The Top Project Delivery Firms
The recession is over, and many owners once again are being attracted to the benefits of alternative project delivery. Further, as legislative barriers are falling and public agencies are becoming more familiar with the process, alternative delivery is making inroads into markets that, previously, have not been receptive to straying beyond design-bid-build.
The upswing in alternative project delivery can be seen in the rankings of ENR's Top 100 Construction Management-at-Risk (CMR) Firms and Top 100 Design-Build (DB) Firms. The Top 100 CMR firms had a combined revenue from CMR of $103.98 billion in 2014, up 7.4% from the $96.84 billion reported by the group in 2013.
But what is striking in the numbers is that CMR revenue for the Top 100 dropped 9.5%, to $17.21 billion, from international projects in 2014. In the domestic market, CMR rose 11.5%, to $86.77 billion.
The DB list provides an even starker contrast between domestic and international project delivery: Overall, the Top 100 DB firms had a total revenue of $109.59 billion in 2014, up only 0.7% from 2013; revenue from domestic DB projects surged 13.7%, rising to $69.26 billion, in 2014. On the other hand, international DB revenue dropped 15.8% in 2014, thanks in part to a falloff in huge engineering-procurement-construction projects in the international mining, power and petroleum markets.
The growth of work in domestic alternative project delivery is in part a reflection of the overall growing construction market. However, many firms comment that alternate project delivery is getting increased attention from owners—especially in the public-sector markets, long bastions of traditional design-bid-build. "Throughout our civil sector, we are seeing more alternate delivery methods, such as design-build, CM-at-risk, CM-GC and public-private partnerships," says Shaun Yancey, president of PCL U.S.
How To Choose
"There are a lot of owners that have used alternative project delivery like design-build and have embraced it. But there are many more owners that are in the project delivery 101 stage and need help choosing a method," says Lisa Washington, DBIA's CEO. She says the free booklet, which is available on the DBIA website, provides the pluses and minuses of choosing design-bid-build, CMR, design-build or multiple primes.
DBIA also is in the process of developing sets of best practices for the federal, transportation and water and wastewater markets. "We published a set of universal best practices for design-build last year called 'Design Build Done Right' but now are taking comments and suggestions for more market-specific best practices," says Peter Kinsley, president of the government and public services group at Haskell and this year's DBIA chairman. He says these guidelines should be available later in the year.
The increasing familiarity among public agencies with collaborative approaches in construction is leading to rapid growth in the use of alternate project delivery in the public sector. "You need the enabling legislation for public agencies, but then you need a few success stories of agencies using design-build before it begins to take hold. So, it can take a while before design-build gains traction in a state," notes Kinsley,
Black & Veatch now is targeting the public-agency market, particularly water utilities, for alternative project delivery. "We are seeing a growing trend from owners to consider alternative forms of project delivery that drive a more collaborative process to plan, design and build critical infrastructure," says Mike Orth, senior vice president of Black & Veatch's water business.
Orth says that, as North American utilities have deep roots in traditional low-bid procurement processes, the trend will be slow to change. "But having a single point of responsibility to avoid confusion over design or construction responsibility is a growing point of emphasis by many owners," he says.
Transportation has been another area in which nontraditional approaches are being explored. Further, the squeeze on long-term public infrastructure funding has caused many public agencies to try new ways to fund and deliver projects. Public-private partnerships and the use of design-build-operate-maintain processes are becoming more widespread.
However, these methods are still in the early stages of development. "There seems to be an experiment with design-build-maintain going in a few states. While I like the idea and see it as an emerging market, there are a few kinks to be worked out, especially with regard to sureties for those long-term commitments," says Daniel J. Filer, vice president of business development, Ferrovial Agroman US Corp.
Legislative authorizations for the use of alternative project delivery, and particularly for design-build, continue to grow across the country. Washington notes several recent significant wins for design-build: For example, on April 1, New York renewed for another two years its legislation authorizing the use of design-build by several state agencies. DBIA now is working to pass legislation to allow the New York City Dept. of Transportation to use design-build.
In addition, California's SB 785 standardized and made consistent various design-build laws to make the delivery method easier to use and extended authority to use design-build for the next decade. In Texas, the state Legislature in late May passed two bills that would eliminate the sunset date on design-build for the Texas Dept. of Transportation.
Many firms complain that the bidding wars for design-build projects have become as competitive as the hard-bid projects during the recession. Unless dealing with a straight qualifications-based selection, it can be expensive to bid on price-based or best-value competitions, says Kinsley. He says many design-build firms will shy away from competitions in which there are five of more bidders.
Some firms are expanding their use of alternative project delivery into new markets. "Burns & McDonnell has always had a strong focus on industrial construction and has been performing design-build in that market sector for more than 20 years," says Greg Carlson, vice president and head of Burns & McDonnell's commercial construction and design-build efforts. "We realized we could apply these same delivery processes to our commercial work."
Burns & McDonnell is practicing what it preaches, designing and building the expansion of its world headquarters in Kansas City, Mo. The 310,000 sq ft of space in the four-story building will increase the size of the Burns & McDonnell headquarters campus by 74%. "We broke ground on the project in 2014, and we'll move into the building in April 2016," Carlson says. It is the largest commercial design-build project the firm has undertaken.
Integrated Project Delivery
Some firms say true multiparty contractual IPD projects remain rare outside of a few health-care clients. A lot of so-called IPD projects do not have multi-party contracts and simply try to mimic the collaborative principles embodied in IPDs. Some contractors call such projects "IPD-lite."
But for some contractors, IPD project delivery does foster a strong incentive to be creative in delivering the best value for the money. For example, Tim Steigerwald, senior vice president at Messer Construction Co., says, "Messer's use of integrated project delivery has continued to develop into a differentiator." Later this year, Messer will complete its second IPD project, the Cincinnati Children's Hospital Medical Center's (CCHMC) $200-million clinical sciences building.
Steigerwald says that, through analysis and collaboration, the IPD team has produced savings for CCHMC that cut costs both during construction and over the life of the facility. "For example, the Messer team executed a life-cycle analysis to choose an air-handler unit that costs $250,000 more up front than other units but will save CCHMC about $70,000 per year in operating costs."
Further, Steigerwald says that, through collaboration and ultimately a tweak in design, the IPD team on the CCHMC project also saved about 20% on glass cost and installation, "a critical area, considering the building's mostly glass exterior."
Messer's successful use of IPD has caught the attention of owners and created opportunity for new projects, according to Steigerwald. "This year, Eli Lilly chose Messer, based on its expertise with IPD, to complete its lab-expansion project in Indianapolis." Messer also used IPD on its Simon Family Tower project at IU Health's Riley Hospital for Children, Indianapolis, which was completed in 2014, he says.
For Turner Construction, the determining factor that dictates the process is not the delivery method but the owner's requirements. "IPD is interpreted in a lot of different ways, so we have to position ourselves to react to the owner's needs, rather than to follow a strict project delivery formula," says Pat Di Filippo, executive vice president. "Regardless of what the method is called, owners are looking for a more collaborative way of delivering their project."
