Multiple prime bidding using CM services: a solution to rising construction prices?

Rick Ott, Senior Executive Vice President, M.B. Kahn Construction Company, Inc., Columbia, South Carolina
Fred Whitley, P.E., City Engineer, City of Hampton, Virginia; member, APWA Engineering and Technology Committee

For a number of years, construction management (CM) firms across the United States have actively initiated alternative bid procedures that have proven highly beneficial to owners across the public spectrum. While the overarching charge for construction managers is to act as the owner's primary agent during the design and construction phases of their capital projects (and sometimes the programming phase), achieving optimum project delivery for the price is really "Job 1." To the point, everything done up to the date of bid opening may generate positive savings impact through value engineering and a future reduction in change orders, but it is the final bid tabulation that offers irrefutable proof of the cost savings inherent in the CM process.

Aggressive cultivation and marketing of trade contractors prior to bid date is, of course, a prerequisite for competitive pricing, and is always a focal point for construction managers. Communicating with both general and trade contractors on a regular basis builds a network of professionals throughout the region who acquire confidence and trust in construction updates sent out by project managers and support staff; like any well-run business, construction managers must continuously work to make certain the information is timely and accurate.

With or without CM services, public agencies typically follow the traditional design/bid/build, using a general contractor (GC) for construction of a project. However, in today's bidding environment, there are a number of other project delivery options available to public agencies, in the interest of achieving the best value for the agency. Among these other options are design/build, CM at-risk, and CM agency using multiple primes. This latter option involves authorizing the construction manager to prepare separate bid packages and act as the agency's GC (without being at-risk; the risk as such remains with the owner). This option is further detailed in this article.

Beyond attracting the widest possible field of qualified bidders, multiple prime bidding using a construction manager offers participants the opportunity to bid on selected trade packages, or as general contractors for the entire job. Bid results can be surprisingly positive, with many awards favoring the multiple-prime approach. There are a number of factors at stake in the bid process, among them overhead and profit attributed to the general contractors. Another factor in "hot" construction markets as is currently being experienced is that general contractors are bumping up against their bonding limits and this reduces competition on public projects which require surety bonds. Also, many trade contractors may prefer dealing directly with a competent construction manager if they feel that relationship will result in more expedient administration and prompt payment following service delivery.

This alternative multiple prime bid process can vary from a few packaged trades to as many as 30 or more specialties, dependent on project scale, complexity, locally available trade contractors and other factors, including schedule and/or bid climate. Close coordination between the construction manager's internal preconstruction staff and project managers dictates the final determination as to how the bid advertisement is structured and the project procured.

An example of how the multiple prime bid process can work is shown in several recently bid public construction projects. These projects were bid soliciting both single prime bids (general contactor) and multiple prime bids (direct from the trade contractors). One construction management company that as a general practice solicits both types of bid on bid day for public projects is M.B. Kahn Construction Company, Inc., a major southeastern construction management and general contracting firm. Kahn recently bid two major public projects in different parts of the country, offering the single- or multi-prime option, and their clients enjoyed substantial savings, as illustrated below:

Manassas Intermediate Schools, VA (new)*

Project Bid Date: Spring 2005
Single Prime (GC) Low Bid: $21,988,000
Multiple Bid Packages: 18
Aggregate of Multiple Bids: $18,588,288
Savings to District: $3,399,712

*This project, due to its proximity to the extremely active Washington, D.C. construction market, was broken into 18 separate packages, including site work/landscaping, concrete, steel, trusses, masonry, roofing, electrical, walls/windows, doors, drywall, kitchen, flooring, fire protection/life safety, HVAC/plumbing, millwork, precast panels, partitions, and information/technology.

A second project was located in Lexington, South Carolina, another rapidly growing area.

Lexington High School, SC (renovations/additions)**

Project Bid Date: Spring 2006
Single Prime Low Bid: $15,100,000
Multiple Bid Packages: 4
Aggregate of Multiple Bids: $12,900,000
Savings to District: $2,900,000

**This project was smaller in scale, warranting less subdivision for optimum response and construction. Another consideration for allowing multiple trade bids was to attract minority and newly-established firms that were capable of quality workmanship.

Kahn bids many public projects each year of various types and locations. The company maintains a running average of multiple prime vs. single prime savings for all public projects bid both ways, which is currently 10.2%. As hot bid markets become less competitive such as the current bidding climate, it has been Kahn's experience that the multiple prime savings are higher than average such as the two examples cited.

Beyond savings on bid day, there are other potential benefits to the multiple prime approach (properly administered) that have gained the interest of public agencies. One of these is the opportunity to effectively respond to aggressive schedules, employing phased construction of critical components. The ability of the construction manager to act on behalf of the owner minimizes the potential for conflict of interest between the two. An atmosphere of partnership generally develops early on in the project, building with success, and resulting in expedient delivery of services at the jobsite.

Furthermore, there may be special interest issues, including targeted participation by MWBE providers that are capable of doing quality work. Because construction managers are offering individual trade contractors the opportunity to compete directly in the multi-prime delivery process, more bids are coming from these providers, generating better competition, with equal or better quality workmanship. An experienced construction manager can serve as an advocate in this area, recruiting new and emerging firms, and assisting them in obtaining surety bonds that enable their participation in the public sector.

For instance, on the recently completed Columbia, South Carolina, Metropolitan Convention Center (Fall 2004), bids were solicited from area MWBE subcontractors, resulting in a highly competitive field, with commensurate bids coming in at or below final estimates. Perhaps the greatest achievement of all was the aggregate percentage of MWBE enterprises engaged in the delivery of this highly visible public structure; over 40%, which is somewhat of a record for public sector work in South Carolina.

Multiple prime bidding of public construction is not just a passing fad or just a method to be used when the "hot" bid market results in high prices; the obvious benefits to owners as well as the entire field of construction trades are demonstrable—lower prices, faster delivery times, fewer claims and less litigation.

Given the advantages, what are potential disadvantages? An agency must remember that the GC is eliminated from the project and the construction manager assumes the coordination role of the GC. This arrangement increases the fee for the construction management services which may be more than offset by the cost avoided in GC overhead and profit. Construction contracts under this approach are between the agency and each trade contractor. Thus, an agency would have any number of trade contracts, bonds, insurance certificates, etc., which adds to the agency's contract administration burden. This approach also puts the owner at risk if one of the trades fails to perform whereby a domino effect might be created impacting other trades, resulting in claims against the agency for lost time and productivity. In theory, the construction manager would be there to head off any problems with the trades, just as a GC would have to do, except the trade's contracts are not with the construction manager. Thus, it is incumbent upon the owner to select a construction manager that is qualified to assume these responsibilities, with a track record in the approach with which the owner is comfortable.

Multiple prime bidding using CM services may not be suitable for every agency. The potential risks and the rewards must be carefully considered. If an agency decides to use CM services for a capital project, it should investigate which approach is best for the project, and hire a qualified CM firm with experience in that approach. The right approach, with the right construction manager, is the best means of ensuring that the agency derives the best value for its capital projects.

Rick Ott can be reached at (803) 917-5346 or ott@mbkahn.com; Fred Whitley, P.E., a former member of the Education Advisory Committee and a Past President of the Virginia/DC/Maryland Chapter, can be reached at (757) 727-6209 or fwhitley@hampton.gov.