It’s no secret that the commercial construction industry has been affected by the recent economic downtown. However, a common theme running through experts’ opinions on the future is that Omaha’s economy is insulated, but not isolated, from the downtown on a national level. Local business leaders and economists remain optimistic about growth prospects for the local economy compared to the national economy, which includes the outlook for the building industry. Omaha is a $44-billion-plus economy and continues to garner favorable attention nationwide. With this in our corner, it’s clear to see the future is bright for growth and construction. So let’s take a closer look at issues affecting construction as well as information about the commercial construction industry in general. Finally, if you’re looking to build in the near future, make sure you check out the end of the article where we discuss a few issues that you should take into consideration for your new building.
Current Issues Affecting Construction
Private owners/developers have several options available to them when planning a new project or renovation. Many times they will negotiate a contract with a contractor they have had past successful relations with or they may hand-select two or three respected contractors and obtain competitive bids for comparison before their selection. Public funded organizations typically would use the traditional Design-Bid-Build format with complete sets of plans and specifications and competitive bidding from numerous contractors with little regard to experience or qualification of the contractor.
Recently, with the passage of ‘The Political Subdivisions Construction Alternative Act’ LB 889, public entities now have options to solicit a more “qualification based” selection for contractors. (The following information is provided by the Nebraska Design and Construction Industry Council (NDCIC), which is the joint committee between the Nebraska chapters of the Associated General Contractors –Building Chapter, the American Institute of Architects and the American Council of Engineering on their website www.ne.dcicouncil.com )
LB889
In brief, LB889 (passed in 2008) allows cities, villages, counties, community colleges and state colleges to use Design-Build (D-B) and Construction Management at Risk (CM@R) contracts as delivery methods in addition to the traditional Design-Bid-Build (D-B-B) approach (for explanations of these methods, please see the next section of the article). Prior to 2008 the only public entities that have been allowed to use such methods in Nebraska were the public schools, under the previously passed LB391. The University of Nebraska has used D-B and CM@R on most larger projects since the early 1990s.
In order to use either alternative method, the governing board of the public entity must adopt a policy identifying an alternative delivery method and pass such policy by a two-thirds vote. After an alternative delivery method has passed a governing board, LB889 provides step-by-step selection and execution procedures to carry out the project.
1. If D-B is selected the public owner must first hire a ‘Performance Criteria Developer” (PCD). The PCD must be a licensed architect or engineer and will assist the public body in the development of project performance criteria and the request for proposals (RFP). The PCD will also assist in the evaluation of proposals, selection of the D-B firm, evaluation of the construction and any additional services requested by the owner.
(Please note that Nebraska Law requires a “Coordinating Professional” whom MUST be a licensed professional member of the design team to act as a project liaison with the governing building official(s). Please refer to Title 110 of Nebraska Administrative Code for further information)
2. If CM@R is selected for a building project the public owner issues two separate RFPs and hires a compatible Architect and General Contractor/Construction Manager, each under separate contracts with the owner.
Delivery Methods
There are three general delivery methods when it comes to commercial construction projects. They are as follows:
Design-Bid-Build
This method involves three roles in the project delivery process—owner, architect and building contractor—in traditionally separate contracts with the owner. “Traditional” is frequently used to describe the sequentially defined design-bid-build method, which typically involves competitively bid, lump sum construction contracts that are based on complete and prescriptive contract documents prepared by architects and engineers. These documents generally include drawings, specifications and supporting information. The phases of work are usually conducted in linear sequence, each completed before beginning the subsequent phase. The owner contracts with an architect for design; uses the design documents produced by the architect to secure competitive bids from contractors; and, based on an accepted bid, contracts with a contractor for construction of the building. This method is typically the most time consuming.
For most of the 20th century, public work has been routinely built using the design-bid-build/lump sum (or stipulated sum) delivery method. This has included competitive bidding among general contractors, performance bonds, and employment of various other statutory requirements to protect taxpayers’ investments. Much private work has also been performed for a lump sum figure, in the belief that the marketplace ensures economic discipline and yields the lowest cost. In particular, private organizations with large constituencies, such as churches and schools, are often required to use project
delivery methods with sealed bids and formal procedures, similar to procedures for public projects.
Construction Management at Risk (CM@R)
Construction management at risk (CM@R) approach involves a construction manager who takes on the risk of building a project. The architect is hired under a separate contract. The construction manager oversees project management and building technology issues, in which a construction manager typically has relevant credentials and expertise. Such management services may include advice on the time and cost consequences of design and construction decisions, scheduling, cost control, coordination of construction contract negotiations and awards, timely purchasing of critical materials and long lead time items, and coordination of construction activities.
In CM@R the construction entity, after providing preconstruction services during the design phase, takes on the financial obligation for construction under a specified cost agreement. The construction manager frequently provides a guaranteed maximum price (GMP). CM@R is sometimes referred to as CM/GC because the construction entity becomes a general contractor (GC) through the at-risk agreement.
The CM@R contracts with trade contractors who perform the construction. These entities are contractually bound only to the CM@R. It should be noted that there is typically no contractual relationship between the designer and the CM@R. There are variations on this method where the owner may contract directly with the subcontractors.
Design-Build
In the design-build approach to project delivery, the owner contracts with a single entity—the designer/builder—for both design and construction. The design-build entity can be led by either an architect or a general contractor and can consist of any number of people. As with CM@R, the timing of agreement on a GMP varies with each project.
Owners interested in single-point responsibility for both design and construction can use the design-build delivery system. In design-build, a consolidated entity provides both design and construction services to the owner. A single contract is established between the owner and the architect-contractor or design-build entity.
Design-build approaches require an explicit determination of the roles and responsibilities of the design-build team. Single-source contracting has gained popularity in recent years in both the private and public sectors. The primary reason for this interest in design-build as a viable project delivery option is the owner’s desire for a single source of responsibility for design and construction. It is also perceived to shorten the overall design/construction schedule.
The Bidding Process
The following are commonly used approaches for selecting a design and construction team:
Low bid: The builder’s final selection is based solely on lowest total cost.
Lowest responsible bid: The builder’s final selection may be based on some weighting of the total cost and other criteria such as qualifications and relevant experience.
Qualifications-based selection: Total construction cost is not a factor in the builder’s final selection. Instead, the final selection is based on either a “pure qualifications-based selection” (qualifications only, no element of price) or a combination of qualifications and fees (possibly including general conditions).
Public jobs normally involve an open bid bidding process where everyone sees the bid amounts and you have to go with the low bidder within certain guidelines. Private jobs sometimes involve closed bid bidding where only certain parties get to see what the bid is. Most public jobs and some private jobs require bid security (usually 5% of your bid), which the low bidder will forfeit if it fail to enter into a contract.
Considerations for Your New Building
Facility Management Systems
Facility Management Systems are extremely helpful for business owners as they control security systems as well as heating and cooling elements without you having to be on the premises. When it comes to selecting a Facility Management Systems, Engineered Controls is fully prepared to assist in the development of building controls and security performance criteria. Engineered Controls maintains a sales staff that can assist with the preparation of specification, sequence writing, equipment selection and procurement. ECI sales engineers can work with your design team to create an integrated control system to meet your building automation and budget needs.
Pat Killeen of Engineered Controls says, “Furthermore, our team of LEED AP accredited professionals has experience in LEED gold and platinum projects and can work with building owners to meet the certification requirement they desire. Engineered Controls can also help you leverage your new or existing investment in building systems by integrating HVAC, electrical and security equipment and applications from numerous manufactures into one common control network. Are you making do with your current building management systems? Are you looking to find an easier way to manage all the utility data? If so, an integrated building management system from Engineered Controls will make it easy to manage utility metering and mechanical and electrical systems into a single network to maximize energy strategies.”
Security
You’ll be putting a lot of time and effort into your new building, so it’s important to protect it after the project is finished. There are a number of different security methods to put in place. One company that can help provide an assortment of them is the new Midwest Security Lamination. The company provides three main services: security glass laminations ranging from shatter-resistant to bullet and bomb resistant, window tinting for security, UV protection and energy savings and Signal 88 Security to provide full on-site commercial surveys of property.
While your building is still under construction, get in touch with a company that offers security services and ask for a consultation. The experts at their company can help provide a comprehensive look at what security measures will be most appropriate for your property to guard against loss and vandals.
Services for Contractors
Fortunately, the Omaha area has a number of reputable contractors who provide excellent service. For a contractor to remain at the top of his game, it’s important that they have the right support system behind them so they can spend the time doing what they do best—working on your project!
Teaming with a firm such as Bland & Associates is an excellent idea for contractors who want to make sure the financial side of their business is being taken care. According to Jeremy C. Vokt, “Our firm provides accounting, tax and consulting services to all types of construction companies ranging from homebuilders to drywall contractors, electrical contractors, HVAC contractors, and general contractors to name a few. I have been working with construction companies for the past twelve years with it being my majority focus the past seven or eight years. I am the current president of the Construction Financial Management Association-Nebraska Chapter. Our firm is also the only firm in the Midwest to compile results from a survey of construction companies for just our metro area. It is a benchmarking report of Omaha area construction companies. We have been doing this for 5 years.”
Bland & Associates assist contractors with their financial and tax planning strategies, assist with their banking and bonding relationships, assist with financial reporting, budgeting, and job costing strategies to name a few.
The commercial construction industry has experienced some tough times over the last few years, as have many other industries. However, with the strong focus on growth and improvement in the Omaha area, the industry will remain strong as business owners and investors continue to build.