Practice Management Member Conversations

This message has been cross posted to the following Discussion Forums: Practice Management Member Conversations and Project Delivery .
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For the people who are not only contentious about the details of process and procedure, but also obviously passionate about the subject, let me offer another perspective that won't surprise anyone, coming from an MBA type such as myself.  It's about the money!

All frustrations aside, this is an issue that comes down to money for both sides, and it is one for which there is no solution unless one can be found that modifies the financial incentives that motivate the actions cited repeatedly in previous posts.

The A/E's (Architects and Engineers) spend time reviewing documentation, which, in their view adds no value to the client, and the contractors are both delayed and penalized, in their view, when the A/E fails to respond in a timely and flexible manner, since they have committed to fixed price based on certain assumptions they had to make when preparing their bids.

For the A/E, time is money.  It is a fallacy that their reluctance to review substitutions is in the Owner's interest.  It is not, it is in their own interest to minimize the time spent on the project in order to maximize their own margins.  No matter how many submittals are made, and no matter what form they take, consideration of them is always in the Owner's interest because this process effects the bids and bidding process of contractors, who will make every effort to find better value, lower cost products in order to get a bidding advantage, and do so speculatively at their own cost and risk.  This is the process that creates competition and increases value. 

This competition, which lowers construction costs, is another thing that is not in the A/E's interest since they are compensated as a percentage of the construction cost.  There is no incentive for the A/E to improve value, in fact there is counter incentive NOT to improve value.

Once a bid is submitted and contract awarded, the contractor now has incentive to lower his own costs, and so will submit anything that might result; logically deferring any subjective judgment of equivalence to the A/E and Owner.  It is not sinister, it is exactly what any other person would do in that situation, including the A/E's themselves.

This is one paradox present in the standard AE/GC and AE/CM project delivery models.  It, along with the Change Order paradox and the Lack of Cost Accountability paradox, are the three most egregious issues in AEC industry.

Just one guy's observation.



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Alan Burcope AIA, MBA, LEED AP
VP Project Development
HBE Corporation
Saint Louis MO
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All the more reason to promote a cooperative relationship between Owner, Contractor, and Architect rather than an adversarial one. When all parties are working toward the common goal of completing the projet rather than pointing fingers at each other, the result is better economics for all. It means less time spent on finding blame and more time spent on findng mutual solutions.

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Jerry Roller AIA
Firm Owner/Architect
JKR Partners
Philadelphia PA
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Original Message:
Sent: 05-02-2011 15:57
From: Alan Burcope
Subject: Substitutions, Submittals and Contractors vs. Architects (and Engineers)

This message has been cross posted to the following Discussion Forums: Practice Management Member Conversations and Project Delivery .
-------------------------------------------
For the people who are not only contentious about the details of process and procedure, but also obviously passionate about the subject, let me offer another perspective that won't surprise anyone, coming from an MBA type such as myself.  It's about the money!

All frustrations aside, this is an issue that comes down to money for both sides, and it is one for which there is no solution unless one can be found that modifies the financial incentives that motivate the actions cited repeatedly in previous posts.

The A/E's (Architects and Engineers) spend time reviewing documentation, which, in their view adds no value to the client, and the contractors are both delayed and penalized, in their view, when the A/E fails to respond in a timely and flexible manner, since they have committed to fixed price based on certain assumptions they had to make when preparing their bids.

For the A/E, time is money.  It is a fallacy that their reluctance to review substitutions is in the Owner's interest.  It is not, it is in their own interest to minimize the time spent on the project in order to maximize their own margins.  No matter how many submittals are made, and no matter what form they take, consideration of them is always in the Owner's interest because this process effects the bids and bidding process of contractors, who will make every effort to find better value, lower cost products in order to get a bidding advantage, and do so speculatively at their own cost and risk.  This is the process that creates competition and increases value. 

This competition, which lowers construction costs, is another thing that is not in the A/E's interest since they are compensated as a percentage of the construction cost.  There is no incentive for the A/E to improve value, in fact there is counter incentive NOT to improve value.

Once a bid is submitted and contract awarded, the contractor now has incentive to lower his own costs, and so will submit anything that might result; logically deferring any subjective judgment of equivalence to the A/E and Owner.  It is not sinister, it is exactly what any other person would do in that situation, including the A/E's themselves.

This is one paradox present in the standard AE/GC and AE/CM project delivery models.  It, along with the Change Order paradox and the Lack of Cost Accountability paradox, are the three most egregious issues in AEC industry.

Just one guy's observation.



-------------------------------------------
Alan Burcope AIA, MBA, LEED AP
VP Project Development
HBE Corporation
Saint Louis MO
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It is a fallacy that architects are usually compensated on a percentage of the construction cost. The fees for all the projects i've been involved in were a fixed sum. Planning studies may be done on an hourly basis.  That sum is usually carefull calculated based on an estimate of the time the work will take. We have no incentive to increase the cost of construction and every incentive and obligation to deliver the highest value to the owner. T-------------------------------------------
Catherine Alberte AIA
Sr. Associate/sr. Medical Planner
NBBJ
New York NY
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Original Message:
Sent: 05-02-2011 15:57
From: Alan Burcope
Subject: Substitutions, Submittals and Contractors vs. Architects (and Engineers)

This message has been cross posted to the following Discussion Forums: Practice Management Member Conversations and Project Delivery .
-------------------------------------------
For the people who are not only contentious about the details of process and procedure, but also obviously passionate about the subject, let me offer another perspective that won't surprise anyone, coming from an MBA type such as myself.  It's about the money!

All frustrations aside, this is an issue that comes down to money for both sides, and it is one for which there is no solution unless one can be found that modifies the financial incentives that motivate the actions cited repeatedly in previous posts.

The A/E's (Architects and Engineers) spend time reviewing documentation, which, in their view adds no value to the client, and the contractors are both delayed and penalized, in their view, when the A/E fails to respond in a timely and flexible manner, since they have committed to fixed price based on certain assumptions they had to make when preparing their bids.

For the A/E, time is money.  It is a fallacy that their reluctance to review substitutions is in the Owner's interest.  It is not, it is in their own interest to minimize the time spent on the project in order to maximize their own margins.  No matter how many submittals are made, and no matter what form they take, consideration of them is always in the Owner's interest because this process effects the bids and bidding process of contractors, who will make every effort to find better value, lower cost products in order to get a bidding advantage, and do so speculatively at their own cost and risk.  This is the process that creates competition and increases value. 

This competition, which lowers construction costs, is another thing that is not in the A/E's interest since they are compensated as a percentage of the construction cost.  There is no incentive for the A/E to improve value, in fact there is counter incentive NOT to improve value.

Once a bid is submitted and contract awarded, the contractor now has incentive to lower his own costs, and so will submit anything that might result; logically deferring any subjective judgment of equivalence to the A/E and Owner.  It is not sinister, it is exactly what any other person would do in that situation, including the A/E's themselves.

This is one paradox present in the standard AE/GC and AE/CM project delivery models.  It, along with the Change Order paradox and the Lack of Cost Accountability paradox, are the three most egregious issues in AEC industry.

Just one guy's observation.



-------------------------------------------
Alan Burcope AIA, MBA, LEED AP
VP Project Development
HBE Corporation
Saint Louis MO
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From a GC's perspective, this entire discussion suggests perhaps a significant advantage to both Owner and Architect in having the GC selected on the basis of the GC's credentials and qualifications (with a negotiated cost) rather than competitve bid.  Competitive bidding may (or may not) provide the lowest cost to the Owner, at least up front costs.  But I can state that we feel nearly all of our negotiated projects actually provide a better VALUE to the Owner than our low bid projects. 

Why?  First consider motivation!  When we are selected based upon our credentials, we consider this to be a complement - a complement that needs to be lived up to.  And we feel obligated to provide the service and the results that provide the best value possible to the Owner, not to mention staying within budget.  We're also  motivated to maintain a top notch reputation if we wish to be selected again by this Owner, or by any other Owners for that matter.  Our goal is a well satisfied Owner.

In what we consider a typically sharp contrast, competitve bidding absolutely mandates that every GC, every subcontractor, and every supplier bid the work as cheaply as possible based upon their logical interpretaions of the Bidding Documents.  Why?  Because all of their competitors will do exactly that!  Accordingly, we suggest that the Design-Bid-Build project delivery method requires more accurate, more complete and error-free drawings and specifications - more work for the Architect.  So with Design-Bid-Build projects, our primary goal is to maximize profit by minimizing our costs.  And why should the GC be any different than the Owner and the Owner's goal of minimizing their costs. 

Finally, I will make one consession.  Selecting a GC based upon their qualifications can require considerably more effort than the comparatively effortless act of simply awarding work to the low bider.  Checking references is essential, and the more the better.  If not, selecting a less than honest GC lacking in integrity can easily result, and at least cancel out any of the value and potential benefits in the qualifications based selection.  But to that I respond, selecting a less than honest GC suggests that credentials, qualifications and references were very poorly examined.  Take your pick.
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R. Scott Sandquist AIA
Vice President
Sandquist Construction
Lincoln NE
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Original Message:
Sent: 05-03-2011 09:18
From: Catherine Alberte
Subject: Substitutions, Submittals and Contractors vs. Architects (and Engineers)

It is a fallacy that architects are usually compensated on a percentage of the construction cost. The fees for all the projects i've been involved in were a fixed sum. Planning studies may be done on an hourly basis.  That sum is usually carefull calculated based on an estimate of the time the work will take. We have no incentive to increase the cost of construction and every incentive and obligation to deliver the highest value to the owner. T-------------------------------------------
Catherine Alberte AIA
Sr. Associate/sr. Medical Planner
NBBJ
New York NY
-------------------------------------------

The objections Mr. Burcope raises in relation to architects' review of contractor substitution requests can be addressed in such a way that the architect, the owner, and the contractor all benefit from the effort involved in reviewing and incorporating contractor-proposed substitution requests. It is reasonable, by the way, to expect that the architect be compensated by the owner for the architect's additional efforts on the owner's behalf in such instances, as the amount of effort involved in evaluating substitution requests cannot be predicted in advance nor controlled by the architect, and should receive the same amount of care as did the initial product evaluation.

If the contractor proposes an array of alternative products that may provide advantages of improved performance or cost savings for the owner, the architect can review and recommend approval of the substitution of those products by the owner. The Owner/Architect Agreement and the Owner/Contractor Agreement can be easily structured to allow for architect compensation and for fair apportionment of any related cost savings to the owner and to the contractor.  The AIA Contract Documents include recommended language to incorporate in the Conditions of the Contract and the Owner/Architect Agreement to accomplish such an assignment.

This process is made easier if the project has the advantage of a well prepared set of specifications that spell out which products are required by the owner versus which products are named as an illustration of design intent. Most projects have some of each; the specifications must be carefully prepared, and carefully read, in order to identify the difference between these two methods of specifying. The products or manufacturers that are named as an illustration of design intent ("non-restricted list" in MasterSpec) allow the contractor to shop for best value and simply submit for architect approval - provided the proposed product is materially the same as the named product ("comparable" in MasterSpec). The products that are required by the owner ("restricted list" in MasterSpec) require a substitution request approval and change to the contract in order for the contractor to utilize alternative products. 

Frequently, the conflicts that project teams encounter along the lines that Mr. Burcope describes stem from poor specification preparation by the architect or inaccurate application of the specifications by the contractor. A few words make a large difference.


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Philip Kabza AIA
Partner and Dir Technical Services
SpecGuy
Charlotte NC
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Original Message:
Sent: 05-02-2011 15:57
From: Alan Burcope
Subject: Substitutions, Submittals and Contractors vs. Architects (and Engineers)

This message has been cross posted to the following Discussion Forums: Practice Management Member Conversations and Project Delivery .
-------------------------------------------
For the people who are not only contentious about the details of process and procedure, but also obviously passionate about the subject, let me offer another perspective that won't surprise anyone, coming from an MBA type such as myself.  It's about the money!

All frustrations aside, this is an issue that comes down to money for both sides, and it is one for which there is no solution unless one can be found that modifies the financial incentives that motivate the actions cited repeatedly in previous posts.

The A/E's (Architects and Engineers) spend time reviewing documentation, which, in their view adds no value to the client, and the contractors are both delayed and penalized, in their view, when the A/E fails to respond in a timely and flexible manner, since they have committed to fixed price based on certain assumptions they had to make when preparing their bids.

For the A/E, time is money.  It is a fallacy that their reluctance to review substitutions is in the Owner's interest.  It is not, it is in their own interest to minimize the time spent on the project in order to maximize their own margins.  No matter how many submittals are made, and no matter what form they take, consideration of them is always in the Owner's interest because this process effects the bids and bidding process of contractors, who will make every effort to find better value, lower cost products in order to get a bidding advantage, and do so speculatively at their own cost and risk.  This is the process that creates competition and increases value. 

This competition, which lowers construction costs, is another thing that is not in the A/E's interest since they are compensated as a percentage of the construction cost.  There is no incentive for the A/E to improve value, in fact there is counter incentive NOT to improve value.

Once a bid is submitted and contract awarded, the contractor now has incentive to lower his own costs, and so will submit anything that might result; logically deferring any subjective judgment of equivalence to the A/E and Owner.  It is not sinister, it is exactly what any other person would do in that situation, including the A/E's themselves.

This is one paradox present in the standard AE/GC and AE/CM project delivery models.  It, along with the Change Order paradox and the Lack of Cost Accountability paradox, are the three most egregious issues in AEC industry.

Just one guy's observation.



-------------------------------------------
Alan Burcope AIA, MBA, LEED AP
VP Project Development
HBE Corporation
Saint Louis MO
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