How to Get Best Quality at Best Cost in Infraconstruction Project
There are so many different types of project models. But the right questions really is: Which one should we use?Planning & Budgeting Collaborative Processes & Tender Infrastructures
There are so many different types of project models. Alliance-model, Design and Construct-model, Whole Construction and nowadays even Design, Construct and Develop-model. Some are used in small projects, some in huge, some in between of big and small. But the right questions really is: Which one should we use?
The Most Beneficial Model to Run Municipality’s Infraconstruction
It is getting wild in infra construction industry!
More and more project management models are appearing. We have a new hot “alliance-model”. The lighter version from alliance-model called DCD (Design, Construct & Develop). Old fashioned WC (Whole Construction), FA (Framework Agreement) and DC (Design & Construct).
I know, I too am getting overwhelmed with this.
And that is not the end. More models are appearing all the time.
Of course, we must understand the rationale here. As municipals, we are wasting huge amounts of money if we do run our infra construction projects on wrong approaches and that’s why it is very critical to really understand our options here.
“As municipals, we are wasting huge amounts of money if we do run our infra construction projects on wrong approaches and that’s why it is very critical to really understand our options here.”
Understanding Our Options
Come on Jero! It’s an easy pick! Tender-period for all!
Oh, you like the traditional approach? And where has it taken us?
Competitive bidding process and always choosing the cheapest bid has left us with bad quality infrastructure, high maintenance costs and only a few local construction companies alive and standing to leave bids for our projects.
This reminds me of a conversation a couple weeks ago with Consolidated Contractors Company’s Manager of The BIM Centers. They had won Abu Dhabi airport construction for 3 billion dollars.
Guess how many bids were offered for the job?
Do you think competitive bidding process works effectively with just 2 bids? I think those 2 bids are quite far from the real costs of the project. We can do better.
Before we head into what we want to have, let's have a quick pro/con of each popular project model.
WC (Whole Construction)
Back to the roots. Let’s have a bid offering for the design, pick the lowest bid. Bid offering for the construction, pick the lowest bid. The competition will solve all our issues and we save a lot of money by running projects this way?
Yes, I agree that you will definitely spend the lowest amount of money in this way, but what is the end result? Is longterm results the best?
Contractors nearly make any profit, and if they don’t make a profit, they will make their profit by cutting on the quality of the project. Quality is often terrible in these type of projects compared to what other models achieve.
Designers will deliver low-quality designs, because of lack of budgeted work hours. They do not join to supervise the on-site construction. Contractors will build infrastructures as fast as possible.
Because “lowest bid always wins”, this model has driven designers and construction contractors into “extra work” approach.
“We can’t scratch profit from our bid offer, so let's make a profit out of every extra task, every mistake.”
This is the mentality in today’s WC projects.
Don’t get me wrong. If you supervise the project well, you will get great quality at a great price. But I still have hard times to believe that this way is healthy for your municipality in longterm.
DC (Design & Construct)
Okay, I agree. Maybe I was a bit over-dramatic when explaining the WC-model. Now as you have read my rant on WC-model, there has been developed DC-model to counter it.
In WC, the design and construction usually don’t fit well together, contains a lot of problems to get projects done without a lot of hassle and issues that are fixed during construction. DC-model tries to combat that problem.
Thinking here is as follows:
The construction company is an expert on building the real-world. Why don’t we work with them to share the vision of the end result and leave it to construction companies to order designs that are well suited for construction?
DC-model’s core idea is very good and could be effective.
But, DC-model has one critical failure in its structure
First, the bid offerings. As a construction company is paying the bills of designers, the bids have plenty more air in them. Basically, you are throwing money into sewers by running DC-model.
This has resulted that many municipalities have a “challenging job” and “outsourced job”.
Challenging is for municipality's own small construction team, who builds challenging projects that need strong design&construction cooperations. Outsourced ones are, as you can guess, for contractors through WC-model.
This way to run infra construction projects is very interesting. We start with the agile start, re-creating a wheel with a twist fitting of a project and iterate from there.
But what are the real results from alliance-model?
We often can see strong cooperation & investment in the project from contractors. Designers are on-site to watch that end results will be as planned. Builders use the designer and consult advice more actively on their work plannings. Communication toward clients is very clear and strong.
How about the bad sides?
Alliance-model gets hammered hard on couple corners. First, it has a fixed profit gap for contractors. We already hear the news that this alliance-model is losing its attraction in Australia because construction companies can make a better profit by doing projects by WC-model and having an army of sub-contractors.
Another problem with Alliance-model is re-inventing. Why we need to put everyone on the same line and have these conversations about what is the best approach for different things. We should utilize already existing approaches and methods and add improvements gradually without organizing weekly development meetings.
Organizing alliance model for 100.000€ - 200.000€ projects are very heavy and inefficiently, that’s why we invented “alliance for smaller projects” called DCD!
DCD (Design, Construct, Develop)
From all the previous main models, this is so far been my favorite.
It has the benefit of DC with leaner re-inventing process from alliance-model. To keep the project lean and cheap, they have added project development into the design phase.
When all things needed are developed and designed, the construction company is ready to roll out on-site with full strength.
At it’s simplest form. Have separate tender-periods for design & construction. Development meetings with the client. Design starts, finishes. Construction starts, design participates, finishes.
All good, All well?
DCD has the same shortfall as alliance-model. Too heavy for small projects. DCD doesn’t have shared credit tab at least, the bid amount is the budget and we need to survive with it.
DCD is a very strong candidate to run all over 1M€ projects, but below we still need to find ways to keep it effective and cheap.
FA (Framework Agreement)
At last, an oldie but goldie.
Framework agreement. We either have own design, surveying, and construction or rent those for next 2-3 years.
The rationale in this framework agreement is pretty straightforward:
“How groups whos focus to make a profit out of service they deliver (companies) can be cheaper than own construction crew?”
And there is equally straightforward why:
Lack of management, process, skill, and development. Because of these profit-seeking companies builds usually faster than municipalities own construction crew.
Also, FA / Own team has higher risks as you need to keep them on your salary list for next 3 years. What is the cost if infra construction project amount increases or decreases heavily?
Thus making FA-model best for most challenging projects each year. It is a smart move to have own team to handle some jobs.
Okay, Jero, each model has a lot of pros and cons, but what is the most suitable for the municipality?
None. I think we can do even better.
“Each model has a lot of pros and cons, but what is the most suitable for the municipality?
Project-model that supports everyone’s own goals”
My view on effective project-model is to have a model that supports each participant's goals (designers, construction companies, municipalities…) while providing an incentive for more effective results & development.
What things do we want our project model to prioritize?
Well, if we think from the municipality’s perspective I would suggest the following:
Credit tabs open
Let me break down the thinking here.
1 - Best Quality
Most cost-efficient way to build is to build it once with best possible quality.
2 - Skilled Contactors
Still today, with our fancy machine guidance, log point-to-BIM quality analysis and so on, the project can go very messy if bad contractors are chosen on the driver's seat.
Maybe one of the easiest ways to predict good contractor is based on their yearly revenue and profit. But there are lot more factors to add in.
3 - Credit tabs open
Project cost gets very expensive if the main contractor is not able to finish the project and you need to find another contractor to finish it. Also having this guarantee for budget expansion reduces contractors fear of risk to commit to the project.
4 - Competitive Bidding
Competitive bidding simply is the best way to get a solid and accurate price for the project.
So, project-model needs to be the cheapest costing & highest quality while still providing a good profit for design and construction?
Hah! That’s impossible!
I am suggesting something completely different.
What I am suggesting is municipality driven infra construction development with incentivized WC-model
What does that mean?
Glad you asked.
It has two points.
WC-Model with spice
We keep utilizing bid offerings because it is the best way to keep costs in control.
But for design, we demand in the bid offering, that designer will do on-site supervision as well. I know it will cost more, but trust me it is worth of every penny what you are paying for. Having own designers in the municipality is very useful.
Also in this model, we should have the accepted bid offer as a budget start point.
Budget start point?
Yes, we have accepted bid offer as the budget for a contractor to build, but if the costs of building the project get over the budget, the municipality will pay an additional amount, based on documentation from contractor’s expenses and the contractor gets now only fixed percentage of profit for the project.
This way we will keep the contractor building the project with the best quality as possible. We are not bankrupting them and contractors will still get a small share of profit. If the project is built in accepted bid’s budget, good for contractors, they will make more profit than fixed profit margin we offered.
Ah! Jero, now I understand the idea of your model, but how about municipality driven Infraconstruction development part?
Municipality Driven Infraconstruction Development
This is something that I am currently pressuring a lot of public sector officials.
If we are using WC or DC models, we are leaving design and construction companies with a low-profit-margin. No wonder why infra construction industry has one of the lowest competitions. This has been done by starving companies out through bid offerings.
Now if we really want to get the best quality and best price while still keeping construction companies alive and growing, we need to take a responsibility on infra construction development.
I have written article with more details on this here, but in this article, I will give you the gist of it.
Basically, you as a municipality, need to take charge of developing infra construction and support construction companies to build faster.
Well, the other choice is to pay a bigger profit margin for construction companies so they can develop themselves. If you don’t aim to drive development, you are literally burning investment money to inefficient methods of construction.
Still, don’t agree?
Your goal is to get what? Best quality at cheapest. Developing a more efficient approach is the only way.
Also, you gain more benefit by being the frontrunner in development for local construction companies, many municipalities do that and have saved the investment back many times over. Outsource men & machines, focus on improving efficiency and provide tools and processes to allow men & machines to achieve the improved efficiency.
How to supercharge your infraconstruction projects? Read more here