut; avoid early time compressions

The old carpenter’s saying is instructive: (paraphrase) measure twice (be sure) and then cut (you can’t go back). This applies to the project planning process. Sometimes finding the right question is elusive; design is often not a straight line process. Later stages of project execution can be well guided by detailed schedules. However, on the front end, take the time as needed.

Epilog: What to do to avoid failure and risk poor decisions

All of the above recommendations address the human decision-making;excellence in professional management as the common theme. When these checkpoints are successfully navigated, the temptations for short-cuts and poor business relationships are reduced and eliminated.

Citations

Also see:

• the “Project Fitness Guidelines” can be downloaded fromwww.wilkinsonadvisors.com. This checklistis a guide for executive decision-makers.

• “Reinventing construction: a route to higher productivity”, McKinsey Global Instititue, February 2017

The guiding light for Wilkinson Building Advisors is to “Plan thoughtfully and act purposefully.” A pillar of the consulting practice is to help everyone “win” when the project needs fixing. Thus the title of this post: “Fix your project.”

Unfortunately, the need for “fixing” usually arrives after a design and construction project is in the advanced stages, i.e. construction is well underway. By then the “one-time manager” is feeling as though events are getting out of hand. The usual suspects are:

• The financial operations threaten  to break the budget
• The schedule is slipping and the needed opening dates seem unlikely

Common sense....

In commercial life, it is a common best practice to have a business plan before spending a lot of money. This concept applies to planning, designing, and building (and paying for it). Why then is it so common to hear: "it cost more", "the schedule was really late", "I was disappointed in the design but it was too late to change". Here is a perspective

Visible City (Jon Commers and his group) are on the midwest planning scene. They are analysts and planners using high end business intelligence tools including applied GIS (Geographic Information Systems). These tools crunch data in many ways including producing "smart maps": visualizations that reveal hidden development opportunities. Users of the visuals are often heard saying: "I haven't seen that before (despite all my driving around)."

If you have read the post about “Successful Project Completion” then this post helps with some critical details: the concepts of FFE and fixed FFE (i.e. “Furniture, Fixtures, and Equipment”)

FFE (fixed or otherwise) is needed to complete your project and isn’t always expressly included in traditional design and construction services. Examples are:

• Security systems (designers and builders don’t want the liability)
• Data and communication systems (often part of the business work flow)
• Furniture and accessories (includes plants and specialties)
• Modular furniture and work stations (often called “cubicles”)
• Decorations (includes wall art)
• Special equipment (cooling systems for computer equipment etc)

At Wilkinson Building Advisors (“WBA”), projects have 3 stages:

1. Planning and setup
2. Execution and administration
3. Project completion

This post is about Project Completion, the stage when the Owner has spent a lot of money and needs to move in and commence operations in order to derive value from the investment.

A contract is an agreement about how risk is allocated in the deal; risk is priced into the deal. Each party to the contract negotiates for, and eventually agrees to the price of performance. The specter of risk sits on the shoulders of the contracting parties. When risk is substantially speculative, as compared to known, then contract negotiations and subsequence performance are distorted.

Many processes in the AEC+dev industry are “poster children” to the proposition of contract and performance distortion resulting from mis-allocated risk. Cost ignorance is high among the usual suspects.What is the probability of project successful when this outcome is premised upon blind hope in lieu of skilled calculation?

(For purposes of this document, planning, design, construction, and development of real property (a.k.a. buildings) will be referred to as the “AEC” industry.)

It is common that many customers to services in the AEC industry seldom do business there and in many cases the project undertaken is a "one-off." Furthermore, these customers find themselves in the position of attempting to manage many intertwining contracts while all at the same time successfully operating the business that brought them to needing more in the way of property (buildings). These conditions, in and of themselves put up barriers to success, but there are more equally significant obstacles lurking at the outset.

Applied technology in the building industry is now at a tipping point. The intersection of timber construction technologies with indoor climate energy exchange and management is creating powerful new market opportunities.

The cultural headwinds have long been on the bow of the so-called design-build movement. It took nearly 50 years of cultural warfare for the various participants to see their integrative potential. It is easy to see how the cultural divide is built into the DNA of the various designers, engineers, builders, salespeople, financial engineers, and business managers; they are all different people with different worldviews and ways of behaving. The marketplace finally demanded cooperation and collaboration. By the 1990’s, the acceptance of the design-build approach was no longer in dispute.