1. Comparing Different Construction
Delivery Methods
August 2014

2. ‹#›
Agenda
Types of Contract Delivery Methods
Lump Sum / General Contractor
Guaranteed Maximum Price / Construction Manager
Lump Sum vs. GMP
Design – Build
Equity Developers
Lean (including Integrated Project Delivery)
Summary
Appendix

3. ‹#›
Contract Delivery Methods

4. ‹#›
Some Project Delivery Methods
• Lump Sum / General Contractor (GC)
• GMP-at-Risk / Construction Manager (CM)
- Cost of the Work
- CM Agency
• Design-Build
• Equity Developer
• Lean Delivery
- Integrated Project Delivery
History of healthcare project delivery in New York State:
• Lump Sum / General Contractor (GC)
• Guaranteed Maximum Price (GMP) / Construction Manager (CM)
• Design Assist / Trade Manager
• The next logical step is….???
3

5. ‹#›
Typical Construction Arrangement
• Implies two separate relationships which are transactional
• Can be an adversarial relationship
• Presumes that the most the Owner will receive is the minimum the contractor and
designers can get away with
Owner
Contractor
Architect/
Engineer
Parties act against
each others interests
This relationship has
become increasingly
ambiguous
Reinforced by
provisions of AIA and
AGC “Standard”
contracts
4

6. ‹#›
Conventional Incentives
• Conventional contracting systems and
management styles provoke
counterproductive behavior
• Conventional contracts create silos and
provoke territorial behavior
• Parties are often afraid to make decisions
• Every man for himself – no incentive for
trades to work collaboratively in the execution
of the project
• Cooperation can reduce profit, due to the
way traditional contracts are written
5

7. ‹#›
Conventional Contracts can lock in waste
• Lack of mutual obligation can lead to conflicts and inevitable inefficiency
• Bidders anticipate inefficiency by:
- Degrading productivity assumptions
- Including contingencies
- Including additional overhead to cover delays
• If things go wrong (as anticipated) – the contingency funds get spent on
waste
• If things do go right, the bidder gets to keep the reserve funds as additional
profit
From an Owner’s perspective, what’s wrong with this picture?
6

8. ‹#›
Lump Sum / General Contractor

9. ‹#›
Lump Sum / General Contractor T.O.
Thanks to Gilbane
8

10. ‹#›
Lump Sum / General Contractor – Pros & Cons
Advantages
 Lowest first cost delivery method
 Owner carries minimal risk (if documents well
defined); contractor carries most of the risk
 Works well with known conditions and/or
defined project scope
 Cost is anticipated
 Well-suited for small, straightforward or single
trade projects
 Simple, traditional approach
 Clarity of fiduciary A/E and non-fiduciary GC roles
 Owner controls contingency
Disadvantages
 Not well-suited for large projects; cannot fast track with
incomplete documents (like GMP)
 Lowest first cost lowest final cost
 Contractor may make more profit if it takes less
manpower and materials to complete; not open book
accounting
 Contractor does not provide pre-construction consulting
services (estimating, scheduling, logistics) during design
 Price uncertain until bids // Could delay project or require
additional funding if not on budget
 Slowest project delivery
 No control over subcontractor selection
 Adversarial relationship
 Prone to cost growth via changes and claims
 High incidence of litigation
 Current trend in A/E for incomplete documents is not
conducive to LS
- especially existing conditions in renovation
 You only get “plans and specs” (whatever is shown on
the documents)
9

11. ‹#›
Guaranteed Maximum Price / Construction Manager

12. ‹#›
Construction Manager GMP-at-Risk
Thanks to Gilbane
11

13. ‹#›
GMP-at-Risk Pros & Cons
Advantages:
 Financial cost guarantee up front // if costs go over budget
(not due to scope growth) it is CM’s responsibility to
correct and stay on schedule)
 Get to market faster than Lump sum (schedule)
 Lending agencies accept max anticipated cost
 Risk spread evenly between owner & contractor
 Contingency carried by contractor // no extras
 CM provides pre-construction services
 Best suited for large new construction, complicated
logistics & phasing, aged building renovation projects and
infrastructure-intensive projects
 Open book access to all bids through controlled
purchasing; owner and A/E have the power to accept
competitive subcontractor bids based on their own criteria
of quality & risk management
 Single point of responsibility for construction
 Team concept; check & balance working together
 Change flexibility
 Balances advocacy with risk assumption
 Not just “plans & specs”, but fills in the blanks.
Disadvantages:
 GMP contingency vs. risk tradeoff
 Not well suited for smaller projects or
highly change-oriented projects
 Potential for increased adversarial
relationship with A/E
 GMP protection may compromise CM
advocacy
 If not managed properly, Qualifications &
Assumptions can be the source of hidden
extras
12

14. ‹#›
CM Defines Bid Packages to Speed Construction
Thanks to Gilbane
13

15. ‹#›
Lack of Competition for CM GMP?
• Typical argument against a CM-GMP arrangement is the perceived lack of
competition by awarding a GMP to a CM without bidding.
• Reality =
- The overwhelming majority of costs are in the trade work (80-90%)
- CM-GMP process will still include multiple subcontractors bidding each trade
- Thereby still provides competition.
- Actually, CM can yield low bids across all trades and possibly gain better
savings (SEE LATER)
• The differences among various CM’s in their costs at worst is insignificant
compared to the trade costs.
14

16. ‹#›
But first, two things…
1. Cost Plus (or “cost-of-the-work”)
2. CM Agency (“Not-at-Risk”)

17. ‹#›
What about Cost Plus?
The cost of the work
Is
The cost of the work
… but so is a GMP
16

18. ‹#›
GMP at Risk vs. Cost of the Work
GMP-at-Risk:
• Get to market faster than Lump sum
• Contingency carried by contractor
• Lending agencies accept maximum
anticipated cost
• CM provides pre-construction estimating
• Risk spread evenly between owner and
contractor
• Open book access to all bids; owner and
A/E have the power to accept
subcontractor bids based on their own
criteria of quality and risk management
• New construction and complicated
renovation projects often work well
Cost of the Work (aka Cost Plus):
 No cap on costs
 Owner accepts the risk
 Scope of the work and all change orders
are performed at pre-negotiated hourly
rates and markups
 Works well when there are many unknown
conditions
 Contingency carried by owner, not
contractor
17

19. ‹#›
C.M. – Agency
• Construction manager is an agent of the owner (“CM-Agency”)
• CM-Agent helps owner manage/make critical decisions about a project
- Does not commit to delivering project on-time or on-budget
- Does not enter into subcontracts with trade contractors
• CM-Agency is a method for managing a construction project, while CM At-Risk is a project
delivery system
- Competing with other methods such as single prime, multi-prime, design-build, etc.
- Apples and oranges
• CM-Agency and CM At-Risk is not an either-or proposition.
Construction Manager Not – At – Risk

20. ‹#›
CM Not-At-Risk
Not a Delivery Method
19
• CM “Not At-Risk” is not a project
delivery method
• CM “Not At-Risk” is a project
management method
o A method of managing design
and construction services.
• CM Agency or “Not At-Risk” could be
used in conjunction with any project
delivery method including:
o Design-Bid-Build
o Multiple Prime
o Design-Build
o CM At-Risk

21. ‹#›
CM Agency vs. Program Manager
Construction Manager as Agent (CMA)
• Owner is responsible for procuring and holding all trade contracts
• The construction manager acts as owner’s agent
• CM is responsible exclusively to the owner
• Acts in the owner's interests at every stage of the project.
• During preconstruction, CM provides critical input to the design
team and owner regarding:
- Cost estimates
- Scheduling
- Constructability
- Value engineering
- General technical assistance.
• During construction, the CM:
- Oversees subcontractors on behalf of the owner
- Manages overall progress, quality & flow of information.
Benefits of CM as Agent:
• Provides design and construction expertise without conflict of
interest
• Qualification-based CM selection
• Improved schedule delivery options allowing fast project delivery
• Early budget input/control
• Maximum advocacy for owner
20
Program Manager (PM)
• Developing programmatic solutions that extend beyond a single project.
• Great efficiencies, construction and design fee savings, control of quality
and scheduling, and fiduciary responsibilities to the owner.
• Functions as an agent of the owner and establishes for an owner’s
concurrent building programs:
- Budgets
- Schedules
- Procedures and policies
• Services can include:
- Early program consultation
- Designer selection guidance
- Program development
- Program budgets
- Infrastructure management
- Post-occupancy functional review
Benefits of a Program Manager:
• Consistency of management controls
• Leveraged purchasing
• Economies of scale
• Full advocacy for owner
• Flexible and broad scope of services
• Acts as an extension of the owner’s staff

22. ‹#›
Lump Sum vs. GMP

23. ‹#›
Phased Project Delivery (Fast Track Design & Construction)
Thanks to Gilbane
22

24. ‹#›
CM – GMP vs. GC – Lump Sum
CM-GMP GC-Lump Sum
Drawing Completeness CD’s @ 80% Final Drawings
Prices Breakdown One
Owner Knowledge Open Book Approach Not Transparent
Owner Relationship More Trusting More Adversarial
Opportunities for Cost
Savings
Opportunity @ each
Trade
No Opportunity
Thanks to Lend Lease
23

25. ‹#›
Lump Sum vs. GMP-at-Risk – Empirical Data (One CM)
Lump Sum GMP-at-Risk
Project #1 First Cost * $100
Project #2 First Cost * $110
Non-Owner Change Orders 5-7 % +$0
Buy-Out savings -$3
Return Unused Contingency -$1 to $4
Total Actual Cost $105 - 107 ** $104 - 108 **
Footnotes:
* Assumes 2 identical projects with no owner scope change orders.
** Allows for cost certainty early on and not having to go back to ask for additional costs
Thanks to Cauldwell Wingate
24

26. ‹#›
Lump Sum Bid Approach to “Low” Bid
Thanks to Gilbane
25

27. ‹#›
CM Yield “Low Bids on All Packages
Thanks to Gilbane
26

28. ‹#›
Contractors recommend GMP vs. Lump Sum
Contractor #1:
• Transparency through open book. Owner sees exactly how THEIR money is being spent.
- With Lump sum, GC is under no obligation to share additional cost information with the owner.
- Example- If there is an add of piping, GC gives them one number and that is it, they are required to
justify to them the number is what it is.
• In a GMP, a CM is your partner helping you watch your money. In lump sum you get what is on
the drawings and that is it.
• A GMP is much more of a partnership.
Contractor #2:
 A CM-GMP arrangement creates a much more transparent and valued relationship between the
contractor and the owner than a lump-sum bid.
- In a lump sum bid the competitive nature of multiple GC’s bidding often causes each GC to focus on
exactly what is on the documents – nothing more or less.
- May result in lower initial costs, changes during the course of the project erodes these perceived initial
savings
- In a CM-GMP the motivation of the CM is to be as comprehensive as possible and yet to keep costs down
27

29. ‹#›
More Contractors recommend GMP vs. Lump Sum
Contractor #3:
• As a CM, we strive to provide a complete number, day one. A number that fills in all the
blanks, as the design is developed.
- CM services include applying lessons learned to the “next” project.
- CM services include presenting a number at the earliest stage and working to keep the design, program
and project, within that budget.
- I don’t believe the same can be said going the other way.
Contractor #4:
• I think every GC would prefer Lump Sum (buyout savings, less paper work and it is
cleaner/simpler) over GMP (auditable/everything is questioned, more paperwork, backup for
everything etc… and for the most part no savings participation).
28

30. ‹#›
Design - Build

31. ‹#›
Design Build
• Combines both the design and construction services into a single source of
responsibility.
• Either contractor with in-house design capacity or teams up with
architect/engineers to provide a GMP to fulfill the Owner’s program.
• Works best when the Owner is experienced and has:
- Well-articulated and clearly defined program
- Basis of Design including standards
30

32. ‹#›
Design Build Pros & Cons
• Advantages
- One stop shopping / sole source of
responsibility
- Lower cost / cost efficiencies of
contractor & designer working
together
- Can be quicker than conventional
- Minimal (non-owner scope) change
orders
• Disadvantages
- No / minimal control over quality of
finished product
- Coordinating schedule of non-design
build responsibilities (medical equip’t)
- Obtaining financing or multiple agency
approvals
- Non-iconic design
- Ambiguity about substantial completion
- Need 3rd parties to review A/E
documents & payment applications
- Need enhanced special inspections
- Need additional PM support
31

33. ‹#›
Design Build: Top Challenges
• Finalizing a Design-Build contract prior to designs and documentation
• Managing the labor mix of local, MWBE, and union participation
• Controlling the subcontractor selection
• Maintaining the owner’s protection through the construction administration process
• Incorporating scope to meet program needs beyond base building codes
• Minimizing cost and schedule implications caused by infrastructure upgrades which are not code
specified items
• Placing aesthetics as a priority with a Design-Builder who is driven by cost and schedule
• Incorporating owner’s medical equipment infrastructure into the schedule
• Obtaining financing for an unconventional contract
• Affording the owner the protection of professional resources
32
See Appendix

34. ‹#›
Design- Build Best Practices
• Should require open book approach to change orders
- Encourage a GMP
• Should establish a “standard of care” defined in the contract (performance spec)
• On DB projects, owner / rep teams may benefit from additional staff
- Architectural / space planning experience
- In field observing progress and addressing QC issues and commissioning
- Concern about long term operation and maintenance of the facility
• Clearly defined substantial completion date
- Remember the architect (who sets the date) is the builder
- Is it simply “Certificate of Occupancy”?
• Tools / best practices:
- Cost monitoring document / control
- Schedule – complete tracking document
- Monthly reporting
- Ongoing / open dialogue with client and constituents
33

35. ‹#›
Equity Developers

36. ‹#›
Structure Dependent
Balance Sheet Treatment
Off Balance SheetOn Balance Sheet
BTS to Own
(Corporate Funds)
Synthetic Lease
(Taxable)
Joint Venture
Build-to-Suit
to Lease
Long-Term
Sale Leaseback
Own w/
Tax Exempt Financing
Synthetic Lease (Tax
exempt)
Own w/
Mortgage Debt
OWN LEASE
MoreLess
Ease of Completion, Control & FlexibilityMore Less
Cash Proceeds , Cost of Capital
Healthcare real estate financing options
35

37. ‹#›
CAPITAL STRUCTURE OPTIONS
STRUCTURE TYPE STRENGTHS WEAKNESSES
OWN WITH MORTGAGE
DEBT
 Simple structure and approach
 Cost of capital commensurate with obligor risk
 Well known source of capital
 Greatest control over asset
 On balance sheet transaction
 Lowest level of proceeds
 Will require substantial equity
 Will reduce future debt capacity
BUILD TO SUIT TO OWN
(CORPORATE FUNDS)
 Simple to arrange
 Straight forward documentation
 Well known source of capital
 No day to day responsibility for development
 Solid control over asset
 On balance sheet transaction
 Will require substantial equity
 Will reduce future debt capacity
 Construction financing slightly higher cost
OWN WITH TAX EXEMPT
FINANCING
 Low cost of capital
 Well known source of capital
 Straight forward documentation
 Solid control over asset
 On Balance Sheet transaction
 Tax exempt entity / qualified projects only
 Several layers of additional documentation
 Will require substantial equity
 Will reduce future debt capacity
CTL / SYNTHETIC LEASE
(TRADITIONAL)
 Off balance sheet transaction
 100% financing
 Solid control over asset
 Lower cost than developer lease or sale-leaseback
 More complex documentation
 May require credit enhancement
 Slight premium to corporate debt costs
Financing options
36

38. ‹#›
CTL / SYNTHETIC LEASE
(TAX EXEMPT)
Off balance sheet transaction
100% financing
Lowest cost of lease financing
Solid control over asset
No FIN 46 issues for healthcare
Complex documentation
May require credit enhancement
Margin premium compared to normal tax exempt
debt costs
PARTNERSHIP / JOINT
VENTURE
Beneficial arrangement between 2 or more
parties with an interest in project
Can be tailored to fit financial objectives and
wherewithal
Usually provides 100% of project capital
Possibly accounted for under Equity Method
Multiple levels of documentation
Partnership could end up on balance sheet as a
consolidated liability
Equity costs of partnership are priced above usual
debt margins
Control of asset is a negotiated event
LONG TERM SALE
LEASEBACK
100% of capital structure
Long term fixed financing upon commencement
Absolute control over asset during construction
Reasonable control over asset during lease
Little to no exit flexibility until end of lease
Significant but simple documentation
High cost of occupancy
Will be on Balance Sheet during construction period
BUILD TO SUIT TO LEASE
Funds 100% of real property capital requirements
Will be off Balance Sheet at all times
Long term fixed financing upon commencement
Reasonable control over asset
Third party developer involvement
Complex arrangements and documentation
Highest cost of occupancy
Financing options (continued)
CAPITAL STRUCTURE OPTIONS
STRUCTURE TYPE STRENGTHS WEAKNESSES
37

39. ‹#›
Lean Delivery (including Integrated Project Delivery)

40. ‹#›
Lean Delivery
• Alternate form of delivery that reduces / eliminates inefficiencies & waste
- Maximize value, minimize waste
- Waste isn’t just money to the client, but it’s time to people
- Waste can be RFI’s, re-drafting shop drawings, milestone estimate reconciliation/VE
• Understand value from the customer’s perspective and take only those actions that deliver
value
- Everybody is a customer to somebody
• Must be a long-term philosophy, not just a process
• Team-centric approach that focuses on
- Efficiency
- Gaining more value by modifying the traditional process
• No tripartite contractual obligation
- Playing nice in the sand-box
• Team includes Owner, Architect, Engineers, Construction Manager AND Sub-Contractors
• Creates an environment that breaks down silos and fosters collaboration
• New York today isn’t ready for full IPD
39

41. ‹#›
Benefits of Lean Delivery
• Alignment with the owner’s vision by determining Conditions of Satisfaction
• More cost certainty early on
• Compression of overall schedule / Get to market faster
• Quality of contract documents
- Early shop drawings / submittals
- Less conflicts, more coordination
- Less Requests For Information (RFI’s)
• Minimize / eliminate change orders (non-scope)
• Reduce contingency, holds and allowances
- Lower overall cost / more value
40

42. ‹#›
80% of the Cost is Brought in Late
Leads to
Construction Waste
Correction/Re-Work
Performing Work out of
Sequence
Waiting for Design Review
Comments
Inefficient Construction
Methods
Moving Materials on site
Redundant Design/Construction
Processes
Lack of Just-In-Time (JIT)
Construction Practices
Lack of
Teamwork/Communication
Slowdown/Stoppages of Work
Processes
Construction Waste from Owner’s Perspective:
41

43. ‹#›
Results in a better process
Traditional Delivery
Design Phase
Construction Phase
Design Phase
Construction Phase
Integrated Delivery
42

44. ‹#›
How far do you go? Degrees of Lean Collaboration
“Classic”
Collaboration
“Non-Multi Party”
IPD
IPD as a Delivery Method IPD as a Delivery Method
Level of
Collaboration
Lower Higher
Philosophy or
Delivery Method?
Lean Philosophy IPD Philosophy IPD as a Delivery Method IPD as a Delivery Method
Nicknames Lean Delivery
Non Multi-Party IPD;
IPD “Lite”; Technology
Enhanced Collaboration
IPDish
Multi-Party Contracting; “Pure” IPD;
Relational Contracting; Alliancing;
Lean Project Delivery
Multi-Party Contracting; “Pure” IPD;
Relational Contracting; Alliancing; Lean
Project Delivery
Delivery
Approaches:
CM at-Risk or Design-
Build
CM at-Risk or Design-Build IPD IPD
Typical Selection
Process:
Qualifications Based
Selection of all team
members or Best Value
Proposal
Qualifications Based Selection
of all team members
Qualifications Based Selection of all
team members
Qualifications Based Selection of all
team members
Nature of
Agreement:
Transactional ? Relational Relational
IPD Principles
& Practices:
• Minimal contract
language requiring
collaboration
• Limited team risk sharing
• CM or DB share in
savings TBD
•Trade Managers 7 Co-
Location
• Contract language requiring
collaboration
• Some team risk sharing
• All parties compensation tied
to project success
• Co-location of team
• Owner-Designer-Contractor (&
possibly other key team members) all
sign one contract for collaboration
• Team risk sharing
• Team decision making
• Optimizing the Project
• Pain/Gain Sharing
• Limits on litigation
• Co-location of team
• Owner-Designer-Contractor (&
possibly other key team members) all
sign one contract for collaboration
• Team risk sharing
• Team decision making
• Optimizing the Project
• Pain/Gain Sharing
• Limits on litigation
• Co-location of team
Typ. Basis of
Reimbursement
GMP GMP GMP No GMP
43

45. ‹#›
In Conclusion

46. ‹#›
Summary
• Many different delivery types for different needs
- Lump Sum
- GMP at Risk (and/or Cost Plus)
- Design Build
- Equity Developer
- Lean Delivery
• Integrated Project Delivery
• Decision should consider:
- Type of project and time frame
- Self awareness:
• Experience of owner team
• Are you a good candidate for the delivery?
- Financing requirements
- Time frame
- Project complexity / size / age of building
45

47. ‹#›
Lump Sum:
• May provide lowest first cost, but may not provide best value for:
- A highly complicated project
- A project where you need to start early and you can start early
• Best when documents are well defined & with known conditions; contractor carries most of the
risk
• Well-suited for small or single trade projects
• Does not have open book accounting = more GC profit
CM GMP:
• Provides pre-construction consulting services (estimating, scheduling, logistics) during design
• Gets to market faster
• Well-suited for larger and complicated projects
• Provides all savings to the owner
Design Build:
• One stop shopping / sole source of responsibility
• Lower cost
• No / minimal control over quality of finished product
• Owner coordinates schedule of non-design build responsibilities
• Financing not an issue
Different forms of delivery for different situations
46

48. ‹#›
Equity Developer:
• Financial / investment = zero cost / funding obligations
• No operational responsibilities re-business ownership
• Relinquish all or most control over project
Lean Delivery:
• Reduces waste and eliminates inefficiency
• Fosters collaboration and team work
• Gets to market even faster
• Provides more cost certainty / predictable outcomes
• Results in better quality documents
Different forms of delivery for different situations (cont’d)
47

49. ‹#›
Thank You
DISCUSSION
48

50. ‹#›
Appendix
Key Contract Provisions
Components of a GMP
Examples of GMP Components
Level of Documentation for Milestone Estimates
Design – Build Challenges
IPD Glossary
IPD Contract Language
Lean Case study

51. ‹#›
Appendix A - 10 Key Contract Provisions

52. ‹#›
Introduction
An effective and comprehensive contract is the foundation of any successful construction project.
• Familiar with "standard" construction contract language and provisions?
- The industry is continually evolving.
- Changes in building methodologies impact the way contract provisions must be drafted.
• Review all provisions with a critical and knowledgeable eye to ensure that a contract does the
following:
- Allocates risks and responsibilities,
- Anticipates and prevents ambiguities
- Provides mechanisms to avoid disputes arising from contract performance.
• Identify potential problems in the contract and negotiate solutions
- Yields dividends and can produce significant cost savings over the life of a project.
Thanks to Zetlin & DiChiara
51

53. ‹#›
Scope of Work
• Contract must fully define the scope of the project and obligate the contractors to deliver it.
• Owners must identify all of the key issues that need to be addressed in the contract.
• The contract must do the following:
- Obligate the contractor to confirm its familiarity with the project site and that its observations of the site
correlate with the contents of the documents.
- Affirm that it has carefully reviewed the contract documents and that these documents provide all of the
required information for construction.
- Establish a mechanism for identifying and resolving •gaps“ in the documents
- Mandate the appropriate performance standards for the project.
• Identify the external requirements that may affect the project, such as:
- Obtaining all required public approvals for construction.
- Specific conditions that must be addressed, such as accommodating a major utility installation or transit
facilities or remediating hazardous materials.
- Specify the contractor's role in addressing these types of issues. If the project is slated for LEED
certification, the contractor's responsibility for satisfying this requirement must also be outlined.
- Delineate third party requirements such as the terms of a zoning lot development agreement, protections
for adjacent properties and the requirements of lenders providing project financing.
- Address any critical points raised by the project's insurers.
52

54. ‹#›
Compliance with Schedule
• Provisions of contract should deal directly with the time allocated to the construction manager (typically at
risk) or the general contractor to get the job done.
• Include initial project schedule along with all the necessary milestone dates needed to finish the project.
• Provide clauses that do the following:
- Obligate the contractors to establish and commit to an agreed-upon project schedule.
- Allow the owner to properly gauge how well the project is moving towards completion.
- Address scheduling dates that are significant to the owner and the consequences if those dates are not
met.
- Incentives to motivate the construction manager or general contractor to meet or beat the agreed-upon
schedule or target dates for the project.
• Consider including:
- Delays and extensions of time
- Excusable delays
- Delay deadbands
- Acceleration
- No-damage for owner-generated delays
53

55. ‹#›
Meeting Target Budget
• Include sufficient clauses that protect the owner's economic interests and the monetary limits allocated for
construction.
• The entire contract is in place to state the financials of the deal and to set the performance standards to be
achieved
• Protect the owner's budgetary interests with clauses that cover:
- Compensation - Overall cost of the work
- Specific costs of certain elements of the project - Labor and material costs
- Shared savings - Responsibility for cost overruns
- Methods of procurement - Timing of payments
- Change orders - Retentions
- Subcontracting - Fees
- General conditions - Insurance
- Other soft costs, among others.
• Assure proper mechanisms are in place to monitor costs throughout the project:
- Owner can assess how the actual costs are comparing with projected budget.
54

56. ‹#›
Contingency
• Construction contingency must be distinguished from a project's design contingency
- Design Contingency used by owner for:
- Rectifying Design errors or omissions
- Design changes
• Construction contingency often established as a percentage of the Work,
- Subject to enhancement through savings on trade buys.
• Provides a financial cushion to deal with errors or miscalculations in the construction manager's estimates of
time or cost.
- Owners must consider how much leeway to allow in contractually describing use of contingency
- Owners must consider whether to require:
- Advance permission for utilization of contingency (perhaps above a negotiated threshold)
- Require prior notice of utilization and subsequent documentation.
• Construction contingency may be a source of shared savings
- Negotiation of the use of these savings may be key to incentivizing CM to be a careful steward of project
resources.
- Consider establishing separate contingencies for discrete categories of potential difficulties and to
calculate the division of the savings balance separately as to the respective earmarked contingencies.
55

57. ‹#›
Changes in the Work
• Most common way to resolve the impact of a mutually agreed to change is through a change order for
contractors.
- Address the issue directly in construction contracts
• Include sufficient notice provisions placed on the party seeking the change
- Prompt, written notice so as not to otherwise delay the project
- Consequences if proper notice is not furnished
- Prompt notification of a potential claim based upon a change permits owners to:
1. Review the applicable project records and speak with the pertinent parties before memories invariably begin to fade
2. Document contemporaneously the costs of the work Involved in the claim
3. Explore other less costly solutions for performing the work
4. Negotiate a prompt resolution of the claim.
• Approval of a change should be contingent upon the justification and substantiation of the change itself.
- Approval should be conclusive rather than simply authorizing the work to proceed
- All direct and indirect costs and schedule impacts should be addressed in the change order.
- Not all changes can be, nor should be, treated equally.
- Provide some frame of reference for the context of the changes to the specific project.
56

58. ‹#›
Allocation of Risk (Indemnification)
• Owners face enormous risk of liability for work performed by the construction team on a project.
• Appropriately address risk allocation
- Indemnification is one of the most effective tools for accomplishing this.
• Obtaining appropriate indemnification protection from the CM / GC
- Confirm that this obligation is also embraced by the subcontractors.
• Contractors will seek to limit their indemnity obligation to claims for personal injury and property damage,
- Such limited indemnity leaves the owner exposed to substantial risk.
- Some indemnity clauses exclude protection for property damage to the work itself, assuming that such
damage is covered by insurance.
- Limited indemnity provisions ignore that a contractor's breach of its agreement:
- May cause substantial damages that are not covered by insurance
- Cause the owner to sustain substantial out of pocket losses.
- If the contractor's indemnity extends to damages incurred by the owner as a result of its breach of contract
- Contractor is responsible for those damages
- Contractor must defend the owner against additional claims which are likely to arise.
57

59. ‹#›
Allocation of Risk (Indemnification) - Continued
• Owner may need to obtain indemnity protection that includes third parties, such as:
- Investors
- Affiliated companies
- Lenders
- Other parties with properties in the vicinity of the project site.
• Provide appropriate protection for the owner against statutory liabilities, such as:
- Duties imposed on owners and contractors for state and federally mandated site safety procedures.
- Obligate its construction team to implement an effective safety program
- Assume full responsibility for job site accidents and injuries.
- Contractors must be obligated to indemnify the owner against potential worker claims.
• Contractors often seek limitation of their total liability and their obligations to provide indemnity protection to
the owner.
• These limitations can take the form of:
- Exclusions from the indemnity itself
- Waivers of consequential damages
- Specific dollar amounts
58

60. ‹#›
Insurance
• Work with a broker who is intimately familiar with the construction industry.
• Consider different insurance options to include in construction agreements.
• On larger projects, typically over $100 Million, an owner will want to consider
- Owner Controlled Insurance Program (OCIP")
- Offers more control over the quality of insurers and the terms of insurance
- Remains intact even if the Contractor is terminated
- Savings are returned to the owner.
- Contractor Controlled Insurance Program ("CCIP").
- CCIP first costs seem more cost effective,
- Any savings will need to be negotiated as part of the upfront deal
- Define the fees to be charged for the CCIP.
• Ensure that additional insureds are included in policies as needed.
• Include the right to review actual policies, not just certificates.
• Confirm that the contractor's insurance, and the policies of the trades, are primary and non-contributor
- Any dispute about coverage between or among carriers is avoided.
• If performance and payment bonds are required, review the language of the bonds.
- Confirm ownership is identified as a co-obligee providing direct rights vis-a-vis the bonding company in
the event of a contractor default.
- Consider Subcontractor Default Insurance, which replaces the P&P bonds of subcontractors
59

61. ‹#›
Dispute Resolution
• Alternative dispute resolution ("ADR") can be an economical option for litigation
• ADR can be either a full substitute (binding arbitration) or an interim step (mediation) that may obviate
litigation.
• ADR to be considered during contractual negotiation, not when a dispute occurs.
• Factors that determine appropriateness of ADR include:
- The project may be within a state or municipality with local courts that have a bias against out-of-state
entities.
- The law in the project state may be disadvantageous to owners, developers, and/or design professionals.
- Ensure the application of laws from jurisdictions favorable to the interests involved.
• Ensure that the ADR procedure encompasses all relevant parties.
- Uniformity in the drafting of various construction contracts will bind all parties to the ADR process.
- Provisions allowing for the unfettered consolidation or joinder of parties to the ADR will prevent the process
from being unduly limited.
• Consideration must also be given to whether the prevailing party will recover all attorneys' fees
• If binding arbitration is impractical for multiple parties, consider
- Non-binding mediation as an interim method of resolving disputes with the aid of an experienced mediator.
60

62. ‹#›
General Conditions
• General Conditions (GC’s) are furnished directly by the contractor.
• Identify at the outset what items are included in General Conditions, as an exhibit to the contract documents.
- Project management Information technology and site labor generally fall within General Conditions.
- Legal services (compensated under the fee) are generally not included
- Project accounting services may be the subject of negotiation
- Insurance is often compensated separately from General Conditions.
• Specify the basis on which GC’s will be paid.
- Actual, demonstrated cost is the most transparent basis
- Sometimes calculated as an agreed-upon percentage of the trade cost or agreed upon rates.
- Straight-time and overtime labor rates can be negotiated
- Owners may be apprehensive that some profit may be calculated into those rates.
- Project administration personnel may be compensated at a rate based on their salary with a negotiated multiplier
• Owners should be vigilant that they are not asked to fund paid-time-off separately during the course of the project.
• Endeavor to secure a cap on General Conditions at the outset of a project.
- That cap may be increased only in limited circumstances.
- In the event of an excusable delay, increases in GC costs demonstrably attributable to the delay may be compensated
• The increased General Conditions should serve as the sole remedy for such delay.
- General Conditions costs may also be increased due to changes in the scope of the work.
- If GC’s are charged as a percentage of the trade cost of changed work, then owners may consider negotiating a
threshold dollar amount of changes below which additional GC’ss will not be charged-a so-called “deadband:'
61

63. ‹#›
Subcontract Issues
• Review and verify subcontractor agreements and add specific provisions as may be required.
• Examples:
- Verify subcontractors' insurance limits and indemnity obligations
- Assuring Owner is named an additional insured on the policy and the indemnity obligation
- In the event of termination of the contractor, the contract with the trade Is assignable to the owner or the
owner's new contractor.
- Where it might be difficult to commence an action directly against the subcontractor
- A provision might be considered pursuant to which an owner may be a third-party beneficiary of the
contractor - subcontractor agreement,
• Enabling the owner to bring an action directly against the subcontractor in the event of a default or breach by that
subcontractor.
62

64. ‹#›
Appendix B - Process & Components of GMP

65. ‹#›
Process
• Construction Manager hired BEFORE design begins
- Regular Meetings with Entire Design Team Including Construction Manager
• Estimates & Schedule
- Conceptual = Target Budget and Time Line
- Variance Report (Line Item Budget)
- Schematic Design (See Appendix for Level of Documentation)
- Design Development (See Appendix for Level of Documentation)
• 80% Contract Documents used for Guaranteed Maximum Price
- Documentation continues as Construction Manager prices
- A/E must be held accountable for scope adds
- Detailed review of all components of GMP
How to Manage a Construction Management / GMP Project
64

66. ‹#›
Milestone Estimate and Schedule Deliverables
• Conceptual / Feasibility = Target Budget and Time Line
- Variance Report (Line Item Budget)
• Schematic Design (See Appendix for Level of Documentation)
- Milestone Estimate and Schedule
- Trade Costs by Systems
- Identify Timeline, Qualifications, Allowances and Logistics
- Detailed Review and Reconciliation with Entire Team
- Proceed at Risk On Design Development
• Design Development (See Appendix for Level of Documentation)
- Milestone Estimate and Schedule
- Detailed Line by Line Estimate by Trade
- Identify Timeline, Qualifications, Allowances and Logistics
- Detailed Review and Reconciliation with Entire Team
- Proceed at Risk On Construction Documents
At Each Milestone Verify Scope Meets Project Goals
- CM and AE Agree on Defined scope including program and
Square Footage
65

67. ‹#›
Components of GMP
• Construction Cost And All Mark-ups
- Construction Cost includes contingency
- General Conditions
- General Requirements, Minimize (these cost should be rolled into GCs)
- Mark-ups include
- Fee
- Insurance (or CCIP)
- P&P Bond
- Sub-Contractor Default Insurance if trade bonds not provided
• Construction Schedule
• Site Logistics
- Include ICRA and ILSM Plans
• Alternates (if any)
• Allowances
• Qualifications and Assumptions
• List of Construction Documentation
• Other Things to Consider:
- Holds
- Buy-out savings
- Use of Contingency
- Participating in Sub-Contractor Buyouts
66

68. ‹#›
What are Allowances within a GMP?
• An allowance establishes an assumed “placeholder” value in a GMP for a still-undefined bid-package trade
scope (e.g. lobby granite).
• When scope is defined and the package is bid, the difference between actual and allowance adjusts the
GMP
• Example: Lobby Granite
Example #1 Example #2
Allowance $550,000 Allowance $550,000
Actual Bid $490,000 Actual Bid $600,000
Difference $60,000 Difference ($50,000)
Reduced GMP Over-run
• Pro: allows earlier GMP with undefined scope.
• Con: risk belongs to owner.
Recommendation: Minimize allowances to control risk; Requires A/E documentation & Owner decision-making
67

69. ‹#›
Allowances
The proposed GMP shall not include Allowances except with the Owner’s prior approval.
• An "Allowance" is an amount included in the GMP for a Trade Work item that requires further scope
definition by the Architect or Owner.
• In the event that the actual Trade Work Costs for Trade Work covered by an Allowance are greater or less
than the Allowance, a Change Order will be issued adjusting the GMP by the amount of such difference,
plus percentages to cover payment and performance bonds, and other Construction Manager insurance,
but without markup for General Conditions Work Costs or Construction Fee.
• Use of Allowances will require the Owner's prior written approval. Unused Allowance amounts will not be
available to cover other Costs of the Work.
Recommendation: Minimize allowances to control risk, otherwise →
Legal Definition
68

70. ‹#›
Qualifications & Assumptions
• Define Qualifications and Assumptions (Q&A)
- Goal of CM Q&A = Transfer of Risk from CM to Owner
• Minimize or Eliminate Q&A
- Complete Detailed Line by Line Review of Each Item with the Entire Team
- If it is not in the contract documents then Q&A not necessary
• Drive the missing information from the Q&A into a trade Cost
- A&E to Incorporate into Contract Documents
• Verify Scope Meets Project Goals
- CM and AE Agree on Defined scope including Square Footage
• Repeat Process until the GMP is Satisfactory
- Transfer of Risk from Owner to CM
69

71. ‹#›
Alternates
• Alternate Definition:
Amount stated in the bid or GMP proposal to be added or deducted from the base bid amount proposed
for alternate materials and/or methods of construction.
• Use of Alternates can be a strategy to manage challenged budgets in an effort to fully utilize the budget
available and maximize the amount of work awarded within a project budget.
- Add Alternates – Items you cannot afford in budget but would like to consider if buy-out is favorable and
falls within the budget.
- May include adding length or additional quantity to a project of similar
type work or adding enhancements of different type work.
- Deduct Alternates – Items you require in the project that may
have been added in late or that you want the ability to control
• Examples of add alternates (from the Attached Chiller 7 GMP) include:
- Furnish and Install Double Doors per Detail E-1, S-202.
- Provide three 16” Strainers on existing chillers per drawing M-304.
• Make sure these costs are fully marked up.
70

72. ‹#›
List of Documentation
• Include detail list of every component of Contract Document in GMP.
• Includes:
- Drawings
- Specs
- RFI
- Addenda
- Schedule
- Owner installed equipment
- Agreement and General Conditions
- Due Diligence Documents
- Safety, PCRA, and ICRA Policies and Procedures
- Building Rules and Regulations
- Builders Risk Policy
- Phasing Plan
- Any other documentation or correspondence that has an impact on Scope (Budget and Schedule)
71

73. ‹#›
Use of Contingency
GMP Contingency
- Contractor’s Contingency to use with the owner’s permission (Award Letter)
- Fills the gaps between the CM’s estimated costs and the guaranteed price
- Does not cover:
- Errors in contract documents
- Unforeseen conditions (DISCUSS)
- Owner changes
- Non-conforming work or the repair or correction of non-conforming work
- Unused contingency returns to the owner (All Savings Back to the Owner)
- Must be reviewed with the same due diligence as a change order
- Most commonly abused and misunderstood budget line item
Owner’s Contingency
- Consider this ‘Project’ Contingency, not only ‘Construction’ Contingency
- Can be used to fund short line items for the balance of the budget
- Used for GMP Change Orders
- Minimum Recommendation by NYS-DOH (10% Renovation, 5% New Construction.)
- Percentage could be affected by phasing, logistics, age of building, etc…
- Could be in GMP or outside GMP (DISCUSS)
- Used for:
- Owner Scope Changes
- Unforeseen Conditions
- Due diligence required shall include A/E review and sign off
A/E must take ownership for use of Contingency as a reflection of documentation and programming
72

74. ‹#›
Buy-out Process and Savings
• Buy-out savings = Difference between the GMP estimated trade cost versus the actual award amount
- Participation of Owner in Sub-Contractor Buyouts
- To prepare to participate the PM responsibility includes understanding drawings, buy out sheet, leveling sheet
- CM purchasing must be fully transparent and in line with organization’s procurement requirements (Fully Auditable)
- Ensure that CM buy-out sheet is complete, accurate, and documents the agreements discussed in meeting
- As a result of this process, Holds and Allowances can be developed, clarified, and reduced
• CM to maintain a log of buy out savings by trade
• Buy-out savings is for the CM’s use, to guarantee the overall price
- CM does not owe meeting each line item of the GMP, they owe bottom line
- CM to advise owner of use of buy-out savings and can release to owner for use
- Cannot be used for General Conditions shortfall without Owner’s permission
• CM can release buy-out savings at key milestones, owner’s request,
or CM’s discretion
- Not recommended at early milestones
• Holds are included in the GMP but are Identified in the Award Letter
73

75. ‹#›
Holds
Legal Definition
The proposed GMP shall not include Holds except with the Owner’s prior approval.
• A "Hold" is an amount for a Trade Work item that has not yet been incorporated into a Subcontract scope.
• A "Hold" is not an Allowance, and the GMP will not be adjusted on account of costs that overrun or
underrun a Hold.
• Use of Holds requires the Owner's prior written approval.
Assure that CM is not using a “Hold” to hide buy out savings
Three common holds are overtime, phasing, and logistics
Examples
• GMP Electrical Value is $450,000; Construction Manager (CM) Negotiates buyout to
$430,000. CM believes more overtime is required which is not listed in the contract
documents. CM Holds $20,000 in reserve for additional Potential Expense.
• GMP Millwork Value is $375,000; CM Negotiates buyout to 350,000. CM believe phasing is required which is NOT listed
in the contract documents. CM believes the added cost to be $10,000. The CM Holds $10,000 and moves the balance of
$15,000 into savings.
74

76. ‹#›
General Conditions & Fee
• Fee for services = percentage (%) of construction costs
- Converted into lump sum, fixed fee at the time GMP is submitted
• CM fee for construction phase services (Part B) shall include the following:
- Home Office Expenses
- Profit and Overhead
- Recruitment costs for home office job site personnel.
- Professional fees for consultation, legal, labor relations, accounting, and bookkeeping expenses.
• The above are not reimbursable as General Conditions
• Other costs not included in General Conditions:
- The cost of any item not specifically and expressly included in the items in Costs to be Reimbursed.
- Costs in excess of the Guaranteed Maximum Cost.
- Incentive compensation, bonuses or other benefits over and above the normal wages to be reimbursed.
- Non-conforming work or the repair or correction of non-conforming work
Construction Manager’s (CM’s) Fee for Construction Phase (Part B) Services

77. ‹#›
General Conditions
• GC’s shall be estimated based upon the construction schedule; the following may be reimbursed as GC costs
- Salaries of CM’s personnel stationed at the Field Office
- Cost of contributions, assessments or taxes for such items as unemployment compensation and F.I.C.A. based on wages
- Cost of repairs and preventive maintenance to equipment.
- Reasonable travel expenses connected with the Work with prior written consent of Owner.
- Temporary heat, water, electricity, telephone and toilets.
- Temporary construction barriers and infection control measures
- Temporary fence, sidewalk, bridges, roadways and elevators.
- Final cleaning
- Field office and its related costs, equipment, IT requirements
and furnishings.
- Safety barricades, construction signs and watchmen.
- Messenger service.
- First aid station.
- Cost of premiums for all bonds and insurance
- Fees for building permits required the Work.
- Minor expenses such as petty cash items connected with the Work.
- Cost of removal of all debris.
76

78. ‹#›
Tracking General Conditions
• General Conditions is typically a not-to-exceed amount (not lump sum)
• Invoiced monthly as costs are incurred
- Track costs as actual versus budgeted on a monthly basis
- Detailed summary of expenses with attached documentations
• General Conditions Allowance can be increased for the following reasons:
- Increase in Scope of Work
- Increase in Duration
- Unforeseen logistics requiring additional staffing
• General Conditions expenses are still incurred if project is
placed on hold or delayed
• Ensure the CM is responsible for maintaining personnel
on the Project, both in quality and quantity of staff.
• CM to provide a log of personnel if resources are shared
over multiple projects.
77

79. ‹#›
Take-Aways
• GMP is appropriate for large, complicated or early-to-market projects
• Regular Meetings with Entire Design Team Including Construction Manager
• At each milestone, Detailed Review and Reconciliation with Entire Team
• Minimize allowances to control risk
• Minimize or eliminate qualifications and assumptions to transfer risk from Owner to CM
• A/E must take ownership for use of Contingency as a reflection of documentation and
programming
• Assure that CM is not using a “Hold” to hide buy out savings
• CM’s contingency should not be used for non-conforming
work or the repair or correction of non-conforming work
What you should remember when managing a GMP
78

80. ‹#›
Appendix C – Examples of GMP Components

81. ‹#›
GMP Example
Table of Contents
80

82. ‹#›
GMP Example
GMP Summary
81

83. ‹#›
GMP Example
Qualifications & Assumptions
82

84. ‹#›
GMP Example
Alternates
83

85. ‹#›
GMP Example
Allowances
84

86. ‹#›
GMP Example
General Conditions Summary
85

87. ‹#›
GMP Example
Schedule
86

88. ‹#›
GMP Example
Site Logistics
87

89. ‹#›
GMP Example
Document List
88

90. ‹#›
GMP Example
Holds
Example #1
GMP Electrical Value is $450,000; Construction Manager (CM) Negotiates
buyout to $430,000. CM believes more overtime is required which is not
listed in the contract documents. CM Holds $20,000 in reserve for
additional Potential Expense.
Example #2
GMP Millwork Value is $375,000; CM Negotiates buyout to $350,000. CM
believe phasing is required which is NOT listed in the contract documents.
CM believes the added cost to be $10,000. The CM Holds $10,000 and
moves the balance of $15,000 into savings.
89

91. ‹#›
Appendix D – Level of Documentation for Milestone Estimates

92. ‹#›
GMP Level of Documentation
91

93. ‹#›
GMP Level of Documentation (continued)
92

94. ‹#›
GMP Level of Documentation (continued)
93

95. ‹#›
GMP Level of Documentation (continued)
94

96. ‹#›
GMP Level of Documentation (continued)
95

97. ‹#›
GMP Level of Documentation (continued)
96

98. ‹#›
GMP Level of Documentation (continued)
97

99. ‹#›
GMP Level of Documentation (continued)
98

100. ‹#›
GMP Level of Documentation (continued)
99

101. ‹#›
Appendix E - Design – Build Challenges

102. ‹#›
Design Build: Top Challenges
• Finalizing a Design-Build contract prior to designs and documentation
• Managing the labor mix of local, MWBE, and union participation
• Controlling the subcontractor selection
• Maintaining the owner’s protection through the construction administration process
• Incorporating scope to meet program needs beyond base building codes
• Minimizing cost and schedule implications caused by infrastructure upgrades which are not code
specified items
• Placing aesthetics as a priority with a Design-Builder who is driven by cost and schedule
• Incorporating owner’s medical equipment infrastructure into the schedule
• Obtaining financing for an unconventional contract
• Affording the owner the protection of professional resources
101

103. ‹#›
Analysis of Recent Design-Build Challenges
Obtain the
desired
scope for
the project
Finalizing the
Design-Build
contract prior
to the
designs and
plans
Outline the scope based on
the hospital’s specific needs
Work with the hospital to
capture the totality of the
designed scope and
incorporate it into an early
contract
Ensure inclusion of the
desired scope to avoid
cost increases and
schedule extensions
Encapsulated the
contract language,
drawings, specifications,
user group comments,
textual documentation,
and scope matrices to
clearly define scope
Maintain
good
community
relations
Controlling
the labor mix
of local,
MWBE, and
union
participation
Incorporate language into the
contract that addresses these
categories of labor mix
Assist the hospital in a public
relations and legislative
relations campaign that
fosters collaboration between
all stakeholders
Provide a favorable
contract and proactive
community-focused
implementation plan
Developed fair and
equitable contract awards
throughout the buy-out
period through consistent
communication
Goal Issue Feature Benefit Proof
102

104. ‹#›
Analysis of Recent Design-Build Challenges
Goal Issue Feature Benefit Proof
Deliver a
facility that
meets quality
expectations
Having control
over the sub-
contractor
selection
Include contractual language
during contract negotiations
which requires owner
approvals of all
subcontractors
Perform background checks
and interviews on all
subcontractors during buy-
out
Ensure that the
subcontractors selected
for the work have
proven track-records of
delivering quality in
similar projects
Investigated framing and
drywall subcontractor due to
strong and well negotiated
terms in the contract which
led to the owner’s rejection of
the subcontractor
Adhere to the
construction
documents
and
specifications
Compromising
the owner’s
protection
through the
construction
administration
process
because the
design team
works for the
contractor
Administer the contract and
the construction documents
to the level of intent as
expected by the owner
through the use of One View,
Atlas SOPs and best
practices
Ensure the delivery of a
product which conforms
with the owner’s
purchase
Identified through our site
inspections that 3% of the
fireproofing was not installed
in accordance with the
specifications and that light
gauge metal framing was not
welded as required
103

105. ‹#›
Analysis of Recent Design-Build Challenges
Goal Issue Feature Benefit Proof
Create a
design that
meets
program
requirements
Designing
documents to
program
needs
because
Design-
Builders
design to
code
Set clear and specific
guidelines to be included
in the project by setting
goals with the owner
prior to hiring the Design-
Builder
Ensure the delivery
of a building that
goes beyond code
and reflects the
culture and
programmatic needs
of the organization
Ensured the inclusion of the healing garden
and entry lobby environment that reflects the
atmosphere of hospitality which supports the
philosophical approach of the organization
Ensured the inclusion of specialty programs
such as NICU and Bariatric Units which were
not required by code, but were future
opportunities for growth and expansion
Construct a
hospital with
functionality
that goes
beyond the
basic code
Negative cost
and schedule
implications
caused by
necessary
upgrades
which are not
code specified
items
Early involvement in the
design process to ensure
that the hospital’s
functionality
requirements are met
Coordinate and guide
peer review of the
project using expertise in
current healthcare trends
and common market
practices
Identify and uphold
the standards upon
which the design is
based and the
project is built
Identified the need for lightning protection and
bypass isolation transfer switches which were
not required by code
104

106. ‹#›
Analysis of Recent Design-Build Challenges
Goal Issue Feature Benefit Proof
Have an
aesthetically
pleasing
facility which
promotes
healing
Placing aesthetics
as a priority because
Design-Builder is
driven by cost and
schedule
Manage interior finish review
committees and drive the user-group
process to ensure aesthetic
sensitivity in the plans through a
deep understanding of hospital’s
need for a healing environment
Guarantee compliance with the
hospital’s visions through constant
submittal review and site inspection
Ensure the hospital
will achieve an
aesthetically
pleasing
environment that
promotes healing,
in spite of an
insensitive design
process
Validated and managed the
hospital committee to make
the proper color and material
selections for all spaces
throughout the building
Ensured that during
construction, light, air and
unobstructed views were
maintained
Have the
proper
infrastructure
in place to
support the
latest
technology
and medical
equipment
Incorporating
flexibility into the
schedule to select
medical equipment
that affects the
infrastructure at an
appropriate date
because Design-
Builder profit is
substantially driven
by schedule
Build and track stringent contract and
schedule requirements for the
contractor
Identify allowances in the project
budget for late coordination for
equipment
Provide an
infrastructure that
will support the
latest technology
and medical
equipment
Coordinated the owner’s
medical equipment planner
with the construction team to
identify the areas of risk early
in the process
Carried allowances outside
the construction budget for fit-
out when the suite-specific
medical equipment is selected
105

107. ‹#›
Analysis of Recent Design-Build Challenges
Goal Issue Feature Benefit Proof
Secure
public
funding
from
institutions
for Design-
Build
projects
Reluctance to
provide
funding and
financing due
to a lack of
familiarity
with Design-
Build
Reinforce the advantages of Design-
Build over conventional contracting
methodology through constant
meetings, presentations, and industry
examples with financing agencies and
potential investors
Support the owner
in securing funding
from numerous
sources
Received the most Federal hospital-
related funding in the State
Received State-bonded financing for the
only new Design-Build hospital project in
the State
Protect the
hospital
through
checks and
balances
Affording the
owner the
protection of
professional
resources
Lead a collaborative team as the
single point of coordination with the
best interests of the hospital as the
primary objective
Coordinate the peer review of the
architect/engineer/builder
Coordinate the construction-related
QA/QC inspections
Coordinate the systems
commissioning
Assure the owner
the same level of
security as they
would have with an
independent
architect/engineer/
builder in terms of
design, cost,
schedule and
quality
Identified on the peer review over 500
errors or omissions that were excluded
from the documents of the proposed plan
Managed a team of over one dozen
QA/QC inspectors on site daily
Managed the oversight of the installation,
start-up, testing & balancing by the
contractor
Managed the commissioning of all
systems by an independent authority
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Appendix F – Lean / IPD Glossary Terms

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Glossary
• Big Room- A term derived from the Japanese “obeya”. In the Toyota Product Development
System, the obeya is a location in which interdisciplinary team members meet to brainstorm
and resolve issues on the spot.
• Building Information Modeling- A Building Information Model, or BIM, utilizes cutting edge
digital technology to establish a computable representation of all the physical and functional
characteristics of a facility and its related project/life-cycle information, and is intended to be
a repository of information for the facility owner/operator to use and maintain throughout the
life-cycle of a facility.
• Buyout- Buyout is the process of obtaining price commitments for all work packages in a
project. There are several methods by which this can be accomplished, ranging from sealed
bids to direct negotiations with pre-selected or shortlisted subcontractors or suppliers. In the
IPD approach, most of the price commitments are developed through a continuous effort,
with many of the subcontractors and suppliers participating in the design and refining their
prices along the way. Here the explicit Buyout phase is limited to obtaining price
commitments from the remaining subs and suppliers – those who weren’t involved during
the design phases.
• Collaboration- The process or mind-set by which all integrated parties involved in a project
are willingly doing whatever it takes to work together in concert to, design, construct, and
make decisions solely for the good of the project.
Thanks to Zetlin & DiChiara
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Glossary
• Construction Management at Risk- In this delivery method, the CM is hired at the
beginning of the design phase to act as the project coordinator- (not at risk) and general
contractor (at risk). At the time the construction manager serves as constructor the
construction manager assumes all of the liability and responsibility of a general contractor.
Construction Managers are hired in various capacities by owners seeking continuous
management of the project delivery process.
• Core Team- A team that collaboratively manages IPD projects from inception to completion
and with equal representation of, at a minimum, the owner, the architect, the construction
manager and MEP engineers.
• Cost Structure- A breakdown of the construction and project budget into detailed “cost
targets”. The construction budget is developed in both a detailed component(s) based
format and a CSI based format based on the project’s goals, detailed program and
performance requirements. The cost targets are developed collaboratively by the Integrated
team prior to commencing the conceptualization phase of the project process. The structure
provides the benchmark for the team to support continuous cost management as the project
progresses to ensure that it will be completed within the targeted budget.
• Design-Build- A delivery method that offers the owner the ability to contract with a single
entity to provide both design and construction services. It is characterized by a single
contract with the owner and the overlapping of design and construction services.
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Glossary
• Executive Management Steering Team- A group of senior level executives from all parties
including the Owner, Architect, Contractor and Engineer assembled as a key decision
making body on the project. Typically they meet on a monthly basis.
• GMP- Guaranteed Maximum Price
• Guiding Behaviors- A list of ideals that each Team member must embrace during the
project delivery process. Each Team member is required to sign the final charter in
agreement with the guidelines set forth for the process.
• Governing Structure- The strategy developed by an Executive Management Steering
Team to provide direction, oversight and advice to the Core Group; guide the Team
behaviors; and define the dispute resolution process.
• Integrated Form of Agreement (IFOA)- A “relational” contract between the Core Team
members that creates a system of shared risk and reward with the goal of reducing overall
project risk rather than shifting it between parties.
• Integration- The coming together of all key participants, at the beginning of a project, for the
purpose of designing and constructing the project together, as a team.
• Joining Agreement- A contractual amendment used to add a new party to an existing IFOA
and include them within the risk sharing terms of the IFOA. For example, a joining
agreement could be used to append key subcontractors to an IFOA previously executed by
the owner, designed and the contractor.
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Glossary
• Launch Gap Analysis- A thorough data and information analysis conducted by the IPD
Team to identify steps that must be addressed prior to beginning the project. The outcome of
this process is a Project Implementation Plan, or road map, for bridging the gaps.
• Lean (planning, design, construction and operations)- A production practice that
considers the expenditure of resources for any goal other than the creation of value for the
end customer to be wasteful, thus a target for elimination. Lean principles are being applied
to the redefining of operational processes, and the planning, design and construction of
healthcare facilities.
• Liability Waivers- Contractual provisions in the IFOA that eliminates, or significantly
reduces, the ability of the IPD parties to sue each other for losses related to the project. The
level and comprehensiveness of liability waivers is negotiated among the Core Team
members during the Project Initiation Phase.
• Project Initiation Process- A phase during the launching of a project in which the owner
establishes the governing structure for the project, selects the project team, and confirms
that they want to use an IPD approach. It can last from 3-9 months depending on project
size and scope.
• RFIT- Request for integrated team
• Target Cost- An estimate of the cost of the project that is established collaboratively by the
Core Team before design is started based upon historical and benchmark data.
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Glossary
• Team Alignment Workshop- A workshop held to develop the guiding behaviors as well a dispute
resolution process.
• Value Proposition- An analysis and quantified review of the institution’s strategic mission and
identification of the purpose and fit of the new facility within that mission. The benefits, costs and
value that the organization’s new facility can deliver to customers and other constituent groups
within and outside of the organization should be considered.
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Appendix G – IPD Contract Language

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§ 1.1 Integrated Project Delivery
§ 1.1.1 The Parties intend that the Project shall be delivered in a collaborative environment and
shall endeavor to align individual interests with those of the Project.
The Parties agree to contribute their knowledge, skill and services during all phases of the
Project and to bring to bear their expertise for the benefit of the Project. . . .
§ 1.1.4 The Parties agree, where practicable, to employ collaborative technologies such as Building
Information Modeling (BIM) and digital collaboration tools. The Project Leadership Team may
choose to augment Models with additional materials including, but not limited to, physical models,
renderings, sketches, drawings, reports, or specifications.
Thanks to Zetlin & DiChiara
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§ 1.2 Integrated Project Delivery Phasing
Integrated Project Delivery Phasing
The Parties shall deliver the Project in the following phases: Conceptualization, Criteria Design,
Detailed Design, Implementation Documents, Agency Review, Buyout, Construction, and
Closeout.
The descriptions of these phases and the Parties’ respective responsibilities during each
phase are more fully set forth in the General Conditions, attached hereto as Exhibit A.
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ARTICLE A.2 PARTIES’ RESPONSIBILITIES
§ A.2.1 Collaborative Performance
It is anticipated that the Parties will complete Total Output Criteria Amendment, Exhibit DD:
Integrated Scope of Services, to allocate duties and responsibilities among the individual
Parties and key Project participants.
If a duty or responsibility is not specifically assigned in the Contract, the Project Leadership
Team or the Executive Leadership Team shall delegate the responsibility to a particular
Party. . . .
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§ 1.1 Integrated Project Delivery
§ 1.1.2 The Parties intend to establish a Total Output Cost for the Project and to amend this
Agreement to incorporate the Total Output Cost (the “Contract TOC”).
To the extent that the Actual Cost (or “Final TOC”) is less than the Contract TOC, the Parties
shall share in any savings realized in accordance with Section 4.4.1 of this Agreement.
To the extent the Parties have agreed to KPIs, they shall be set forth in and the Parties shall be
compensated for achieving such KPIs as specified in Section 4.5 of this Agreement.
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§ 4.5 Key Performance Indicator
(“KPI”) Achievement Compensation
§ 4.5.2 In the event of an Underrun, in addition to receiving its proportionate share of the
Underrun, an additional payment, equal to a portion of American’s share of the Underrun
(the “American KPI Contribution”), shall be due to the Design Professional and Contractor
for achieving each of the agreed-upon KPIs and funded as set forth below.
The KPIs shall be defined as follows:
1. Early Completion of Project Schedule, weighted at __%.
2. Successful Implementation of IPD Concepts, weighted at __%, including:
a) Participation of all parties during all phases of delivery
b) Teamwork and commitment to IPD
3. Customer Experience, weighted at __%
4. Health and Safety, weighted at __%
5. Limited claims, zero litigation and zero non-AA lead changes to the initial Contract
TOC, weighted at __%
6. Etc…
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§ 2.2 Project Leadership Team (“PLT”)
§ 2.2.2 The Project Leadership Team shall consist of one representative from each Party.
The Parties’ representatives shall use their knowledge, skill, and expertise to benefit the
Project. . . .
§ 2.2.1 The Project Leadership Team is responsible for executing the decisions and directives of the
Executive Leadership Team, or any Owner Directives issued pursuant to this Article 2. The Project
Leadership Team shall be responsible for the day-to-day management of the Project, including the
scheduling and coordination of the Parties’ activities required to complete the Project in a
collaborative and integrated manner. . . .
§ 2.2.3 Decisions by the Project Leadership Team shall be unanimous.
Subject to a subsequent decision by the Executive Leadership Team and the Dispute Resolution
Committee, the Parties agree to be bound by any decision rendered by the PLT.
If the team representatives are unable to reach a unanimous decision on a matter, any Party’s
PLT representative may refer the matter to the Executive Leadership Team for decision.
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§ 2.1 Executive Leadership Team (“ELT”)
2.1.3 The Executive Leadership Team shall consist of one representative from each of the Parties.
The Parties’ respective representatives are identified below…
2.1.1 The Executive Leadership Team shall make decisions as well as plan and manage the Project
in such a manner as to allow the Parties to achieve the KPIs and successfully complete the Project.
The Executive Leadership Team shall exercise its authority in the best interests of the Project. . . .
2.1.2 Decisions by the Executive Leadership Team must be unanimous. If the Executive Leadership
Team is unable to reach a unanimous decision, it may submit the matter to the dispute resolution
process set forth in Article 9, Dispute Resolution.
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§ 9.4 Dispute Resolution Committee
•All disputes initiated in accordance with Section 9.3 shall be referred to the Dispute Resolution
Committee for resolution. The Dispute Resolution Committee shall consist of Party
representatives in senior management with broad organizational responsibilities and the Project
Neutral identified in this Section 9.4.
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Appendix H – Lean Case Study

124. ‹#›
North Shore LIJ Health System
Lenox Hill Hospital Center for Comprehensive Care, New York
First New Free-Standing Emergency Department in New York State
First Lean Delivery healthcare project in New York State
21,000 SF ED / 30,000 visits per year / 141,000 SF programmed facility
Task
NSLIJ’s objective is to provide healthcare services to the community that was formerly provided by St. Vincent Hospital
which closed, primarily emergency services. Their goals are to:
- Build a freestanding Lenox Hill Hospital satellite Emergency Department, Ambulatory Surgical Center and Imaging
Center
- Prepare the building for future Physician Practices.
- Work within framework of major site redevelopment in a historic NYC Landmarks District.
- Incorporate Lean delivery principles to achieve target $2.5 million savings
Challenges
- Existing building is a significant Landmarks Site as are nearby buildings
- Owner goal to have building placed on Historic Register
- Modern hospital HVAC space and floor height requirements
- Existing building has no infrastructure suitable for reuse
- Existing building has a history of deferred maintenance and needs a complete envelope refurbishment
- The proposed use/ service is not a direct revenue generator supporting a ROI.
- Incorporating lean principles in an environment that had never seen it, with a CM who had not provided them
Solution
- Bring a full design and construction team together early in the process, working in a cohabitation space
- Team would include Landmarks and Historic Preservation experts and includes Environmental Impact consultants
- Remove a section of one floor to provide modern headroom in the ED
- Pull out appropriate SOW from GMP to a more cost effective, less fee intensive venue.
Lean Delivery Case Study- Center for Comprehensive Care
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• Reduced RFIs
• Reduced change orders and field changes
• Better collaboration
Cost Saving Opportunities in IPD / Lean Delivery
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LHH CCC: Reasons
• Project had an expedited schedule to get to market.
• Team included:
- Construction Manager (Turner)
- Architect (Perkins Eastman)
- Engineer (BR+A)
- Owner’s Representative (Jones Lang LaSalle)
- Estimator (Davis Langdon)
• Business Plan / ROI for project could not be supported by projected capital project costs
identified at Schematic Design
- NYS DOH approved Certificate of Need (CON) only after:
- Breaking out Core/Shell costs of areas not being fit out
- Confirming CM estimates with parallel costs from outside estimator
• After extensive Value Engineering (and other cost saving measures), team could not meet target
costs
• To meet schedule team continued documenting while exploring alternatives
• Explored alternate CMs to validate process and pricing
- Pricing was validated by both CM’s, but…
- An alternate process was suggested that would provide more cost certainty by eliminating the
need for CM contingency through a Lean Delivery (IPD – lite) process
• A target value of $2.5 – 3.0 million of additional savings was identified to meet budget
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LHH CCC: Steps taken
• A mission statement was created and a visioning session occurred to align team
• Through the normal CM estimating process we had previously undertaken, we had done a good
job of understanding the total budget and the individual trade values.
• It was agreed that the team must establish a competitive process that meets NSLIJ system
standards + DOH requirements because this was not yet a recognized or accepted method of
delivery
• Turner suggested plan was to set target values (goals) by applying the target $2.5 million
savings against the budgeted Design Development values for those trades.
- Process
- Prime trades to partner with:
- Structural steel - Structural Demolition
- HVAC - Electrical
- Fire protection - Plumbing
- Millwork - Prefabricated metal & glass
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128. ‹#›
LHH CCC: Steps taken (continued)
• Turner bid out to these trades Design Development drawings for Part A (pre-construction
services) and Part B (construction)
- Cost for both parts
- Understanding of process / Tools / Previous Experience as a trade manager
• After receiving bids, leveling, short listing, firms were interviewed by full project team (owner, CM,
architect, engineer, owner’s rep)
• Award was based on:
- Price
- Qualitative Scoring
• Upon award, “collaboration meetings” began with design consultant and trade managers (subs)
working together to complete the documents and enhance the quality of the documents. This
included:
- Early shop drawings / submittals
- Goal to have less conflicts / more coordination
- Exploring potential cost saving measures
• Upon receipt of a Guaranteed Maximum Price (GMP), the trades are required to meet or
better the original target value they bid, and the owner has the option to re-bid.
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LHH CCC: Results (Benefits)
• More cost certainty by CM early on led to lower overall costs / greater value
- Turner released all GMP design contingency before GMP = $3.8mm
• Project was able to get to market faster compressing overall schedule = 4 months
• Expectation is to minimize or eliminate (non-scope) Change Orders = TBD
- Current similar project ($71mm, 94,000 SF) = 453 RFIs
• Expectation is also to reduce waste (materials AND time) by minimizing RFIs
- Current similar project ($71mm, 94,000 SF) = total of 210 @ $4.4mm or 6.2%
• Lessons Learned:
- Positive:
- Greater communication between designers & contractors, resulting in early identification & resolution
of constructability issues
- Greater cost certainty, allowing CM to release design contingency before GMP was submitted
- Negative
- Most trade managers did not utilize REVIT as BIM platform which was platform used by designers
- Cohabitation space was not set up to be productive for team members waiting to provide input on
coordination
- Do-Over
- Bring on trade managers earlier in process, before Design Development
- In Cohab space, team to provide more frequent updates to recap progress of coordination conflicts
- More extensive survey of existing conditions before starting
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Traditional vs. Lean Impact on Cost
129

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How can Lean Delivery Help you?
• By reducing schedule AND providing more cost certainty
- Particularly on a large, multi-phased capital program
• Examples:
- On a large program of undefined repetitive work
• FACE program
- Single trade (Infrastructure) projects
• FSD project
- Large Projects that may have long lead times for documentation
• No rule of thumb, but say over $100 million
- Projects that might benefit from pre-fabrication
• New buildings with curtain wall, pre-cast, straight-forward structural frame
• Repetitive elements such as exam rooms, toilets, apartments
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