Stand and Deliver: the developers dilemma in choosing project delivery methods

In the same way, for a developer looking to embark on a construction journey, choosing the right project delivery method can be the difference between a project being successful and profitable and that same project being robbed of its profits by bandits of inefficiency, uncertainty, disputes and cost blow outs.

What are project delivery methods?

A project delivery method is essentially a method or process which a builder (commonly referred to as the “Contractor”) and owner/developer (referred to as the “Principal”) and their related consultants choose to enter into in order to deliver a construction project or development.  The type of delivery method chosen will also determine what sort of contract the parties enter into.

Common Project Delivery Methods

The most common project delivery methods are:

• Construct Only;
• Design and Construct;
• Project Management; and
• Early Contractor Involvement;

Each of these methods involve the different allocation of responsibilities, control and risk on the parties involved and as such there are pros and cons for each for both the Principal and the Contractor.

Construct Only

In a “construct only” arrangement the Principal is responsible for the design and will usually enter into contracts with design consultants to develop the design and it is those consultants who will be responsible for and liable for any issues with the design. The Principal then enters into a contract with the Contractor to construct in accordance the design documents prepared on behalf of the Principal.

The benefit of a “construct only” contract is that the Principal retains control over the design and quality. The risk is that there may be a disconnect between the design and the buildability of the project which could result in delays and additional costs which could have been avoided if the Contractor was involved in the design at an early stage.

Design and Construct

In the design and construct method the Principal usually will engage a consultant to prepare a preliminary design but then enter into a design and construct contract with the Contractor in which the Contractor takes full responsible for both the design and construction of the works. This creates a single point of accountability for the both design and construction with the Contractor and also reduces the scope of unforeseen variations. The disadvantage of this is that the Principal has less control over the design. The Contractor is also likely to increase the contract sum to compensate for the additional risk that they are assuming. The likelihood of ambiguity as to whether a design decision is a variation increasing the cost or a design element which the Contractor should have taken into account is also increased.

Project and construction management

In this method a Principal engages a project manager to manage the project but engages directly each contractor and consultant required to carry out each discreet aspect of the project (e.g. design, and trade etc.).

This enables the Principal to be more flexible in negotiating each aspect of the works without having to run it through a head contractor and can allow for quicker completion. The drawback is that it can be more costly from a contract administration process as the Principal is engaging in multiple contracts with separate contractors and consultants. It also means that the Principal assumes more of the total project cost risk (contrasted with the previous methods which are generally negotiated on a single lump sum project cost).

Early Contractor Involvement (ECI)

The Early Contractor Involvement or ECI method is similar to the design and construct method however it involves engaging the Contractor at an earlier stage in developing the design and preparing a detailed project plan and risk adjusted price for the delivery of the project.

The benefit of this is that there is greater discussion at an early stage between the owner, designer and contractor and this generally results in a shorter delivery time, fewer variations, and buildability issues being addressed at an early stage to avoid them becoming roadblocks. It is often used in projects where there are unidentified risks.

The drawback of this method is that it results in an early commitment by the Principal to a Contractor and the Principal losing some independence in the source of advice. It is less likely in this method that a principal will choose an alternative contractor for the build phase (even if there are problems in the relationship) due to the time and cost invested.

Overall, choosing the right project delivery method can have a significant impact on how smoothly a development runs and ultimately how profitable it can be. The type of project delivery method will also determine what sort of contract should be used and how it is to be drafted. As to what method suits the parties and the project will depend on various factors including what a Principal may require in terms of certainty of costs, ability to control the design process the speed required for the project and the complexity of the works itself (Eg. does it require complex engineering requirements or special expertise etc.).

If you are a Principal or Contractor entering into contractual arrangements with respect to a construction project, we recommend that you consider the above carefully and contact our property and construction team to obtain advice on what the best method is for your project and how to best document this.