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.”
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
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
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
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
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
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
Change the low bid selection process to the most qualified, inclusive and
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
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