New Healthcare Facilities Requirements Demand New Project Delivery Solutions

As rational facilities design requirements are codified in response to COVID-19, health facilities professionals will be challenged with multiple large and small cap projects to address these new requirements for flexibility. Some facilities requirements will be implemented immediately, and other resolutions will be evaluated during submissions for project review approvals by the authorities having jurisdiction.

Regardless of project size and scope, new facilities requirements will certainly add to the cost of new construction and renovation work to address flexibility. To offset these new costs, facilities leaders are turning to alternative construction procurement methods that reduce financial risk.

The Appeal of Integrated Project Delivery for Meeting Facilities Requirements

For many institutions, the tried-and-true way to procure construction is through the design-bid-build project delivery model, where an architect or engineer designs a project and general contractors bid on that design. Most public systems follow this path because their regulatory agencies believe it guarantees the lowest cost of construction. However, more experienced facility managers understand the lowest bid usually doesn’t necessarily correlate to the lowest first cost of construction and almost always equates to the longest delivery schedule.

It is extremely difficult to independently design, bid and complete construction without project team collaboration during the process to assure the most cost-effective solutions are developed. That’s why the most sophisticated institutions have moved to some form of Integrated Project Delivery (IPD) process as a means to increase collaboration, reduce waste and optimize results.

Integrated Project Delivery’s Limitations

Only a handful of institutions across the country have implemented full multi-party contracts — the base requirement for IPD in its purest form. This is a shared risk, shared reward procurement model that some financial teams incorrectly perceive as reducing competition among vendors. This perception creates apprehension and discomfort. Thus, many institutions have implemented a modified IPD approach using the project team’s qualifications for procurement to assure optimal collaboration, quality and cost control from the project onset.

In its most widespread form, modified IPD enables the owner to make selections based on qualifications of the architectural and engineering design team, the general contractor and the commissioning team. They capture the value and savings from collaboration by using slightly modified contractual models that reimburse the general contractor for preconstruction services. This collaboration of construction professionals can work with the owner to assure their healthcare facilities requirements are met with the most artful solutions.

Evidence-based design can be coupled with the most cost-effective construction methods to assure ease of commissioning and a shortened delivery schedule. This modified IPD is a cost-effective and quality-driven project delivery process for large capital healthcare projects. But what about stewardship and the many small capital projects for capital renewal and deferred maintenance?

IPD procurement models are not the most cost effective and timely process to facilitate small capital projects. Most IPD teams are comprised of the largest and most capable regional or national teams to facilitate large capital projects. These teams have the experience to bond large projects to provide the owner risk protection during project delivery. However, that experience is based on the size of projects completed by larger firms, which restricts smaller qualified providers with lower bonding capacities from competing in the IPD model. The IPD project team’s overhead and profit are proportional to their company’s size and project experience which also creates an impediment to cost management for small capital projects.


Value-Based Construction for Small-Cap Facilities Requirements

Value-based construction methods like Job Order Contracting (JOC) provide effective project delivery solutions for the small capital projects care facilities will need to take on to meet new flexibility requirements. Like IPD, value-based construction is a collaborative, data-driven procurement model that maximizes the quality of the outcome, creates consistency and brings cost effectiveness to small capital project delivery. The execution of this project delivery method varies from IPD.

The owner works with a procurement partner to bid out a pre-priced customized catalog of construction line items that represent unit pricing for construction materials and labor based on the market in their geographical region. Data precision is a crucial differentiator between value-based construction and IPD. It might help to think of it like this: The cost data used in IPD will get you to the football stadium; the cost data used in value-based construction will get you to the seat on your ticket.

After pricing is determined, the owner stipulates team requirements such as certifications, training and utilization. The result is an indefinite delivery indefinite quantity (IDIQ) contracting process that develops a cache of qualified healthcare contractors that can be issued task orders during the contract period. Value-based construction assures the institution can engage the right contractor to complete the many small capital projects to improve institutional stewardship and keep pace with the cascading code and compliance facilities requirements for additional flexibility.

Because value-based construction is developed directly through partnership with institutional policy and procurement guidelines, diversity/inclusion goals can be included and tracked in the award. Further, value-based construction can be coupled with existing Group Purchasing Organization (GPO) or co-op contracts to assure transparency and auditability, which are already embedded in the value-based construction procurement process. Value-based construction assures the owner’s project requirements are met and financial performance requirements are achieved for both capital renewal and deferred maintenance project delivery.

With facilities requirements in flux and the healthcare industry embracing flexibility in the wake of the COVID-19 pandemic, decision-makers must use all the tools at their disposal – including construction project delivery models that break with tradition.

About Mark Kenneday, Director Market Strategy and Development, Healthcare

As Gordian's Director of Market Strategy and Development for Healthcare, Mark Kenneday actively listens to clients and assists them with reliable and effective solutions to support their business strategies and ensure the successful management of their facilities portfolio. He has almost four decades in service to the healthcare industry, both as a business partner and an owner. Mark also served many years on The American Society for Health Care Engineering (ASHE) committees and subcommittees, chaired the Research and Development Committee, the Advocacy Committee and sat for four years on the ASHE Board of Directors, serving as President in 2013.