The project manager's toolbox
managing value in GC/CM projects
Managing Value in GC/CM Projects
by Eric Meng
INCREASINGLY, OWNERS ARE turning to alternative project delivery systems in an attempt to control costs, meet schedules, and reduce litigation. Public agencies that have traditionally depended on separate design and low-bid contracting are using various alternative methods in which the design team, construction management, and the contractor are contractually bound to each other as well as to the owner. As a result, the project managers (owner, design, and construction) are finding themselves in unfamiliar roles with changing responsibilities. Formal value management is one of the tools that project managers can rely upon to fulfill their responsibilities and meet project goals.
Hammering out a plan for project completion can be a wrenching experience unless you're prepared to try alternatives.
GC/CM: A True Alternative? Over the past five or six years, most major state agencies and many municipalities have explored alternative delivery processes for public projects. Design/build, GC/CM (general contractor/construction management), construction management at risk, and various combinations of these have all been introduced in pilot programs, and many have been endorsed by permanent legislation. Among the alternatives, the GC/CM method has received inordinate attention. In this method, the contractor is selected primarily on the basis of qualifications, and the construction process, including sub-bidding, is controlled through a management contract with the owner. Often this team is inserted early in the design process and may even have contractual responsibility to manage the design phase.
Eric Meng leads the architectural/engineering/research firm MENG, with offices in Seattle and Portland. He is both an architect and a certified value specialist, and has led over 350 value analysis studies. As a leader in applying value management to design, he frequently presents papers, workshops, and training seminars throughout the world.
Exhibit 1. The value analysis process is an opportunity for the entire project team to better understand all project criteria and to reach consensus on criteria prioritization. Many methods, from the Delphi process to basic team voting, are available for prioritizing criteria, and in so doing, the project manager is given a frame of reference and direction useful throughout the project.
Value Engineering Proposal Criteria Analysis
Washington State Department of Corrections
Stafford Creek Correction Facility
Best–Value Analysis Study
Exhibit 2. Cost is a vital criterion for value analysis, but it is most often one of many for consideration. Rigorous review and discussion of criteria assists in decision-making as alternatives are considered.
Essential Components of the Value Engineering Process
Use of a rigorous “workplan” in which each phase in the process is applied separately and in order. The typical workplan includes six phases: information, functional analysis, speculation, analysis, development, implementation.
Complete understanding and analysis of project and component functions and their relative importance to project goals. Functional analysis is the one discipline that sets value analysis apart from most other quality improvement processes.
Exploration and search for multiple alternatives. Many creativity techniques are used, from basic brainstorming to synthetics, and all are applied toward the basic functional components of the project.
Use of multidisciplinary teams, preferably with some independence and with trained leadership.
The use of cost, both first cost and life-cycle cost, as a primary criteria measurement. Cost is used as a tool to force definition of project components, but other project criteria are used as well to analyze alternatives that meet quality.
I recently heard yet another presentation on a university construction project using the GC/CM delivery method. During this presentation it was noted that the partnering activities, the claims avoidance panels, and the candid cooperative problem solving are highlights in the project. The presenters proudly passed out a list of “value engineering cuts” that the team had implemented, but they lamented the inability to meet budget or schedule within the current booming construction environment. From this presentation and many similar reviews of the newer project delivery approaches, I maintain that the solutions for cost and quality control will not only be achieved by changing and sharing roles and responsibilities, but also by changing and sharing the tools used for the management processes. These tools, covering design, cost planning, scheduling, and construction management require more rigorous and more creative application.
Enough university, corrections, transportation, health care and technology, social services, and even K-12 education projects have been completed with alternative contracting to draw some conclusions about their effectiveness compared to traditional low-bid projects. Results thus far are mixed. The general consensus is that working relationships are easier through the design and construction phases but that costs and claims have not been reduced. More recently, in fact, costs have risen at the same or more alarming rates than in traditional low-bid projects.
Perhaps the greatest benefits from these pilot programs is the willingness to introduce and use many additional tools that have seen only token use in the past and for the design and construction industries to share some of the tools they have kept to themselves. For example, the construction side has, as a matter of course and necessity, relied on good critical path methodology scheduling for complex projects, and with formal construction management now at the design phase, design teams are learning better formal scheduling methods. In the other direction, “systems” cost estimating methods such as UNIFORMAT and LCCA (life cycle cost analysis), long used by designers to shape and control major system selection during the early design process, are augmenting contractors’ “construction trades” breakdowns because contractors are being asked to take responsibility for some design and performance decisions.
With the selection process increasingly based on performance and service, contractors are learning to use tools such as risk analysis, code mitigation, quality benchmarking, partnering, and commissioning, and using them as promotional features.
Understanding Value Engineering. An interesting aspect of this cross-fertilization between design and construction tools is the impact on the tools themselves. Each “side” has for years used terms for some of these tools (again often in a promotional sense) that rather loosely define processes used more rigorously by the other industry.
One process that has suffered the greatest misdefinition, particularly in the GC/CM environment, is value engineering. Although some designers share culpability, contractors for years have loosely used the term value engineering for a process that generates random lists of cost-cutting ideas, usually in an attempt to negotiate a project back within an awardable budget after a “bid bust.” The result is usually a quick off-the-cuff listing based on individual experience. The lists generated in this fashion usually address procurement or specification options and can whittle away at cost. Very few in the construction industry understand the creative formal value engineering process (also called value analysis or value management) that most designers are exposed to during the schematic or design development stages of a project. This process, when applied properly, seeks creative breakthrough alternatives that maintain or even increase functionality and quality while reducing costs. Using interdisciplinary teams, the process defines projects in terms of prioritized functions, and then methodically analyzes multiple alternatives for both higher order and supporting functions. The analysis considers costs as well as the owner's prioritized criteria, as shown in Exhibit 1. The process can be applied to entire projects or to specific components. It thus is valid as a creative problem-solving tool throughout a project.
Throughout the Pacific Northwest, many formerly strong, mandated value engineering programs are being eroded because owners are being told that the early contractor involvement in the design/build or GC/CM process substitutes for formal value engineering. This may be true for constructability, but with most contractors lacking exposure and training in value engineering, the owners are giving up the largest opportunities for true value-based cost planning and are receiving projects whose specifications and components are downgraded during the cost-cutting exercises. Most owners think they are getting more value engineering, but with stronger contracted construction management services, many owners are even further removed from daily project management, and are not part of the implementation or decision-making phase of the value engineering. Formal value engineering includes in the workplan an implementation phase in which concepts can be objectively presented to appropriate owner decision-makers.
As the owners turn over more responsibility to a consolidated project management team, they do increase their risk as a result of decreasing checks and balances; but if owners insist on rigorous, formal value management from their project management team, they will be reassured of cost control while maintaining quality. Although the concepts that define formal value engineering are simple, they do require some training and practice, and they are best implemented with skilled leadership and facilitation.
There are five defining aspects to value engineering (see sidebar). Many professional project managers have experienced some or all of these aspects in other settings, but most are unaware that value engineering is a rigorous process that excels when all components are applied at the right time and in the right order. Exhibit 2 shows a typical proposal criteria matrix. This rigorous analysis assists the entire project team in prioritizing criteria and making consensus decisions.
With the inflationary pressures in our current boom economy, especially within the GC/CM environment, owners should be increasing the use of formal value management. Multiple phase studies using both independent and trained in-house teams, and all using rigorous function analysis will prove to be the greatest tool in the owners’ and managers’ toolbox for delivering quality within reasonable budgets. The process will provide some of the third-party checks and balances formerly offered by the independent contractual relationship the owners maintained between designer and contractor. At the same time, it will build consensus around breakthrough concepts with its interdisciplinary, nonjudgmental approach.
THE FUTURE WILL INCLUDE more design/build, GC/CM, and even other creative delivery methods, all offering improved human relations and fewer surprises. But owners, taxpayers, and politicians will continue to demand fiscal responsibility. If alternative approaches do not deliver improved value, the cry for even more cutthroat low-bid contracting will increase. To preserve the benefits of these alternative methods, it will be necessary to increase the use of rigorous value management tools.
Reader Service Number 012
PM Network August 1999