Reinventing the Design & Construction Industry
A speech given by former president and CEO Bob Degenhardt

Advanced project delivery systems is a subject that is near and dear to my heart. We at Ellerbe Becket are building our branded offering around this topic. I believe it is the issue in the building design and construction industry today. I commend you for having the foresight to spend time and energy in this area.

Having said that, I have to tell you that I think there’s a better way than the delivery systems you are learning about in your program. My opinion is based on our experience of doing design-build project delivery for the past 20 years using multiple subsidiary operating companies. We became painfully aware of the shortcomings of that arrangement some time ago. So, I’m here today to challenge what you’re doing and show you a much better delivery idea, representing a change that has been needed in the building design and construction industry for some time. This bigger look at what our industry can become is not daydreaming on my part. We and other firms are doing it now, past the transition from rearranging fragments to creating true integrated teams, and the sales are mushrooming. It’s very real!

So, let me tell you what I’m talking about.

As I talk to clients about the design and construction industry, one thing that comes through loud and clear is that they have become increasingly disenchanted with the process of getting buildings planned, designed, and constructed. They equate this process with going to the dentist – they know they’re not going to like it, but there aren’t a lot of alternatives.

The way structures are planned, designed and built today in America has arguably resulted in the most fragmented industry in the U.S. – fragmentation created over time by specialization and protectionism spawned by the highly litigious business environment. While other industries – automotive, electronics, even healthcare and banking – have used technology over recent years to integrate and improve work processes resulting in better products or services, the design and construction industry has basically regressed in the last 50 years. Today, work is unbundled and accomplished by trying to connect isolated fragments together in misguided thinking that disaggregation somehow equals efficiency and better outcomes. We’ve all experienced the “pitting against each other” of designers, builders and construction managers in this misguided effort to create a checks and balances atmosphere.

I believe the underlying issue is that on any project the disaggregation, instead, places all parties to the process in adversarial roles. So, what does all of this result in?

1. Our fragmented industry has resulted in a very ineffective work process. Clients, planners, designers, engineers and contractors struggle with inefficiencies and miscoordination.
2. As a result, parties to the process try to gain control by protecting proprietary knowledge and spending resources that provide litigation protection.
3. These efforts are a huge detraction from focusing on the project and result in, because of each party’s business needs, different and competing project goals.
4. Hence, adversarial relationships more often than not develop, and the “almost every project” cost and schedule overruns appear.
5. Perhaps even worse than the cost and schedule overruns are the worse than expected outcomes of the projects because focus of the team’s creativity has been lost.

Firms like mine are experiencing all of these and more each year. In the past six months we have active projects that include being part of a joint venture company, being sub-contracted to a general contractor, being sub-contracted to a developer, working with a CM at risk, working with a CM as agent of the owner, and of course being part of a traditional design-bid-build project.

It seems to me that all of these so called advanced project delivery systems have common goals. They’re trying to meet the needs of today’s owners. Today’s owners strongly desire a higher level of control of the schedule and cost and they want to see a high degree of creativity in the outcome. So in a sense they want their cake and they want to eat it, too. You’ve all heard the saying, “cost, schedule, quality – pick any two.” Well, today’s owners want and expect, and I might add deserve, all three.

However, it’s been my consistent experience that these advanced project delivery systems come short of achieving owner’s needs. They don’t address the fragmentation problem – they merely rearrange the pieces. These delivery systems focus only on control. If we plotted the results of these advanced project delivery systems, we would show that they do improve the predictability of cost and schedule. But, if we add another dimension – that of some measure of quality – we find that, because they don’t get rid of the adversarial relationships and competing goals – creativity takes a back seat, which negatively affects quality. On the other hand, if we eliminate the fragmentation and resulting adversarial relationships, we can achieve, through true collaboration, high creativity and even better cost and schedule control. Think what it’s like to explain to our clients that they are going to have a better than expected outcome, and we’re going to save them time and money. That gets their attention!

Is This a New Idea?
As excited as I am about this approach, it’s not a new idea. We’ve taken a page from the script of the popular movie “Back to the Future” to resurrect an idea that makes sense for this day and age. I’m referring to a bygone era when owners, intent upon building monuments and legacies, would call upon “master builders” to handle the planning, design, engineering, construction…all facets of a project. This is how most buildings were created and built prior to the late 19th century – the Pyramids, Greek structures like the Parthanon, the Notre Dame Cathedral, etc. The process was highly collaborative and highly creative.

We will see the return of the master builder concept. Our company calls it “Integrated Services.” But, you can label it any way you want. Here’s how it works. One company takes responsibility for all parts of the entire project – planning, design and construction. Everyone is focused under a single leadership structure trained to achieve true collaboration. True collaboration is the foundation for the success of Integrated Services. True collaboration means going beyond the usual compromise behavior on a project – compromise that gives up some the goals of one discipline in order to achieve some of the goals of another. True collaboration meets the project goals of all team members to bring maximum value to the project. So, what does true collaboration get for us? True collaboration gets a seamless team – a team that includes the planners, designers, builders and most important the owner.

1. The work process is more efficient and effective, uniquely crafted to meet the project’s challenge – not just rearranging today’s linear process.
2. The integrated team can put all their energy on the project. They bring the right knowledge to the project at the right time.
3. Each of the parts, or disciplines, has the same set of goals for the project. In fact, the project is viewed as a single profit center and competition between the parts is eliminated.
4. The owner gets a more creative product and gets the control that is desired. Change orders, except for owner scope changes, are eliminated (this sometimes pegs the “bullshit meter,” but it’s true). Project costs are driven by the client’s needs. Some want lowest cost, some want the highest quality for a given budget. The bottom line is a better outcome than possible with other delivery methods.

While there is typically a guaranteed maximum price for the entire project, Integrated Services is open book – the owner participates in exactly where every dollar is being spent. Remember, the owner is part of the integrated team. Under this fee-based, open-book arrangement, the savings flow directly to the client in contrast to a design-build, or some other fixed-price, closed-book arrangement where savings accrue to the design-builder, in some proportion. This open book arrangement builds trust with the client and enhances true team collaboration. Again, true collaboration is what makes Integrated Services work.

The same standard of creativity one normally associates with design is applied to all aspects of a project: technology, engineering, and construction means and methods. Creativity is not the exclusive domain of the architect.

The work process can be dramatically improved. There are several valid, credible studies that indicate a range of 30% to 50% waste in the way the industry currently executes design and construction. We’ve seen other industries recapture a great deal of that kind of waste in their work processes reengineering. The design and construction industry can do that also.

What will the future bring and how will it affect you? As I said before, the current efforts in advanced project delivery systems simply don’t solve the problem of fragmentation and the resulting adversarial relationships. They merely rearrange the pieces in a kind of trick shell game. A giant step needs to be taken toward eliminating the adversity and resulting waste. The success of what we call integrated services in taking that giant step will cause a cascading set of events. First, the design and construction industry will respond by entering a phase of consolidation. Design and construction firms will come together in mergers and acquisitions similar to recent actions in the healthcare and banking industries. Second, this activity will have dramatic affects on the supporting industries of professional insurance and surety protection. Those industries will need to reinvent themselves to continue to support the consolidated industry. Third, state lawmakers will be pressured to update state business regulations as they pertain to the design and construction industry. And fourth, the limits of professional registration laws, to the extent they are barriers to integrated services, will need to be overhauled.

The good news for this group – there will be a huge demand placed on the legal profession to help sort all of this out. Exactly how you do that will be up to you. You can either stay on the reactive end and handle all of the claims and litigation that come out of the change, or you can take a proactive stance and be part of the leadership of the change. I challenge you to be leaders and choose the latter – the practitioners in the design and construction industry need your help to reinvent the way we do our work. (The leaders among you are already seeing this change coming. The chair of the Forum on the Construction Industry, Ms. O’Neal, stated in the April newsletter regarding her vision of the future, “clients will hire multi-disciplinary teams to handle all aspects of a project….”)

Once this consolidation effort gets started – and there are some early indicators appearing on the horizon – the action will be fast and furious to not get left out. It’ll be a repeat of healthcare and banking. So, get ready, brace yourself and hang on.

That concludes my prepared remarks. I’m interested in your reaction to all of this, especially your reaction to the importance of true collaboration. I suspect that the legal profession, like architects, engineers and construction professionals, have had a large dose of win/lose compromise training and may not be tuned into the power of collaboration. Also I’d be happy to answer any questions you may have.

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