Integrated Contracts No Good If Owners Can Ignore Reality
December 12, 2014
You have to want to integrate
Contractors’ walking off a Denver VA Hospital project, was justified by a decision of the Civilian Board of Contract Appeals who said the Owner’s dysfunctional staff prohibited the integration required by the Integrated Design and Construct contract. The VA culture “does not encourage or is [not] comfortable with new approaches”. The lesson of the case is – know who you are doing business with.
The designers worked for years on the project before the contractors were let in to perform preconstruction cost estimates. Many of the design choices were made and the Owner refused to make budget cutting “value engineering” choices.
Cost expertise needed early
The contractor offered a price contingent on clarifications and assumptions. The VA said it wanted its price without qualifications. To break the impasse the VA said it would produce drawings that, if followed, could be built for the agreed upon price.
Finally the VA produced “100%” drawings but the contractor called them 80%. The builder told the Owner that the 95% drawings were $100 Million over the $600 Million budget. The builder’s plan said “scope and design management has caused budget overruns” requiring “extensive VE” (value engineering aka scope cuts) to reduce the budget overrun risk.
Owner’s Job – Make Decisions
The VA project team was critical of the designers complaining that they chose form over function, made the design unnecessarily complex and did not believe there was a budget problem. Many multi-million dollar cost saving ideas were simply rejected by the Owner. Up the chain of command at the VA, decisions about cost cutting just were not made.
Because the parties had agreed the VA would produce plans that could be built for the $600M budgeted price, and because the failed to do that, the contractor was justified in putting down its tools and walking off the job.
Integrated Construction Contracts Require Collaborative Attitudes
Integrated construction contracts require an attitude among the parties. Bureaucracies that empower people to ignore reality are unsuited to collaborative work.
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