FEATURE ARTICLE, MAY 2008

MOST VALUABLE MIDDLEMAN
Hiring an owner’s representative with design and construction backgrounds can eliminate many project headaches.
Larry M. Barken and Robert W. Kubicek

Barken

Hundreds of billions of dollars are at stake in real estate/construction projects every year. Mistakes made at the beginning of the project are magnified throughout the process and negatively affect the bottom line. You pay for these additional costs for the next 20 years, and they may be the reason your competition offered the lower lease rates and secured the last deal. So how can developers of $1 million to $10 million-plus construction projects achieve a similar level of project controls to those offered on larger jobs, and what type of owner would benefit from these services?

The construction industry has construction management at risk, design-build and other systems in place. Unfortunately, many of these concepts are for the larger projects and performed by the larger firms that do not work on the smaller projects. For the $1 million to $10 million-plus projects, the owners are not able to attract the same level of expertise. A 5 percent savings on a $10 million project is $500,000 or a multiple of that when figured into the loan costs or the lease rates. The biggest savings accrues when caught as early in the process as possible. On many of the larger projects, the full team is working as a unit from the project’s inception, while on the smaller projects the various parties are hired at different times.

Kubicek

The majority of projects are still performed using design bid, which has its own set of challenges and inefficiencies. The selection of an architect and/or contractor on the basis of low bid has never guaranteed the benefits of value engineering or the proper integration of the skills of the contractor and architect. The hiring of an owner’s representative at the beginning of the project allows their input into the selection of the architect and contractors.

How many times has an owner selected an architect on the basis of a low fee to find that they do not have the level of expertise needed for the project? Once the plans are completed and the bids are received is not the time to do a thorough plan review. Owner representatives well versed in plan reviews will affect the maximum financial leverage for the project. Frequently, the owner does not have the in-house expertise to work along with the architect on the best building systems and the new “green building” needs even more input from a qualified source.

The success of any project commences well before construction begins. The process is replete with many complex and interrelated decisions, which have dramatic impacts on the successful completion of the project. Any changes made after design is very costly. There is a need to coordinate decisions involving entitlement, finance, design and legal issues. Many owners’ project managers have some, but not all, of these skill sets and may also be lacking in the time to focus on all facets of the job.

In design-bid, the owner frequently finds that once the project commences there were more economical and faster ways to design and construct the project. Of course, changes made at that time multiply the cost. An owner’s rep firm with design and/or construction backgrounds — preferably both — will coordinate with the design and construction firms to ensure the maximum savings as early as possible.

Let’s look at one type of owner: the national retail chain. It may build a large number of projects each year. Retailers are known for their emphasis on opening dates as well as cost controls. Most work on razor thin margins and missing a key season (i.e., Christmas) can be disastrous for all parties. Today the retailer is probably cutting back on personnel, projects, travel costs, etc. It used to be able to send a project manager to a city and have them visit several projects at a time and spread the costs out that way. Now, there may be one project in the area and that gets far more expensive and inefficient. An owner cutting back on the number of projects may be doing more infill in different areas but still have the project managers covering the same number of projects as before (because it may have cut back on personnel).

Where he may have had several people for different facets of the job, the owner is now faced with a project manager who may not have worked in some of these areas. Someone else may have been involved with the architect in the day-to-day design, bid or the entitlement process.

With so much money at stake in a construction project and extremely tight lending standards, owners cannot afford overruns in time or costs. However, some owner representation firms sell their services as costing the owner nothing because they pay for their fee out of the contractor’s and architects’ pockets. A successful project never comes from adversarial situations, and if the owner wants to use the same parties on other projects an adversarial relationship is not conducive to productive future work. There are different ways to save the costs and have the parties feel that this was a win situation. The wrong way is to wait for the inevitable change orders and then force the architect, general contractor and subs to absorb the costs. They should absorb costs when it is clearly their oversight or mistake, or if not the owner’s costs. The other way is to be involved early on in the process as detailed above. The method described here will many times save more money for the owner.

A good owner’s representative firm should ensure that from the inception of the project until completion the owner’s interests are being protected. The proper utilization of these services will result in the proper decisions being made upfront when they have the most impact on the project’s viability. Any edge an owner can have over the competition may be the difference between success and failure of a project.

Larry M. Barken and Robert W. Kubicek are principals of Kubicek Barken Consulting Services, a wholly owned subsidiary of Robert Kubicek Architects.

©2008 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.