Design Build Project Procurement

Does Design-Build Save Tenants Money?

A simple question, yes? Yet few topics elicit more passion among architects and contractors than a discussion of the best method to deliver design and construction services to tenants and owners. Design-build is no exception.

To some, design-build is a project delivery system. Others say it’s a professional services procurement process; a contractual arrangement that combines the services of the architect and contractor. One thing is for sure: design-build is the default choice for a large segment of the commercial real property improvement industry. Why is less clear? Could its popularity be that it saves tenants and owners money?

What is Meant by Saving Money?

Saving money and creating value are two concepts that often get confused. They’re not interchangeable.  Saving money is best understood when comparing commodities, such as coffee, steel, or concrete, where a determination of whether you saved money isn’t muddied by the attributes of the products or services. Not so with the complex and sophisticated procurement of professional design services and high-caliber contractors.

Value is the result of comparing (and quantifying) the bundled result of product, performance, and price. The product is the physical building. Performance is factors such as delivering on time, minimizing defects, and staying under budget.

And price? Well, it’s just that—the cost.  To paraphrase Warren Buffet, “Price is what you pay. Value is what you get.” If you can assign a price to a commodity or distill the attributes of a bundled set of professional services down to a number, you can then make rational observations about value.  However, quantifying different performance dimensions of competing design and construction professionals is challenging, even for the most sophisticated tenant or owner. Consider the design-build scenario.

With design-build, the product (the building) is no more than a concept or outline at the time the contract is signed. It’s a little like paying for a car and then specifying the features.

The Product is Purchased First

Imagine strolling into a car dealership and telling the car salesperson that you want to buy a new car. Naturally, the salesman asks, “What kind of car would you like?” You reply that you need it to seat five people comfortably, to have a retractable skylight, air-conditioning, plenty of windows, and you want high performance, without being too flashy. The salesman smiles and says, “Step right into my office. All we need to do is agree upon how much you can afford and the dealer’s profit. We can discuss the specifics of your car later.”

Sounds a little backwards, right? But isn’t that like the design-build purchase proposition?

Who would agree to a large purchase without specifics about performance or the actual product? Design-build devotees purchase first and develop plans and specifications second.  The buy-now build-later, bundled approach is at the heart of the design-build contract. That makes design-build often a multi-million dollar transaction in which the largest component of the overall cost is side-stepped before the details are fleshed out.  Construction costs are just temporary placeholder until “actual” costs are determined.

Once the design is complete, construction costs are calculated not by marketplace competition but simple math.   With design-build, the general construction cost is only represented by a locked-in percentage for the contractor’s overhead and profit.  That makes the design-build deal a no-competition, single-source arrangement without any marketplace influence. That’s brings us to another challenge: cost savings calculation.

The Marketplace Doesn’t Have Seat at the Table

The design-build procurement process is like a three-person poker game. The players are the tenant/owner, the architect/engineer and the contractor. But the game is one player short. There should be a seat at the table for the marketplace. The marketplace represents healthy, free-market competition.  With design-build, the marketplace doesn’t get a say in the outcome.

Value and Value Engineering

Value engineering is a method to reduce the cost by creating and incorporating efficiencies into the design or construction of a building.  Design-build blocks a clear view of cost analysis simply because there is no competition.  Design-build also puts a lesser emphasis on the rewards of value engineering.  The nature of the contract between the architectural team and the tenant or owner is partially responsible for this situation.

With design-build, the total price of the eventual project is computed by a simple formula. The total cost is the sum of the architect’s fee plus the general construction cost. However, it’s the general construction part that is a little more loosely defined.  The total construction costs are calculated by multiplying the general contractor’s overhead and profit percentage by their subcontractor costs. This number is fluid and moves up or down, depending on the design; irrespective of competition (more about why subcontractor costs are unhelpful for determining value here).

The design-build arrangement is usually memorialized with some variation of a guaranteed maximum price (GMP), cost plus contract or equivalent contract. Why does that matter? The design-build compensation formula shields overhead and profit from competitive pressure.

GMP contracts are created to cap the total price of a project.  However, the contractor’s overhead and profit are immune from market competition.  Since the total product (the design and building cost) are unknown at the time the contract is signed, the only way to express the contractor’s cost is as a percentage, on top of the total subcontractor costs.

The contract created this way offers little or no incentive for the architect or contractor to value engineer. The contractor’s overhead and profit are locked in as a percentage of the total construction costs. As a result, the only tool left to tenants and owners is to use simple, macro, overall design and feature reductions as a proxy for value engineering.   It’s a little like syphoning-off water from a barrel of oil and water.

Imagine a half-full barrel containing water and oil, with a spigot at the bottom. Oil floating on top represents the contractor’s overhead and profit. The water level is the sum of the materials and subcontract costs of the project—the building costs. Now further imagine that the total building cost exceeds the tenant or owner’s budget. What area do you suppose will get cut so that the tenant’s project stays under budget?  You guessed it—the water. And what about the oil—the contractor’s overhead and profit?  Well, that’s safe and sound, protected by the negotiated percentage mark-up and shielded from market forces by the nature of the original, single-source contract.

Thus, the only party on the project team that has to sacrifice to stay on budget is the owner. The architect and contactor simply open the spigot and let out a little water.

Consider this quote from a recent issue of Engineering News Record. In an article touting the benefits of integrated project delivery (IDP), an offspring of the design-build school of thought, Edwin Najarian, a structural engineer principal with TTG Corp., says, “The risk, as far as losing money, is minimal.” Najarian goes on to say that TTG’s profit, with respect to IPD, has been “the same or a little less.”  Further, in any other situation, wouldn’t a casual observer notice that the contractor’s profit rises the more the design expands?  If the contractor and architect are on the same team, doesn’t that at least suggest the appearance of a conflict of interest?

If the risk of loss for architect and contractor is transferred to the owner and their overhead and profit is locked-in, why would a tenant use the design-build approach?

What’s the Case for Using Design-Build?

If design-build doesn’t produce measurable savings, or at least comparisons, why would this procurement process persist?

Faux Value Engineering: Many users of the design-build approach counter the claim of inscrutable cost savings by asserting that they can always adjust the architectural design to fit their construction budget.  That’s true, but it’s simply draining the water.  This arrangement only reduces the content or specifications of the design, and thus, the building.

Continuous, Real Time Estimating: Because the contractor and architect are hired together, cost estimating occurs throughout the design process. Proponents suggest this is a major advantage. And it is. But any tenant can get pre-construction estimates. Simply purchase them.  Tenants and owners can purchase pre-construction estimating services like they would any other professional service. The incremental cost of a pre-construction estimate is likely a fraction of the total construction costs.

Speed to Market: Design-build is popular among industry supporters for its perceived ability to deliver projects faster. This is a phantom argument. All teams can start some portion of the project before the design is finalized. Demolition is one example.  But all projects need permits and inspection. No permits, no inspections. Design-build does nothing to change this.

Moreover, project delivery speed is often proportionate to the cost. The tighter the delivery schedule, the higher the design and construction costs. A compressed design-build schedule actually contributes to higher costs.

Ease of Use:  Tenants aren’t expected to be design and construction procurement pros. More than likely, their core expertise is running their business. Design-build simplifies the procurement process and makes the rigorous, selection process go away.  Sometimes money (i.e. cost) just doesn’t matter as much as one might think.

For some large organizations, the impacts of cost and value doesn’t resonate as acutely up through the company’s accounting central nervous system. In some cases, the costs simply aren’t highly scrutinized. The simplicity of the procurement process plus nonchalant trust makes design-build is a logical match for this type of organization.

Putting it All Together

Recognize that design-build is a procurement choice, not a project delivery method.  Know the differences between the various procurement processes. Use that knowledge to match your project and clients’ needs to the project delivery methodology. Saving money and getting value may not be a paramount concern for your project.

Agree to respect the procurement choices of tenants, owners and others to select a methodology that works for them. There is no one-size-fits-all solution.

As to the threshold question in the title, I would paraphrase Edward Deming, you can’t manage what you can’t measure.  Design-build may have numerous advantages for a wide swath of the real property improvement industry. But if you can’t measure or compare costs, it just may be that provable cost savings isn’t one of them.

 

Apex Project Consulting, Inc. is based in California with offices in the San Francisco and Orange County areas, provides one-of-a-kind, full-spectrum project management across a wide variety of project types, including both ground-up and commercial tenant improvements, throughout the U.S. as well as internationally.  Apex has managed over 1,100 projects, from raw land development, due diligence and design through construction, including commercial office, industrial, healthcare, life science, labs and critical environments.

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What Are You Really Going to do About Change Orders?

What Are You Really Going to do About Change Orders?

For most tenants or owners the answer is: surprisingly little. Buy why?  The answer lies in an inconspicuous, often overlooked spot in the real property design & construction supply chain: the contract.

The reason is deceptively simple.  Once a contract for architectural or general construction services is signed, the scope and body of the agreement either avoids change orders, controls them, or ignores them and optimistically assumes the best.  The latter position relinquishes control and creates the environment that puts change orders in motion. And this puts the tenant at a disadvantage.

Too little attention is paid to the power of the procurement process.  Consider what Barry Lapatner, in Broken Buildings, Busted Budgets, says:

“[B]uilding contractors [and architects] have at their fingertips all the critical information to establish the business terms with their buyers [owners], but the buyers do not [emphasis added]. That is, the contractor possesses far superior technical and operational knowledge of the industry then all owners,…”

So what does this mean? Specifically, what can you really do to prevent change ordersConsider these five tactics.

Change your mindset. Start by considering what hasn’t worked in the past; or has at least been ineffective. This means to deemphasize project backend beat downs intended to curtail change orders by brute force. Hammering the general contractor for the costs, or even the existence, of change orders is unfair. A general contractor, however clever, doesn’t have the exclusive ability to create change orders.

Let go of liquidated damages.  This seems to be the old school, go-to solution for many tenants and owners.  My view? It’s just mutually assured litigation and unnecessary, ineffective mountains of paperwork. LDs suggest a damaged relationship with key professionals right from the start. It’s the design and construction equivalent of a prenuptial agreement. If you need one, maybe it’s not such a great match. Instead, the root cause is further up the real property improvement supply chain. And that’s where we need to set our sights.

Prevention versus prediction. I remember a colleague of mine commenting this way about the attitude he was seeking in his team members, “I want news makers, not news reporters.” Similarly, reports like risk registers that indicate the likelihood of change orders or the potential impact only deliver the news. The iceberg is already dead ahead. Instead, the solution is to navigate further back in the project improvement supply chain timeline.

Procurement process and not project delivery. Design-bid-build, construction management at risk, and integrated project delivery are all often referred to as a project delivery methodologies. This isn’t an entirely accurate description. They are procurement approaches. They are contractual purchasing mechanisms. Because they are procurement processes at the core, they necessarily happen at the very earliest spot in the real property improvement supply chain. This is the origins and the opportunity for improvement for most change orders.

The power of the procurement process.  Change orders are ensured or avoided the minute the ink dries on the architectural/engineering or construction contract. Or put another way, if the contract, specifications and scope of the contract with your professionals doesn’t exclude and or control change orders, what will?

The solution isn’t your garden-variety legal terms and conditions. I’m not talking about fill-in-the-blank template. And I’m certainly not referring to the vendor’s form of contract. If you’re not emphasizing the power of the procurement process and utilizing a refined services agreement, brace yourself or bolster your budget.

Remember the words of Barry LaPatner.

The contractors’ [and architects’] superior knowledge and informational advantage coupled with the knowledge that [design] errors equal change orders.”

A sophisticated agreement is the most powerful and overlooked advantage in the toolkit of the right project manager – to head off change orders, reduce risks, and control the effects of substandard design and construction.

So before wading into this complex arena, give yourself an advantage and a project management ally up front. Do this simple step and you’ll be able to maximize the value of the vendors you hire, minimize change orders, and enjoy peace of mind along with substantial cost savings.

 

 

Apex Project Consulting, Inc., (www.apexpjm.com) based in with California with offices in the San Francisco and Orange County areas, provides one-of-a-kind, full-spectrum project management leadership across a wide variety of project types, including both ground-up and tenant improvements, throughout the U.S. as well as internationally.  Apex has managed over eleven hundred projects, from due diligence and design through construction, including commercial, industrial, office, clean rooms, life science, labs, manufacturing, and specialized environments.

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Why I'm Gone From GoToMeeting (and other lessons companies ignore)

Why I’m Gone From GoToMeeting.com (and other lessons companies ignore)

I’m gone from GoToMeeting.com. Maybe you should be as well.

It may be too late for GoToMeeting.com to learn the lessons I’ll share here, but maybe they’ll resonate with you. And save your business.

I’m an early adopter – just the kind of customer GoToMeeting.com needed in early 2007. At that time, the next nearest alternative for managing architects, engineers, and contractors – what my firm excels at – was to pick up a hard copy set of paper plans, drive to their office(s), meet face to face, gather your papers, and drive back. GoToMeeting.com changed all that. At least until they changed.

For those like me who needed to manage complex amounts of data and large, dispersed project teams, online meetings were game changers. I became convinced of the value and a customer, despite the fact that the annual cost came out of my personal pocket. And that leads us to lesson number one.

Products or services that create value will be in demand irrespective of price (almost).

I’ve been successfully using online meetings for years, turbo-charging meeting effectiveness and saving my clients (and their vendors) money by avoiding useless windshield time. It’s also been helpful bringing clients and vendors together, however far apart. I’ve used it to orchestrate projects across the country and as far away as Johor Bahru, Malaysia. I never thought to shop around. My contract renewed automatically.

Thus price takes a backseat to value creation and customer satisfaction. Few consumers want to mess with something that’s working well. At least, of course, until it doesn’t.

Don’t fix it if it isn’t broken.

Fixing things that aren’t broken seems to be a foundational principal of corporate “leadership.”

When I was part of larger corporations, it was easy to intuit the goals of any new leadership team. If company functions were spread out, then the mantra had to be consolidation. If the functions were already consolidated, the charge was to “push control back to the regions” a.k.a. disaggregation. New leadership just meant more of the same rinse-and-repeat. I imagine it’s no different in the software industry.

I’m making this inference from the regular “upgrades” made to my software. While not precisely the same as the disaggregation-centralization seesaw, it shares a common inspiration: the mistaken idea that only continuous tinkering will create value.

Or to say it differently, too many “upgrades” will inevitably downgrade something else – your service. At least that was my experience.

One new “upgrade” downgraded the online software’s functionality and exponentially reduced its utility.

I dutifully filled out a trouble ticket for the lost functionality. It turned out I had discovered a bug that hadn’t existed until the “upgrade.” As GoToMeeting described it in our email exchange:

“After working with the engineering team we were able to determine what is causing the pen tool to intermittently fail to respond.  We install a ‘hook’ into the mouse to be able to turn it from a pointer into a drawing tool. These hooks are very low-level, and when Windows detects more than 300ms for the hook to respond it silently uninstalls it.  This puts an entry in the GoToMeeting log, but does not pop up a warning that would indicate something occurs. Instead, the pen/highlighter just fails to work as you’ve experienced.”

My choices were to download and run a patch (the registry key) or, if that didn’t work, to upgrade my computer to something with a faster CPU, regardless of the fact that I had a nearly brand-new computer.

The translation was transparent: We goofed, but it’s really not our problem. Instead it’s yours.

Like a lot of customers, I was willing to put up with a few hiccups. But along came another upgrade and it was “Deja vu all over again.”

I wasn’t considering ever changing my online meeting software. That is, until my software was “upgraded” again. I began to shop around.

Keeping existing customers is always more profitable than the alternative.

I’d been such a loyal customer I never knew. I never shopped around. Until the product and service started to fail.

It’s easier to keep a customer than to acquire a new one – less time, less money, less effort required. Why not just keep an existing customer happy?

My subscription to GoToMeeting expires at the end of the month . I will be using another company. But this is the important partSo will all my clients.

While the glitch that sent me out the door is not a huge one, it was big for my business, and for the vendor to disregard it in successive upgrades speaks volumes. Why do that, especially when you are not the low-price leader? It doesn’t matter – the switch is on.

So what’s the takeaway?

Word gets around. Not only will I be using another service, but so will all my clients. Undoubtedly they’ll become comfortable with the new online provider. And by extension, the news of why I switched will get out to others. I remember the old saying, “Bad news travels fast.” I can’t imagine how much faster it travels now in the 21st century.

Keepers are cheaper. Don’t give your customers a reason to leave. There is no bit of business that takes less effort to acquire than the business you already have. Simply dividing the total of your marketing and sales efforts by the number of new customers gives you the total cost for acquiring each new customer. Just for giggles, compare the quotient in the equation above with the cost of a little technical assistance or customer support. Unless and until it’s cheaper to acquire customers, companies disregard the importance of keeping existing customers at their peril.

Dividing by zero. Price matters less than performance. Look at it this way: What most customers want is value. Value is the ratio of price to performance. But if performance is awful, it’s the same result as dividing by zero. It creates a meaningless and useless result.

After all the effort you put into securing valuable clients, don’t disregard them. What’s my advice? Mind the store. That is, don’t lose sight of the fact that keeping existing customers happy, once you’ve gotten them, is infinitely easier and more cost-effective than acquiring new ones.

“Upgrade” or fix your service offering only if it doesn’t degrade your client base. Seems like simple advice. But surprisingly often this basic principle gets overlooked.

Price is not paramount. Sophisticated clients want value. They want solutions. Somewhere, way down the list, they may be interested in price.

So the lesson is that customers often don’t put price first, unless something gets their attention – usually in a negative way. That’s when customers start circling the drain and start shopping. Even then, people are generally reluctant to change. You have to really want them to leave.

Apply these simple principles and keep your customers – or prepare for them to become someone else’s.

 

copyright 2015

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Open-Book Construction Procurement

The Myth of “Open-Book” Construction Contracts

The “open-book” construction contracting method is at best a false choice and at worst a fraud.  The reason? The “open-book” construction process promises value but fails to deliver any rational business benefits.

Only myth, misunderstanding, or meme, explain away this procurement process shortcut. But why is it irrational? Let’s start by defining terms.

Most everyone has a working definition of what it means to solicit bids. It’s simply comparison-shopping. Whether it’s a new car, a kitchen remodel or carpet, buyers seek competitive alternatives before making a purchase. Comparison-shopping creates information about “value” that the buyer can analyze. “Value” is another way of expressing the ratio of performance to cost. It’s getting the most benefits for the buck. It’s letting the competitive, free-market, work to identify the best value. However it only “works” if money matters – that is, if “value” is valued.

If Money Doesn’t Matter

In some circumstances, the price or value of an object or service doesn’t matter. Other factors are more important. Personal preference is one example. You’re probably not going to solicit bids before changing your doctor. Politics is another. If your boss is golfing buddies with the president of a supplier or vendor, self-preservation or career continuity might control who gets your business. Bias and graft make the list too. But in business, with shareholders to answer to and bottom lines to bolster, getting value is fundamental or at least rational. Then what’s the problem with the open-book bid?

The open-book bid process masquerades as delivering value. It doesn’t. Its currency is supposedly its transparency. But that’s a shiny object distraction.

Transparency Translates to Value?

The open-book construction process trades on the belief that if you can “peak behind the curtain” and see the contractor’s “actual” price, then value is ensured. Imagine buying a new car. Instead of shopping, you negotiate with only one dealer. The dealer offers you a car at “actual” cost, plus a modest mark-up over the Manufacturer’s Suggested Retail Price. The dealer shows you the MSRP and voilà, value is documented and no further negotiations are necessary. Right? Wrong. It’s no different with the open-book construction process.

The open-book construction contract starts with the owner picking the contractor. The owner and the contractor then negotiate a fixed mark-up percentage (profit and overhead). The contractor then produces a total contract price, based-on and supported by, the “actual” subcontractors’ costs. Thus transparency serves as a substitute for market-rate competition and value. The “logic” behind this process gets thinner when examined more closely.

Extending the car-buying analogy; what can we learn about the competitiveness of a car price by examining the MSRP? Nothing. It’s just a number. Maybe the car manufacturer set an unrealistic retail price. What if the MSRP is offset by manufacturer rebates? Or the manufacturer provides incentives that offset the actual cost? How would you know? You wouldn’t. It’s no different with the open-book construction contract. But the similarities don’t end there.

Construction Estimating

Are you a construction estimating expert? In the design and construction business, an expert construction estimator is invaluable. Even a modest construction project involves an enormous amount of moving parts. Each part of which has to be assigned a cost and a labor component. Understanding each part and labor requirement, specifications, variations, cost, and quality, takes an enormous amount of experience. Every sizable construction firm has individuals – if not entire departments – dedicated only to preparing estimates. So why does the average client or tenant think they can glance at subcontractor costs and determine value? The answer is they can’t.

It takes good estimators years and years to be proficient. Even then mistakes are made. And sometimes the mistakes cost the business everything. Anyone who thinks they can do this themselves is either an estimating genius or blissfully unaware.

Numbers Are Numbers

Comparisons create context – and allow for the user to draw meaningful conclusions. Consider this: is $1.2ML a better value than $600,000?   Is two-for-the-price-of-one better than half-off? You correctly reply, “I would need more information.” Of course! That’s the point and the illusion of the “transparency” of the open-book process. You’re just looking at numbers!

The numbers don’t tell you anything about quality. They’re indifferent to project schedule. There’s no measurable dimension of the bid process focused on the superintendent’s experience. Numbers can’t inform you of a contractor’s track record – or their subcontractor’s.  Numbers alone have no intrinsic value. Thus, looking at subcontractor “costs” doesn’t allow for any meaningful conclusions. For that matter, a buyer won’t be able tell if the “numbers” include all subcontractors and trades needed to complete the work.

No Market Forces

We’d all love to avoid competition – or at least the low-bid-only psychosis. It’s a tired, but true cliché; competition makes for better results. Without a modicum of competition, prices can (and often are) unbounded. Consider for example public utilities. No competition equals no price controls. How about the $500 NASA toilet seat?

The point is that everyone understands and appreciates that some level of price comparison is required to produce value. It’s no different with procuring the services of professional contactor(s). Price should never be the sole determinant of a purchase unless the product is a true commodity. Contractors are not commodities.

Others Need Not Apply

If word gets out that you’re only going to use XYZ contractor, sooner or later the other professionals are going to stop working to get your business. And that’s bad for your business. Contractors will eventually get the message if you never allow them to bid – or never give them a shot. Whether they deserve your business or not, you can be sure that at some point the good guys will stop trying. And that’s bad for you.

We all probably know several firms or procurement executives that – for one reason or another – always choose the same vendors. Eventually, when you need a competitive bid, you’re not going to get their best effort; if they decide to bid at all.

Remember, preparing a complicated bid is a high risk/reward proposition. Contractors must be treated evenhandedly. They must know that they’ve got a shot. More so, they need to know you’ll consider more than just the price (more about the perils of low-bid-only processes here).

Lastly, do you think that general contractors are using an open-book method with their subcontractors? Not likely. If general contractors are experts at procuring construction subcontractor services, then why wouldn’t they use the open-book-bid process with their subs? The answer is they don’t.

Here is What I Recommend

Buy value only. Value is the ratio of “performance” characteristics to cost. The better the performance quotient, the better the value.

Have a process implemented by a project professional that lets the best vendors shine! The low-bid-only procurement process is a flawed, 20th century purchasing model. Instead, implement a procurement process that is proven to test bidders on a multi-dimensional level. Ensure that the dimensions measured are actually correlates of success (on-time, on-budget, no change orders, minimizing risk etc.).

Eliminate Bias. Trust is great. It’s essential for meaningful relationships. But it’s meaningless in the context of an objective procurement process.

Relationships matter. But relationships are often unrelated to achieving value. We all have vendors that have achieved “most-favored-nation status”. It’s not entirely illogical to steer work their way. But without a process to separate the familiar from the truly fantastic, you can’t argue that relationships are related to value.

So, if money, profits and ensuring on-time, on-budget performance matters, break with the familiar we’ve-always-done-it-that-way approach and embrace a methodology that is changing the way design and construction services are purchased. And it’s doing so at a lower total cost.

Again, it’s your money.

 

Copyright 2014.

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No Change Orders-Guaranteed!tm

Can You Tell Which Contract Cost the Client an Additional $1.2 million?

Can you tell which of the contracts above cost the client $1.2 million in additional change orders and which one didn’t? Here’s a hint: both agreements were touched by the same attorney. Thus, it’s not the legal Terms & Conditions.

Give up?

As a tenant or occupier of real property, your core business is something other than the hiring of professionals for the architectural design, engineering and/or construction of your new facilities or tenant improvements. It’s completely understandable that you can’t tell the difference. But how about your project management firm?  Surely, their size and global reach would include ways of protecting you…yes?

With millions of dollars at stake, and change orders growing as a percentage of design and construction costs, shouldn’t your Fortune 1000 project management firm be able to tell the difference? Shouldn’t they have a solution? What about a guarantee?

If not, and saving money matters to you and your business, expect more. Get away from the global real estate behemoths and the project management posers. Get Apex Project Consulting, Inc. – the Change Order Champions

 

Tom Conzelman is President of Apex Project Consulting, Inc., a one-of-a-kind,  full spectrum project design, engineering and construction management consulting firm for commercial, industrial, healthcare and specialized-environment projects; both locally and across the United  States. Mr. Conzelman is a licensed electrical contractor and general contractor, LEED® AP, and a California Real Estate Broker License 01128636 (www.apexpjm.com). Mr. Conzelman graduated from Western State University, College of Law and has taught Contracts-for-Contractors. Tom Conzelman is the innovator behind the No Change Order Guarantee™ and the No-Fee Guarantee. ™

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Sales.

Without This, You’ve Got Nothing

“Do you know what the secret of life is?” Curly holds up one finger. Mitch replies, “Your finger?” “One thing. Just one thing,” says Curly. “But, what is the “one thing?” Curly smiles. “That’s what you have to find out.” City Slickers, 1991.

Social media, business journals, white papers and blogs are saturated with guidance for businesses. A quick glance at the LinkedIn newsfeed pulverizes the reader with platitudes, business management practices and time saving ideas. Clever quotes and clichés come in waves. The endless repetition of recruiting tips is enough to induce a seizure. However there’s really only one thing, and one thing only, that a business needs. I was reminded of this after reading an article on my flight back from a client meeting in Northern California.

It was a tiny excerpt of an interview with Jim Koch, founder and brewer of Samuel Adams. The interviewer posed this question, “What’s one piece of advice that’s stuck with you?”

Mr. Koch’s answer was instructive for both start-ups and businesses seeking staying power.

“Not long after I started the company, I was talking with my uncle Bob about buying a computer, and he asked me why I needed one. I said something to the effect of `to keep track of business and bills.’ Then he asked me if I had made any sales. At this point, all the distributors in Boston had turned me down. I told him I hadn’t sold anything. He said, `I’ve seen a lot of businesses go broke, and they all had plenty of computers. Sounds like you’d better put some cold beer in your briefcase and go out and make some sales.’ And that’s what I did. The next six months, not only did we not have a computer, we didn’t have an office or phone, either. We focused on the essentials: marketing great beer and working our tails off to sell it. 30 years later, our strategy is the same.”[1]

The one thing that Samuel Adams needed was sales. That’s the lesson imparted to Mr. Koch by his uncle. It’s the lesson that we should all take away. Without sales, nothing else matters. With sales, or even the promise of a sale, all things are possible. Or at least fixable.

This is not to diminish the inspirational value of the latest Richard Branson quote. Or the crushing conciseness of a Steven Jobs’ jab. Nor the wisdom gleaned from Jack Welch, Harvey Mackay or Peter Druker, et al.

No, instead it’s to make a much simpler point. Until and unless there are sufficient and sustainable sales – things like employee empowerment, logistics, hiring, customer satisfaction, training, expenses and taxes etc., are all long-term luxuries and/or opportunities for improvement for the business that already has the most important thing; sales.

For example, if you have sales you don’t need money. Seriously. An investor friend said this about raising capital for a new venture, “great businesses don’t have to worry about finding money, money will find great businesses.” In other words, sales trumps even having an actual product to sell. Just consider almost any of the high-profile internet start-ups.

You may never have produced a widget, but if you have a signed contract you have sales. If you have sales you can borrow money. If you have money, for however short a time, you have a shot at making the business go. The converse is not true. If you don’t have sales, not even an idea, nothing else matters.

So, press-on mastering the finer points of growing your workforce. Or managing your accounts receivable and mapping out your strategic vision for the enterprise. Just don’t forget Jim Koch’s uncle’s advice. Go out and make some sales.

 

[1] Spirit, August 2014

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By The Mile Fundraiser

What Does it Take to Save a Life?

It doesn’t take steely nerves. Or running into burning buildings. Nor wading into treacherous rip tides. No need to leap tall buildings either. That’s the magic, the beauty and the benefit of Be The Match®.

Can you believe saving a life only requires swabbing the inside of your cheek and gum with a Q-tip? Amazing, but true!

Be The Match

Be The Match was born out of the love of parents for their daughter. Robert Graves and his wife Sherry were desperate after learning their 10-year-old daughter Laura was diagnosed with leukemia. Looking for any way to save little Laura’s life they agreed to try the first ever bone marrow transplant — from a donor that was not related.

Laura received her transplant in 1979. The success of Laura’s transplant inspired the Graves, doctors and other patient families to establish a national registry of volunteers willing to donate bone marrow.

Fast-forward. As of today, Be The Match has facilitated more than 61,000 transplants. Each day 17 new patients are given the gift of hope for a future.

Be The Miracle

You have a chance to be someone’s miracle! Check out this inspiring story of transplant recipient Kate (also here).

For transplant recipient Kate, riding a bike is not simply a leisure activity, it marked a major milestone.

In March of 2009, Kate was heartbroken to learn that her follicular non-hodgkin lymphoma (FNHL) had returned. A few months later it was apparent that she would need a marrow transplant—her only option for a cure. Her brother, her only sibling, was not a match, but, thankfully, Kate’s doctors located four well matched donors on the Be The Match Registry and Kate received her life-saving transplant on June 29, 2010.

Following her transplant, Kate was diagnosed with graft versus host disease (GVHD) in her respiratory system. “I had lost over 70% of my lung function. I could barely walk across the room.” says Kate. Not only had Kate lost lung function, she had also lost muscle mass and over 20 lbs. Kate says, “I asked my PT if she thought it was possible for me to ride 20 miles someday. She was all for it.”

Kate picked an event with a 20 mile ride and spent the next 11 months rebuilding strength. All winter she went through pulmonary therapy where she re-trained her lungs how to breathe while exercising and riding on a stationary bike. Finally, in April, Kate was able to take her new, sporty road bike out for its first road test. To celebrate, her entire family came along. “It was a family affair. I rode a mile with a top speed of 7 miles per hour. But I did it—I rode my bike,” says Kate.

On race day, Kate pushed to complete the 20 mile bike ride. When she started to lose energy near the finish line, her team—full of her family and friends, did something incredible and unexpected to lift her spirits—they started singing. “My teammates had to sing me through the last mile and over the finish line. I felt an amazing and humbling sense of accomplishment and gratitude to my family and friends. I could not have done it without them,” says Kate.

Since this initial achievement, Kate has taken part in a 20 mile race two more times and has improved her time by over an hour. “Not only did I accomplish something my doctors thought was impossible, cycling helped me regain my overall strength so that I can do a lot I shouldn’t be able to. Best of all, I can take care of my family which includes two busy teenage daughters and a husband who often travels. I have battled depression several times since my transplant and being able to get on my bike or exercise lifts my spirits. Cycling definitely was the key to my recovery,” says Kate.

Here Is Your Chance!

Now that you’ve read about the incredible power of this simple act, you are probably asking yourself how do I get involved? Here are two ways.

You can join the Be The Match Registry. By joining the registry, you will be stepping-up to help stop blood cancers. You’ll be living proof that for thousands of critically ill blood cancer patients, there is a cure. And it could be you. Start here now.

Or you could do something equally simple.

I have teamed up with By The Mile for Be The Match to raise critical funds to help match volunteer marrow donors with patients who have blood cancers, like leukemia or lymphoma. This summer, I will be biking to raise money and most of all, have fun!

But I need your help!

Your contribution to my By The Mile for Be The Match campaign will help by working to add new potential marrow donors to the registry, financially supporting patients with uninsured costs and funding innovative research to improve transplant outcomes.

With your help, we can do a world of good with every mile I ride.

Please help me reach my fundraising goal – make your tax-deductible contribution today (here)!

Either way you choose to help, you are guaranteed that you will be someone’s miracle!

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Be the Match

The Cure for Blood Cancer is in the Hands of Ordinary People – Like You and Me.

I’ve signed up to participate in By The Mile for Be The Match® to raise funds to help match volunteer marrow donors with patients who have blood cancers, like leukemia or lymphoma – like Amy here. I need your help.

Amy’s Story

“I’m Amy, and I’m writing today to invite you to support Be The Match® in an exciting way this summer—by participating in By The Mile for Be The Match!

You see, Be The Match helped me find a marrow donor last year, giving me a second chance at life—a chance to watch my daughter grow up. A month after my transplant, when I transitioned to outpatient status, my husband, Jeff, surprised me with a beach cruiser bike! Cycling has always been a big part of our family. Jeff is an avid mountain biker—he even proposed on a bike ride! So of course, after riding the stationary bike at the hospital, the gift was such a happy surprise.

Maybe you were wondering what the woman in the mask was doing on a bike… Well, during my recovery, I lived in an apartment near the hospital and often rode the Cherry Creek Bike Trail in Denver, Colorado. I may have looked a little strange riding my bike while wearing a mask and carrying an infusion ball full of magnesium, but feeling the breeze on my face and biking to a bookstore or coffee shop—it gave meaning to my day and helped me slowly build my strength.

I’ll be hitting the trails this summer to encourage my friends and family to help me raise money through By The Mile for Be The Match, and I’d love for you to join me.

Your support will help Be The Match save even more lives! Thanks for your help.”

What You Can Do Now

Most patients needing a marrow transplant need to turn to the Be The Match Registry® to find an unrelated donor. But, Be The Match doesn’t stop there. The organization also helps cover uninsured costs for patients like co-pays or transportation to and from the hospital, and they fund research projects to improve transplant success.

This summer I am pledging to ride for patients in need. With your help, I’ll do a world of good with every mile I ride.

By The Mile celebrates the 100-day-post-transplant milestone that is the most critical for marrow transplant patients. Once they cross the 100-day threshold, their chances of a healthy recovery increase dramatically.

Thanks to your generous help, we’ll be able to continue adding new potential matches to the marrow registry, researching breakthroughs in the science of transplant, and improving care and services for post-transplant patients. With your gift, we can make more 100-day milestones possible for more patients.

My goal is to raise $1,000.  Can I count on your support?

I invite you to contribute to my efforts by clicking Click here to visit my personal page” and making a donation of whatever amount you can. Your donation will help patients who rely on Be The Match for a second chance at life.

Give today!

I’m grateful to have people like you in my life who care about making a difference. Please give today by clicking the link below to help patients find their match!

Thanks in advance for your support!

Be The Match® is a global leader in bone marrow transplantation. Be The Match® conducts research to improve transplant outcomes provide support and resources for patients, and partner with a global network. Learn more.

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Scope is more important than terms and conditions

Attorneys Are Overrated

Thank you, Captain obvious.

In all seriousness, when it comes to drafting contracts, for design, engineering and construction services, the input of attorneys is extremely overrated.

Not too long ago I was catching up over drinks with a friend of mine from law school. The conversation gravitated to various legal topics. At some point in our chat, he mentioned to me that he had recently helped a client with a construction contract. In retrospect, I should’ve simply nodded appreciatively and moved on to a different topic. However, I didn’t.

Instead, I offered, from my years of experience, that he probably didn’t help his client as much as he thought. I assumed, erroneously, that all attorneys would acknowledge that maximizing profits, or more importantly minimizing risks of change orders and other budget busting surprises, was NOT related to legal craftsmanship.

After all, isn’t the point of all business transactions to generate profits and minimize risk? Maybe not, if you’re on the attorney side of it. I started the defense of my position with something I thought we both could agree to.

Money matters. If money matters, then the measuring stick for success or failure of contracts for architectural, engineering and or general construction has to be money — the money saved by avoiding change orders.

It’s all well and good that contracts for design and construction satisfy the necessary legal standards. However, doing so is an expenditure that is essentially overhead. It doesn’t generate the lion share of savings.

The finest and most sophisticated contract will never do more for a client to save money and or prevent risks than a well crafted scope of work. An insufficient, sloppy, incomplete, or worst-case, a vendor-drafted scope of work will result in an almost boundless amount of change orders. It doesn’t matter how much fancy word-smithing you wrap around a crappy deal, it’s still a crappy deal. That’s why the legal part doesn’t mean jack.

It doesn’t matter if you correctly articulate or memorialize the indemnification provision, the waiver of subrogation, choice of law, insurance, and/or arbitration provision, etc. While all of these are swell, clients in this industry don’t lose money necessarily because the parties agreed to arbitration versus litigation. It’s all about the scope.

To paraphrase Bill Murray’s famous line in Meatballs, “IT JUST DOESN’T MATTER” how cleverly you drafted the indemnification clause – or any other provision – if you screw up the scope.

To no one’s surprise but my own, this argument had little affect on my attorney friend’s position. A little anxious that I might be challenging his abilities, I pressed ahead nonetheless.

Change orders are the most expensive “repeat offender” in the real estate improvement process. The uninitiated or unrepresented client or tenant can “bank” on change orders generating hundreds of thousands in additional costs (BTW: your vendors are counting on this, too).

I’m sure that the design and construction industry generates plenty of litigation. However, whether a client is hit with change orders from the architect, engineer or contractor, is almost exclusively a function of the scope. A poorly drafted scope (or worse, use of the vendor’s agreement) guarantees change orders. Change orders equal money. Big money.

Again, if the agreement doesn’t operate to anticipate and mitigate design errors in the construction documents or block (non-owner requested) change orders from the contractor – then none of the legal jargon matters.

They don’t teach scope-writing in law school. Yes, it helps to be able to write and talk like an attorney. I get that. But again, there is no course or class in how to describe the architectural, engineering and construction specifications and requirements for a tenant improvement project. It strictly comes from on-the-job training, YEARS of on-the-job training.

I don’t know if I’ve had more luck convincing you than I did my good friend from law school. But I will offer you this, before you consider laying out millions of dollars on your next project, carefully consider who’s helping you with the scope of work.

If the global Fortune 1000 real estate behemoth and the project management chaperone you’ve engaged to deliver your next project doesn’t demonstrate their ability to save you money through stopping change orders, then you might want to reconsider. Start by using an experienced project management professional with both design and construction contract drafting skills as well as CM experience that will maximize your profits while minimizing your exposure to risks.

Tom Conzelman is President of Apex Project Consulting, Inc., a one-of-a-kind,  full spectrum project design, engineering and construction management consulting firm for commercial, industrial, healthcare and specialized-environment projects; both locally and across the United  States. Mr. Conzelman is a licensed electrical contractor and general contractor, LEED® AP, and a California Real Estate Broker License 01128636 (www.apexpjm.com). Mr. Conzelman graduated from Western State University, College of Law and has taught Contracts-for-Contractors. Tom Conzelman is the innovator behind the No Change Order Guarantee™ and the No-Fee Guarantee. ™

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Stopping change orders

How Will You Protect Yourself From Change Orders?

When your company moves, expands or designs and constructs its next facility, how will you protect yourself and your company from change orders caused by poor architectural design?

Hint: The answer is not, “There’s nothing we can do about it”.

So, if you don’t have an answer, may we suggest you connect with a firm that does?

We’re Apex Project Consulting, Inc. Our promise – No Change Orders. Guaranteed. TM

Watch this video to discover the key to minimizing the unfortunate impact of change orders on your project – before it’s too late.

Stopping change orders

Change orders threaten to overwhelm any project budget.

 

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