Ted Garrison's October 2013 Report

Ted Garrison's October 2013 Report--

Ted includes a little history lesson this month on Design-Bid-Build

The Great Construction Industry Myth

The conventional wisdom within the construction industry for the past century has been the belief in the myth that to obtain the best results for the owner, the design and construction aspects of the industry should be separated and contractors should be selected through a competitive bidding process based on plans and specifications, referred to as construction documents. This resulted in the creation of the design-bid-build (DBB) delivery method, which has remained popular because of the false belief that this approach increases competition and transparency and produces the lowest cost. While many people believe the DBB delivery method was created to protect the owner, the facts suggest another story.

Throughout antiquity the construction process relied on master builders or master masons. Examples include the Parthenon, constructed in the fifth century BC by the master builders Ictinus and Callicrates, and the dome on the Florence Cathedral, built in the 12th century by master builder Filippo Brunelleschi.

Changes began to appear in the middle of the 15th century when Leon Battista Alberti convinced Pope Eugene IV that he could direct master builders to construct a new facade on the Santa Maria Novella church in Florence by providing drawings and models. He furnished the plans but never supervised their construction. However, well into the 19th century, master builders, such as Sir Christopher Wren, continued to retain responsibility for both design and construction.

Events surrounding the industrial revolution had a major impact on how design and construction was organized. The increased growth of cities created the need for all types of specialized buildings, which increased complexity and required designers to have expertise and specialized knowledge that builders didn’t require. Further, improved communication allowed architects to create drawings and written specifications anywhere, while builders still had to be local.

Maybe the most important effect resulted from a change in thinking that occurred during the Industrial Revolution. Frederick Taylor introduced his Scientific Management in 1911. It divided work into tasks, and because of the drastic difference between the design process and the physical work of construction, they were a target for separation. Further, “Taylor told management that they and only they were knowledgeable and trustworthy”. In effect, he said that workers should park their brains at the door. They should do exactly as they were told. Management must see that they follow orders exactly”.1 The management system that resulted is rigid and autocratic, as well as unresponsive to both workers and customers”.2 In the hierarchy of the construction industry, the design professionals became the managers of the project and told contractors exactly what to do. In other words, the design professionals dictated to the contractors what and how to build something. While contractors are supposed to be responsible for means and methods, when the design professional dictates the materials and details, the contractor has very little opportunity to inject its expertise.

At the same time management processes were changing, business practices were changing. While the Industrial Revolution rewarded entrepreneurial activities, architects and engineers were responsible for minimizing risk. This risk aversion carried over into their business approach and made them uncomfortable with the level of risk associated with guaranteeing performance and cost in advance. This situation was further acerbated by the large capital requirement for builders. Since designers required fewer workers compared to contractors, they had less need to be heavily capitalized. In addition, design professionals thought it was unethical for non-design professionals to invest in their firms to raise capital.

The American Institute of Architects (AIA) reinforced the idea that design professionals and contractors should be separate entities, and up until recently, their “Code of Ethics forbade a member from having any financial relationship with a building contractor, or with a building material manufacturer or supplier.”3 Further complicating matters was the Miller Act of 1935. This law requires contractors on federal projects greater than $100,000 to post a performance bond and a labor and material bond. To obtain a bond, a company is required to have significant amounts of capital, and since most design firms have limited capital, they were further discouraged from entering construction. While the sct only applied to federal projects, many private and other public entities followed the concept. Reinforcing the idea of separation of design and construction, AIA advocated and encouraged both private and public owners to use the DBB delivery method.

Frederick Taylor’s aim was to increase productivity, and he did in some situations, but the rigid and authoritative management style that resulted did little for customers and created resentment in the workers. Henry Ford used Taylor’s concepts and actually lowered costs while increasing wages substantially. However, Ford’s approach lacked flexibility as demonstrated by his infamous comment, “Any customer can have a car painted any colour that he wants so long as it is black.” The design community supported this concept because it conveniently represents the business model they preferred. Design professionals may very well have believed that if they could control the design and construction process, the owner would get a better product, especially since Taylor provided the theory to support their position. However, the design community’s desire to isolate themselves from the risks of construction also clearly played a major a role in the development of the DBB delivery method.

Separating design professionals from the construction activities was not a serious problem while buildings were relatively simple. However, after World War II, the technical changes began to create more demanding systems, such as air conditioning, elevators, and curtain walls. This required architects and engineers to coordinate their efforts with the construction team. This resulted in the development of a variety of new delivery methods to address this problem, the first of which was construction management. More recent collaborative delivery methods include design-build and integrated project delivery.

The Flawed Assumptions
As John Kenneth Galbraith pointed when he coined the expression “conventional wisdom” is that it’s not always correct. Let’s examine some of the flaws with the myth.

Taylor’s approach focused on maximizing the performance of each task, but that introduced sub-optimization. However, in the 1950s Edwards Deming began arguing that sub-optimization didn’t necessarily improve productivity and lower costs. Deming explained that if you wanted better results, you had work on the entire process as a system, which requires collaboration among all parties. The DBB delivery method attempted to lower costs by getting the lowest price from each project entity, whether a contractor, subcontractor, vendor, or designer. Unfortunately this has resulted in higher project costs. Despite Deming’s success in changing other industries, he has had little effect on the construction industry, which helps explain AIA’s report that the construction industry is the only significant industry that hasn’t increased productivity since the 1960s. In fact, the U.S. Department of Labor indicates it has actually declined. Poor productivity has been examined by many international studies, including the following:4

• 1995 USA Construction and Building Subcommittee Report
• 1995 OASIG UK Study
• 1997 KPMC Canada Study
• 1999 Singapore Construction 21 Report
• 2001 Australian Build and Construction Industries Supply Chain Project
• 2002 Canadian Construction Research Board Report

The conclusion from all the studies was that the primary reason for poor productivity in the construction industry was a result of its failure to effectively manage its supply chain. In essence, the industry’s silo approach created by the DBB delivery method creates sub-optimization and minimizes collaboration. In reality it’s impossible for the designers to completely design and coordinate a project when they don’t know who will be building the project, what equipment they will be using, or how they propose to perform the construction. This coordination requires a team approach. If the design team were to specify all equipment, then it would have a proprietary specification, which would drastically reduce competition—the exact opposite of the goal of the DBB delivery method.

Another misconception is that the DBB delivery method is transparent. Actually there is more information hidden from exposure than exposed, as is explained in The Garrison Report 2013-8, “Owners Want and Deserve Transparency.”

This report is certainly not meant to be an indictment of design professionals. Most are trying to do a great job for their clients, just as most contractors are trying to do the same. The DBB delivery method was developed in a different time and might have worked when projects were simpler, but today it doesn’t work, as project results indicate. Today’s complex projects require a collaborative construction delivery method such as design-build or integrated project delivery. Without collaboration, it’s like trying to navigate in a dense fog and not knowing what others are doing or need. This creates frustration. Most people in the industry are trying to do the best they can, but the conditions severely handicap them.

When projects are properly coordinated and performed under proper design-build and integrated project delivery approaches, the results are outstanding. Many designers that participate on properly managed design-build or integrated project delivery agree that they create better results in a less stressful environment and everyone is better off financially. The best thing for designers is they don’t have to spend valuable time creating details that no one wants or arguing over change orders because there aren’t any. They spend their time doing things that add value for their clients.

The industry needs to improve its performance, but the biggest obstacle to that improvement is the DBB delivery method. I would suggest that if the industry shifted to a collaborative delivery approach, it could reduce total project costs by close to 30 percent, reduce design and construction time by 50 percent and reduce building operating expenses by 50 percent. Are these tough goals? They certainly are, but they are achievable if people work together instead of trying to beat each other up. The only sustainable position is win-win, as win-lose always morphs into lose-lose before it’s over.

1William J. Latzko & David M. Saunders, Four Days with Dr. Deming, Addison-Wesley Publishing, 1995, p. 30.
2Mary Walton, Deming Management at Work, Perigee Books, 1991, p. 16.
3Jeffrey L. Beard, Michael C. Loulakis, & Edward C. Wundram, Design Build—Planning through Development, McGraw-Hill, 2001, p. 21.
4Clive Thomas Cain, Profitable Partnering for Lean Construction, Blackwell Publishing, 2004.

Ted Garrison, president of Garrison Associates, is a catalyst for change. As a consultant, author and speaker he provides breakthrough strategies for the construction industry by focusing on critical issues in leadership, project management, strategic thinking, strategic alliances and marketing. Contact Ted at 800-861-0874 or Ted@TedGarrison.com. Further information can be found at www.TedGarrison.com."