How does a firm control the cost of pursuit?
By Mark Buckshon
Canadian Design and Construction Report
This article was originally published in the SMPS (Society for Marketing Professional Services) Marketer magazine. SMPS, with more than 50 U.S. chapters and one in Canada (Toronto) represents marketers at architectural, engineering and construction companies.
When the rules of the game and traditional business practices are under attack from new technologies, how do you respond? When things go right, Building Information Modelling (BIM) and Integrated Project Delivery (IPD) go hand-in-hand to encourage collaboration, enhance design flexibility, reduce construction conflicts and change and (best of all) allow owners to truly understand and manage their properties more effectively once construction is complete.
The “when things go right” qualification is important, because this story is incomplete. More challenging, the impact of evolving technologies and practices is uneven on disciplines, markets, and projects. This means that both defining the problem and discovering the solution will seem to be incredibly complex unless you “get it.” If you start from near-scratch, you will face a challenging, steep and expensive learning curve (though probably not as severe as experienced by BIM/IPD pioneers just a few years ago.)
“I don’t think IPD would inherently increase pursuit costs,” says former SMPS national president Craig Park (FSMPS), principal consultant at the Sextant Group in Omaha, NE. “IPD is a tripartite, designer, contractor, and owner contract, and that is more than often it is a legal negotiation.”
“BIM doesn’t increase pursuit costs, but can increase the cost of doing business,” Park said.
“The learning curve is steep in architecture and engineering, but just having BIM in some ways has become the cost of entry to pursue work.” Park’s observations are reflected by several others. Cam Munro, innovative construction manager with Clark Builders in Edmonton, Alberta (the business is 51 per cent owned by Turner Construction Company), says the difference in pursuit costs for a BIM/IPD project from conventional construction “would be similar in accounting, and probably would be nothing more than that we are just trading dollars.”
“We’re spending less time powerpoint presentations, binding pamphlets and spending more time on doing models that we do for pursuit,” he said. The direct pursuit costs come out in the wash.
But if you look beyond the process of pursuing the work on a day-by-day basis – that is, if you are seeking to develop the capacity to even reach the stage of winning BIM/IPD projects and you don’t have any experience in the field – the cost of pursuit will, of course be much higher, Munro said.
The challenge, in part, is the relative cost-benefits vary depending on your discipline. Munro says architects have the highest costs and the greatest cost recovery challenges because of their practices’ traditional time/fee-based compensation model.
Architects need to invest in the technology, training, and overcome the learning curve, and they don’t necessarily see immediate payback in project wins and billable hours, he said. Contractors can see more immediate benefits – BIM allows for more efficient estimating, reducing drawing conflicts and speeding up the project planning and work cycle.
BIM software costs are declining, and problems of integrating systems are also dropping, but the early adaptors still have a market leadership advantage and undoubtedly experience less stress in pursuing IPD/BIM projects because of their experience and expertise.
This is the case for Chamberlain Construction Services Ltd., an integrated architectural and contracting business with offices in Canada and Scottsdale, Arizona.
Chamberlain president Brian Chamberlain discovered the advantages of IPD earlier than most – 25 years ago — in part because the company both designs and builds its own projects (but unlike a general contractor promoting a design-build service, Chamberlain is rooted in an architectural practice that successfully added construction capacities.)
Chamberlain has discovered much of its business in the hospitality and hotel sector, with private ownership and fast-track construction requirements. IPD and BIM are natural fits in this environment, where contracts are negotiated and Chamberlain can see projects through in-house with long-repeat clients from beginning to end. Project architects, construction managers and site superintendents collaborate effectively under one corporate roof.
However, Chamberlain says his practice still bids and wins public work, and responds to RFPs when they occur.
“There hasn’t been a lot of IPD RFPs out there, but in general, an RFP for an IPD project is more extensive than what we would call a standard industry RFP,” he said. “To try and quantify that, on a (regular) RFP calling, your response might be from 15 to 40 pages. On an IPD response, your response might be in excess of 100 pages.”
To put this into direct dollars, Chamberlain says a normal RFP could “take us a week or two of time,” and the “average cost for a normal RFP to put together might be between $8,000 and $10,000. On an IPD RFP, you could quite easily double that – and that doesn’t count anyone’s time in the pre-RFP pursuit.”
But these somewhat-higher pursuit costs are not a big issue for Chamberlain and other architects, engineers and contractors familiar with IPD/BIM. They apply the same best practices to manage pursuit costs as for conventional RFPs.
Chamberlain sets go-no go rules based on whether his organization has relevant experience, knows the client and has enough connections and references to make the project worth pursuing. If so, then the pursuit cost isn’t terribly meaningful.
The slightly higher pursuit costs are recovered in the win rate and contracting efficiencies, and the greatest savings (when things work properly) is at the ownership end, when the collaborative design and construction process through IPD results in buildings that meets owners’ needs – and, says Munro, have all the data and “knowledge” to allow for effective ongoing maintenance and management.
However, the challenge for traditional industry practitioners is that “BIM and IPD are raising the bar to entry,” says Seattle-based consultant Ted Sive, who wrote a pioneering white paper for the SMPS Foundation in 2007: BIM – A marketing primer and call to action.
“The barrier to entry is that the company has to have in terms of internal resources, intellectual capital and technological capability internally, a whole heck of a lot more than before,” Sive said. “Broadly, this issue is less about the pursuit of individual projects as to what it takes to have a strategic marketing and business development effort in an AEC company.”
As the recession bit, “bigger companies (started) competing aggressively for smaller projects, and that has just raised the ante for small to medium-sized firms – that has increased their costs,” Sive said.
These costs and the potential competitive imbalance for practitioners who are late to embrace BIM and IPD will likely increase in the near future. While most work is still bid and constructed conventionally, as owners discover the lifetime savings through BIM and start insisting on it in the project documentation, the pressure to apply the technology – and then to collaborate more effectively through IPD to exploit its advantages – will grow, and practices and businesses that aren’t up to speed could be left behind.
“This is part of a bigger trend that in general I think owners are looking for more and higher quality of information and ideas in the marketing process,” Sive said. “Owner expectations—both conscious and unconscious—have increased, in terms of how much they expect AECs to understand not only the project at-hand but the owner’s underlying business or operation..”
“We’re going to continue to see this in proposals and interviews. Not only are we (the industry) always raising the bar, in the quality of data and how it is presented, but in the amount of professional thought, analysis and design during the marketing phase.
“So it’s hard to say if the increase in marketing costs are due to IPD and BIM specifically, or just this growing trend to more and higher quality data.” .
So, if you are already working in the BIM/IPD space, you’ll most likely find that the cost of pursuit is a non-issue. You’ll simply adapt your go-no go decisions to the RFQs that become available, or continue working with satisfied clients on a repeat sole-source basis. “Yes, for most of our projects the cost of pursuit is effectively zero, because we are maintaining our current relationships,” says Chamberlain’s Brian Chamberlain.
If you aren’t there yet, be prepared for some overhead costs and a learning curve – and gather all the information you can to stay ahead of the process. The cost of pursuit, in this situation, is the cost of keeping apace or getting ahead of owners’ expectations and evolving industry practices. The actual dollar figures will depend on your strategic direction and implementation decisions.