Vacay Replay: Design-Bid-Build vs. Design-Build — Which Construction Delivery Method Wins?

Mike and Marc are on summer vacation, but the vault is still open! This Vacay Replay brings back one of our favorite bonus episodes featuring NAI FMA Realty broker Andy Widman, whose background in architecture, development, and commercial real estate makes him the perfect guest to break down construction delivery methods.

What's the difference between Design-Bid-Build, Construction Management, and Design-Build? Which approach gives owners the most control? Which one keeps projects on budget? And when does each method make the most sense?

Whether you're planning a tenant improvement, a new office, or a ground-up commercial project, this episode offers practical insights into how construction teams work together—and how choosing the right delivery method can save time, money, and headaches.

As always, Mike and Marc keep the conversation informative, entertaining, and just the right amount of sarcastic.

Enjoy this Vacay Replay, and we'll be back with brand-new episodes in August!

Thanks for tuning in to In the CRE Vault with Mike and Marc—where we break down commercial real estate without putting you to sleep. Powered by NAI FMA Realty in Lincoln, Nebraska. For more, visit naifmarealty.com. 

Transcript

SPEAKER_02 0:00

Hey, thanks for coming back to the vault. Uh Mark, where are you at, buddy? Oh, that's right. We're on vacation for a bit, summer sabbatical. Uh we've tuned, we've tuned up some pretty good throwbacks, reruns. Enjoy those, and we'll see you in August. Take care. Bye. Welcome to the podcast in the CRE vault with Mike and Mark. Welcome back to Mike and Mark in the vault. We're gonna come at you with the bonus episode today. How are you, Mark? I'm doing good.

SPEAKER_01 0:41

How about you, Mikey?

SPEAKER_02 0:42

I'm doing great. I'm excited to have a special guest at the round table today in the vault.

SPEAKER_01 0:46

Do we do we disclose him yet or do we kind of give like little clues on who it is? He's not a homeless guy on the street. He's he's he's not selling hot dogs either. He's not selling hot dogs. You know, it's uh you know, this I'm really excited for this one because uh the last uh the last episode we did, Mikey, you might remember was uh construction costs. Yep. And I think we recapped it fairly well on just what we're seeing in the market. And but there's a topic that comes up sometimes, and it is the different delivery methods that a tenant can have, and and who's doing the contracting and who's paying the bills, and and and how does that system work all together, right? And and there's a different delivery method, and I think we might have found the the we'll say goat of of all systems known for delivery. All systems goat, all systems goat.

SPEAKER_03 1:42

I'm gonna put that on an ATC somewhere.

SPEAKER_02 1:44

So we can make that happen.

SPEAKER_03 1:47

Excellent. Yeah. Well, I'm excited to be here, guys.

SPEAKER_02 1:50

Yeah, we're joined by Mr. Andy Widman, co-broker here at NAIFMA. Um, he's a commercial professional here. So he's uh been with us now for how long's it been, Andy?

SPEAKER_03 2:03

Um close another, 10 months now.

SPEAKER_02 2:05

It's nice. He's just about to turn the year curve. He's still with us, thank God.

SPEAKER_01 2:10

So and his his quick resume is he was an architect for years. Um for many years before that. I think right around the time Dirt was invented, he became an architect. And he is he is the guy that if you have questions, you he is the he is the answer.

SPEAKER_02 2:27

Yeah, he's got a depth of knowledge, and we're excited to have him on this bonus episode. But um so yeah, maybe just delivery methods. What are you seeing, Andy? I mean, what what's kind of just uh a cliff notes that people may want to know about in terms of that topic?

SPEAKER_03 2:45

Sure. You know, once upon a time, uh the only real delivery method that existed out there was you designed it with an architecture team, and then you went out and bid it to the whole world, and then you built it. So design bid built. Great method. A lot of public dollars follow that procurement method just because uh people feel like they get the most competitive bids. But COVID really changed the way this world works, and I'm sure you guys addressed it on your construction cost episode as well. But when things went haywire and that predictability that had been there for a long time, many decades to many owners, kind of went away. And so, how do you bridge that gap and make those that delivery method tighter and and more concise for the benefit of an owner? So we've seen the emergence of um construction managers delivery method and then also design build kind of move into the forefront in the last um probably five, maybe 10 years.

SPEAKER_02 3:46

Gotcha.

SPEAKER_01 3:48

Interesting. In in the design bit, bid build, so so I'm uh I'm a tenant and I want some medical space done. I go out and I I get an architect and and they they draft the standard medical process of of of a space. Who's get who's doing the bidding on something like that? Is it the architect? Is it me? Am I hiring somebody else to do that? Unwrap that a little bit.

SPEAKER_03 4:14

Sure. A lot of times the architect team can help you with that. It depends on your sophistication level as an owner. If you've done this time and time again, I've worked with owners that like to do that themselves because they like to feel in control. And, you know, if it's a private sector, they can kind of invite who they would like to for that um bidding process and go from there. There are people that exist out there. We call them owner representatives that you can engage as a third-party person as an owner to help look out for your interest and navigate these complex projects, um, whether it be through the design team or the bidding process or even with a contractor. So it's varying levels of what an owner's rep kind of can be engaged for from an owner's side.

SPEAKER_01 4:54

It strikes me that the biggest pro to that process is having uh uh control of the costs. Is that fair?

SPEAKER_03 5:02

On the design bid build one, yes. I I think before COVID, it was a predictable kind of um environment. And once COVID hit, a lot of the costs went haywire. And so what we saw in the industry was, you know, hey, we we thought this going out and designing whatever, an office space at $140 a square foot for a shell package was the standard. You went out and all of a sudden things are coming back at $180, $190 a square foot. So you're like, well, dang it, I've already paid the architect to design this thing once. So now you gotta pay them to do it again. So recently, some of these other delivery methods I think have short-circuited that process and made it a little bit faster and a little bit more cost-effective to invite the contractor into the process sooner. And that's why we see those other two delivery methods is you kind of create that team triangle of owner, architect, contractor that sit at the same table just like we are, and and talk through things to help manage budgets a little bit more on the upfront side rather than reacting to it on the once the design is complete.

SPEAKER_01 6:05

Makes sense. Makes a hundred percent uh success. So talk about the other, not not the design bid build, but the construction manager. So unwrap that process a little bit as though I'm a four-year-old and I'm also a tenant. Uh to tell me how who's paying the bills, who you know, just unwrap the whole process.

SPEAKER_03 6:26

So um, under the construction management delivery method, an owner engaged engages in two separate contracts, one with an architect and one with a contractor, probably right about the same time. And they, you know, you can interview and do whatever process you want to engage those uh those two entities, but they're basically at the table at the same time as the owner is, but they're two separate contracts. So, really, the owner has the contractual relationship with both entities and they're therefore paying the bills as such. Under the design build method, uh there's only one contract. You basically are asking your contractor and design team to form one entity, whether it's through a joint venture for this just specific project, or there are contractors that specialize and have a design team in-house that can do design build for you. So a little bit different method there. It's just one contract from the owner perspective, and again, they just handle all that uh billing directly with that entity.

SPEAKER_01 7:22

So on the design build, I'm the tenant, I hire just one person, we'll say one firm. They're doing the architecture, they're doing the bidding. They're are they the ones paying the bills as well? Because I in my final question would be on the design build, does does that firm just give you a flat number? It's gonna cost you $180 a square foot to build this, and then it's kind of their ball game to cut costs as much as possible. Is that fair language?

SPEAKER_03 7:48

Yeah, to a certain extent. You know, a lot of times on the design build, owners are more upfront with just what their budget is. Hey guys, we need to make this work with this budget, whatever the X dollars amount is. So it's really on the design team and contracting team to figure out how best and most efficiently to get to that. I personally still think there's a lot of conversations that can happen amongst the team members to ensure the quality is still there in a construction project. Um, I don't see it as you, you know, you're just giving the keys over to a different company and saying, hey, I need this built at this and walk away from it. There's still very much the same design meetings and level of engagement that there would be in any other procurement method. Uh, but from that sense, you know, in terms of subcontractors and those things, yeah, that single entity that handles all of the direct payments to them. So owner, you know, they submit a pay application to the owner, owner pays that, and then that team pays all of that um directly to their construction management can be a little bit more complicated in that you can engage with more than one contract at the same time for different things. You could go out and engage with a drywall contractor directly as the owner if you want it to be. And your your construction manager could just be that. They serve in a more advisory role rather than as more of a general contractor. And that, you know, I'm gonna tell you how to engage with this subcontractor directly, or you can go through that way and do it that way. It really does come down to pros and cons and benefits of what you're comfortable with uh as an owner and and what you want to see for the end goal uh in that regard. You know, interesting. Best example I can think of is when you have somebody that's got a very specific brand that they want to maintain, a Starbucks, they'll probably use the design, bid it, build it method just because they know what they want. They want it consistent everywhere, and the cost is what the cost is. But a one-off owner who's, you know, maybe doing an office building for the first time might go, you know what, I'd I'd like to work with somebody that's gonna give me a little bit more feedback through this process and help me manage that budget as we design it.

SPEAKER_01 9:51

Like it. Is there one one method that um uh two questions? Are are there is there one method that is a little more cost effective? Or the second part of that question is is there one that gives you a little more bang for the buck? Sure. I and and I'm just questioning the how many times am I gonna get middleman on on say a design built? When you got one person doing it all, naturally they're gonna need to make more money. So unwrap that a little bit.

SPEAKER_03 10:19

Sure. You know, a lot of times in those kinds of contracts, you can negotiate direct with uh a contractor on their stated fees. So ultimately, I think no matter which method you end up with, you can kind of end up in about the same end pricing. It it does depend on your experience through the process in terms of managing those costs through it. The the design build one is a little bit scarier for a lot of of owners because they do feel like they can they can lose a little bit of that control in the process. And and honestly, of the three methods, it's probably the least used one out there. With I saw nationally, there's probably about 16% of contracts are done under design build method, and then about 25 or so percent under CM uh contracts, and then the rest uh 60% about design bit build.

SPEAKER_01 11:12

So interesting. I would be, and I think it just takes maybe a level of instruction and knowledge for somebody. Uh uh me myself, I don't mind calling a carpet layer and coordinating that with a painter, and and so I don't need a design bill to make those calls for me. No, um, and I don't need to pay a manager to handle that kind of process. So I would assume that probably is a heavily weighted part of that conversation.

SPEAKER_03 11:38

Absolutely. And of course, you're getting into you know something smaller and more direct, it might be best to handle it under multiple contracts with different vendors direct versus a brand new, right, you know, complex building. It does make some sense to have somebody that is kind of at that helm and and working with all the contractors on the side. Yes, exactly. So yeah.

SPEAKER_01 12:00

Having having um been on both sides of this fence, you're you were an architect for years and and now you're on the commercial brokerage side. Do you see more conversations of these three delivery methods within say a size? Maybe are are they for the bigger projects, the smaller projects? Are you what what when do you see that activity come in conversation on on you know from you understand in my con my yeah, definitely on the bigger projects?

SPEAKER_03 12:32

Uh I've worked with owners that really, really prefer the construction manager route. Again, they're they're they have a level of expertise and they know what they're after. So they like being involved in that decision making. And it does, it brings that team together in the same room more often than if it were design bid build. And then I've, you know, some of the medium ones, yeah, you can you can see a variety of different methods. Um, maybe your risk goes down a little bit. So maybe design bid build makes some more sense on some of those. And and really the small projects, you know, in the state of Nebraska, the Board of Architects and Engineers Act has certain minimums in what you need an architecture team to be involved. And other than that, you know, if it's a small tenant improvement office space, you know, a thousand square foot, yeah, that might be one you as an owner just want to tackle on your own. Sure. Just because you've got that knowledge and and know some people and and can can handle that. You've got the time. That's probably the biggest deciding factor.

SPEAKER_01 13:31

So I'm a bank. I'm a bank and I'm gonna build a a new home office. I'm gonna, I'm gonna go with something a little more extravagant, like one of these three delivery methods. But uh and if I'm a bank and I have a branch and I just want to split two or three offices, right? I'm I'm I'm not gonna do that. I'll just I'll do it myself. We're just gonna throw up some walls. Self-manage. Yeah. Self-manage. Yeah. Is that fair language?

SPEAKER_03 13:54

Yeah. And I know there are some property management teams out there that that help in those processes, especially for tenants. Hey, if you're going into my building, we can manage a couple walls, a couple doors, a couple changes like that for you. Don't need to get everybody involved from that standpoint, which helps keep the cost down.

SPEAKER_01 14:11

On another note, um, unwrap your your previous experience and how that helps you on your day-to-day commercial brokerage. Sure. And and and because you know, you have a gift, your your previous life gift uh allows you to probably have conversations that Mikey and I can't have. I mean, if somebody says, you know, can I put a wall here? I mean, I I don't sure you can do whatever you want.

SPEAKER_02 14:35

I just usually walk away and turn in here.

SPEAKER_01 14:37

I'm not gonna sign any waivers, but go ahead. I mean, your your cover, your answer is gonna be different than Mikey and I. So I uh shower, yeah. Do what you need. Take the drain straight out the wall. Yeah. Um, you know, so and right, so how does that help you in your conversation?

SPEAKER_03 14:52

It is, I found that it's helped me quite a bit. You know, um, I tend to um be somebody who puts myself in whatever client shoes that, you know, is asking me questions on things and and and really trying to uh focus on it from their perspective. So I have been able to uh maybe not clearly answer every question, but at least guide them in the right direction towards, you know, if we're talking about this, then we probably need to do XYZ. Um, I do enjoy the development piece of it, you know, in terms of we have a piece of dirt, what's the zoning on it, and backing into what a building may look like. And and I love bringing those different people together to help execute that project. So it's been a lot of fun being on this side of it. Because as you guys said, I was previously an architect for a company that did a lot of design bid build. And we did work for uh Native American tribes across the country. So we did a lot of government work that, you know, when we were asked to design something, they knew their budget. We had to design within that. And if we didn't, we were redrawing it at no cost to them. So uh and that was again a very different world way back when. And then I moved into uh working for a local developer and uh um learned a lot just on the the real estate side of things, more about what you guys do, the the leasing and property management and all that. And that's really kind of where I figured out that yeah, I really enjoy that side of it, and then uh went out and worked for a contractor developer and and then uh um was part of a local design firm here. And so I really have seen the whole gamut and and um and like I said, I try and understand things from everybody's position, what they're coming to the table and what their goal is for the project.

SPEAKER_02 16:32

So that's nice. That gives you a total life experience on a lot of different transaction topics.

SPEAKER_03 16:38

And it's been a lot of fun. I I don't like sitting around doing the same thing over and over.

SPEAKER_01 16:42

So it's amazing. Very true. Well, listen, we and we enjoyed having you. Andy, yeah, you're a wealth of knowledge. And and if anybody listening to this podcast has questions on zoning or construction, please do not call Mike you're right. Because you you go you go through the front desk, you ask for Andy. He is the guy.

SPEAKER_02 17:00

He's the guy.

SPEAKER_03 17:00

Well, I appreciate being here, guys. It was a lot of fun.

SPEAKER_02 17:02

Yeah, thanks for tuning in again, and we'll come at you shortly with another topic. Have a great week. Thank you guys.

SPEAKER_00 17:21

The views, thoughts, and opinions expressed are the speaker's own and do not represent the views, thoughts, and opinions of NAI FMA Realty. The material and information presented here is for general information purposes only. NAI FMA Realty disclaims any liability or responsibility for any individual's use or reliance on the information presented in this podcast.