The recession has had a significant impact on how companies approach capital projects for successful project delivery. Kevin Bean, O'Neal's President and CEO, discusses how project delivery trends are emerging.

How has the recession impacted project delivery methods for capital projects?

Now more than ever owners are looking to establish a thorough project definition with a credible cost of delivery as quickly and cost effectively as possible.  The owner’s capital approval process has become more stringent and drawn out as corporations manage smaller and less forgiving capital budgets.  For this reason engineering-lead Engineer-Procure-Construct (EPC), is becoming more prevalent and popular.  The traditional approach of spending between 1 ½ % to 3% of a projects total installed cost on a pure design study that includes a +/- 30 % cost estimate is not sufficient for the new capital approval process required by corporate executives.

Single source responsibility for the design and construction of projects is a necessity to mitigate cost increases.  The ability to develop realistic project definitions and “go to market” based cost estimates are the new norm.  Owner’s project managers do not have the latitude for design and cost development that the traditional design-bid-build process requires.

Are there any new trends in project delivery or professional service delivery that are impacting the industry?

Overall the trend is toward at-risk EPCm. Under this approach, the owner and EPCm firm establish a Gmax project cost on an “open book” approach.  Owners not only have less project and construction support on their bench, but they also have limited purchasing and procurement capabilities when it comes to construction projects.   This approach ensures that at least 90 % of the project is competitively bid, and the owner can manage their involvement to be as much or as little as the project is being bought out and delivered.   The contracts have become very creative in incentivizing efficient project delivery, timely schedules and cost control. Owners and project delivery teams are developing contracts that can appropriately address the project risks and allocate them in the most cost effective manner.

The biggest trend driving the industry across the market is the use of technology, specifically BIM systems.  This is driving EPC project delivery more than any other market force.  This technology allows design, procurement and construction experts to effectively work collaboratively at the onset of the project development.  The technology is bringing the true benefits of integrated EPC delivery together at the onset of the project where it can pay the biggest benefit to both the owner and the project delivery team.

At-risk EPCm companies are becoming more popular in acting as the owner’s program manager.  This role was once predominantly made up of specialists and architects; however owners are requiring that this role have better acumen when it comes to developing project scope and cost.   Owners are seeking firms that have proven processes, systems and software to support the project development and project delivery phases.

Are there specific project delivery systems that are gaining traction? If so, what are these systems and in what markets are they being used?

EPCm at-risk delivery is solidifying an already solid foothold in the industrial manufacturing markets.  At the current rate, we expect that EPCm at-risk delivery will be the leading delivery method. This approach is firmly gaining acceptance in the pharmaceutical market and has been very visible in the institutional and university market.  Several colleges and universities are beginning to adapt this concept as they incorporate features into the design-build model that insures competitive bidding and minority subcontractor participation.

Does O’Neal have any new projects that are using alternative project delivery systems?

O’Neal is working with Mitsubishi Electric Power Products to build a $200 million transformer manufacturing plant in Memphis, TN. For this project, we utilized an EPCm at – risk approach. O’Neal starting working with Mitsubishi several months ago at the beginning of the site selection phase. By utilizing this approach, O’Neal was able to help Mitsubishi reap the benefits of having clear project definition enabling them to negotiate and develop their project funding model very early in the process. Mitsubishi was very interested in keeping all phases of design and construction with one company to successfully complete the project and meet their production and product delivery requirements.