Design/Build: How And Why To Be The Prime Contractor

by Mike Bredar

Customers like Design/Build. They want to deal with one firm to handle their needs from design through construction. They want to deal with one project manager who can worry about the details.

Statistics provided by the Design Build Institute of America indicate the dramatic rise of Design/Build project delivery for not only the private sector but the governmental sector as well. At Frank Millard & Company, Inc., we can vouch for the latter. During the past two years we have completed several multi-million dollar projects for the U.S. Army Corps of Engineers. The work was all completed using the Design/Build delivery method.

We didn’t always have the capability to land such projects, however.

Our firm has been in continuous operation for more than 140 years. The business, which is in its fifth generation of family ownership, started out as a lumber and coal dealer, and later evolved into a purveyor of heating and cooling systems.

For many years we operated as a “traditional” mechanical contractor — we took care of the mechanical systems and left the rest of the building to the other trades. Then, about 10 years ago, we decided to venture into Design/Build full force by adding a general construction (GC) division.

This division was born out of customer demand. Our industrial customers wanted to limit the number of contractors they were dealing with. The GC division started out as a support player, meaning that the company’s large projects were still mechanical in nature, but now we could construct an equipment room, or place concrete pads.

Over time, however, we began to capitalize on the fact that having the GC division in house meant that the company could bid a primarily mechanical contract as the prime contractor, instead of having to go through a general contractor. Self-performing the GC work gives us a solid bidding edge, and makes project management a lot simpler.

We were able to create and expand our GC division because of our leadership's entrepreneurial spirit and desire to capitalize on growth opportunities.

Initially, our competitors expressed significant doubts about our ability to become a general contractor. I’m sure that there were several chuckles amongst our fellow mechanical contractors. However, the GC division has grown from a minor support player into a major project provider and revenue source for the company. As the GC division expands and brings in projects, the sales revenue of the entire company grows with it. The general construction division is now seen as a legitimate threat to the other general contractors in the area. Where we were once an afterthought on a prime contract list, we are now the company to worry about.

Our GC division allows us to position ourselves as a true “one-stop shop.” When we talk with potential clients, we hammer home the fact that there will be one firm, one project manager, and we will complete the work with little or no subcontracts. We can shorten the project schedule, enhance project coordination, and increase quality control. Our in-house capabilities provide a competitive advantage over other firms that can’t match our abilities.

Look for Difficult and Dirty Work

Our management team has developed criteria for Design/Build prime contract selection. A good project is one that meets the following:

  • It’s industrial in nature: heavy in mechanical or electrical work
  • It enables us to use our in- house capabilities with minimal sub contractors involvement
  • It offers the potential for long-term repeat business
  • It involves working with a customer who has the ability to pay
  • It’s difficult or “dirty” work.

“Difficult and dirty” has become a motto among our management team. Looking over our projects for an extended period of time, we discovered our most successful projects involved challenging work, less than ideal working conditions or schedules, and required the use of specialized equipment. This work requires strong planning and coordination. These types of projects have few bidders and above-average margins. They keep our employees working year-round, provide sales volume growth, and generate excellent project profit returns.

Building Relationships and Creating Opportunities

Proactive lead generation is another requirement for Design/Build construction. We have implemented a target-marketing program to build personal relationships with potential customers whom we feel meet the project selection criteria outlined above. The plan requires our top management to cold call on the account to make an appropriate contact in the organization. We then follow up on the initial contact with repeat visits, e-mails, phone calls, lunches, golf outings, etc. We estimate that it takes seven to 10 in-person contacts to get an opportunity with a client.

We’ve found that if we know the customer on a personal level, the repeat business is about, “How soon can you get this project done” not, “What’s this project going to cost me?”

Some of the prospects we target include major manufacturing or processing plants, power generation facilities, government agencies, local economic development agencies, private developers and minority contractors. All of these targets typically embrace Design/Build project delivery and are good candidates for relationship-building.

Critical Phases

If you think Design/Build and serving as a GC are right for your company, you can learn from our experience. Here are some important items to remember:

  • When preparing the design of the project, use your in-house engineering staff, or a “contractor friendly” design professional. You want to provide the design direction in order to make sure that the design centers on your company’s strengths.
  • Scope generation is the key to a project’s success or failure. Prepare the scope of work with the aid of the customer. Be very careful to document what’s in the contract and what’s not in the contract.
  • For the sales presentation, always make sure that the decision-maker is in the room. Read the audience and adjust your presentation to make it more or less technical based on the feedback you’re getting from the audience.
  • Always be ready to negotiate the deal. Know your numbers well enough going in that a deal can be finalized at anytime during the presentation.
  • As the project moves to the construction phase, keep in constant communication with our customer. Avoid surprises, and always honor the established scope of work and contract documents. The goal is to build a relationship goal and create a repeat customer.

Risks and Rewards

Being a prime contractor in the Design/Build arena does carry some risks. A lot of money can be spent upfront preparing design, estimates, and sales presentations, and your upfront money is always at risk until a contract is signed. In addition, errors and omissions are your responsibility. This presents not only a financial risk, but also can cause problems for your reputation as a design builder if your scope of work isn’t complete.

However, the financial returns on Design/Build projects will justify the upfront risks. As I said earlier, customers like Design/Build, and it’s growing more popular every year. Our company is proof that you can make the transition from being a traditional mechanical contractor to being a full-service contractor in the Design/Build — and even the GC — market.

Mike Bredar is manager of general construction at Frank Millard & Comp- any, Inc., Burlington, IA. He can be reached at 319/752-4571, or [email protected].

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