Owner Involvement, Careful What You Wish For

Apr 11, 2017 | News, SJCC

Executive Summary:  Owner involvement in the way of project management and furnishing material is done for one primary reason:  to save money for the owner.  It doesn’t always happen.  The owner’s decisions in these regards can cost the contractor money.  Or the taxpayer.

The owner as a project manager.  I think that many owners feel that project management of a construction project is an easy way to cut construction costs.  The theory goes that “why should I pay someone to manage the project when I can do it myself?”  The problem is that many owners have no idea of the land mines and challenges which exist in managing a project.  Contractors employ personnel and equipment which costs hundreds to hundreds of thousands of dollars per hour.  The resulting cost impact to an owner of a protracted or incorrect decision can cost thousands to millions of dollars.  Take on management of your project with caution Mr. Owner, or reap what you sow.

Owner furnished materials.  Another common way and another low hanging fruit for project cost savings, as perceived by the owner, is to furnish material to the contractor.

I’ve seen the greatest success in a 1,200-acre private development project.  The site was underlaid by high-quality rock, so the owner let a contract to extract and process the massive rock to make pipe bedding/backfill, subbase rock, and general fill.  It was simple and cost effective.  And of course, since the rock was on site, hauling costs were zero dollars!  Supplying rock to a contractor is also resistant to time impacts – by that, I mean that rock doesn’t go bad (it doesn’t mold, corrode, or have an expiration date).

My story.  Our company was responsible for a significant dam modification.  The existing earthen dam was deemed at risk by engineers and in need of improvements.  In the design phase to this earthen dam, there were never any borings taken.  This on its face seems like a fundamental engineering bad practice since it was an earthen dam, but the real impact was that upon building up the dam in accordance with the Contract Documents, we encountered hazardous materials.  This poor decision in the design phase was compounded by the fact that the Contracting Officer, by his own admission, knew nothing about earthwork and dams.  The project was significantly delayed and faced budget problems for the owner.  We were awarded a change order for delay impacts.

Another challenge I experienced was in owner-furnished equipment for a treatment plant.  The project required several million dollars of critical equipment and was manufactured and supplied by a company managed and paid by the owner.  Impacts to the project were experienced by the owner due to a sloppy handoff to the Contractor.  It is true that the owner saved on contractor “markup” of this material, but was this actually money saved?  Could the contractor have done a better job of managing the fabrication and delivery?  That answer will never be known, but the truth is the owner would have had no responsibility whatsoever had (s)he left it up to the Contractor to manage.

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