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OCR for page 7
Factors Other Than Estimates That
Contribute to Budget-Related Problems
As noted in the Introduction (Chapter 1), Con-
gress appropriates money for major construction
projects (which include both the construction of
new facilities and the renovation or alteration of
existing facilities) on the basis of estimates submit-
ted by the responsible agencies. Congress holds
the agencies accountable for completing the needed
construction work for the amount of money author-
ized. When for some reason a project cannot be
completed with available funding, agency manag-
ers are subject to congressional criticism, and often
the additional funds needed are taken from other
projects.
In the event of a problem, many agency manag-
ers and members of Congress tend automatically to
blame a faulty estimate. Lois is a natural and logi-
cal reaction since there is a direct and obvious link
between estimates and bids. Indeed, this study is a
reflection of the concern of the agencies about the
accuracy of their budges estimates.* However, while
there is certainly room for improvement in budget
estimating per se (as discussed in the next two
chapters of the report), inaccurate budget estimates
are not the sole cause of budget-related problems
on federal projects. In fact, they are probably not
the major cause. As discussed in Appendix A, and
demonstrated especially by Figure Am, there are a
variety of factors causing budget-related problems
*A budget estimate is an estimate on which a request to
Congress for funding is based. As noted previously, it
can range from a pre-progranuning estimate to a design
development estimate, depending on the agency.
7
on federal construction projects. Thus the commit-
tee has included in this report a discussion of fac-
tors other than the accuracy of early estimates that
affect whether a construction project is completed
within budget.
This chapter includes a brief review of the de-
sign and construction process, a discussion of the
keys to a successful project, and committee sugges-
tions on some procedural steps agencies might take
to help improve their success rate with construction
projects.
ELEMENTS OF THE CONSTRUCTION
PROCESS
The ultimate goal of federal agencies when pro-
cunng construction is to acquire cost-effective fa-
cilities that meet the needs of the users within the
budget available (i.e., the amount authorized by
Congress). However, major construction projects
are complex undertakings that involve many differ-
ent individuals and organizations and a number of
separate steps. Mistakes made in any step by any
participant may result in budget-related problems.
The process by which facilities are acquired dif-
fers depending on the owner and the type of facility
involved. For example, as discussed in Appen-
dixes B and C, the processes followed by the Naval
Facilities Engineering Command and IBM Corpo-
ration are quite different. However, regardless of
the owner, the process typically involves a number
of distinct sequential steps culminating with the
completion of construction and the recycling of
OCR for page 8
8
cost data, as discussed below and as depicted in
Figure 1.
Figure 1 shows the typical construction cycle;
the arrow becomes broader to illustrate Hat both
the amount of money being spent and the amount
of information available on a project increase with
each succeeding step in the process. The figure
also illustrates that the process involves a series of
steps and that the successful completion of a proj-
ect is as dependent on Be early steps as the later
steps. It should be noted that Figure 1 shows the
traditional sequential construction process, which
is used for the overwhelming majority of federal
projects. The process can be shortened by "fast-
tracking," which means that contracts covering the
early phases of construction are awarded and con-
in ~
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EARLY COST ESTIMATES FOR FEDERAL CONSTRU~IONPROJE=S
struction is undertaken before the entire design is
completed.
Identification of User Needs
Id federal agencies and other large organizations
with continuing construction programs, the fast step
in the facilities acquisition process usually is the
identification of a facilities need by an operational
element of the organization (i.e., a user). Occa-
sionally, a facility requirement may originate at a
high level in the organization; however, responsi-
bility for administering such projects ordinarily is
assigned to an operational element.
Most large organizations have a formal proce-
dure by which users notify higher management of
-
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r i Planning Design & Construction Process
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Construction Cost Data Bases
Figure 1 The Design and Construction Process
BILE~,~~ or,_ V, :~ ~~ ~
i2hP'~ A_ ~r,,.~_,,r~ ; ~
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Cost Information
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OCR for page 9
FACTORS OTHER TNANESIIMATES THAT CONTRIBUTE TO BUDGET-RELATED PROBLEMS
He nature and magnitude of their needs for new
facilities or for alterations to existing facilities. As
a minimum, users ordinatily are required to indi-
cate the size and type of facility needed and the
reason for the need, and to provide an estimate of
the approximate cost of the project (a pre-program-
ming estimate).
Preliminary Screening of User Requests
In federal agencies, as discussed in Appendix B.
the sum of user requests for funding for facilities
each year usually far exceeds the amount of money
available. A similar situation exists in most private
organizations. Consequently, most federal agen-
cies and private owners have a procedure for screen-
ing user requests early in the facilities acquisition
process to eliminate proposed projects that are not
fully justified, not needed immediately, or not in
accord with the long-range plans of the owner. This
screening process avoids investing time and money
in projects that have little prospect of near-term
funding.
Development of a Program of Requirements
Once a project has been tentatively selected for
inclusion in an owner's construction program, the
next steps are to translate the user's statement of
need into a detailed technical description of the
facility to be constructed (or the alteration work to
be performed) and to develop an estimate of the
cost of the project. These steps in the process
frequently are referred to collectively as program-
ming.
As noted in the preceding chapter, some federal
agencies and many private owners use programs of
requirements and associated estimates to seek an-
proval of and funding for their projects from the
appropriate authority (e.g., Congress in the case of
a federal agency and top management or the board
of directors in the case of a private company). Many
federal agencies, however, do not do this because
they are required by Congress to complete at least
35 percent of the design for a project before includ-
ing it in a request for construction money.*
*Federal agencies follow different procedures because
their funding requests are reviewed by different congres-
sional committees, each of which establishes its own
rules.
9
Development of a Concept/Schematic Design
The first task of an A-E firm that is awarded a
design conuact is to develop preliminary design
concepts that meet the criteria for the project and to
prepare estimates of the cost of different concepts.
Then the design firm and the user evaluate the
alternatives and select the one that best responds to
the program and budget. If the deadline for submit-
ting funding requests to Congress is imminent,
agencies may use a concept/schematic estimate as
ehe basis for a request for a construction appropria-
tion. Otherwise, the design effort is continued and
the budget request is based on more complete plans
and specifications and design development esti-
mate~s.
Agencies are most likely to treat program esti-
mates as fairly fixed when they have been used to
apportion a finite amount of money among a num-
ber of projects. In such situations, if the cost of one
project increases, an agency must compensate in
some way, for example, by cutting the scope of the
project or cutting the cost of other projects, which
is often a difficult task.
Development of Contract Documents and a
Final Estimate
After the design development estimate has been
approved by the user, the design organization be-
gins development of contract documents (i.e., work-
ing drawings and specifications). These documents,
when completed, are used for procurement of the
construction and become part of the construction
contract." In the course of preparing plans and
specifications, the design organization periodically
develops cost estimates to check whether the de-
sign is still within budget. If an estimate indicates
that construction costs will be over budget, the
designer and/or the owner can take various actions
to reduce costs, such as performing a value engi-
neering analysis, eliminating some nonessential
items, making some items bid alternates, or reduc-
ing the size or level of quality of the facility. Esti-
mates based on relatively detailed plans and speci-
fications are called construction document estimates.
Of an agency is uncertain about congressional approval
of a project, it might defer initiation of work on detailed
plans and specifications until funding for construction is
assured.
OCR for page 10
10
The final estimate that is prepared when the plans
and specifications are complete is a 100 percent
construction document estimate; it is often referred
to as the "government estimate."
Award of a Construction Contract
Some private owners routinely select a construc-
tion contractor and award a construction contract
before the plans and specifications for a project are
complete (e.g., see Appendix C). Other owners,
including some federal agencies, occasionally award
construction conuacts on the basis of incomplete
plans and specifications when there is a compelling
need to save time. However, most owners, and
certainly most federal agencies, ordinarily defer
selection of a construction contractor until com-
plete plans and specifications are in hand.
Many private owners routinely select construc-
tion contractors through negotiation.* However,
most federal agencies and a significant number of
private owners usually select construction contrac-
tors on the basis of competitive bids. The contract
is awarded to the lowest bidder who is "respon-
sive" (i.e., complies with the terms of the invitation
for bids) and "responsible" (i.e., is capable of per-
forming the work).
If the lowest bid from a responsive and respon-
sible bidder exceeds the amount budgeted for the
project by more than a certain amount stipulated by
Congress (e.g., the lesser of 20 percent or $1.5
million for military projects) a contract cannot be
awarded, and the project must be re-bid, usually
after the design has been modified to reduce costs.
Agency managers try very hard to avoid such situ-
ations because they are disruptive and embarrass-
ing and because design changes made to reduce
costs are often ill-considered.
KEYS TO A SUCCESSFUL PROJECT
Success in construction can mean m1lerent things
to different people. An architect, for example, may
consider any project for which he receives the praise
of his client and his fellow practitioners to be suc-
* Both federal agencies and private owners procure con-
struction in a variety of ways that are too numerous and
varied to discuss here; for example, owners sometimes
use "construction managers" in lieu of a general contrac-
tor to coordinate and manage projects. Construction
managers perform marry of He functions of a general
contractor, but on a professional services basis.
EARLY COST ESTIMATES FOR FEDERAL CONURU=IONPROJE=S
cessful. A real estate developer ordinarily meas-
ures success in terms of the return on his invest-
ment. Most construction contractors consider a
project to be successful if it runs smoothly and is
profitable. The agencies that are responsible for
procuring federal facilities generally have three cri-
teria for measuring the success of a project: (1)
does the completed facility meet the needs of the
user, (2) was the project completed on time and
within budget, and (3) did the project run smoothly
without excessive change orders or claims. Inas-
much as this report is being prepared under the
Federal Construction Council Program, the com-
mittee has adopted the success criteria of the fed-
eral agencies.
As discussed above, many individuals and or-
ganizations are involved in construction projects
and countless decisions and actions are taken in the
course of a project, all of which contribute to its
success or failure. However, the committee be-
lieves that the success of a construction project (as
defined by federal construction agencies) is espe-
cially dependent on five factors: (1) a clear and
accurate statement of users needs, (2) accurate esti-
mating, (3) effective management of the design
process, (4) well-prepared and coordinated construc-
tion documents, and (5) an effectively executed
construction effort. While a deficiency in any one
factor will not necessarily ensure failure, it will
certainly increase the likelihood of difficulties.
The second of the five factors (accurate estimat-
ing) is covered in detail in subsequent chapters.
The other four factors are discussed below.
Accurate Definition of User Needs
Inasmuch as the ultimate objective of a con-
struction project is to obtain a facility that satisfies
the needs of one or more user organizations, a clear
understanding of the needs of prospective users
obviously is one factor in the success of a project.
Until an accurate statement of user needsT has been
developed, any design work performed on a project
is likely to be of little value, and in the absence of
compensating errors, estimates based on erroneous
assumptions about user needs inevitably will be
wrong.
The importance of having an accurate statement
of user needs is recognized by most owners who
fAs noted previously, statements of user needs are some-
times called architectural programs, programs of require-
ments, or simply programs.
OCR for page 11
FACTORS OTHER THAN ESTIMATES THAT CONTRIBUTE TO BUDCET-REI~TED PROBLEMS
have continuing construction programs. It is the
practice of most federal agencies, for example, to
develop a project brochure that includes an analysis
of user needs for each major construction project.
Nevertheless, owners in general and federal agen-
cies in particular continue to experience difficulties
with construction projects due to incomplete, ~nac-
curate, or insufficiently detailed statements of user
needs, as discussed in two recent reports prepare
under the Federal Construction Council Program
(see Committee on Improving Preliminary Plan-
ning/P~gramming in the Building Delivery Cycle,
1986, and Standing Committee on Contract Man-
agement, 1982~. As noted in the Introduction and
as discussed in Appendix A, the agency liaison
members of the committee estimated that poor defi-
nition of user needs has been a contributing factor
about 60 percent of the time when agencies have
experienced budget-related problems.
The committee believes that federal agencies
skill experience problems caused by inaccurate state-
ments of user needs, in spite of their good inten-
tions, for one or more of the following reasons:
· Insufficient time to perform a proper analysis.
The budget preparation cycle in the federal govern-
ment requires agencies to submit budget requests
by specific dates. If a project is not in the proposed
budget for a particular fiscal year as of the cut-off
date, chances are it will have to be deferred until
the following year. To avoid such situations, a.gen-
cies sometimes take shortcuts in various phases of
the process, including the all-important user-needs-
definition phase.
· Inadequate analysis. Developing an accurate
statement of user needs for a construction project
can be a very difficult and time-consuming task.
Sometimes it is not done at all, but more often it is
done poorly. It is a difficult task because it requires
a thorough knowledge of both construction tech-
nology and the user's operations. Since a knowl-
edge of both areas is not generally found in one
individual, the development of a statement of needs
must be a collaborative effort involving representa-
tives of the user organization and~the construction
agency, with the latter serving to translate the func-
tional needs of the former into specific facilities
requirements. The problem is that, in many cases,
neither of the parties fully understands the lan-
guage and concerns of the other. Consequently,
there are numerous opportunities for miscommuni-
cations, and the errors that result may not be no-
ticed until detailed drawings have been prepared,
11
or possibly even until the facility is under construc-
tion or occupied.
· -Changes in the needs or wishes of the using
organization. Even when ample time and talent
have been devoted to developing an accurate state-
ment of user needs, the construction agency may
still face problems since users can and frequently
do change their minds during design or even during
construction. Such changes can be caused by vari-
ous factors, for example, changes in personnel in
the user organization, changes in technology,
changes in the basic mission of the facility in ques-
tion, or changes in the wishes of an important offi-
cial in the user organization. Sometimes changes
are necessary and/or desirable; sometimes they are
merely arbitrary. Regardless of the reason for user-
dictated changes, they serve to invalidate previ-
ously developed statements of user needs, which
can have a major impact on the design and cost of a
project. Consequently, agencies try to limit nones-
sential user-requested changes once an agreement
has been reached.
Effective Management of Design
As noted previously, when the low bid for a
project exceeds the amount of funding available,
those responsible for the project tend to attribute it
to an inadequate budget. However, the problem
may be the result of an overly elaborate or unduly
conservative design. That this is often the case is
demonstrated by the fact that in high-bid situations,
budget problems frequently are resolved by rede-
signing the project to cut costs and/or by making
certain features optional bid items, as discussed in
Appendix A.
Such steps usually result in lower bids, and a
contract award; however, when a project is read-
vertised, users often complain that the actions taken
to reduce costs were ill-considered and that the
quality or usefulness of the facility has been sacri-
ficed excessively. Unfortunately, such complaints
are often valid. The problem is that when bids are
too high, design firms usually are required to do
redesign work at no additional cost to the client.
Naturally, design firms want to minimize the amount
of work performed in such circumstances; conse-
quently, they tend to deal with high-bid situations
by expedient means.
It is generally agreed that it is much better to
design a project to stay within funding limits from
the start than to cut costs in a completed design.
OCR for page 12
12
The concept of controlling costs during design is
often referred to as 'designing to budget." In es-
sence, with the designing-to-budget concept, budget
estimates are treated as design criteria or design
parameters rather than mere predictions of what the
low bid will be when the design is completed.
The designing budget concept can work be-
cause there are an infinite number of ways of com-
bining building materials, products, and systems to
create a building or facility to satisfy a particular
need. Even with constraints imposed by the size
and shape of the building site and other factors, the
needs of the owner may be satisfied by a variety of
different designs whose costs cover a broad range.
When designing to budget, the designer uses the
budget not merely as a constraint but also as an
indicator of the level of quality, permanence, and
sophistication desired.
However, designing-to-budget is not easy to
apply. Users always want the largest, most elegant
facility possible for Be available funding, and de-
signers are naturally inclined to try ~ comply with
a clients wishes whenever possible. This inclina-
tion is reinforced by the widespread but erroneous
belief that expensive buildings are well-designed
buildings. Consequently, an upward pressure on
cost is inherent in the design process and designers
can resist it only if they have a very good knowl-
edge of construction costs and exercise great re-
suaint and discipline. Therefore, federal agencies
need to consider cost coning and management ca-
pabilities when selecting A-E design firms. How-
ever, it is probably unrealistic and unfair to expect
a private design firm to assume the full burden of
controlling costs. Federal construction agencies
also need to play an active role in managing the
design process if the designing-to-budget concept
is to succeed.
Well~prepared Construction Documents
A satisfactory project also depends on having a
well-prepared and coordinated set of construction
documents (drawings, specifications, and general
contract provisions). Clear and accurate construc-
tion documents are essential for controlling con-
s~uction costs because construction contractors
invariably react to contract ambiguity either by
increasing their bids to cover their uncertainty about
the precise nature of products or services desired or
by submitting numerous requests for contract
changes and extra money after the contact is
awarded.
EARLY COST ESTIMATES FOR FEDERAL CONSTRUCTION PROJECTS
Effective Construction Execution
Most federal construction is performed by pri-
vate construction firms under fixed-price contracts,
which include detailed drawings and specifications
describing the work to be done. It is often assumed
that once a contract has been awarded, an agency
can stop worrying about budget overruns and de-
sign problems and instead concentrate on checking
to ensure Bat the contractor satisfies the terms of
He contract. This is an erroneous and dangerous
assumption. In fact, the construction phase is sim-
ply the last and by far the most costly step in a long
process aimed at acquiring a facility to meet the
needs of the expected occupants within a budget
established by Congress. Even with excellent ulan-
n~ng, programming, designing, estimating, and
conuacting, situations can occur during the con-
struction phase that in the absence of good manage-
ment by an agency can result in cost overruns and/
or construction of an unsatisfactory facility. Among
the developments that can cause problems unless
handled properly are requests for change orders by
the contractor or the user, poor supervision and
management by the contractor, unexpected condi-
tions at the construction site, and value engineering
proposals from the contractors.
The committee is convinced that agencies must
pay careful and continuing attention during the entire
construction phase to bring a project to satisfactory
completion within the budget.
COMMITTEE SUGGESTIONS FOR
IMPROVING THE PROCESS
The central message of this section is that the
design and construction process is complex and
involves many individuals and organizations, all of
whom play an important part in the success of a
project. The committee believes that a successful
construction project depends on good construction
documents, which are the end product of the design
process. The success of the design process in turn
depends on having an accurate statement of user
needs, an accurate budget estimate, and good proj-
ect management. Finally, the process must be sup-
ported by the policies, procedures, and personnel of
the owner (the responsible construction agency in
the case of federal projects).
In federal agencies, the most important consid-
erations are policies, procedures, and personnel
because, in a sense, they fonn the foundation of the
entire process. In addition, in most federal agen-
OCR for page 13
FACTORS OTHER THAN ESTIMATES THAT CONTRIBUTE TO BUDGET-RELATED PROBl~MS
cies they are the only factors under the direct con-
trol of agency managers since detailed aspects of
the process usually must be delegated to lower
echelons in the organizations or to outside fogs.
The various federal agencies operate so differ-
ently and have such different missions that the
committee cannot comment on their policies and
procedures in detail. However, the committee can
offer the following general comments on the subs
ject.
Involvement of Federal Personnel
In recent years federal agencies have come to
rely heavily on the private sector to perform most
of the work associated with the design and con-
s~uction of federal facilities, and in general private
fogs have done a satisfactory job for the agencies.
However, the committee believes there is a limit to
how far the policy of relying on the private sector
can or should be earned.
The committee believes, for example, that fed-
eral agency personnel must be directly involved
from the beginning in translating user needs into
facility requirements and in developing program
estimates. The committee notes Hat most large
private owners rely on their own personnel for pro
gramming work. These owners apparently have
concluded that their own personnel know more about
their operations and related facilities needs than do
professionals from the outside.
Similarly, the committee believes that govern-
ment personnel must be directly involved in over-
seeing the design and construction of federal facili-
ties. Many questions arise during both the design
and construction phases Hat can only be answered
by responsible government officials who are thor-
oughly familiar with the particular project.
To the committee's knowledge, most federal
agencies recognize the importance of involving their
employees in the planning and management of
construction projects. However, the committee also
Is aware that agencies are under continuous pres-
sure to reduce staff levels and to rely on the private
sector as much as possible, and the committee be-
lieves that some federal agencies might in the fu-
ture be tempted to reduce federal employee in-
volvement in their design and construction pro-
grams below the minimum levels needed for effec-
tive control. To help preclude this, agencies must
establish a policy that recognizes the need for some
minimum level of federal employee participation in
the process.
13
Procedures to Ensure Accurate Statements of
User Needs
As discussed previously, there are two proce-
dural matters that seem to be causing budget-re-
lamd problems for federal agencies: (1) failure to
provide sufficient time in the planning and budget-
ing process for proper analysis of user needs, and
(2) failure to obtain the agreement of the user or-
ganization on statements of user requirements that
are used as the basis for design.
The importance of proper analysis of user needs
and avoidance of last minute changes in user re-
quirements are generally recognized by federal
agencies, as discussed previously. Therefore, the
fact that federal agencies still sometimes fail to
provide sufficient time for analysis of user needs or
to get the formal concurrence of users on state-
ments of need suggests that there are limitations in
the facilities planning process of federal agencies
that sometimes preclude them from carrying out
the steps in the process as thoroughly as they would
like. In all likelihood, such limitations are inherent
in He facilities planning processes of most large
organizations and the problems they cause cannot
be avoided entirely. The committee can only sug-
gest that federal agencies emphasize to all person-
nel involved with the design and construction proc-
ess the paramount importance of developing accu-
rate statements of user needs.
The planning and management of a construction
program require considerable time and talent. They
cannot be performed by inexperienced personnel
and they cannot be performed without careful
thought. In order to maintain an adequate staff of
experienced professionals to plan and manage their
construction programs, agencies must continually
recruit, train, and reward personnel, just as most
large private corporations do. Skimping on the
number and/or grade levels of construction pro-
gram planners, estimators, and managers inevitably
shows up in budget-related problems. Agencies
need good personnel of all types, but they have a
special need for estimators with good conceptual
skills to review estimates prepared by others. Good
conceptual estimators are of great value because
they can determine cost impacts and pinpoint cost
problems much more quickly than other estimators.
However, individuals with such talents are rare and
in great demand, and agencies need to make special
efforts to attract, main, and keep ~em.
OCR for page 14
Representative terms from entire chapter:
construction process
