Common Mistakes

There are several ways for a church to contract for the design and construction of a new facility. Depending on size and scope of the project different solutions are more appropriate than others. Candidly after 300 projects it should become apparent which solution we believe to be most appropriate and why. Each of these delivery methods is recognized as being appropriate and nothing written is meant to imply anything other than these methods are different.

I. Design-Bid-Build

Most churches using a traditional delivery method select what is known as design - bid - build.

In the conventional design-bid-build model, the church works with an architect to design the facilities. Once the design is complete, to the satisfaction of the architect, church, and local regulatory authorities, the design is sent out for bid. Competing bids are received and the church selects a general contractor to build their church. Normally a general contractor has an estimator who is estimating for all subcontractors based on their knowledge of the market and the subcontractors they normally work with. The bid is a “fixed not to exceed bid” where the risk of construction is transferred away from the church and onto the builder (or is it - you must read on).

Because each step is done in sequence, the builder has minimal, if any, input in the design process before the plans are sealed. This is an important distinction. Changes made during the design process are normally far more cost effective and less time consuming. These changes are proactive and in search for a positive value added outcome.

Changes made after the plans are sealed are often more time consuming and more costly. The changes are often reactive and in search for a way to prevent and/or manage a negative situation.

The key point here is that changes are very likely to occur regardless of the delivery method. We believe you cannot alter that fact. Where in the projects life changes occur, and under what circumstances you make changes often can be.

Construction costs, while being estimated by the design team, are often less accurate than the actual bidding process, resulting in a building design that is more expensive to build than the church can afford.

If the building is more expensive than the church can afford then we are back to the design phase resulting in significant changes, additional cost, and additional time.

The builder and the architect both work for the church. This provides a relationship that promotes independent oversight and accountability between design and construction.

Once the project gets started the builders primary concern is have the building completed at or below the “fixed not to exceed” bid. Any cost savings achieved or contingency not used passes back to the general contractor. This is normally a “closed book” fixed price contract where the church probably does not know all of the cost associated with its building campaign.

The general contractor normally controls the money as one check is provided from which the subs are paid.

Builder input is late in the process
Owner gives up informational control based on a line by line item cost
Owner gives up financial control by placing the check of each draw in the hands of the GC
Owner perceives that most, if not all, of the financial burden has been passed to the GC
Unused contingency passes back to the GC
Knowledge of cost savings achieved by the GC unknown
Architect and GC are hired independently by and represent the owner

II. Design Build

In a typical design-build model the church hires a builder who in turn, hires an architect. The architect may already be an employee of the construction company. In design-build, the architect and builder are working together during the design process. This often produces a better result with less cost and time. Design changes should be made earlier in the process, budgeting estimates should be known and controlled earlier in the process, any value engineering that might help save money should be discovered early in the process. Many of the planning disadvantages of design-bid-build are taken out of the equation.

The architect is normally working for the builder and the possibility exists that design changes may be facilitated to benefit the builder and not always the owner. It would make sense that if the architect has to choose who to protect - they would protect their employer. Once the project gets started the primary goal of the team is to deliver the product at or below the fixed not to exceed estimate provided.

This also is a “closed book” fixed price contract where the church does not know all of the cost associated with its building campaign. The general contractor normally controls the money as one check is provided from which the subs are paid. (sound familiar?)

Other than builder input being earlier in the process the basics of this delivery method are the same as design - bid - build. The architect and the builder are not hired independently by and do not independently represent the owner.

III. Open Book Construction Manager with a guaranteed not-to-exceed price

In this style of delivering the building a construction manager is hired, often after the architect has already completed the plans. When the plans have already been sealed the same planning disadvantage as already expressed as the design - bid - build is not altered.

What is altered is that in an open book construction management model, everything is completely open. All cost estimates and bids are fully transparent, with the owner actively involved to the degree it desires, in cost estimates, award of contracts or subcontracts, and purchasing. In this model, cost savings typically benefit the owner, not the builder. All pricing information from subcontractors, suppliers, organizations, or agencies is open and available to the owner and owner's representatives.

The church has a greater amount of knowledge in how the budget is arrived at. In addition, financial control is greater because instead of one check being issued to the GC, separate checks are being issued to each individual subs with lien releases.

Since the Construction Manager is taking financial risk with the not to exceed price normally the contingency passes back to the CM as it does in Design Build and Design - Bid - Build.

As much as we do not want to admit it - if there is one part of the relationship accepting all of the financial risk there will be a conflict of interest. There is less of a conflict in the open book delivery method, but a conflict still exists.

IV. Design - Open Book Construction Manger (OBCM) -Team Approach - without a fixed not to exceed price

In this delivery method the design and construction professionals work directly for the church, yet do so in a team approach. This would provide the church the advantage of the architect and builder working together from the beginning of the design process, and insuring that each works for, and are responsible to, the church. Working through the design process with the architect would allow the builder to have valuable input into the design and materials, and to provide the architect with accurate costs estimates during design.

In this delivery method you get the best of the first three methods. I have thrown in an additional feature that should not be overlooked - “without a fixed not to exceed price”. This is not a typo. In this type of relationship the fee is fixed based on the cost estimates of the project. From that point on the construction manger has the greatest amount of incentive to deliver the most cost savings to the owner/church. There is no conflict of interest.

One of the frequently asked questions is, “How does the church get competitive bids, if the construction manager is selected before the design of the building, and how is the church protected without a fixed not to exceed price?” In an OBCM delivery model, the church selects the CM based on historical ability to deliver church building projects along with spiritual and emotional “fit.” It is the role of the construction manager to get multiple bids for each major line item in the building budget. In this manner, the church knows the best price on a line item by line item basis, rather than just the best out of three builder’s bids. In a fixed not to exceed price bid there will be contingency, as there should be throughout the estimate. A company that operates without one does not operate very long. The point I am making is that only in this delivery method is the opportunity for maximum cost savings passed back to the owner.

Builder input is early in the process
Owner retains informational control based on a line by line item cost
Owner retains financial control by placing the check of each draw in the hands of the sub
Owner knows that none of the financial burden has been passed to the CM, thus all unused contingency passes back to the church
Knowledge of cost savings achieved by the CM known
Architect and CM are hired independently by and represent the owner

The Ideal Model

When our money and the money of our investors is at risk what model and delivery method do we use?

1. We conduct a needs and feasibility analysis to provide information that will allow us to objectively understand what the church needs to build, what it can afford to build, and how to pay for it.

2. Conduct a Capital Campaign - a capital campaign will help raise money for the up front costs of building and potentially reduce the amount of money that needs to be borrowed. It also provides an excellent opportunity to teach the principles of sacrificial giving.

3. Hire both the architect and construction manager at the same time. (Among other factors, the criteria for selection of both should include a history of church design or construction, and a willingness to work in a team environment.) Once the team consisting of church building consultant, architect, and construction manager is assembled, the design process, based on the results of the needs and feasibility study, can begin.

With respect to church architects, there is a wonderful opportunity to save even more time and money in the design process by utilizing an existing church building plan as the starting point. There are architects that make church plans from prior building projects available for purchase at meaningful discounts over designs from scratch. While existing plans are not construction ready, they can drastically shortcut the design process.

The construction manager we hire is working for a fixed fee, is open book, and is not being held to a fixed not to exceed price.

It is our belief that the farther you move away from this model, the greater your potential for cost and time overruns. The farther you move away from this model the less opportunity you will have to achieve maximum cost savings.

Glen Trematore
Principal, Church Development Services LLC.
Affordable Solutions for Church and Church Related Building Programs
Can be reached via email at glen@churchdevelopment.com
Website: www.churchdevelopment.com