Project Delivery Methods That Drive Capital Project Success

Project delivery methods can either support or raise barriers to capital project success. Selecting the proper project delivery method is vital for optimizing project development and execution strategies for high-performance industrial facilities.

What Project Delivery Methods Are

Project delivery methods delineate the roles and responsibilities of the various parties and, subsequently, how risk is allocated between each for the services required for project development and execution. Because project delivery methods impact time, money, and risk, deciding which method to use requires careful analysis of business objectives, technical requirements, and commercial criteria.

This article discusses the benefits of selecting the proper project delivery method, evaluating options, and comparing common methods.

Why They Are Important

Each project delivery method carries distinct advantages and protections for the owner and the parties involved. While a method can appear advantageous, hidden owner requirements or costs may be revealed after considering the full implications. What seems like the lowest initial price can often be more expensive in the long run.

An optimal project delivery method supports project development and execution while aligning accounting, procurement, legal, and operational requirements. Taking this holistic approach brings the following benefits to an owner:

• Cost control through a comprehensive procurement strategy aligned with the owner's risk tolerance, ensuring price proposals aren’t artificially inflated with unnecessary contract stipulations.
• Increased efficiency and efficacy with work products being developed to the appropriate level of detail for assessing risk and meeting the funding criteria for commercial and technical analysis.
• Assurance that your selected project development partner delivers valuable consultative insights while being willing and able to execute based on what works best for your organization.
• Optimized outcomes through team collaboration, leveraging the combined knowledge and experience of available resources.
• Mitigated risk by aligning with capital funding requirements and risk tolerances governing the performance mandates to successfully deliver facility and equipment solutions.

Selection Considerations and Constraints

The first step when evaluating project delivery options is to assess each method's merits as it matches your circumstances and needs. Find project development and execution partners who can leverage any option to suit your needs. They should be able to explain each method, guide your evaluation process effectively, and be more concerned about how the project delivery method fits you more than how well it works for them.

Project chartering activities should provide a strategic context for evaluating project delivery methods.

We recommend choosing your project delivery method early in the planning stage. Below is a partial list of considerations and constraints. They are often interrelated (when one is prioritized, it can affect others) and should be comprehensively analyzed against one another. When you adjust one, it can affect others:

Considerations

Weigh the following topics during your evaluation. They have a significant impact on overall project success and should be addressed when selecting the methodology:

• Due Diligence Budget: Understand your spending authority to establish project feasibility, define the governing criteria, analyze your risk profile, and secure financing.
• Capable Subject Matter Expertise: Assess your internal resource capacity and capabilities to develop and move the project from conception through completion.
• Schedule: To support underlying business case requirements associated with each method, factor in commercial and technical milestones versus time to market.
• Risk Tolerance: Capital projects are inherently risky, and it is essential to understand how much risk is acceptable to assume.
• Control: Establish realistic expectations about the experience, expertise, and, most importantly, the time you can dedicate to controlling project scope, schedule, and price. Each method allows a different level of control for a project owner.

Constraints

Once you assess the considerations, it’s imperative to understand external requirements that constrain your choices. These are generally work product requirements for commercial criteria, technical evaluations, risk management protocols, and stage-gate alignment to meet threshold analysis of capital funding approvals.

• Funding Criteria: Understand the source of funds and the associated requirements necessary for capex approvals.
• Technical Criteria: Support stringent due diligence and technical evaluations of original equipment manufacturer (OEM) equipment and balance of plant (BOP) construction solutions to make informed business decisions.
• Risk Management: Risk allocations between all parties should be considered, ensuring alignment with corporate policies, protocols, and acceptable tolerances.

Key Features and Fit

Each project delivery method has unique qualities that can either work for you or against you.

Here are the most common methods used in industrial facility projects today, with some of their key characteristics:

Design-Bid-Build (DBB)

Utilizing a DBB method, the owner assigns responsibility to multiple entities to develop and execute all facility requirements, including design, engineering, construction, and commissioning activities. DBB project delivery typically:

• Fits highly complex projects.
• Has ample time to leverage well-defined technical requirements, governed by integrated equipment packages rather than speed to market.
• Has commonly understood engineering and construction requirements that are not influenced by the performance of manufacturing equipment.
• Relies on the lowest cost of construction to support return criteria associated with CapEx approvals.
• Requires an owner to have internal resources with knowledge of design, engineering, pre-construction, and construction best practices to establish and administer project development and execution strategies.

Design-Build (DB)

With a DB method, the owner assigns responsibility to one entity to develop and execute all facility requirements, including design, engineering, construction, and commissioning activities. DB project delivery typically:

• Places a premium on speed-to-market to support commercial benefits.
• Requires unique subject matter expertise to provide engineering and construction services.
• Relies on qualified partners with proven knowledge, established processes, and project control protocols.
• Requires an owner to have robust and well-defined goals, objectives, scope, and performance requirements.
• Has a lower cost to reach a financial investment decision, but also carries limited visibility into project details.
• Provides limited ability to change direction later in design phases.

Progressive Design-Build (PDB)

In a PDB method, the owner assigns responsibility to one entity to develop and execute all facility requirements, including design, engineering, construction, and commissioning activities. PDB typically:

• Balances the priority for speed-to-market against other factors, such as initial costs to reach a financial investment decision and risk allocations.
• Leads to enhanced owner control over scope, quality, cost, and schedule.
• Is heavily influenced by manufacturing equipment performance, requiring unique subject matter expertise to help define, develop, engineer, and provide construction services.
• Requires clearly defined protocols and protections to control costs, meet funding requirements, and protect accelerated schedules
• Relies on owner participation and collaboration from initial project concepts to final construction.

Engineering, Procurement, and Construction (EPC)

Through an EPC method, the owner assigns responsibility to one entity for project development of Front-End Engineering and Design (FEED) efforts and another entity to execute all other facility requirements, including detailed design, engineering, procurement, construction, and commissioning activities. EPC typically:

• Sacrifices speed-to-market for performance guarantees associated with operational capabilities.
• Carries a higher cost to reach a financial investment decision.
• Requires unique subject matter expertise to provide engineering and construction services governed by manufacturing equipment performance.
• Demands rigid project analysis and approval criteria requiring stage-gate reviews that support a two-stage contract structure.

Conclusion

Choosing a project delivery method is a strategic decision to align your capital project with your project charter, business goals, funding requirements, procurement constraints, and long-term operational objectives. It supports your subsequent selection of an appropriate contracting method, containing terms and conditions that offer owner assurance and protection (more on this to come).

The selected method should reflect your organization’s risk tolerance, internal capabilities, and the level of control you need over scope, schedule, price, and risk.

A properly aligned project delivery method lays a strong foundation for project planning, development, and execution success. When misaligned, it introduces unintentional risks resulting in schedule implications, hidden costs, and uncertainty.

Discuss your capital project priorities with Hansen-Rice. Ask about our project delivery and contract method selection tools that help you confidently determine the structure that supports your business goals.

.