Water Design-Build Council Blog

Design-Build in the Industrial Sector

As we observe the growth of design-build as a project delivery method in the municipal water market, I am reminded that our industry was a late adopter of collaborative delivery. In those early days of delivery method evaluation, some of us would point to the success achieved in the industrial markets using design-build as a reason to consider “alternative project delivery” in the design-bid-build world of water. But what is the reality of the industrial design-build market? 

In a 2014 study published by Reed Construction Data/ RS Means Consulting (“Design-Build Project Delivery Market Share and Market Size Report”, May 2014) for DBIA, the market share for design-build over the previous nine years (2005 through 2013) was analyzed for various sectors as shown in the figure below. In this case, Industrial markets (purple bar) were shown to use design-build between 35 and 40% of the time, about the same percentage as was used in the government sector. Only the military used design-build at a significantly higher percentage (80%) than the other sectors for their projects.

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The industrial sector seems well suited to the use of design-build for a number of reasons:

  1. Single point of responsibility- site managers and facility engineers must focus on plant productivity and process operations, and therefore lack the time to manage multiple contracts for capital projects.
  2. Blending of performance and prescriptive contracting- industrial owners generally know what must be prescribed (process-related equipment) and what can be performance based (provide a building with power, gas, water and chemical feeds required by process).
  3. Need for speed- once industry decides to move forward on a project, they generally want it yesterday.
  4. Cost certainty- Budgets have real meaning in the industrial sector, and often come with small contingency amounts.
  5. Risk transfer to the contractor- Design and construction are often not the core skill of the industrial owner and projects represent a small portion of their job description, so transfer of risk and responsibility is an attractive attribute.
  6. More flexibility in procurement rules- Industries are governed by boards of directors rather than elected officials, allowing for a more autonomous management approach and flexibility in how things get done.

Why then do we not see industry use design-build at a percentage closer to the military sector, or at least at a substantially higher rate than we see with government owners. One possible answer is project size. The RS Means data showed that in 2013, 53% of projects over $10 million in project value across all sectors were performed by design-build, but only 20% of projects under $10 million used that delivery method. Industry performs small projects on their plant sites using a variety of delivery methods, including design-bid-build, job order contracting and design-build. In industry, large expansion and retrofit projects are the exception- small projects are the rule.

Finally, design-build has not been a panacea for industry even on larger projects. Owners have expressed frustration over the use of Integrated Project Delivery (IPD) and Engineer-Procure-Construct (EPC) as not providing for sufficient owner involvement in the project design, and still resulting in significant change orders and disputes. Recently, one project delivery company (Protecs) that specializes in pharmaceuticals and biotechnology projects trademarked a method called “Leveraged Design-Build” using a “target costing” model that they claim can provide more cost certainty, product quality and schedule savings.

In the end, I suspect the precise method is less important than the people delivering the project. Collaboration and communication are the key ingredients in the formula for success, and collaboration is as much attitude as it is contractual obligation.

survey-of-water-utility-executives

 

Topics: design-build, Collaborative Project Delivery, risk allocation, best practices