Tales from their peers of cost overruns and illconceived designs can produce anxiety for municipal officials facing the formidable task of constructing a new government building. This task often must be tackled, however, because as municipalities grow, so does the need for new or expanded buildings that house the various public service departments.

And, unless a local government carefully weighs all the considerations involved in the design and construction of such a facility, another chapter may be added to the "building book of horrors".

Fortunately, the public sector has begun to realize what the private sector has known for quite some time — the design/build negotiated contract can help guarantee true Job cost control and a timely construction schedule.

Why is this feat accomplished with the design/build construction agreement and not with other organizational arrangements through which buildings are planned and built? Other methods simply have too many drawbacks to ensure on-time, on-budget completion of construction.

The common method or "old approach" to construction carries the biggest risk because it most easily can lead to disagreements between the municipality, architect and general contractor, as illustrated in the following scenario:
• The local government selects an architect for the job, usually a firm that impresses the elected officials with its capabilities and experience and whose past projects include municipal buildings. However, the overall financial impact of this decision often is overlooked. Because the cost of the project is determined during design — not in bidding as most municipalities believe — the architect controls the tenor of the job. Lacking a general contractor's up-to-date knowledge for the cost of construction materials, the architect may design a facility that is aesthetically pleasing, yet requires materials and aesthetic features not allowed for in the municipality's budget. Despite this critical factor, most local governments are unfamiliar with the supervision required during the architectural design development process.
• The architect, in turn, relies on competitive bidding as a means to control costs.
• Rather than limiting bidding to two or three quality general contractors, it is not unusual that 10 to 15 bids are sought in the mistaken notion that the lowest bid will equal the final cost or that it can deliver the intended quality.
• The low bidder "wins" because the final price was attained by attaching the lowest possible value to each questionable or "gray" item. The result is a very thin margin of profit for the general contractor, which can only be overcome by increasing the rate of margin on every open item deemed an "extra." If, for example, after awarding the bid a change calls for installing a new interior door, the hardware and labor may be $250; but, to effect the change, including paperwork, ordering material and scheduling tradesmen, the low bid general contractor may charge $1,000. In this situation, the general contractor who was "squeezed" in the bidding war now does the "squeezing." The net result is a strain on relations as the architect and general contractor view each other as adversaries and the municipality frets over the rising bill.

Construction management, the second method of building, is a viable method that is relatively more acceptable than the "old approach." In this form, the local government either has the construction manager hire a general contractor, or acts as general contractor itself, relying on advice from the construction manager to avoid pitfalls. However, in most cases, this arrangement still results in too many vertical operational layers.

What then makes the design/build negotiated contract the logical choice for construction? In this approach, the municipality selects the design/build con-

April 1991 / Illinois Municipal Review / Page 29

tractor. Together, they assemble a team that includes the architect and engineering firms (electrical, mechanical, plumbing/sewer, site). Prior experience with those firms by the design/builder brings good working relationships and appropriate expertise to the job.

Still, in many cases, a municipality may be concerned that control will be lost by placing so much responsibility with a single source. However, a design/build negotiated contract alleviates such problems by establishing a clear understanding of the goals and how they will be achieved. In addition, to maintain the competetiveness of the work, all sub-contractor work is bid publicly.

There are three key elements to be addressed in formulating a design/build relationship and the negotiated contract:
• Establish a confidence level. The local government must take whatever action deemed necessary to feel comfortable with the integrity of the design/build contractor, including the checking of references, visiting several buildings completed by the firm to observe quality and to meet with the owners of those buildings to gain a firsthand expression of satisfaction.
• Determine actual costs and conditions. The word actual is critical. The "heart" of the design/build concept that sets it apart from the "old approach" is complete and open disclosure of all costs, including competitive bids and general conditions, which could include more than 75 items, such as material testing of products, soil tests, final clean up prior to move in and so on. This open disclosure of costs is especially important to a munici-

Page 30 I Illinois Municipal Review / April 1991

pality, since it functions on the public's behalf. The local government must share expenditure reports with the people and continually seek cost-effective measures . . . particularly since the public is indirectly financing the construction project.
• Determine contribution to project overhead of design/build fee. The design/builder provides services for a fee that is an agreed percentage added to actual costs. Some municipalities may feel they can save that money through the "old approach." In truth, there is a tangible cost savings in the design/build arrangement. First, architectural fees will be reduced by as much as one-half (from the standard 8 percent to 3-4 percent) because the design/builder will provide a great many of the non-design services often done by the architect, such as materials specification and preparation of bid documents. In addition, the design/builder may be a repeat "customer" of the architect, resulting in a volume discount on services rendered. Second, controlled design will have a dramatic effect on reducing actual costs for materials and labor, as well as long term operation of the building. The sum of those savings most often balances the fee to the design/builder. Third, there can be a bonus created by on-time or early delivery of the project, thereby cutting interest payments on the construction loan.

An example of how the design/build negotiated contract works is a $5 million project McLennan and Thebault Inc. (MTI) designed and constructed for Elk Grove Village, a northwest suburb of Chicago. Having outgrown the space in their administrative building, village officials hired MTI to design and construct a two-story, 55,000-sq. ft. addition to the building.

Along with the municipality, MTI assembled a team that included the architectural firm, engineering firms and sub-contractors. MTI's past experiences with each of these companies fostered numerous construction and cost efficiencies. The project was completed one month ahead of schedule and under budget.

"The design/build approach was the most cost-effective arrangement for the job," said George Coney, Director of Finance for Elk Grove Village. "The village had more control over the project, reducing the risk of any misinterpretation of plans."

Having realized the numerous benefits of this construction approach, Elk Grove Village officials then contracted MTI to remodel their police station under the design/build construction management.

The design/build negotiated contract is not a new concept, but its growing acceptance by local governments is relatively recent. More municipalities are becoming aware that quality can't be forced or guaranteed in the bidding stage; rather, quality must be an integral part of design and the overall construction process. The result: a superior building delivered on time and within budget. •

April 1991 / Illinois Municipal Review / Page 31