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Explore factors influencing subcontractors' bid package markups. Research industry influences on markups, recognize value of relationships, and analyze survey results. Enhance construction management practices for cost efficiencies.
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Cancer InstitutePenn State Milton S. Hershey Medical CenterHershey, Pennsylvania Chris Voros Construction Management April 25, 2007
Thesis Content • Project Overview • Building summary, existing conditions, construction sequence, cost analysis • Structural Breadth-Foundation Redesign • Intermediate, Geopier-reinforced Mat Slab vs. Micropile Foundation System • Avoid subsurface issues encountered at nearby Parking Garage project • Conclusions- $500,000 Cost Increase with new system; Children’s Hospital Option • Electrical Breadth- Utility Redesign and Energy Impact • Utility rerouting plan & energy loss study for PSHMC’s East Campus • Phase HV utility installation in one activity for PG, CI, & Children’s projects • Conclusions- $55,000 construction savings, $225/yr energy savings • Depth Study- Industry Influences on Subcontractor Markups • Identify factors that impact a subcontractor’s “multiplier” value
Building Respect: Industry Influences on Subcontractor Markups
Goal Improve Construction Manager and General Contractor Relationships with their Subcontractors Approach Identify factors that go into a subcontractor’s “multiplier”- the value added above allowable bid package markup Methodology Two surveys, one tailored to CM/GC professionals and one to Subcontractors Create a “Multiplier Matrix” that predicts a BP multiplier based on a given set of conditions Compare and Contrast results from both surveys with respect to perceived markup determinants
CM/GC Anonymous Mailed Packet Qualitative/ Written Responses Question Base: 10 Questions Bid Package vs. Contract Markups Determinants of a BP Markup Company Self-Assessment Survey Contents • Subcontractors • Anonymous • Online Survey • Quantitative & Qualitative • Question Base: • Part 1- • 10 Questions/Scenarios • Select impact on multiplier based on a scale from -3 (decrease) to +3 (increase) • Part 2- • 3 Case Study Analyses • Assign a markup/multiplier and provide reasoning
CM/GC Survey Results • Contract Markups: • 10% to 20% (incl. OH&P) • Dependent upon trade • Bid Package Markups: • -2% to 8% • Multiplier factor • CO Negotiations • “Fair but Firm” • Extensive in-house review • Self- Assessment: • Reputable companies • 90-100% Returning Subs • 70-90% Repeat Clients • Markup Determinants • Majority are objective/quantifiable
Subcontractor Survey Results- Part 1 • Relationship-oriented Factors: • Past successes with CM/GC, incl. some of team personnel • Bad history with company, but none of personnel • Bad history with CM/GC personnel
Subcontractor Survey Results- Part 1 • Business-related Factors: • AIA Contract is vague with respect to markup procedures (for subs and subs’ subs) • CM/GC bid-shops on a regular basis to trim • overall bid to owner • CM/GC uses “nickel-and-diming” practices on • CO negotiations • CM/GC keeps to schedule • and meets all milestone dates • (Not pictured - Avg. = -0.28)
Subcontractor Survey Results- Part 1 • Regional Factors: • CM/GC is a start-up company • CM/GC is national firm, but new to region • Project at bid is a “target of opportunity” • (one-shot deal)
Subcontractor Survey Results- Multiplier Matrix • Apply to Part 2 case studies to test validity of Part 1 responses Using the Matrix: 1. Choose which scenarios apply and calculate an overall average. 2. Use the Markup Impact Scale to determine the magnitude of the expected markup.
Subcontractor Survey Results- Part 2 Case Study #1: Alpha Construction Company -Dominant CM/GC moving into region -Generally negative scenario for subs due to business practices and CM personnel on Project (superintendent) Case Study #2: Beta Contractors -Start-up company of experienced principals -Good and bad factors- personal versus company experience; largest job to date Case Study #3: Choice Management -Respected CM, by owners and subs alike -Overall desired scenario- good people and reputable company • Alpha Survey Average = 3.31% • Beta Survey Average = 1.6% • Choice Survey Average = 0.1%
Survey Comparison: Key deciding factor is Regional Economics (supply vs. demand, work availability, competition) CM/GC professionals take an objective view, placing less emphasis on business relationships Subcontractors value reputations of CM/GC/A/E above other factors, contradicting CM/GC survey responses CM/GC companies need to value & actively maintain their sub relationships in order to minimize BP markups
There are simply too many factors (many subjective) influencing a sub’s markup that a prediction matrix is not feasible Subcontractors place great value in a CM or GC’s reputation Maintain positive business relationships to build respect among subcontractors Positive relationships result in favorable markups Closing Remarks
-AE and Construction Management Faculty: Dr. David R. Riley Dr. Michael J. Horman Dr. John I. Messner Professor Parfitt Professor Holland -The Penn State Milton S. Hershey Medical Center: Dick Aradine Mike Lekey Donna Martin -Gilbane Building Company, Hershey Project Team: Dennis Vance Don Hergenreder Patrick Hardister Tom Gutherman Andrew Notarfrancesco Marianne Jones-Pichler John Vicanovick Dan Munn -Chris Leyenberger, Centerline Associates -Mike Connor, Array Healthcare Facilities Solutions Acknowledgements -Dick Harris, PSU Office of Physical Plant -Shad Hoover, CMT Labs -John Masland, ARM Group, Inc. -Kord Wissman, Geopier Foundation Company, Inc. -GeoStructures, Inc: Mike Perlow Eric Hilberath Ed O’Malley -James G. Davis Construction Corporation: Bill Moyer David Argentieri -All the survey participants …and to My Family and Friends- Thank you all! Questions?