In Part 1 of this column (Walls & Ceilings, December 2009), I quoted Willem Kymmell, an architect and associate professor in Construction Management at California State University, as saying, “Despite many recent developments in project delivery methods, owners are often still dissatisfied with the results of the construction industry; projects still take too long and come in over budget, while the quality frequently is not up to the clients expectations.”
Kymmell-like most of us-is very aware of different types of delivery methods such as a variety of design-build methods, as well as integrated project delivery. Have you every been told, “It’s not what you say, it’s how you say it?” How a project is delivered from concept to completion is all packaged within a delivery system. However, the systems being used do not result in a faster, cheaper and better-finished product. How can this be when you consider how technologically advanced we’ve become? To think that owners are dissatisfied because projects take too long, cost too much and the quality is not up to par is really disturbing. Will faster, cheaper and better really make owners happy?
Getting a project built faster saves the owner money. Getting the project built for less than the budget will make an owner happy. A higher quality than expected would also make the owner very pleased. The problem is that “we don’t have a delivery method that will get buildings built faster, cheaper or better” because of the 600-pound gorilla. Not all lawyers fit the 600-pound gorilla category, but the influence these heavyweights have on the construction industry is staggering.
Construction is a perpetual economy, just like healthcare and energy. We build new and we rehab old. Everything we build or rehab has a limited life expectancy and then it all starts over again, which is why we call construction a perpetual economy.
CURE OR TREAT
Let’s experiment and pose a question out of Kymmell’s faster, cheaper, better statement. If I were to answer that question by simply saying that we can’t, I’m sure to get some angry feedback. However, it’s true: We can’t build faster, cheaper and better due to three mainstream issues plaguing our industry:
The 600-pound gorillas (lawyers/legal system) of our nation have hopped on the backs of construction companies and have created a perpetual economy for themselves. Construction litigation is one of the five excellent growth markets for the legal industry. In other words, construction litigation cases continue to trend up and the perpetual legal economy will earn untold amounts of revenue while continuing to divide owner-contractor relationships.
Believe it or not, it is recommended that construction companies begin budgeting for construction litigation. Last year, I sat in a meeting between a homeowners’ association and a law firm that was representing them in a defect claim against a developer and contractor. It was one of the most scary and entertaining meetings I’ve ever attended. Scary in the sense that an attorney can get an expert witness to say just about anything and funny in the fact that some of these expert witnesses say things they expect people to believe. Most scary is the fact that people without construction knowledge believe what they hear.
Legal liability is in direct opposition to getting things built faster, cheaper, and better. Not all lawyers and not all law firms jump on the backs of construction companies to benefit from the perpetual construction economy, but enough have done so which will continue to divide owners and contractors, as well as drive the cost of construction to higher and higher levels.
The owner was screaming when he got the news that his three-year-old, 150-unit high-end apartment building was full of mold and mildew. To correct the problem, he did exactly what his attorney told him to do and that was to file a suit against the manufacturers and the installers of the exterior siding and windows. Surprisingly fast, the owner was awarded enough money to hire new contractors and remedied the problem. It’s nice to have insurance and attorneys to fall back on when you hire or buy from the unqualified. After all, the qualified contractors paid in all those premiums over the years to pay for the unqualified mistakes. Again, what would the legal system and the insurance industry do without a perpetual industry like construction?
The difficult part to swallow is the fact that the unqualified meets one of the owners’ requirements and that is to be “cheap.” The 600-pound lawyers and the insurance companies protect the owner against the cheap contractor via contract language, and the insurance industry writes insurance to protect owners from the unqualified. The scary, yet interesting, part of this is to really understand that from an attorney and insurance point of view; you would want litigation and failed projects because that is what makes contract language and insurance valuable. Remember, a perpetual economy never cures-it only treats the condition thereby keeping it perpetual. If owners and the insurance industry said, “no more unqualified contractors,” the impact to the insurance industry and the legal industry would be dramatic. Litigation would trend down so low there wouldn’t be a need for experts in construction litigation because there wouldn’t be enough money in it. Insurance premiums would also trend downwards because construction claims and litigation would trend downward.
LOW BID BAD
My spell checker won’t give me a ruling on the word “stupider” but I can’t think of a word that is more stupid. The stupider bid is the low bid. The high bid is the smartest; most inclusive bid and somewhere between stupider and high bid is the right bid.
I don’t get excited about being the low bidder on a competitive bid job because it’s really nothing to be that proud of. The qualified and unqualified can be a low bidder and normally it’s the low bidder who has to watch every penny and fight every battle to reach an unrealistic budget. Low bid is bad except in the case of the legal and insurance industry, as well as the free enterprise system. Low bids generate revenue for everyone other than the contractor that gets into low bid trouble trying to complete a job without enough money. Even banks make a lot of money off low bidders who never seem to save any working capital. There is big money in financing, defending and insuring low bidders and the unqualified.
Owners want their projects built faster, cheaper and better. Contractors want to build projects faster, cheaper and better. Most lawyers and insurance companies don’t care about faster, cheaper or better. The only thing they care about is keeping owners and contractors separated, and to continue with the current project delivery method and that is to accept the lowest bid, from both qualified and unqualified contractors who have adequate insurance coverage. It’s really that simple.
In my opinion, owners have been deceived into thinking that litigation and insurance are their big brothers who come to their rescue if something goes wrong. So, Kymmell, please explain to owners that they have more to do with getting their projects built faster, cheaper and better than any delivery method that exists today.
The first step to achieving faster, cheaper and better is assembling a team of highly qualified contractors and telling the lawyers and insurance companies to back off. However, if owners want to keep lawyers and insurance companies rolling in revenue; tell owners to keep using the unqualified and the low bidder. The person who has the gold makes the rules and that is the owner.
IT GETS DUMBER
In most cases, owners get what they pay for and sometimes more than they bargain for when they select the low or unqualified bidder, and it all starts at the drawing process and continues:
Owner hires low bid architect, possibly unqualified.
Owner hires low bid general contractor, possibly unqualified.
GC hires low bid subcontractors possibly unqualified.
Owner enters into contract with GC.
GC enters into contract with subcontractors.
All contracts are written to limit the owner’s liability.
All subcontracts are written to limit the owner and GC’s liability.
All contracts require special endorsements from subcontractors protecting (defending) the owner and GC.
All subcontracts are written with “no” payment guarantees.
Project is completed.
Owner is not happy because the job took to long to build, had cost overruns, and was not up to the quality that was expected.
Law firms clean up the legal issues through litigation and or arbitration
Insurance companies settle liability claims.
In truth, this is the project delivery method used today in a nutshell. Again, owners want their projects built faster, cheaper and better according to Kymmell. Contractors also want projects built faster, cheaper and better. If everyone really wants projects built faster, cheaper and better, why isn’t there a delivery method that achieves this goal?
Why isn’t there a vaccination for cancer, or for that matter a cold? Why don’t cars get 300 miles per gallon of gas? Why can’t we stop illegal aliens or street drugs from entering our borders? Why have we become a consumer country rather than a producing country? The simple answer is, there is more money in the treatment than in the cure in the short term.
A cure for building projects faster, cheaper and better might look like this:
Change the low bid selection process to the most qualified, inclusive and responsive bidder.
There must be an affective contractor qualification process.
States should limit by licensing contractors for a limited dollar amount based on experience and financial status.
Insurance companies must stop insuring the unqualified.
Bonding companies must stop bonding the unqualified.
Banks need to stop lending to the unqualified.
Lawyers, for the most part, must develop contract team agreements that fairly allocate risk.
These are all cures rather than treatments to the problem Kymmell has identified. Is there an owner out there that is willing to go against his attorney and insurance companies’ advice? I believe there are owners and developers who really want a better delivery system and I believe there are contractors who can deliver it. Who wants to be first?
Remember: Teamwork begins with a fair contract! W&C