The Design/Build Fugue

At Neptune Towers, a 152-unit co-op in Long Beach, the emergency generator failed in the midst of Superstorm Sandy. The generator had been there since the property was built in 1968, and “it was due for a replacement,” recalls manager John Wolf, president of Alexander Wolf & Company.

“During Superstorm Sandy, it ran for five or six hours and then the engine ceased,” says board president Rich Louis. The co-op had faced “age-related” problems in the past, he adds, involving the replacement of harder-to-find parts, “so we were at the point where we knew we had to replace it.”

The board hired an engineer to analyze the situation and present it with options. “We weren’t sure what loads the generator was serving,” explains Louis. “We had a pretty good idea, but we wanted to see if we should add additional loads to the unit, based on our experience with Sandy. We also wanted to ‘flood-proof’ it [because] it’s at the street level in our electrical distribution room. We wanted to raise it up about 30 inches off the floor, just in case the area [got] flooded.”

The board interviewed five engineering firms for design proposals. Four of them were “traditional,” Louis says, and one, Brandon Controls – suggested by two board members who had used the company before – was a “design-build” shop.

Design-build? What’s that? Typically in such situations, a board will hire an engineer to prepare the job specifications and then send out requests for proposals to a number of contractors, who in turn, submit sealed bids for the job. With design-build, the engineer is, in effect, the contractor on the job.

Here’s the question of the day, then: is there anything wrong with going the design-build route? Furthermore, is there any advantage to taking this path over the traditional, request-for-proposals/sealed bids approach that most buildings employ?

Saving Money and Time

For starters, it can certainly save you money. For the $100,000 generator project, the Neptune Towers board decided to go with Brandon Controls, the design-build operation. “We went that route because it was more streamlined, in terms of getting the work under way,” Louis notes. “We dealt with only one entity, the engineer/contractor. They did the designing for us and they also hired the contractors.”

The project called for a new generator that would run one elevator, all the lights in the common areas, the garage door – it is a bigger generator than its predecessor (80 kw, up from 60 kw) – and will be able to take on more loads in a crisis, including the emergency lighting, the fire alarm, security systems, the boiler, water pump, and emergency stairwell lights. The project cost about $100,000, and Louis estimates they saved between $10,000 and $15,000 by choosing the design-build option.

“On a traditional job, the engineer would be charging not only for the specs, but also for supervising and reviewing the job after completion,” says Wolf, who adds that it also worked as a design-build project because there were several board members who had the time and inclination to research equipment prices to make sure those costs were in line with reality.

Going the design-build route, say its proponents, can also save you time. By avoiding the initial requests for proposals and sealed-bid procedures, Neptune Towers, according to Louis, shaved off about a month in its schedule. Going a traditional route may bring in more bids, but Louis says a good engineering firm also has its advantages. “If you get an engineer who has a bunch of contractors he works with, he’ll get competitive prices,” he notes.

Downsides of DB

Some professionals, however, say that such savings are illusory, while the dangers outweigh the benefits in following the design-build route. “I would never let an engineer do anything like that all by himself,” says attorney James Samson, a partner at Samson Fink & Dubow. “You don’t have an independent adviser to say whether it was installed correctly. When we did the solar panel project at Georgetown Mews, we had a design-and-build contract. Nonetheless, we still had our own engineer looking over their shoulders. I wanted my own expert [to tell] me that they had done the work in accordance with the plan that had been prepared and that we had approved. I always want somebody who doesn’t know the contractor to get out there and tell me whether I got the right job.”

Samson says it’s wrong to trust anyone. He points to a building that was going to install a remote water meter. The managing agent told the board that it would cost the co-op $9,500 to install. “And I said, ‘Are you crazy? We can get it done for $3,800 and the city of New York will reimburse you for that.’ The managing agent looked at me and said, ‘You think you can do it for that price?’ I said. ‘Yeah, I can do for that price.’ He said, ‘Well, you don’t need me.’ And I said, ‘For $9,500, I don’t need you.’ I got it done for $3,800.”

“I think that [competitive sealed bidding] is critical in most projects,” adds attorney Abbey Goldstein, a partner in Goldstein & Greenlaw, even though “it is tempting [to go without such bidding] on smaller projects.” Goldstein says the price tag for having independent engineering can be about ten percent of the total project cost. “The engineer would not only design it, but would [also] supervise the work,” he says. “As the value of the project grows, [so does] the need for an engineer not only to design but [also] to actually supervise the work.”

“To get a competitive price on a construction project, we solicit sealed bids from multiple contractors on every job,” says Stephen A. Varone, president of Restoration And New Design (RAND) Engineering & Architecture. “We don’t have a vested interest in which contractor wins the job, other than wanting the work done properly. But design/build firms do both the design and the construction, so there is no competitive bid on the construction work. In addition, there’s a lack of oversight because the same firm administers and signs off on its own construction work. It’s hard to avoid that inherent conflict of interest.”

“A big project should absolutely have an independent engineer, not somebody who has divided loyalty or who is recommended by the contractor,” Goldstein agrees. He says there is another benefit to competitive bidding. “Having several bids is helpful. It’s not unusual that you will speak to several contractors and you get new ideas for the job, which could lead to modifications based on a fruitful give-and-take between the contractors and the engineer.”

When to Use It

Gene Ferrara, president of the consulting firm JMA Consultants, is a consultant on another project where design-build worked. In this case, it was a very complex rehabilitation of structural columns in an occupied structure. “There simply were not that many contractors who could do the work we were proposing,” he says. “I found an engineering firm that did design-build for that type of job and they worked with one contractor.”

Those specialty jobs aside, Ferrara says not many boards want to go the design-build route because there is too much potential for liability, “In a sense you have the fox guarding the henhouse,” he says. “Most boards want a variety of pricing options.”

Sometimes the close relationship between an engineer and a contractor in a job can outweigh potential benefits from sealed bids. “There’s no law that requires [sealed bids],” says Goldstein. “Say you have a good experience with one contractor and that contractor has been responsible in the past and the project is not too large, then it’s not irrational that you would go with that company without necessarily getting bids. But the bigger the project the more necessary it is to get those bids.”

“There can be a lot of value in the relationship,” agrees Eric Cowley, an engineer and founder of Cowley Engineering. “Perhaps the mechanical contractor they are hiring knows what needs to be done, or they have the institutional memory with your building, or a specialty that allows them to come up with a solution that saves you money in the end.”

Cowley says the process, which he calls a “turn-key” job, can also have other advantages, “If something goes wrong five years from now, there’s only one guy to call. And,” he adds with a laugh, “if something goes wrong, there’s only one guy to sue.”