Construction of biotech and pharmaceutical manufacturing facilities is distinguished by technical complexity, thorough logistics, and increased speed. Without a doubt, a collaborative partner mindset is a “must” to ensure a robust project execution plan that engages all project stakeholders including owner or client, architecture and engineering consultants, construction manager, trade contractors, and commissioning and qualification agents, among others.
Construction Management at-Risk (CMaR), and Engineering, Procurement and Construction Management (EPCM) are two of the most popular collaborative delivery methods for executing these complex projects. These two forms of contract are typically implemented on a Cost-Plus Percentage Fee, Guaranteed Maximum Price (GMP), or Incentive Contract arrangement. Let’s start with an overview of each delivery method, and then dive deeper into how various contract arrangements can impact cost, schedule, scope, and collaboration.
How Delivery Methods Promote Greater Collaboration: An Overview
CMaR and EPCM both enable the client to retain control over the entire project development process while enjoying the collaboration and expert advice of the design and construction organization(s).
Most often our biopharma clients will engage the Construction Manager (CM) on a CMaR basis where the CM is retained as an independent contractor responsible for the actual construction. In this type of delivery method, the CM involvement on the project starts during the design phase, with the CM being responsible for providing preconstruction and construction services. Given an earlier involvement than in the traditional design-bid-build method, the CM may begin the procurement of long-lead items as well as specific construction packages early, well before the design of the overall project is completed. This early engagement and collaboration allow for an earlier project completion but also brings the benefit of the CM being an active contributor to the design development with the objective of enhancing the constructability of the design and establish logistics that address working within an active campus, among other consultation aspects.
Alternatively, clients also implement their capital project on a EPCM basis. In this method, the contractor is retained as an independent contractor responsible for both the design and construction of the project, as well as the procurement of major equipment, which may include process equipment. Commissioning and qualification services are usually part of the EPCM contractor scope of services. In this approach, a single organization is retained under contract to provide all services in-house or through teaming arrangements. For example, a CM is retained by the client, while the architecture and engineering firm (A/E) is subcontracted by the CM. The engineering firm scrutinizes designs, while the construction firm ensures adherence to specifications. This dual review minimizes errors and enhances quality. Other forms of teaming agreements between the A/E and CM, like a joint venture, are also a way of providing services on a EPCM basis. EPCM provides the same benefits as the CMaR delivery method in terms of collaboration arising from early involvement and fast-track implementation.
Unique Differences Between Contract Arrangements
The various contract arrangements under each of these two delivery methods each come with a unique set of advantages and disadvantages – particularly related to scope, cost, schedule, and collaboration.
As a leading construction manager, Gilbane Building Company offers experts in various forms of contract and delivery methods who are ready to provide their perspective on the appropriate contracting approach for complex biopharma projects.
Cost-Plus Percentage Fee
- Budget/Cost: The risk of the final cost of the project is borne by the client. However, contractor cost of services and fees have been pre-negotiated. Cost estimates are prepared at various milestones of design and cost trending analysis in between design milestones to provide a clear cost picture.
- Schedule: Earlier start and completion of construction relative to the design-bid-build delivery method.
- Scope: Client retains control and has ample flexibility on establishing the project’s scope requirements. However, there can be higher pressure on client to control user requirements to avoid unnecessary scope increases. A robust change control management system is required to avoid deviations from the project charter and basis of design that may impact cost and schedule.
- Collaboration: Design and construction resources are integrated during the early stages of design and leverages the same contractor providing preconstruction services into construction.
Guaranteed Maximum Price (GMP)
- Budget/Cost: GMP provides certainty on the final cost of the project where this risk is shared between owner and contractor. As on the cost-plus method, it also provides the client with the benefit that the contractor’s cost of services and fees have been negotiated during the proposal solicitation process as well as the expert’s advice on cost throughout design development. Client and contractor mutually agree to the contingency necessary within the GMP to complete all scope items per the final construction documents. This type of contract arrangement allows for the introduction of shared savings to further incentivize performance.
- Schedule: Earlier start and completion of construction relative to the design-bid-build delivery method, similar to the cost-plus fee delivery method; however, this approach requires a mutually agreed to level of design completion to establish the GMP.
- Scope: As in the cost-plus method, the client has full flexibility on establishing the project’s scope requirements. However, this level of flexibility greatly reduces upon establishment of the GMP. Deviations from the design documents (that modify the basis of design, will result in adjustments to the original GMP.
- Collaboration: Allows integrated design and construction resources during the early stages of design while implementing budget control principles such as target value design.
Incentive-Based Compensation
- Budget/Cost: This form of contract can be considered a hybrid of cost-plus and GMP, in that the risk for the final cost is borne by the client, but contractor’s profit is impacted by contractor’s performance. A target cost is established early in design and contractor incentives are funded only through savings that are earned based on contractor’s ability to meet key performance indicators (KPI). Note: While we are not covering the Integrated Project Delivery (IPD) method, this concept is used in IPD contracts. As such, the overall project team performance will impact the profits earned by the IPD team members.
- Schedule: Earlier start and completion of construction relative to the design-bid-build delivery method, as in the cost-plus fee and GMP delivery methods; however, this arrangement requires a mutually agreed target cost before implementation of work packages.
- Scope: Like the cost-plus and GMP methods, the client has flexibility on establishing the project’s scope requirements but there is pressure to hit the target cost. The expert advice on cost and schedule is available to the client from the start of design. Similar to the GMP arrangement, deviations from the program that supported setting the target cost will result in adjustments to the budget and cost of the project.
- Collaboration: Allows to integrate design and construction resources during the early stages of design while implementing Lean principles such as big room, design-assist, and target value design to further ensure the project is tracking to the target cost. (Note: Both CMaR and EPCM methods can also integrate design assist.)
Ultimately, CMaR and EPCM are both delivery methods that promote collaboration, a fundamental principle to complete technically complex projects on time and on budget while also meeting the quality requirements. The selection of one method and contract arrangement versus others is dependent on a wide range of variables such as financial risk, client’s depth of resources and familiarity with forms of contract, schedule objectives, market capacity and supply chain challenges, and economic conditions, among others. These variables must be carefully evaluated as well as the unique advantages (and disadvantages) of each delivery method and contract arrangement in order to select the most appropriate agreement to be selected for a specific project.
