Cost Savings or Cost Certainty?

The old mantra of “better, faster, cheaper” is familiar to anyone who’s been involved in the design and management of construction projects for more than a day as the emphasis to deliver projects at the lowest possible price and provide as much cost savings as possible motivates many decision makers. Interestingly enough, that quote is credited to Shigeo Shingo, a Japanese industrial engineer considered an expert on manufacturing processes. If anything, this should make one pause and consider it’s relevance towards construction projects, which are each to some degree unique and unrepeatable.

(Courtesy Optima Associates)

Public owners always have limited financing for their projects and, having a fiduciary responsibility to the tax payer, want to do as much as they can with the funds they’ve been entrusted with. They have significantly more tools at their disposal now to improve the performance of their projects with the increasing availability of alternative project delivery methods (e.g – other than Design-Bid-Build) that can reduce cost and schedule growth while allowing for the fast tracking work packages. These delivery methods have been shown to reduce overall cost and schedule growth when compared to the traditional delivery method which is enticing for savvy public owners. In the vein of minimizing overall project costs, many owners also seek to negotiate the lowest permissible fees for their design consultants and preconstruction fees for their construction managers, believing that the cost savings delivered will reduce the overall cost of the project.

(Courtesy smashinglists.com)

Lopez del Puerto, et. al. (2016) posed a good question: is the best project outcome for owners to be focused upon be minimizing cost growth or should they rather focus upon maximizing cost certainty? In their paper, titled “Construction Cost Certainty Versus Construction Cost Savings: Which is the Correct Approach?” the authors analyzed preconstruction services design fees in comparison with the early budget estimates and the final construction costs from three turnpike authorities and one department of transportation for a total of over 1,200 projects. Increasing cost certainty directly relates to improving the accuracy of early estimates and the overall quality and completeness of construction documents. The authors came to the conclusion that inadequate investment in preconstruction phase design activities was tied to post-award changes and cost growth by putting an artificial cap on the billable hours available to the designers in order to produce defect-free construction documents and the focus on capturing cost savings during preconstruction had the opposite of effect of increasing cost growth post-award. They found that there was a direct relationship, up to a point, between increasing the funding for preconstruction design services and increased cost certainty. The most compelling evidence comes from the comparison of Washington State DOT (WSDOT) and the Oklahoma Turnpike Authority (OTA) where the cost growth from the early estimate was -5.70% and 9.65%, respectively. The OTA’s design fee percentage for their projects was 5.21% compared to WSDOT’s 18.07%. The other two turnpike authorities’ design fee percentages were over 10% and experienced between 0.29% to -1.26% cost growth from the early estimate showing a clear tread demonstrating that increasing your investment in preconstruction services increases cost certainty.

Using the percentages provided in the paper and a hypothetical $5 M project, I calculated the total cost of preconstruction fees and cost growth from early award:

Fee %FeeCost GrowthTotal
5.21%$260,500$482,500$743,000
11.85%$592,500$14,500$607,000
12.55%$627,500-$63,000$564,500
18.07%$903,500-$285,000$618,500

You can see that somewhere between 12.55% and 18.07% is a point of diminishing returns on preconstruction investment, but the difference in combined totals of design fees and cost growth between a 5.21% fee and an 11.87% fee is worth $136,000 on the back end. Even if owners remain focused on cost savings, this study shows that increasing the fee you pay in your up front design costs can improve your project’s overall financial performance. Just as utilizing alternative delivery methods necessitates a cultural/paradigmatic shift from the traditional methods, shifting a focus onto increasing cost certainty from reducing cost growth requires owners and designers to clearly communicate the real benefits of investing in preconstruction services.

(Courtesy Connect Media)

If you’re interested in reading this paper, I’ve hyperlinked it with the title in the second paragraph. What kind of design fees do you typically see in your area? Have you experienced cost growth in your projects due to incomplete plans and specs? Let me know what you think in the comments.

Cheers, NG

The Civil Engineering Podcast Interview

I had the distinct honor of being a guest of Anthony Fasano, P.E.’s The Civil Engineering Podcast where we discussed the discipline of Construction Engineering, ASCE’s Construction Engineering Certificate program, some of my experiences as a US Army engineer officer, as well as the initial results of my current research into Construction Manager-at-Risk project delivery.  

I really enjoyed the conversation we had and hope that you will as well! 

Engineering Students Win 1st Place at Freshmen Showcase

(L to R) Tanner Legvold, Adam Pruitt, Theo Stephens, Azmayn Inkishaf, Nils Gransberg.

Couldn’t be more proud of all of my ENGR 1411 student teams that presented at the Gallogly College of Engineering’s Freshmen Engineering Showcase today, but special congratulations are due to Team # 6 from Section 002 who designed, built, and programmed an autonomous robotic test bed with the capability to navigate using two arrays of ultra sonic sensors to avoid obstacles.  Well done gents!

Five other teams from my the sections I teach presented as well, having designed and built a hand-cranked cellphone charger, video game app named “Spooklee”, a RFID activated remote door locking device, a remotely operable Raspberry Pi security camera, and a magnetic cellphone mount for a bicycle.  Several of the teams made use of the facilities of the Fabrication Lab at OU’s Tom Love Innovation Hub, specifically their 3D printers and power tools.  Special thanks to Brandt Smith, Mike Thompson and their staff for making the facility available for my classes to tour and, in more than one case, get right to work in.

What a great way to wrap up the semester!

N.G.

Research Introduction

Welcome to my blog, my name is Nils Gransberg and I’m a graduate student and adjunct instructor at the University of Oklahoma’s Gallogly College of Engineering pursuing a multidisciplinary PhD within the discipline of Construction Engineering.  I also work as a capital projects manager/construction administrator at the University’s Architectural & Engineering Services.  I plan on sharing the results of my research progress here over the subsequent months and years of my program.

I intend to focus my research on building a framework to analyze the two main project delivery methodologies employed by the University of Oklahoma in the execution of capital construction projects:  Construction Manager – At Risk (CMR) and Design – Bid – Build (DBB).   There are two conflicting schools of thought regarding CMR and DBB. The first maintains that CMR is usually not worth additional initial cost for construction manager services provided during pre-construction; whereas, the second holds that the additional up-front cost for CMR services is justified because it produces a better designed and constructed product, higher end user satisfaction, shorter schedules and a safer jobsite.  Comparative research has been conducted on the national scale comparing DBB to CMR for public infrastructure projects, but there is little, if any, authoritative research in commercial building construction projects because a statistically significant population of project performance data is virtually unavailable. The literature on this topic is generally anecdotal, covering the short period of time that a given facility owner is initially experimenting with CMR.  Hence, there is a significant gap in the body of construction engineering knowledge regarding the value for money brought by using CMR project delivery as compared to DBB.

OU has been using both CMR alongside DBB for over 16 years.  In my current position, I have access to the project performance database covering more than a decade of CMR and DBB delivered construction projects on campus. As a result, I am in a unique position to conduct new research in this area and add to the body of knowledge within the discipline of construction engineering. Considering that the US Census Bureau estimates the commercial building construction market to be over $1 trillion in 2017 having grown roughly 30% since 2015, the potential contribution of the research is huge (Merryman).  My initial intention is to borrow a concept in use by the National Audit Office in the UK called Value for Money (VfM), which extends the analysis beyond just the financial realm into the socioeconomic arena to account for qualitative factors like customer satisfaction and increased service life.  I hope to quantify the relative VfM for both delivery methods using state-of-the-practice VfM algorithms to create a framework on which public owners can compare CMR and DBB using associated project performance metrics.

1. Merryman, R., and US Census Bureau. (2018). “US Census Bureau Construction Spending Survey.” Census Bureau QuickFacts, United States Census Bureau, <https://www.census.gov/construction/c30/historical_data.html> (Nov. 26, 2018).

css.php