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No Change Orders-Guaranteed!tm

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

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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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Are You a (Project) Thermometer or Thermostat?

Are You a Thermometer or Thermostat?

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What would you think if I said that one of the project leader’s most important jobs is forecasting the future? I’m crazy? Out of touch? Yet it is absolutely true!

If a project schedule is not an accurate and reliable predictive tool, then what’s the point? If a detailed project schedule isn’t used to integrate, communicate and  predictably ensure the on-time, sequenced contributions of project team members, then it’s nothing more than a simple calendar – sans the scenic photos.

At first pass this might sound a bit over the top, but consider this.

A project schedule is to a calendar, what a thermostat is to a thermometer. One simply reports the conditions while the other acts to actually control and predict conditions.

Only the thermostat has any meaningful value.   Which do you want to be (alternatively, which are you?)

Your garden-variety project manager is charged with tracking the budget, updating the schedule, and hosting project status meetings. I would suggest that’s babysitting and not real project leadership.

In the hands of a seasoned expert, the project schedule is a powerful predictive tool. It’s like a roadmap. Or a GPS navigational device. If it doesn’t help predict where you’re going, then exactly what’s the value? Much like a financial forecast, the value is not in telling you where you’ve been, but where you’re going to be. This is actionable information.

Knowing where you’ll be, when you’re going to be there, and what tasks are parts of the critical path is essential to confidently arriving at your target completion date. This knowledge will empower you to make critical business decisions and course corrections before it’s too late. It’s another key element of effective project preplanning.

A well honed project schedule also influences the project outcome.

You may recall from previous posts, that initial conditions are always the greatest indicator of final outcome. Thus an empirically derived schedule is a powerful tool. Consider this example situation.

A RECENT EXAMPLE

A client came to us at the end of last year. Their challenge – and our mission – was to get their new facilities designed, engineered, permitted and constructed – as well as their personnel relocated to the new facilities – before their lease expired. There was no way to know the magnitude of this undertaking without some analysis.

STEP ONE: OBSERVE

The first step towards influencing the project’s final outcome is to objectively observe and assess initial conditions. This is never more true that when it comes to the project schedule. The first thing to do is determine what the prospective schedule predicts. That is, when the fundamental tasks are linked in logical, predecessor-successor sequence, does that project schedule actually predict success? If you can’t make it work on paper, it’s not going to work in real-time.

STEP TWO: ASSESS

More importantly, the window of opportunity to make course-corrections or to take remedial steps is before the clock runs out, not after. Or to put it differently, “bad news doesn’t get better with age.” It’s better to find out now – while there is still some elbow to create new or revised schedule improvements.

STEP THREE: TAKE ACTION

In the case of this client, the data suggested that they would barely make the move-in date before their lease expired. However, instead of being viewed as bad news it was correctly interpreted as predicting success – but only if we started the project rolling ASAP.

MAKE THE CHANGE

One of the first steps with any project is not to just report out the “temperature”. It’s to predict the temperature and then set it at what you or your client wants it to be. YOU are the thermostat!

Taking this view of the project schedule will turbocharge your ability to stay on schedule and achieve all your project milestones.

Remember, it’s a project leader’s job to predict the future. Or as Yogi Berra said, “It’s tough to make predictions, especially about the future.”

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Square peg in a round hole

Contractors Are Not Commodities!

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General contractors are not commodities. Neither are architects or engineers. A commodity is a good or service without differentiation except price.

In today’s design and construction environment, contractors, architects and engineers are often considered interchangeable parts of the real property improvement process. Nothing could be further from the truth – or as expensive and risky!

Surprisingly (and sadly) though, many purchasing agents often consider general contractors, architects and engineers as commodities.

This “commoditization” of vendors works against the interests of the clients who hire them. This is true because of the incredible variety and complexity of project types. Mismatching a vendor to the project will ensure change orders, delays and rework.

Yet time after time, tenants, owners and other “improvers” of real property treat these professionals as commodities. Why?

There are many reasons for this, but just a few include:

1. Governmental and quasi-governmental procurement processes and regulations
2. Misunderstanding how to measure “performance” and “quality”
3. Inexperience
4. Deliberate or unintended bias

Regulations

Not surprisingly, federal, state and local procurement processes are heavily regulated – often out of proportion to the result. The unintended consequence is that latitude to objectively evaluate dimensions other than price are stifled.

Governmental and quasi-governmental procurement processes often require that contracts only be awarded to the “lowest responsible” bidder. The “lowest responsible bidder” is a proxy for “meets minimum standards”. Regardless of the label, this ultimately results in a predominantly price-based award.

Price-based awards mean that the vendors are essentially interchangeable—an enormous error.

Misunderstanding How to Apply Other Dimensions

To some procuring entities, there is at least confusion, and maybe complete misunderstanding, about how to empirically measure dimensions of a vendor besides price. I see this a lot.

It’s most evident when procurement processes look more like a beauty pageant. Flashy presentations and glossy pictures saturate the material. Performance, quality and empirical metrics are marginalized.

This also opens the door to bias.

Great presenters and slick presentations consciously or otherwise get into the minds of the evaluation team. After all, if the presentation is terrific, won’t the results be the same?

Instead this is really just a low-bid-only, commodity selection process dressed up with slick photos, cool case studies and flashy presentations obscuring a deep-dive into the vendor’s abilities and past performance.

Inexperience

Inexperience is a second cousin of misunderstanding.

It’s not unusual for companies that relocate or build out new facilities to have no internal experience. No one has been at the company long enough to work through and learn the valuable lessons from an expansion or relocation. They are not to blame, it’s just a simple case of not-knowing-what-you-don’t-know.

Most companies will only relocate, expand or build new facilities once in in the career of the average employee. Thus there is no institutional knowledge.

Deliberate or Unintended Bias

Sometimes folks just play favorites.

I once was approached by a privately run college to take over the project leadership of their build-out and expansion program. I had a pleasant interview over coffee with the Corporate Director of Real Estate and Facilities. We we’re both sizing each other up.

As for me, I wanted to know what kind of hand I would be dealt if I agreed to consult with them? How would I be able to influence their success? I asked about whether or not they were married to the architectural and engineering team – one that I knew had a history of poor performance. The director hung his head a bit and said, “unfortunately, yes”.

It seems that one of the principals of the architectural firm was a golfing buddy of the president of the college – and the Real Estate Director’s boss. No amount of empirical evidence was going to convince them to change firms. With the architectural and engineering team occupying such a pivotal role (as they do with any project), it was impossible to be successful if the client wouldn’t at least consider alternatives.

Sometimes the bias is not intentional or at least not obvious at the conscious level, yet the net effect is the same.

Conclusion

There are several problems with treating contractors and design professionals as commodities.

• It allows bias to sneak into the decision making.
• Treating vendors as fungible commodities transfers the risk – and cost – of performance to the client.
• Because their offering is only price, performance is up to the client and or the client’s management team to control. However, once the contract is signed, project controls are often an ineffective substitute to simply matching the right vendor with the project.

Savvy procurement folks should demand empirical evidence of expertise. This allows the best experts to separate and distinguish themselves from the boastful or just plain bad.

Certain goods and services deserve to be categorized as commodities, differentiated only by price.

If price is all that separates one vendor from another, they’re merely commodities. However, expert professionals need to be differentiated by their expertise as well as price. This is critical for both the vendor and the purchaser.

Particularly in a low bid environment, design and construction professionals must be considered for their specialized expertise and NOT treated as interchangeable commodities.

Key Takeaways

• Industrial, commercial, ground up, laboratory, and manufacturing type projects, all require specialized expertise.

• Not having a process that matches a professional’s core expertise with your specific project requirements is the single fastest way to ensure busted budgets and broken schedules.

• Similarly, contractors can have many areas of expertise, but they generally concentrate on a few particular types of projects. Mismatching contractors to your project’s requirements will create problems that even money won’t fix.

Recognizing that there are many differences between the skills and abilities of architects, engineers, and contractors can save you time and money. More importantly, it will reduce your risk.

The best practice: Ensure that you have a proven process for empirically filtering and aligning the expertise of all the professionals you engage with the specific requirements of your project. This will still produce a competitive process, but one more aligned with getting the best experts – and the best experts are always the best value.

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Three Types of Construction Estimating Techniques

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(…Everyone Uses Whether They Know It or Not)

There are a gazillion types of software, programs, catalogs and/or other tools for estimating construction costs. But all of these price-delivery tools fall into one of three basic categories.

  • Analogous
  • Parametric
  • Bottom-Up

What do these mean? How are they used? Which one should you use?

Glad you asked.

Analogous Estimating

Analogous estimating (sometimes also called top-down estimating for reasons you’ll understand in a second) is a form of experienced, sophisticated guess-estimating.  It’s also the handiest and least detailed.

Analogous estimating relies on experience. Cost information is derived from historical information from previous, like-kind projects. The projects need to be similar only in broad categories such as size, project schedule, industry type, (manufacturing, distribution, bio-tech, lab, etc.) and the type of the constructed or installed improvements.

For example, let’s say you’re using the Analogous estimating technique for a life science lab. Start by drawing on cost information that you have archived from previous similar projects. This would include mechanical, electrical, lab equipment, benches, finishes and flooring etc.  Assuming the projects are similarly sized, an estimator could “analogize” the cost of the previous projects to the present example.

Architects and engineers are likely to select this type of estimating methodology.

This works well if the projects are similar in many broad dimensions. What the Analogous method lacks in specificity or detail it makes up for in speed and convenience.

Parametric Estimating

Parametric estimating introduces a bit more empiricism. While not detailed down to every nut and bolt, it does rely on algorithms and mathematical relationships to establish cost.

Parametric estimating relies on the mathematical relationship of cost per unit. The unit can be square footage or length of cable or number of outlets or linear footage of wall. The point is that manageable chunks of the work are assigned labor and material costs. These unit costs are then multiplied by the quantities in the particular project.

Parametric estimating provides a much more higher level of accuracy and sophistication. As long as the underlying data is up to date and accurate, one can get high quality estimates without the tedium of counting every single carpet fiber.

While not as solid as Bottom-Up estimating, Parametric estimating is a great way to get a semi-solid estimate of costs without the brain damage and time required for a complete Bottom-up estimate.

Bottom-Up Estimating

This is the methodology used by almost all general contractors. 

Bottom up estimating is a detailed quantity and labor take off. Materials and tasks are broken down into the smallest reasonable component.

Let’s take light fixtures for example. Imagine a matrix of every light fixture to be installed on the project. Naturally each light fixture would have an individual cost multiplied by quantity. Similarly each fixture would have a associated amount of time for installation. Multiply the number of fixtures by the time by the fully loaded cost of labor to install the fixtures and voila!, you’ve got a powerful, detailed component of the larger cost estimate.

Then basically rinse and repeat for every other element of the project.

This technique is embodied in a broad range of construction estimating software and books. But generally speaking, they’re all just automating or more efficiently executing the technique above.

This technique is essential, maybe even mandatory for competitive bid situations. On the other hand, if time is of the essence and the scope of the project is still a bit fluid, an Analogous or Parametric estimating technique may be more suitable.

Bottom Line (no pun intended)

It’s less important which of these methodologies you choose as long as you’re aware of what you’re getting.

A conceptual budget to provide a broad framework of the total cost of the project may be effectively accomplished with Analogous estimating. However in a competitive bid situation expert professionals, regardless of the software or tools, will perform some variation of Bottom-up estimating.

As long as the choice is informed and deliberate, each estimating technique has its place depending on the trade-off between speed and accuracy.

Either way there’s no substitute for experience. I’m reminded of the old saying, “Good judgment comes from experience and experience comes from bad judgment”.  Choose wisely my friend.

 

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Are You a Smokejumper or a Smokey Bear?

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Pre-planning is to a project’s success what Smokey Bear is to wildfires.

A Smokejumper is a well-trained expert who plunges into active wildfires in a remote or inaccessible area. Often times with nothing more than the gear on their back.

Smokey Bear on the other hand is a friendly iconic reminder that prevention is the best (and most cost effective) practice.

One gets the job done by communication, prevention and pre-planning. The other is a crisis manager – and a hero – which in some respects is part of the problem. But why?

The answer is that pre-planning (and crisis prevention) are consistently overlooked. However, pre-planning out-performs crisis management in every respect.  Pre-planning is an absolute necessity for a project’s success.  Why then, is there tension – or at least confusion – between pre-planning and crisis management?

Crisis Management

Part of the problem is that successful crisis managers are celebrated. Firefighters are heroes. But the person that clears brush around their house? Well, that’s just plain boring, right?

Thus our perspective – and the outcome – is backwards. This paradox is directly applicable to business and project management.

Shouldn’t prevention and pre-planning have an equal if not more important status than crisis management? Consider some of the barriers to preplanning:

  • An environment of no accountability
  • Autocratic organizational structure
  • Fear
  • Control
  • It’s boring!
  • Crisis managers are “rewarded”

Accountability Not Wanted Here

Pre-planning creates accountability. Oftentimes initial projections and assumptions lose their luster when contrasted against an empirically derived plan. Moreover, some organizations and individuals just don’t value being held accountable.

Autocratic Organization: The Emperor Has No Clothes

No one wants to be seen as disagreeing with the boss. Nobody wants to tell the emperor that their clothes are less regal and more revealing.  In a shoot-the-messenger environment, accountability causes tension.

Ironically, this environment is especially inviting to Smokejumpers.  Their job is secure.  Nero is running the business so their services will always be in need.  They’re enablers and beneficiaries of the management-by-crisis culture.

Besides, there is often no political capital in being the one to say “iceberg dead ahead”. The first person to highlight the future problem is probably perceived as being the problem.

Fear

Fear is a powerful motivator. What if predicting or pre-planning suggested embarrassment for others? Maybe the executive projections were a bit too rosy?  If pre-planning exposes weaknesses, it’s not going to get a lot of airplay.  Better to bury the issue for the time being and hope the Smokejumpers can mop up after the building is fully in flames.

Control

Pre-planning concedes control. Maybe releasing on control exposes what they should be doing or don’t know how to do?

Sometimes preplanning goes against the grain in a top-down, authoritative culture. A leadership level, accustomed to having their way, is going to bridle at pre-planning efforts that cut against the anonymity of autonomy. It might also expose other weakness.

Pre-Planning is Boring!

Admittedly there’s not much sex appeal with pre-planning. Nobody gets really excited about pro formas, project schedules, risk registers etc. However, benefit is inversely proportional to the “excitement”.  This is where the game is won or lost.

Reverse Incentives

Any Econ 101 student will tell you that if you want more of something, you need to discount it, reward it or pay for it. The same principle applies to crisis managers.

This principal fosters an environment where the attention and behavior of fire fighting versus pre-planning is encouraged. This may also be the most dangerous aspect.

Danger Ahead!

As I mentioned above, crisis management rewards firefighting. Being “rewarded” is often perceived as adding value. The most dangerous type of project team member is the one that perceives value in putting out fires. It sabotages essential pre-planning and satisfies their need to show value.

What Should You Do?

Commit to Change

There are several compelling reason to change this paradigm.  Professional, detailed pre-planning saves money, reduces risk, and makes heroes out of the team that successfully executes a pre-planned project, instead of the crisis manager.

“Every battle is won before it is ever fought.”  Sun Tzu

(Pre) Plan for Success

Pre-planning is positively correlated to success. That seems intuitive, yes?  But either for organizational reasons, autocratic organizational structures or otherwise, it (pre-planning) doesn’t get much traction.

Experts, of any stripe, are successful because they diligently pre-plan. The ability to “see” into the future is really an extension of pre-planning.

Focus on Initial Conditions

Pre-planning is a powerful predictive exercise. Initial conditions are the single biggest determinate of the final outcome.

If no prediction (pre-plan) is created, you can be certain that what can wrong, will go wrong; probably at the worst possible moment.  This axiom is directly related to, and exacerbated by the timing (more on that below).  As an example, consider the approach use by expert professionals.

Experts survive and excel from pre-planning.  I’m reminded of a saying I heard a long time ago: “If you’re losing money or making money, but don’t know why, you’ve got the same problem.”  Experts aren’t in business to lose money. They differentiate themselves by pre-planning. Experts avoid risk. Pre-planning allows experts to focus on what’s going to happen and thus avoid risk.

Surround Yourself with Experts

Hire and or assemble an expert project leader and project team that will professionally speak the truth. As the famous basketball coach was quoted as saying:

“Whatever you do in life, surround yourself with smart people that will argue with you.”

John Wooden

This wise advice does double duty. First get experts. Don’t assume you-know-what-you-don’t-know.  Secondly, give them the freedom to alert you to icebergs.

Depend  on Data

Create an environment where the facts are friendly.  What that means is that the facts do not have an intrinsic value of themselves. They should be viewed as data. Not a personal attack or as exposing a weakness.

Timing is Everything

Pre-planning can only be effective if done early. Time is a powerful asset, and ironically it’s the first thing to go to waste. Seizing on the ability to address problems before they start, by pre-planning is huge. Time can’t be made up or recouped. Once lost, it’s gone.

80 to 90% of any project’s success is dictated by what happens in the first 10 to 20% of the project life-cycle. The initial stages are the most pivotal.  Time wasted is the first causality of failing to pre-plan.

Summary

I’m not suggesting that we stop praising firefighters or successful crisis managers. But after all, it’s cheaper and less stressful to stop the fire in the first place. Besides, there is only so much you can do with a fire extinguisher.

 

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