Balancing Flexibility and Cost Control in Construction Projects

Innovating in Health

Care’s Unchartered

Territory March 15 – 18, 2015

San Antonio, Texas

Principles of Construction

RELEVANT EXPERIENCE

• Marvin has 28 years of construction management experience in local, regional

and national design and construction markets.

• Marvin’s Sr. Project Management and Executive level expertise has contributed

to managing, shaping and placement of over $2 Billion of construction.

• Recipient of several (CNR) Construction News & Review Regional Excellence

Awards for Construction Cost Effectiveness and Partnering Excellence.

Marvin L. Johnson CCA, CCP

Manager-Team Leader Advisory

Services Construction Audit

Group

SERVICE EXPERTISE

• Integrated Project Delivery (IPD)

• Design-Build-Bridging (DBB)

• Development of PMP (Project

Management Plan)

• Analysis - Speed to Market Strategies

• Determination/Evaluation of Project

Delivery Method

• Project Incentives vs. Penalties

• Evaluation of Project Insurance

• Construction Audit Program

• Strategies for Phased Delivery and

Turn-over

• Managing Jurisdictional Issues

• PLA - Project Labor Agreement Review

• Budget, Analysis and Cost Controls

(Pre-GMP, GMP, IGMP/OGMP)

• Pre/Post-Bid Process Management

• Delay Claim Analysis

• Non-Compliance Analysis – Remedy

• High level cost avoidance and

Recovery

Principles of Construction

RELEVANT EXPERIENCE

• Bill is a member of the firm’s Executive Committee and serves as the Member-

In-Charge of Vertical Markets, leading the Real Estate and Construction

Advisory Service teams. He is responsible for the integration of all service

components of the firm to meet the unique needs of facility owners and real

estate developers, bringing a multidiscipline team of over 20 professionals

providing services to all phases of the construction life cycle; from project

inception, mobilization and construction, finalization and close-out as well as

project look-back analysis.

• Bill’s professional tenure has included work in both financial reporting and tax

as well as consulting in a wide range of areas including strategy development,

process improvement and technology. He has honed his skills as a trusted

advisor to the clients he serves.

SERVICE EXPERTISE

• Financial analysis and budgeting

• Strategy development and implementation of “Balanced Scorecard”

methodology

• Construction Auditing and cost control

• Organizational development including succession planning

• Development of tax strategies

• Process Improvement

Bill Willbrand, Jr., CPA, CCA,

CCP

Member, Advisory Services

PRINCIPLES OF CONSTRUCTION

Balancing Flexibility and Cost Control in Construction Projects

0

High

Start Time Complete

Procurement

Bid & Award

Final

Design

Phase

Schematic /

DD Phase

Conceptual

Planning Close-Out

Low Low

High

Ability

To

Influence

Cost

Construction

Project

Expenditure

Cost

Influence

Cost of

Construction

Pre-Construction Planning Construction Execution

Impacting Construction Costs on the Project Learning Outcome #1

Staying Ahead of the Curve

All Rights Reserved. Brown Smith Wallace LLC.

Copyright 2015

5

Impacting Construction Costs on the Project Learning Outcome #1

1. Understanding the Cost Influence Curve

A. Clear and Comprehensive Project Management Plan • Program Development

• Design, Performance and Delivery

• Early Budget Development & Scope Identification

• Identification of Critical Owner Risk

B. Project Team Requirements • Architect – Define your RFQ/FRP process

• Engineer

• Construction Manager

• Consultants

• Owner Directs

• Contingency Ownership

• Know what you are buying

• Establish team performance metrics

Impacting Construction Costs on the Project Learning Outcome #1

C. Expectations – Corrective Actions • Collaboration Strategies – Team Buy-in

• Pull Sessions – Ball-in-Court

• Schedule & Deliverables

• Reporting Progress and Procedures

• Communication Plan

Impacting Construction Costs on the Project Learning Outcome #1

2. Define your Project Delivery Method • Design-Bid-Build

• Design-Build

• Design-Build-Bridging

• Construction Manager Fee or at Risk

• Integrated Project Delivery – (“IPD”)

3. Other Control Cost Impacts

A. Schedule Control • Managing Pre–Fab Units and Assemblies (MEPFP)

• Long Lead Items – Delivery of Large Purchases

• Design Delays - Consultants

• Weather Delays – Time Extensions

• Change Orders - Claims

• Code Related Issues – Authorities Having Jurisdiction (“AHJ”)

• Sub-Contractor Default Insurance (“SDI”)

• Jurisdictional Impacts

Impacting Construction Costs on the Project Learning Outcome #1

B. Keeping Your Program on Task • End Users

• Design Team

• Lack of Team Collaboration and Communication

C. Managing the Project Scope • Design Team

• CM – Allowances, Contingency Spend, Labor Cost

• CM Self-Performed work

• CM performing work with an affiliate company

• CM Mark-ups/Self-Performed work and subcontracted work

• General conditions adder on change orders

• Owner Directs

• Contingencies – Unforeseen and Acceleration

Understanding Safeguards in Contract Terms and

Conditions Learning Outcome #2

What Does Your Paper Say?

Understanding Safeguards in Contract Terms and

Conditions Learning Outcome #2

1. Standards and Procedures • Design, Construction Planning and Programming

• Owner’s Right to Audit Purchasing and Document

• Purchasing and Documents

• Communication Lines of Authority, Corrective Action, Team Performance, etc.

2. Key Contract Provisions • Scope Detail and Clarity

• Fees and Cost of Work – Define Define Define

• Cost of insurance - SDI, CCIP, OCIP

• Changes and Scope Modification

• Time Extensions, Delays, Force Majeure

• Use of Contingency (Acceleration and Standard) Allowances

• Defining unforeseen conditions

• Close-out

Understanding Safeguards in Contract Terms and

Conditions Learning Outcome #2

3. Define and Manage General Conditions

• Know what you are buying in general conditions

• Owner Directs - Owner Furnished Contractor Installed (“OFCI”)

• Define cost associated with Interim Life Safety Measures (“ILSM”)

• Will you allow general conditions mark-up on changes?

• Allowing general conditions on subcontracted work and their changes

• How does time extensions impact general conditions?

• Know what staff should be in the general conditions

On-site staff vs home office staff

Corporate safety personnel

Management staff car-allowances

Staff bonuses – Hourly rates

• Trailer/Site office furniture, equipment and supplies

• Small tools, equipment and consumables

Controlling Construction Costs During the Bidding

Process Learning Outcome # 3

• Define the Bidding Process

• CM and Owner Transparency

• Effective Pre-Bid and Post Bid Communication

– Clear description of the project and challenges

– Performance requirements and expectations

• Control the Post-Bid process

– Post bid scope review and validation

– Post bid scope escalation

– Subcontractor over-time, shift-work, early turn-over, etc.

Controlling Construction Costs During the Bidding

Process Learning Outcome # 3

• High level Owner involvement in the process

• The Devil is in the Details

• Don’t assume CM is right

• Validate all recommendations for sub awards

Controlling Construction Costs During the Bidding

Process Learning Outcome # 3

Implementing Administrative and Financial Controls Learning Outcome # 4

Management Accountability Recovery Avoidance

Don’t Role the Dice on Your Project

Implementing Administrative and Financial Controls Learning Outcome # 4

• Know Your Owner Risk Points and Tolerance

• Maintain Clear Contract Language

– Owner’s Right to Audit

– Preservation of project financial data – All Tiers

– Project team transparency

• Know Your Process and Enforce Compliance

– Internal Team Performance

Implementing Administrative and Financial Controls Learning Outcome # 4

• Controls for Review and Approvals

– Don’t just sign-off

• Construction Cost Management

– Validation and certification of cost

– CM Controlling Discretionary and Entitlement Spending

• Mapping of Your Processes

– Tracking the project

– Measuring success and improvement

– Correcting non-compliance

– Lesson’s Learned

Implementing Administrative and Financial Controls Learning Outcome # 4

• Implementing a Construction Audit Process

– Control and Mitigate Risk

• Preconstruction

• Construction

• Close-out

• Post Construction

• Keeps You Ahead of the CURVE

• Predictable Results - Reproducible Results

• Process - Fair and Equitable

Implementing a Construction Audit Process is

Essential to a Successful Project Outcome Learning Outcome # 4

Construction Audit Objectives

To conduct a detailed analysis and examination based on a systematic method established by NACA

National Association of Construction Auditors and the Institute of Internal Auditors. This

comprehensive examination shall be performed by an independent 3rd party and involves the complete

review of all project data determined by the Owner as relevant and auditable. The audit review of the

project may include all or a portion of the construction cost-of-work including all subcontractor records,

operations and financial performance on the project. The project audit is performed with a stated

purpose.

Implementing a Construction Audit Process is

Essential to a Successful Project Outcome Learning Outcome # 4

Construction Audit Key Elements

• Effective Management of Cost

• Team Accountability

• Avoiding Cost that are Non-allowable

• Recovery of Improperly Billed Cost

Implementing Administrative and Financial Controls Learning Outcome # 4

Take-Away? 1. Early Warning Signs (Is there Blood In the Water?)

• Finger Pointing and Excuses • CM or subs state the design was incomplete • Code official changed his mind or stance on an issue • You would have paid for this cost anyway • Shifting of risk back to the Owner • Why don’t you trust us?

2. Do not accept unsubstantiated explanations just because you know the firm 3. Construction Fraud – It Exist at all Levels……………

4. Know where the risk are……… as an Owner

• Incomplete drawings • Unclear scope and bid documents • Post bid activities, clarifications, exclusions and ooops……….

Implementing Administrative and Financial Controls Learning Outcome # 4

As an Owners, how do we maintain defensive positioning?

• No flying by the seat of our pants

• Never assume the contractor knows what they are doing

• Have the courage to change the market for your benefit – No more “Business as Usual”

• Hold contractors and design professionals accountable - Recover losses from fees

• Establish strong contracts and then use them – “Say what you mean and mean what you say”

• Do not allow your judgment to be clouded by “The Relationship”

Implementing Administrative and Financial Controls Learning Outcome # 4

Be an Educated Consumer

Do not be naïve about the impact of allowances, contingency and

change orders.

Thank you for your Attendance Questions and Answers

Chance Favors the Prepared Mind

If you would like more information on Managing Construction Costs through the Implementation of an Audit Review Program, please contact: