How and why are real estate developers taking a design-build approach to residential real estate development? How does that increase the need for AEC technology to improve communication, validation, and planning?
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Table of Contents
- The Design-Build Project Approach
- Construction Delivery Models
- What is Design-Build?
- The Benefits of Using Design-Build
- Challenges and Risks of the DB Model
- The Role of Technology in Enabling Design-Build
- Recommendations and Next Steps
- Acknowledgments
Executive Summary
Real estate development is driven by the capitalistic pursuit of opportunity in the face of an imbalance of building supply compared with demand. It is an industry where the final product is most often unique. The business objective of delivering results at the lowest possible cost in light of defined quality objectives and time remains consistent across teams and cultures. Design-build (DB) is a delivery model that has gained significant appeal because of the opportunity to realize savings with the acceptance of slightly more risk but greater transparency with regard to cost. Teamwork and collaboration are at the core of DB, versus the typical disassociated approach of steering design and then seeking fixed-price bids from general contractors. DB inherently incentivizes all parties to identify ways to improve productivity and quality while offering a level of fairness and cost transparency. The cost data understood from prior DB projects contributes to greater awareness heading into new projects. Further, the early involvement of construction trade teams offers architects and designers ongoing feedback as they evolve the design with regard to product and productivity. This environment of collaboration serves to positively impact cost, schedule, and quality; reducing the risk of missing the mark with design and ensuring a tighter trade buy-out process during construction.
This eBook takes an in-depth dive into Design-Build in relation to other design and construction delivery frameworks based on discussions with residential real estate development firms who have either adopted this approach or at least experimented with it. It reviews how workflows have evolved in time, the factors that drive a DB approach, and the benefits anticipated. It also highlights the increasing importance of technology adoption for communication across teams, design-build validation, and planning.
Construction Delivery Models
Design-Bid-Build Spreads Risk and Supports Specialization
Over the last 100+ years since the Industrial Revolution, the most common approach has been to prepare a collection of design documents and then have builders or general contractors develop pricing to deliver it, often in competitive circumstances.
This evolved beyond the framework initially dominated by the master builder (eventually the architect), who assembled craftspeople at a project location and then developed the design in place with limited pre-planning and almost no estimating and pre-construction pricing. The advent of building services and the pursuit of comfort brought technology advances and the need to preplan in advance of construction. This evolved the question, “How much will this cost?” and Design-Bid-Build (DBB) was born. The increasing complexity of construction assemblies lent itself to alternate forms of bidding and contracting.
Key to this was to establish trade scope packages and then allow the specialized experts to price based on a stipulated sum.
These technological advances led to an increase in specialization that caused design and construction firms to push those out of house due to the nature of boom-bust cycles, and the ebb and flow of work volume. It became undesirable to keep specialized craftspeople on payroll, supervised, mentored, and adequately trained. This led to a mindset of driving risk down the supply chain and lump sum project pricing. Tight stipulated price contracts ensured that owners wouldn’t see any cost escalations unless there were design changes, regardless of the materials and resources needed to deliver the project.
Recommendations and Next Steps
Design-Build is Driving Change
Real estate development projects are high-risk, intense endeavors. Inner-city projects begin with high-value land acquisitions and significant design and municipal fees. Lenders often require 50% pre-sales, and construction financing commitments are generally predicated on building permit releases. Considerable funds are at risk before construction ever sees the light of day. Team focus is first on the entitlement and underwriting process; then, with the re-zoning approvals, the design development begins. As architects and the discipline designers advance towards a development permit and then a building permit the opportunity for trade feedback presents itself regularly. Our research and experience found that design complexity continues to increase, leading to an industry shift to adopt a more integrated and collaborative design approach. Legal frameworks and the fragmented nature of the industry drive a conservative mindset more resistant to change than other industries; however, advances in technology toolsets, the cloud, and software platform approaches are causing practices and approaches to change. These industry catalysts are driving many teams to look to Design-Build to create a more cohesive and cost-effective experience of RE projects, delivering benefits such as schedule compressions, target-value design and delivery, and a fiscal balance reflecting finish quality.
Technology Supports DB and Overall Construction Profitability
The real wins are reducing cycle times related to project feasibility studies, design development, interfacing with municipal planners, construction cost estimating, third-party quantity surveyors, project managers, general contractors, and trade contractors. It’s about understanding what is permitted to build and creating greater value propositions with project proformas. Authoring tools that facilitate accurate geometry and visualization are critical aids for extended teams to access project data and support them in driving results. The future is about speedier data retrieval and more integrated systems. Access to accurate data will be quick as the design and construction delivery world moves into a 3D paradigm. Data drives the ability to make decisions. The recent advent of deep machine learning models and Artificial Intelligence (AI) also promises significant acceleration in access to data and generative AI will shorten cycle times. However, as much as software may drive the potential for productivity, the banking industry and the municipal bureaucracy structures must also adapt and improve access to and acceptance of data and graphical models. The choke points will soon be with user adoption and training. This cannot be overlooked.
We believe design-build will continue to grow in the real estate development market. It creates deeper cohesion amongst project participants. And it hits the bull’s eye for driving cost-efficient projects. Developers that adopt more technology and continue with sound financial and contracting practices appear to be able to better leverage design-build contract arrangement to improve overall cost, speed, and quality.
*This summary is an abbreviated version of the research and does not contain the full content. For the full research, please visit our sponsor Graphisoft (registration required).
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