Solutions 14.2

We discuss how the vertical integration of design and construction can achieve desired results, and how procurement methods that focus on the product rather than the process create promising opportunities for owners.

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STOP BUYING SERVICES — Start Getting Results

Stop Buying Services — Start Getting Results

 

When purchasing design and construction services, it isn’t the service we really want; what we want is a specific end result. The service is just the means of getting to that result. So, why do we feel our only option is to pay fees for multiple services with no guarantee of the actual outcome? This disconnect has been responsible for failures in industries such as healthcare and education, but it is also responsible for many of the failures of the Architecture, Engineering and Construction (AEC) industry.

 

By moving away from the fee for service model and toward purchasing models more like buying a product than buying a service, clients ahead of the curve are shifting risk away from themselves and placing it in the hands of those more capable of mitigating it. This reassignment of risk is leading to better risk management, lower risk premiums, and overall better results for building developers and owners.

 

Clients are beginning to recognize that a fee for service model does not motivate the right kind of behavior for designers and builders any more than it does providers in other industries. The transition away from fee for service is leading owners to develop new means of defining and measuring outcomes, and to explore procurement methods which require providers to guarantee a specific result.

 

The key to replacing fee for service with a process that holds your design and construction team accountable for the result — is realizing that your desired result is not a service but a product.

 

Like an automobile, a suit, or a set of golf clubs, no product can be created without the effort of both designers and builders, yet in the AEC industry these integral services are conspicuously split into two distinct factions. As long as you procure design and construction services separately, you cannot get a guarantee on the outcome because separately neither provider is capable of guaranteeing it. Legal, liability, and licensing realities prevent it.

 

By understanding the difference between a service and a product, it becomes clear why it’s in the owner’s interest to procure design and construction together. Because, once they are integrated, owners can require a guaranteed outcome, greatly reduce their risk, define the product they want, and get a price before they make any commitment to the purchase — just like buying a product.

 

What Do You Mean it’s My Own Fault?

 

The 1972 Federal Brooks Act established Qualifications Based Selection (QBS) and Fee-for-Service (FFS) contracts for design firms. Although outdated, it remains the standard procurement model for many public and private companies.

 

Many owners are not aware of its origin; most rarely question it, and few consider other available alternatives. Whether it be intentional or inadvertent, those who use this process preclude themselves from the advantages of an integrated design-builder, and therefore from the guaranteed outcome and benefits of buying their building as a product rather than as a series of services. It is their own procurement process that creates their dilemma.

 

But How Do I Know I Am Getting Good Value?

 

The advantage of receiving a guaranteed result early in the process allows you to compare the product to your project pro forma, helping you make a go/no-go decision with much less investment and less risk.

 

Yet some owners continue to express concern that using a results-based procurement method may jeopardize their ability to negotiate the best value and fulfill their fiduciary responsibility.

 

Public procurement methods often address this issue specifically, but for private clients these concerns can be addressed by considering a valuation model that focuses on the product rather than the process.

 

For example, the comparison method of valuation, used by the real estate industry to value existing property, could be used to negotiate a fair market price for a proposed new building as part of a results-based procurement process.

 

Once design and construction are integrated into a single purchase, it becomes possible to get a guaranteed price, schedule, and result. Your project can then be valued just as if it were an existing building because the design and construction risk has been removed. Not only does this method vastly reduce your risk, it also combines the predictability of buying an existing building with the flexibility of new building construction. It is truly the best of both worlds.

 

The separation of design and construction has led to an industry fraught with tremendous inefficiency, unnecessary risk, cost overruns, change orders, and missed schedules. Removing obstacles to integration will not only improve those outcomes, but it will also encourage many positive advances.
Integration of design with construction promises advances in:

 

  • Interdisciplinary collaboration
  • Industry wide innovation
  • BIM (building information modeling)
  • CAM (computer aided manufacturing)

 

Forty years of pent-up technological advancement, design innovation, and cost efficiency await those owners who recognize the advantages of a vertically integrated model and choose a forward-thinking procurement method that moves beyond “fee for service.”