White Paper CO L L A B O R AT I V E D E L I V E R Y S Y S T E M

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1 White Paper CO L L A B O R AT I V E D E L I V E R Y S Y S T E M Version II December 2010

2 White Paper CO L L A B O R AT I V E D E L I V E R Y S Y S T E M 2 M CG O U G H S CO L L A B O R AT I V E D E L I V E R Y S Y S T E M McGough has a long-established and well-deserved reputation for establishing collaborative, partnering relationships with our owners and design partners at the inception of the construction process and then sustaining these relationships through completion of the project and beyond. Indeed, the exceptional quality of these relationships drives the volume of our repeat business more than three-quarters of our work. T Y P E S O F D E L I V E R Y S Y S T E M S There are two primary project delivery systems in the construction industry: collaborative delivery and hard-bid, or Design-Bid Build (DBB). The collaborative delivery approach differs significantly from the design-bid-build model. DBB requires completion of project design before the contractor is selected. This is a significant disadvantage, because the contractor is not involved in the preconstruction process. This means that the contractor does not participate in value engineering, budgeting, constructability or design review. DBB also lengthens the project schedule and precludes fast-tracking of projects. In contrast, under the collaborative delivery approach, the contractor is selected early in the planning phase of the project and works intensively with the owner and design team to provide budget estimates, value engineering and scheduling input. The contractor establishes a Guaranteed Maximum Price (GMP) for the project when the design scope is well understood. This GMP includes some level of contingency to cover unanticipated changes in scope or unknown conditions that may exist when the GMP is established. When documentation for each major section of work is complete, the contractor competitively bids the work to the subcontractor community. For some portions of the work, McGough may provide added value by self-performing (see McGough s Self-Perform White Paper for a complete review of the benefits of self-performing work). The collaborative approach can be utilized within several delivery systems, including: Construction Manager (CM); Construction Manager Agent; Construction Manager at Risk (CMAR); Design-Build; Design-Assist or single point of responsibility; and Traditional General Contractor (A111). The above are sometimes collectively referred to as negotiated delivery systems.

3 White Paper CO L L A B O R AT I V E D E L I V E R Y S Y S T E M 3 TWO PRIMARY FORMS OF DELIVERY SYSTEMS COLLABORATIVE DELIVERY PROCESS CMAR and CM/GC (A111) CM Agent Design-Build Design Assist Single Point of Responsibility HYBRID APPROACHES LOW BID DELIVERY PROCESS Design-Bid-Build Lump Sum Contract Hard Bid Qualifications Based Selection and/or Competitive Fee/Rates Early Involvement of Contractor in Design Process Collaborative Budgeting/Scheduling Process Guaranteed Max. Price (GMP) with Contingency Contractor Holds Trade Contracts unless acting as CM Agent Open Book Approach May Use Pre-Qualified Vendors All Savings to Owner Ultimately Lower Project Cost Design Complete prior to Award Contract Documents Completed in Single Package Award based on Lump Sum Contract (lowest responsible bid) Change Orders Used to Increase Initial Bid throughout project GC and Subcontractors Keep all Savings K E Y B E N E F I T S O F T H E CO L L A B O R AT I V E D E L I V E R Y A P P R O A C H The nature of business today places emphasis on increasing quality, increasing the speed of delivery and on reducing cost. These factors have led most owners to consider new delivery methods when they are faced with construction projects. The method most owners including an increasing number of organizations in the public sector are selecting is the collaborative delivery approach. This delivery approach has become the industry norm for most private corporations and is fast replacing the design-bid-build delivery process used for public projects. It has been recognized by owners and industry experts as the delivery process that yields the most cost-effective, timely, and highest quality results. McGough has utilized a collaborative delivery approach for the vast majority of projects throughout our history. Our owners and industry partners have experienced the benefits that this delivery approach provides, including the following: 1. The collaborative delivery system delivers optimum value for the owner. The greatest opportunity to positively impact project costs occurs at the earliest stages of the project, during the design phase. The collaborative approach, unlike others, provides this benefit. Early involvement of the contractor favorably impacts the accuracy and quality of the project s design, budget, value engineering, and constructability. Conversely, as illustrated below, the cost for making changes

4 White Paper CO L L A B O R AT I V E D E L I V E R Y S Y S T E M 4 dramatically escalates after project design is complete. COST CONTROL BENEFITS COSTS Potential Savings Cost of Changes $ Programming Design Documentation Contract Documents Construction TIME Although the first cost estimates using the collaborative delivery approach are usually greater than DBB, the final cost of the project is generally lower. This results from several factors including fewer and less expensive change orders during the process. The other factors are: McGough competitively bids the materials and subcontractor components of the work, which generally includes more than 90 percent of construction costs. These are charged at actual cost, without mark-up. The remaining project costs are the contractor fee and the general conditions costs, which are typically competitively bid at the time of contractor selection. Additionally, all general conditions costs are treated as pass-through costs without mark-up. The owner pays only the actual costs incurred. Similarly, change orders, if any, are charged at actual cost with no mark-up; the DBB approach typically marks up change orders 15 percent (or more). The McGough collaborative approach returns 100 percent of any cost savings to the owner. Under the DBB approach, 100 percent of the cost savings are retained by the contractor. Under the McGough collaborative approach, the contractor operates according to an open-book process. The owner has access to actual project cost information at all times. As unused portions of the GMP and/or contingency are identified, adjustments can be made to project scope.

5 White Paper CO L L A B O R AT I V E D E L I V E R Y S Y S T E M 5 2. The collaborative delivery system provides faster project completion. Several key factors enable the contractor to complete projects faster under the collaborative delivery process. These include: The early involvement of the contractor allows fast-tracking and accelerated scheduling of the project, not possible in design-bid-build projects. Similarly, site work, including footings and foundations, can be completed before design is finalized. The flexibility of this approach permits phased design packages throughout the process. Conversely, with the DBB approach, design documents are generally done in a single bid package, which means that design packages cannot be phased and construction is delayed until design is complete. The flexibility of collaborative delivery also allows McGough to anticipate requirements that are not shown in incomplete documents and to respond to changes as the project design evolves. The diagrams shown at right compare the collaborative delivery timeline to the designbid-build (DBB) timeline. As you can see, under the DBB timeline, design must be complete prior to selection of contractor.this sequential phasing will most often lead to a longer schedule for completion of the overall project. Fast-tracking of projects is not supported under the DBB approach. PROJECT START COLLABORATIVE DELIVERY PROJECT TIMELINE SELECT ARCHITECT SELECT CONTRACTOR DESIGN PRECONSTRUCTION CONSTRUCTION SUBSTANTIAL COMPLETION DESIGN-BID-BUILD PROJECT TIMELINE PROJECT START SELECT ARCHITECT DESIGN SELECT CONTRACTOR CONSTRUCTION SUBSTANTIAL COMPLETION

6 White Paper CO L L A B O R AT I V E D E L I V E R Y S Y S T E M 6 3. The collaborative delivery system provides maximum owner control and leads to high quality results. Under the collaborative delivery approach, the owner maintains project control for the entire duration of the project. The owner can choose the level of project involvement they desire through each phase. The owner clearly outlines project goals (e.g., budget, schedule, quality, etc.), and is positioned to influence those goals and make informed incremental decisions from the commencement of the project through project completion. As an example, the process allows the owner to have significant involvement in evaluating and making decisions regarding the key building components that influence final project cost. These include site work, structure, building envelope, and mechanical and electrical systems. The key characteristics of the collaborative approach that ensure maximum owner control and flexibility are the following: This system is owner-focused, rather than profit-focused. Owners may choose their degree of involvement during each project phase. Owner involvement integrates the perspectives of the owner and the entire project team, which aligns owner goals with project results. This owner-focused approach allows owners to determine project goals budget, schedule, quality and to make adjustments throughout the entire preconstruction and construction process. The collaborative approach places a significant emphasis on achieving high quality results. Since the primary goal of this delivery approach is to meet or exceed the customer goals and expectations, the team manages the trade-offs between quality and cost to ensure an optimum balance is achieved. It produces early and credible cost information for owners, so that they can estimate final project costs and balance these against other project goals, such as quality requirements, programming elements and design parameters. It enables owners to evaluate and determine alternative construction components that influence project quality and cost and ultimately impact long-term operating expenses of the facility (e.g., structure, envelope, mechanical/electrical systems). It permits the owner, rather than the builder or project subcontractors, to control change orders, which reduces ultimate final costs. The collaborative delivery system enhances communication among project participants. A key advantage of this delivery system is the quality of communications it produces. Through all phases of the design and construction, the contractor partners with the owner, design team, and project consultants, Collaborative Delivery System White Paper, Version II, I, December

7 White Paper CO L L A B O R AT I V E D E L I V E R Y S Y S T E M 7 subcontractors, material suppliers and vendors to review project progress and make adjustments as necessary. The advantages this approach offers are: Collaboration is characterized by shared expectations and project goals, resulting in a trust environment that is established early and maintained throughout construction. It improves team communications regarding budget and design, and delivers earlier and better cost management direction to the architect and engineer, which reduces the project s design cost. It eliminates adversarial relationships and reduces the likelihood of litigation among project participants that typify the design-bid-build model. This is probably the single biggest reason that McGough has never been in litigation with an owner, design partner or subcontractor. P R O V E N R E S U LT S Researchers at Penn State University have studied the various delivery systems. Here are their findings: According to a 1999 research study completed by two researchers at Penn State University, there are measurable differences with respect to project cost and schedule when utilizing collaborative delivery approaches versus the DBB approach. The chart below summarizes their findings. COMPARISONS Design-Build vs. CM@Risk vs. Level of Metric Design-Bid-Build Design-Bid-Build Certainty Unit Cost 6.1% Lower 1.6% Lower 99% Construction Speed 12% Faster 5.8% Faster 89% Delivery Speed 33.5% Faster 13.3% Faster 88% This study confirms that the collaborative approaches are typically less expensive and faster than the Design-Bid-Build process.