WE MAKE YOUR HEALTHCARE REAL ESTATE WORK FOR YOU PROJECT DELIVERY METHODS FOR HEALTHCARE CONSTRUCTION

Transcription

1 WE MAKE YOUR HEALTHCARE REAL ESTATE WORK FOR YOU PROJECT DELIVERY METHODS FOR HEALTHCARE CONSTRUCTION

2 PROJECT DELIVERY METHODS FOR HEALTHCARE CONSTRUCTION Table of Contents 1. Introduction 2. Design-Bid-Build 3. Construction Manager at Risk 4. Design-Build 5. Integrated Project Delivery 6. Design Assist & Pre-Construction Services 7. Conclusion About Realty Trust Group Since our inception in 1998, Realty Trust Group has become one of the most experienced and knowledgeable real estate advisory firms in the healthcare industry. With offices in Knoxville and Johnson City, Tennessee and Atlanta, Georgia, we have completed projects for clients in 30 states serving hospitals, health systems, physician groups and other owners, users and investors of healthcare real estate. Our philosophy is to provide innovative solutions to the complex and challenging issues found in today s healthcare real estate market. These solutions include strategic campus and facility planning, portfolio optimization, portfolio monetization, project development, site analysis and acquisition, asset management, fair market value opinions and many other ideas and services. Copyright Statement RTG RESOURCE 1217-A Realty Trust Group. All rights reserved. No part of this document may be distributed, reproduced or posted without express written permission of Realty Trust Group, other than the following uses: You may copy this document and its contents for personal use only. You may distribute quotes or content from this document to third parties in news articles, blogs, forums or educational resources provided you acknowledge Realty Trust Group as the source of the material. If distributed online or electronically you must provide a working hyperlink to: Writers and Contributors David Carter, Senior Project Manager dcarter@realtytrustgroup.com For More Information: Greg Gheen, President ggheen@realtytrustgroup.com Michael Honeycutt, Senior Vice President mhoneycutt@realtytrustgroup.com One Cherokee Mills 2220 Sutherland Avenue Knoxville, TN Realty Trust Group

3 Project Delivery Methods for Healthcare Construction by David Carter Introduction Selecting the right construction project delivery method can make or break a project for healthcare providers. Significant time is spent developing the program, fine tuning the budget, and working through the exhaustive list of activities required to get a project off the ground, under construction and open, but often, very little time is devoted to evaluating and selecting the most appropriate project delivery method. It seems most owners will generally default to the way they have always done it. However, factors such as the building type, project scope and size, schedule, and project budget can have an impact on the project delivery method selection. The owner will ultimately drive the decision, but good practice would suggest including the project team in the evaluation and selection of one delivery method versus another. In this paper we will provide a brief synopsis, and the pros and cons of various project delivery methods as well as a list of attributes/ characteristics specifically related to healthcare construction that should be carefully considered prior to selecting a project delivery method. The project delivery methods we will discuss are: Design-Bid-Build Construction Manager at Risk Design Build Integrated Project Delivery Design Assist & Pre-Construction Services Realty Trust Group PROJECT DELIVERY METHODS FOR HEALTHCARE CONSTRUCTION 2017 Realty Trust Group. All rights reserved. 3

4 Design-Bid-Build Design-Bid-Build (DBB) continues to be the most popular project delivery method, but owners should give careful consideration when selecting this delivery method, especially related to healthcare projects. DBB provides owners the most control over a project due to the linear nature of the DBB delivery process. However, more control over the process can lead to a longer overall project schedule since each phase of delivery runs sequentially. DBB, in most cases, provides owners with lower pricing than other project delivery methods. However, lower pricing may come with other costs. In a DBB agreement, the owner assumes more risk for the completeness of the design information provided to the contractor to price. Under this scenario, if the provided pricing exceeds the budget the project may be delayed for redesign and value engineering exercises to better align the scope with the budget. DBB agreements are generally associated with excessive change orders, which may not necessarily be considered negative, so long as owners understands the risk associated with DBB agreements. Schedule Neutral Projects Small, Simple Projects Parking Garages Medical Office Buildings Ambulatory Surgery Centers/ Outpatient Facilities Tenant Improvements Interior Renovations Construction Manager at Risk The Construction Manager at Risk (CMAR) project delivery method has become increasingly popular in the healthcare industry, but owners should thoroughly consider the pros and cons before inking a CMAR agreement. CMAR agreements have plenty of upside with either the guaranteed maximum price or the cost-plus fee approach. Both provide a qualification-based selection process for the CMAR and most major subcontractors. In most cases, the CMAR and major subcontractors are engaged early in the design process to provide real time cost estimating and schedule evaluation to help inform design decisions. This approach facilitates a collaborative design process in which the contractors are involved and have input on design, structure and MEP systems, both from a cost and constructability perspective. This collaboration can generate significant cost and schedule advantages and help mitigate risk over the life of the project. Inherent disadvantages of the CMAR delivery method include the potential for higher overall project pricing based on the inherent risk accepted by the construction manager. The owner is also generally required to provide more up-front capital under a CMAR agreement. Additionally, qualification based selection does not always warrant low bidder selection, but more likely the lowest, qualified bidder. Complex Projects, Large or Small Projects with Schedule Constraints Budget-Challenged Projects Risk Neutral/Averse Owners New/Replacement Hospitals Patient Tower Additions Medical Office Buildings Ambulatory Surgery Centers/ Outpatient Facilities Complex Interior Renovations/ Infection Control Issues Realty Trust Group PROJECT DELIVERY METHODS FOR HEALTHCARE CONSTRUCTION 2017 Realty Trust Group. All rights reserved. 4

5 Design Build The Design Build (DB) project delivery method is increasingly becoming more popular in the healthcare construction industry. Under a DB agreement, the design team and the contractor are engaged as a single entity. This type of agreement provides the owner a single point of contact throughout the design and construction of a project. It also allows greater flexibility in making changes throughout the design and construction process. The DB approach can also accelerate the project schedule through a reduction in the overall design timeframe. Owners who choose the DB delivery method can also realize cost savings through real-time cost estimating provided by the contractor. Owners must be aware though that under a DB agreement, they lose a certain level of the checks and balances other project delivery methods afford. The owner must also understand that to realize some of the benefits of DB, they must be willing to give up a certain level of control over the design process. However, if an owner has a very well-defined vision for the project, a DB agreement can be very successful. Well-Defined Scope and Program Accelerated Schedule Needs Parking Garages Smaller Scale New/ Replacement Hospitals Medical Office Buildings Tenant Improvements Interior Renovations Integrated Project Delivery Integrated Project Delivery (IPD) creates one of the more unique project delivery methods by binding multiple project team members under one agreement, primarily the owner, architect, MEP engineers, and contractor. Under an IPD agreement, the risk and the reward is shared between all signing parties which can be beneficial to the owner since each team member has a vested interest in the project s success. Although, the shared reward may end up being more costly for the owner, this trade off can be a positive for risk averse owners. IPD teams generally thrive in a collaborative environment in which all team members participate in all phases of design and construction to produce the desired outcome while at the same time effectively managing the scope, schedule and budget of a project as a collective team. As with any contractual agreements, there are pitfalls that must be considered. The IPD method is relatively new to the healthcare construction industry and the agreement itself could be a liability to owners since these agreements are not tried and true standards as with other delivery methods. Additionally, insuring an IPD project is generally handled with a project specific policy covering all team members and the owner ultimately bears the policy risk. IPD projects can be delivered with great success but they warrant the right project team and, most importantly, an owner who is heavily engaged and understands the associated risks and rewards. Sophisticated Owners Large, Complex Projects New/Replacement Hospitals Large Patient Tower/Hospital Additions Realty Trust Group PROJECT DELIVERY METHODS FOR HEALTHCARE CONSTRUCTION 2017 Realty Trust Group. All rights reserved. 5

6 Design Assist & Pre-Construction Services One underlying theme to all the project delivery methods discussed above is the desire to weave the design and construction teams together in some form or fashion and attempt to do so as early in the design and construction process as possible. By taking this approach, owners can realize certain benefits without committing to a project delivery method at the beginning of the project. By engaging a contractor through a separate pre-construction services agreement, the owner may realize the benefits of real time pricing and schedule evaluation during the design phase of the project. This can inform and influence the owner s decisions early in the process to ensure the owner achieves the desired outcome at the end of the process. There is a cost associated with engaging a contractor for pre-construction services, but generally, the cost will be outweighed by the benefit to the project in the form of cost or schedule savings. Obviously, the cost for pre-construction services will vary with the size and complexity of a project but with the nature of the healthcare industry today, utilizing pre-construction services to inform decisions early in the process is far more effective than realizing there is an issue later in the process. Conclusion The owner s decision as to which project delivery method to implement on a project can greatly impact the outcome and, ultimately, the success of a project. The type, scope, size, and complexity can help dictate the right project delivery method for a project. Owners must take careful consideration when determining which delivery method to choose, but through thoughtful evaluation of the owner s requirements and the project s characteristics, generally the choice becomes more obvious. At Realty Trust Group, we understand facility investments must be fully analyzed prior to construction and then managed closely during the project delivery process. Our team of seasoned professionals has significant experience and expertise in assisting healthcare organizations evaluate, plan, and ultimately execute the delivery of healthcare capital projects, including projects ranging from tenant improvements to full-scale replacement hospitals. Our scope of services is fully customizable to meet each client s needs to include all phases of capital project delivery from project feasibility, facility planning, budgeting and cost controls, project management, and transition planning and facility activation. For more information on Realty Trust Group s Capital Project Delivery services, contact us at Realty Trust Group PROJECT DELIVERY METHODS FOR HEALTHCARE CONSTRUCTION 2017 Realty Trust Group. All rights reserved. 6