Construction Management Approach

Depending on the contract vehicle used and the types and make-up of the contractors involved, there are many ways to approach the three main elements of construction — procurement, installation, and commissioning — of integrated energy resource optimization projects. Rarely can complete Construction and Design Teams be fielded with in-house personnel, so even with turnkey services being provided by a single contractor, various subcontractor arrangements will generally come into play.

Under the traditionally bid plan and specification system, the host facility relies on design professionals to prepare contract drawings and specifications that detail the means by which a project is to be built. During the construction phase, the design professional stands watch over the construction contractor to assure that the work conforms to the construction documents and to assist with the selection of the best alternative if and when changes become necessary. While usually effective, this system can be extremely rigorous in its attempt to minimize the costs to the owner. Its strict adherence to design specifications can also limit the ability to take advantage of (through value engineering), or limit costs imposed by, unforeseen items uncovered during construction.

A key element to this relationship is the qualifications of the bidder and the quality of the bid. In many cases, the most qualified bidder is not selected. For example, many government agencies or institutional facilities require "low-bid" contract awards. The low-bid award process does not truly evaluate a contractor's ability to complete the project as well as perform the work as originally intended by the design professional. In this environment, it can be difficult for the design professional to control the quality and conformance of a project. A contentious process of ongoing "price add" (in the form of change orders) negotiations and even work stoppage is not uncommon, especially in the case where the winning bidder has under-priced the project to ensure contract award with the expectation that price adds will follow as a means to make target margins. While this will not necessarily occur, it is a risk that should be carefully considered when a low-bid award process is used. When contractors are selected based on a "best value" selection criteria, some of this risk is mitigated, but of course still not eliminated. In a performance-based scenario, the design-build firm or ESCo has a lot more at risk themselves, as a firm-fixed price offering, and in some cases guaranteed equipment performance, drive the process to completion with fewer incidents of price add negotiations. Still, no process is completely immune from these risks.

It is also not uncommon for the relationships between the design professional, contractor, and owner/host to become polarized, characterized by competition and contention rather than cooperation. When this occurs, the construction contractor may act to maximize the value of its contract and the design firm may move to reduce its liability exposure and increase its fees. This course of events could leave the host exposed to costly change orders and poor workmanship. Several remedies and solutions to such potential problems are provided in the discussion on contract vehicles in Chapter 43.

Open lines of communication and careful documentation of all relevant details are often the best vehicles for avoiding such problems. The more interaction between all parties involved, the greater the chance of establishing harmony and commonalty of goals. By anticipating future problems and making the extra effort for explicit documentation, conflicts can also be minimized. Another tool is to have extensive involvement of qualified host facility representatives throughout each phase of the project. While adding a cost factor to the project, these representatives can provide continuity from one phase to another and often seek to solve controversy before it evolves into a major problem.

A rigorous bid review process, conducted by a knowl edgeable management representative, can be very effective. The unit price contract approach described in Chapter 43 is another risk mitigation alternative. With this arrangement, when the Design Team finishes a set of documents, it is given to a professional estimator/bidder that establishes unit quantities for each aspect of the project. Contractors then bid unit prices only against an already established quantity. This process unbundles bid components allowing for detailed analysis and direct comparisons of bids. It also locks in the rates of the construction contractors, assuming items that are not unit-priced (e.g., wire nuts, pipe hangers, etc.) are included elsewhere in the price. Its use, however, is generally limited in that it may not be well-suited for diverse and complex projects and does not promote value engineering. Also, there is a tendency for contractors to constantly look for (and, if possible, over-price) items that the initial bid-developing estimator undercounted or omitted.

There are also several alternatives to the traditional plan and specification method that can be used to mitigate risk and improve project continuity. These include pre-selection of construction contractors, or the use of construction management, design-build or performance contracting services.

Pre-selecting the construction contractor prior to design completion can be quite beneficial. This is sometimes possible when there is a long-standing relationship between the host/owner and a construction firm, or when the selection process is based on firm qualifications as opposed to bid and specification. Under these scenarios, the Construction Team can participate during the design phase, allowing for ongoing design review and value engineering input from the Construction Team. Final price negotiation can be a problem since the work has essentially been pre-awarded without being based on a final price.

A construction management (CM) firm would join the process either during or prior to the start of the design process. In some cases, the CM firm may be brought in very early and assist in the selection of the design firm. In other cases, they assist with the selection of the construction contractor and subcontractors. CM firms can provide value engineering cost analysis and construction feasibility analysis. During the construction phase, CM firms can provide on-site management, contract administration, bid reviews and analyses, pre-qualification of contractors and subcontractors, and risk management services.

In essence, the CM firm becomes the agent of the owner/host and can assume some degree of risk, depending on the preference of the owner/host and the financial structure of the CM firm. CM firms can be asked to fully estimate the project and set a not-to-exceed (or gross maximum price) budget. In such cases, they assume a greater portion of the risk. Alternatively, the CM firm may simply manage the construction process under one of several financial arrangements, including a fixed fee, costs plus, or a percentage of the total project cost. The potential benefits of using a CM firm lie in the professional experience they bring to the project, the increased continuity achieved between design and construction phases, and the fact that they serve as agent for the host/owner. For host/owners that do not have in-house expertise, this arrangement can be very helpful. However, most commonly, the CM will not take on much risk and will be paid either a fixed fee, for their hours, or a percentage of the construction cost.

With performance-based contracting, construction performance is largely controlled through energy savings and other performance guarantee obligations, as opposed to owner or design firm watchdog functions. With this approach, the risks of flawed design or construction lie primarily with the performance contractor. The sole-source responsibility provides for a high level of accountability to the host facility, as well as optimal continuity of service. Moreover, with this arrangement, the contractor is driven to maximize project economic performance. Still, the owner or agent of the host facility must remain involved and exert sufficient control to ensure that their objectives are met.

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