DB: A/E Business Viability Risk or Sustainable Practice?

What has the A/E industry learned after 30 years of Design-Build and CM-at-Risk infrastructure projects? The industry has learned that owners love it. And, they have learned that it has stung many A/E firms.  It is clear that the owners are the winners, not A/E firms. Must A/E firms continue to be the victim or is there a solution?

I believe that a sustainable practice can be realized. To get you started, I am going to provide you with 12 essential implementation rules for a sustainable DB practice.

Like Death and Taxes, DB will be in Your Future

2016 DBAssociationTranssurvey

You don’t engage with DB projects? Might you be fooling yourself that you can avoid it and stay in business? The reality is that alternative delivery methods are quickly becoming the mainstream solution demanded by owners.  These methods are here to stay. Avoid it and death will find your business (in which case you will avoid taxes).

Not only are these methods here to stay, the demand for these services is exploding. The Design-Build Institute of America (DBIA) conducted an analysis in 2016. Since 2002, the industry has grown 800%, from 140 transportation design-build projects to over 1300. A survey by DBIA revealed that 8.7 out of 10 DOT owners will continue to uses DB. And that is just transportation. Many sectors have already embraced DB (DB in this discussion refers to all alternative delivery methods).

Pain Avoidance as Told by DB Experts

ACEC of Massachusetts convened a panel of professionals who lead their firm’s national DB practice to answer the question: “Is it possible for the A/E industry to profitably practice DB?” The panel’s discussion was facilitated by industry legal legend, David Hatem, Esq. founder of Donovan-Hatem, who has supported the A/E industry for over 40 years to avoid and resolve claims.

2017-10- ACEDCMAHatemDBslideThe panelists were representatives of Simpson, Gumpertz & Heger, VHB, and Burns & McDonnell.  David Hatem provided his legal perspective. The overall problem identified is that DB, CM and P3 projects too often end up in one or more lawsuits. These claims drain resources and money. Settlements and verdicts wipe out a firm’s equity and can force a bankruptcy filing. Reputations are ruined.

Let’s consider just some of the “red flags” the panel identified where claims occured.

  • Risks were transferred from the owner and the prime contractors to the A/E firms
  • Owners selected on low price, not qualifications
  • Teaming partners were incompatible
  • Contract terms were unfair
  • Roles and responsibilities of the teamed companies were poorly defined
  • Project managers and project staff were not experienced in the delivery method

Does your team fully understand what these mean and know how to make decisions to avoid and resolve disputes?

Your “A team” is Your Only Viable DB Team

My observations and personal experience with DB tells me the overall connection to disputes is the quality of the project team. I agree with David Hatem, that it is imperative that the A/E firms assign only their “A teams” to DB projects.

Doesn’t this mean that you have to have at least one “A team?” The answer is, “you need more than one.” You might have a team in mind when the proposal is developed. But it could be a year later before the projects starts. Will that team be available? Will it still be intact? And should you wish to grow, plan on developing many “A teams.”

What do we mean by “A team”? Yes, I know you have many very good project managers. But you need a team that operates at a higher level than “very good”.  As David Hatem stated, “there is a heightened standard duty of care”.  We are used to “Standard Duty of Care”.  Does your team know how to operate at this “heightened” level?

How do you develop these high performing teams? All of your project managers have been through Project Management training, you say? Well, that is not good enough. They also need to be astute business professionals.

DB Success = 12 Imperative “A Team” Rules

This list identifies where “A team” proficiency is imperative in a sustainable DB practice. I also identify the actions required for proficient solutions.

  1. Always, always, always have a teaming agreement executed well in advance of a procurement request. Obtain legal support.
  2. Know when, and have permission to, walk away no matter how much has been invested in the pursuit. Define criteria. Secure senior management buy-in.
  3. Choose a contractor partner and other team members who you know and trust. Marketing support and relationship development are important early activities. 
  4. Only pursue clients with a positive track record with DB. Engage marketing and relationship development efforts to identify “red flags”.
  5. Agree on contingencies that will be used for each phases and define what they cover. Consistently apply cost estimating processes.
  6. Develop contract language that spells out responsibilities and reduces, avoids, or transfers risk. Obtain legal support.
  7. Secure project specific liability insurance. Obtain insurance provider support, legal support, contractor and owner buy-in.
  8. Jointly develop the CPM schedule. Involve all teaming partners.
  9. Never provide quantity estimates, not even informal ones. Provide training for PM and technical staff.
  10. Defining clear roles and responsibilities. Train your team on well developed business processes.
  11. Include terms for compensation  for when the contractor fails to submit the proposal after the effort starts.  Secure legal guidance. 
  12. Rigorously manage the fast paced information exchange and coordination processes to adapt the design as you go, with proper QA/QCThis requires heightened experience, training and discipline. 

If you follow these 12 core principles your DB practice will be profitable and enrich employee’s career and your business. Ignore these rules at the stockholders’ and employees’ peril. Ensure you have “A teams.”

How do I develop business proficient “A teams”?

For information about a business learning program embraced by more than 80 A/E firms, click and follow this link