Locking in Cost Advantages of Design-Build Project Delivery
Preventing capital project costs from spiraling out of control is a primary concern for most public entities, but the traditional design-bid-build project delivery model can't always provide the early cost certainty clients seek.
As the global infrastructure gap continues to widen and the need for capital projects grows, the industry will need to find new ways to deliver projects that allocate cost and schedule risk to the parties that are most fit to manage those risks. Managing cost risk means providing more accurate cost models throughout a project’s planning and design phases, giving the owner and design team a better understanding of the cost and schedule impacts of each incremental decision they make.
Capital project costs can unexpectedly skyrocket, in part because of the structure of the traditional construction delivery system. Under the design-bid-build model, design and construction are treated as separate activities, each requiring its own contract. In this scenario, market pricing by the construction industry does not occur until the design is 100% complete, sometimes years after the design process begins. By the time construction contracts are signed, interest rates may have significantly climbed or the cost of materials may have grown, driving up the project's total cost and leaving public entities at the mercy of a frustrated public.
Using an alternate delivery system, such as design-build construction, can prevent some of these concerns and help nail down costs earlier in the process. In design-build, one contract covers both design and construction, allowing owners to leverage the experience and talent of both the design and construction team early in the process. Design-builders can apply the concept of “speed to market” to lock in pricing early and avoid cost escalation risks. The model also brings the owner, design team and construction team together at the start of the project to determine the most cost-effective custom strategies to deliver the project.
Using the design-build delivery model, a lump sum or guaranteed maximum price can be set well in advance of design completion. This concept allows a price ceiling for the project to be set early and transfers project cost and schedule risk to the design-builder.
Finally, design-build shortens a project's total delivery cycle by overlapping the design and construction processes. Studies have shown that, on average, design-build shortens the total project delivery cycle by 33 percent, reducing overall cost and risk of price escalation. This is particularly important in an environment of rising interest rates and increasing demands on construction markets.
By expediting the delivery schedule and setting a guaranteed max price, design-build is less stressful on budgets and provides more overall cost certainty.
Innovative solutions like design-build for water infrastructure will be essential in the years ahead as the demand for projects outpaces the current resources and finances available to fund these necessary improvements. Adopting strategies that mitigate the cost and schedule risks of a project will help public entities better plan ahead.