Marketing Strategies for Design-Build Delivery System

More than thirty three percent of US construction projects are delivered by the design-build system. Marketing issues in the design-build method are different from other methods such as biding or negotiating. Design-build system marketing strategies are more than a bidding process. To adopt the design-build system and to succeed, companies should change their organization to fit new clients needs. Several upgrading steps that a contractor needs to consider in the marketing plan in order to fulfill new system are discussed. A design department can be adopted based on different strategies. Value engineering is the strength of the design-build company, which can save money for builders and clients. Utilizing advanced technology enhances the company’s competition capabilities. Establishment of a sales department in the construction company is addressed. Advertising tools such as public media, Internet, journals, brochures, and direct contacts should be used to promote the design-build services of the firm. Design strategies are important to find the new leads in the design-construct system. Impressive presentation of the proposal is crucial to win a job.

Key Words: Design-Build, Marketing, Construction Industry, Delivery System, Advertisements

Introduction

The construction industries have many marketing opportunities in the United States. The number of employees in the construction market was more than 6.7 million people in 2003 (United States Department of Labor, 2003). In 2002, the value of the US construction industry was $860 billion (United States Bureau of Census, 2002). The acquisition of a facility in the construction market is different from the other market sectors. Construction products are not usually prefabricated and cannot be purchased from retailers or suppliers. Several project delivery systems are being used currently to acquire a new facility in the construction market. Three major project delivery systems, which are typically used in the United States, are: design-build, design-bid-build, and construction management at risk. According to the Design-Build Institute of America (DBIA, 2003), design-build delivery system is used in more than 33 percent of US construction projects. Forty-two states allow (Sickman, 2001) design-construct contracts in varying forms for publicly funded projects. By 2005, DBIA predicts that design-build projects will outnumber low-bid construction (see Figure 1.)

In addition to the multi-billion dollar market and the fast growth of the design-build system, another reason that makes this approach more desirable for construction companies is the profit. Contractors dealing with traditional design-bid projects have a profit less than that of firms involving a total service package.

In recent years, design-build as a project delivery system has opened a new market system for contractors and designers. Private and public sector owners are more aware of this type of service and they are more willing to use alternative delivery systems, but as with any other successful market, competitors are racing to get more from this new market (Tulacz, 1998).

Marketing in Project Delivery Systems

Most contractors have experienced plan-spec projects and they are comfortable with bid-market. Many general contractors also have negotiated jobs in their past experiences. However, they have not had much experience in the design-build system. There are several differences between the conventional procurement methods and the latter one. In the design-build-bid system (D-B-B) contractors usually do not follow the marketing strategies, as do other business sectors, because those activities can cost overhead with not much benefit. For example, the D-B-B contractor does not need to build a relationship with a prospective customer for a future project. In the design-bid-build system, firms generally look for bid announcements posted by federal, local, or private owners. Bid announcements are available through the construction newspapers, bulletins, and catalogs such as Dodge Report. Most of the company’s efforts are concentrated on estimating the client’s drawings and offering the minimum possible price to win the bid. Therefore, quality and time are not the main concerns for the selection process, because the owner has already set the required time limit and quality level in the bidding specifications. The main marketing strategy for companies in this case is offering a lower price, or in other words, leaving more money to win the bid. Another aspect of marketing in the D-B-B system is the contractor’s claims during the construction such as Error and Omissions claims. Contractors try to keep their bidding margin safe by this method.

About 10 percent of projects now are procured through the construction management system that can be at risk or for fee. This type of delivery system is based on negotiation. In fact, in the construction management (CM) system clients are looking for CM companies, unlike other market areas that manufacturer is usually looking for clients. In the CM system job already has been pre-sold to a well-known company by the owner. In this system of procurement, marketing strategies are more challenging than D-B-B system and the firm needs to establish a strong relationship with the prospective clients.

In the design-build system, the company should first find customers and then try to sell its product to them. In this case, the construction company is challenged by three factors: cost, quality, and time. These three variables should be adjusted in order to meet the client’s specifications to win the job. Design-build projects usually have not been pre-sold as construction management at risk jobs. Design-build marketing techniques work more like other market sectors. For example, an automaker usually does not make a car based on the customer’s detailed drawings but they try to make the cheapest possible car with the highest quality to satisfy the client’s general specifications such as horsepower, speed, capacity, and gas mileage. In summary, in the D-B system not only should firms offer a lower price for their proposals, but they also need to struggle for quality, innovation, and project time to be able to compete in the market.

Marketing Plan

Conventionally divided, there are two major types of companies in the construction industry; design firms and contractors. If any of them plan to adopt design-build projects, they need to reposition their firm’s organizations. Before anything else, firms need to outline a strategic marketing plan, then the design-build company should be established based on the goals defined in the strategic plan. In other words, the company philosophy of marketing should fit new design-construct projects. The goal of the marketing plan is to lead the firm to win awards in the design-build project competitions. In the marketing, plan the following steps should be considered:

In the following sections some of the major strategies that can be considered in the marketing plan for a contractor planning to move from a traditional system to the new system are discussed.

Design Department

A contractor engaged in a design-construct work must create a design-build infrastructure to support their work. Traditionally, contractors do not have an architectural/engineering office to design the whole project. The following marketing strategies can be considered to add a design service to the firm:

The in-house design office is one option to add the design side in the company. The design-build works better when the design is performed in house. However, the firm needs to spend time and money to hire qualified engineers and to establish an experienced design team. If the company is short on managerial experience, one option is to consider subcontracting a design firm. In this case a contractor simply subcontracts to an architect/engineer (A/E). There are several disadvantages in this method that may interfere with the process. For example, the design subcontractors prefer to work more independent than construction personnel. Buying a design firm or merging with one is another solution. This method will bring new leads for the company. Although, finding a design firm to buy and to coordinate it with the current company structure is not very easy. Another marketing strategy is for independent firms to combine to form a consortium. The advantage of this strategy is that each single firm adds its expertise together and gains a bigger market that demands more diverse abilities. Another marketing strategy that has been successful in Britain is the establishment of preset project teams (Yates, 2002). In this method for special type of projects a team of experts is established. Each team members are chosen from different expertise to target a specific type of project. Since each team member has its own experience in its area, the whole group will have a strong credential for the clients. However, the weak point of this method is availability of the members at the required time and coordination of them for a project.

The type of strategies to be chosen depends on the size of a project, the company capabilities, and the market analysis. After establishing a design service, the management needs to coordinate the new division with the construction side. This can be accomplished through the value-engineering department.

Value-Engineering Department

One of the important advantages of the design-build system over the bidding method is the ability of the contractor to improve the plans before starting the project or during the construction. This ability, so called value engineering, is the key to maximizing project quality, while minimizing project costs. Value engineering gives a competitive edge for the design-build company and needs to be addressed in the marketing plan. This task can be accomplished in the remodeled company by a value-engineering department. Value engineering should be taken into account from the early stages of the project. In general optimization of a project can be achieved by three factors:

A value-engineering process can provide alternatives for these three factors that save money and improve quality of the project. The more alternatives proposed by the value-engineering team, the less costly the project is and a higher quality will be achieved in a shorter time.

As a case study, six projects built by R.L. Fauss Company were selected. The studied projects consisted of apartments, schools, and churches. The company was the low bidder for all of the selected jobs. However, the company evaluated other alternatives for the projects and suggested improvements to the owner for materials, construction details and methods. By employing value engineering in their marketing plan as a priority, the company could save an average of 15 percent more for clients. The savings for the projects at the bid level and after value engineering is shown in Figure 2.

Sales Department

The terms “sales department” and “salesperson” are foreign in many construction companies’ organization chart, but usually one or more persons are indirectly in charge of sales and marketing. Incorporating a sales division is a must for firms expanding their activities to a design-build service, because unlike bidding or negotiating systems, design-build method is a go-and-find client system. Finding prospective clients, advertising, and pricing of the projects needs specific expertise that normal construction personnel usually have not been trained for. As a result, the new firm needs to hire professional sales person to do this task.

In addition to common marketing skills, the salesperson in the construction company has to have knowledge about construction, design principle, estimating, and contracts. The sales department should try to promote the company’s capability in the design-construct area by using advertisements. Finding new leads and cultivating them as potential clients is another responsibility of the salesperson. The salesperson should be able to find out clients’ needs and transfer them to the design office for the preliminary proposal. The sales staff has to know about the technical aspect of the proposed design and pricing. The ability to present and promote technical, economic and artistic characteristics of a design proposal is the key for any successful salesperson in the construction market.

New Technology

The main objective of utilizing new technology is to make a differentiator or a competitive edge for the company. Using new software and hardware increases productivity of the firm and reduces overall costs. Although most of contractors use computers in their jobs, most of them only deal with basic applications of computers such as accounting, word processing, and estimating. The design-build company should use more advanced capabilities of computers in order to be able to compete in the job market. For example, building a database of completed projects consisting of costs, time, subcontractors, and suppliers makes evaluations faster and more accurate for the prospective projects. Another example is developing the optimization software for value engineering to compare hundreds of alternatives rather than a few options by the manual methods.

Local area networks (LAN) are another useful technology for the design-build offices, since usually there is more than one team working on a project. Local area networks coordinate separate design and construction teams faster than direct meetings. The internet-based project management system is another form of technology, which has more range of applicability than LAN. The web-based applications can be used anywhere from the owner’s headquarters and designer’s office to the job sites. All the entities involved in the project can collaborate on the design and construction stages through an internet-based media. Using long distance communication services such as wireless technology enables a D-B company to manage and inspect the project in real time. For instance, sending a revised plan to the construction site from the design office takes at least several hours to several weeks by conventional mail system, but by utilizing high-speed networking technology it will only take a few seconds to transfer to the site.

Personnel

Human recourses are the most valuable asset for any construction firm. To be successful in the new design-build market, contractors should educate their current personnel to be prepared for new firm tasks. In reality it is very hard to ask the personnel who have worked in a hard bid environment to adopt a costumer service mind set. In the D-B system, site managers, superintendents, and other site workers should know that any errors and omissions in the drawings are also their problem. The designers should consider any improvement in the specifications and drawings could save money and time for their own company. The important objective of educating personnel is to teach them the concept of single point responsibility in the new projects. For this purpose, membership in professional organizations such as Design-Build Institute of America or other design-build consulting firms is useful. It is also recommended to consider hiring minorities and women in the new remodeled firm in order to finding new leads from these groups. For instance, it is predicted the number of women buyers will increase more than 60 percent (Kubasek, 1998) in the first decade of the new millennium.

Advertisement

The design office, experienced personnel, and sales department are the basic tools for a Design-Build company. However, the firm is not necessarily successful in the market if customers are not aware of its services. Invitations to design-build competitions do not always come through public announcements, especially in the private sector. Many owners prefer to deal with the companies they know from the past. Consumer awareness of the company is an important goal that should be considered in the company’s marketing plan. Public awareness through advertising is important when developing new prospective clients and leads.

To promote the design-build capability of the firm, one way is to consult with professional marketing consultants. The other business sectors assign a budget for their marketing and advertising. Most experts agree that 2-5 percent of gross sales is reasonable for a marketing/advertising budget (Weiss, 2002). In general, there are three common client expectations that can be included in any advertisement plan:

Advertisements in construction have similarities with other market sectors; however, direct contact and building relations have stronger rules in the construction industry. The construction company is not a retailer with a ready-to-sell product; it is an engineering firm that develops a unique product for a specific client. Design-build project clients need to sit and talk to construction people about their preliminary ideas. Therefore, in this case the best advertisement is the direct contact and meeting with prospective clients. The construction sales person should find this specific client to sell the company’s capabilities. One good way to find prospective clients is to build a relationship with the people who are in charge of development plans or construction in the private or public sectors. Another way is to attend trade shows and exhibitions and promoting previous successful design-build projects of the company. Meeting with prospective clients, and explaining how value engineering can save money, will attract more customers to the design-build system.

Besides promoting through the direct contacts and meetings, the construction companies should not forget the general advertisement techniques to enhance their public awareness. The public media such as newspapers, professional journals, local TV channels, yellow pages and phone calls can be used for the purpose of promotion. In addition to public media, the company’s printed materials have to be changed to show the new design-build service on letterheads and business cards. Including the term design-build on company’s website, job signs informs potential clientele of a complete service firm, or a one-step shopping source.

Marketing Strategies for Design Service

Every project starts with a design, so it is preferable to consider design as a priority in the marketing plan. The company’s design service can be advertised in a different way from other activities. The Company’s architectural/engineering plans can be promoted through the showcasing of past projects in the public media or professional competitions.

After involvement with any new proposal, customers usually want to see plans and drawings before signing any contract. But, designing a project is costly for companies. To solve this problem there are several methods. One method is to sell design as a product and charging the prospective client for the design, another method is to include the cost of the design in the future projects. For marketing purposes offering the design service to prospective clients for free is recommended. This method attracts customer’s trust in the company. Cost of this service will be compensated for by long-term activities of the company. The other important issues are quality and timing of the design proposals for absorbing a prospective customer. For example, delay in the design of a new proposal might undermine the firm’s credibility for clients.

At the two-step project selection process, design presentation is crucial to win a job. Presenting a design concept is important to attract a prospective client, because it is usually the first time that the client judges the company’s abilities. Before formal design presentation, the salesperson should try to involve the client in a dialogue to know more about their demands. In the design presentation, the customer’s interests should be emphasized. For example, many clients are interested in the architectural plans; however, others prefer technical specifications. At the selection level, the design-build company should present its proposal utilizing new technology such as 3-D views of the project, animation, or a virtual tour. The ability to use sophisticated presentation tools is impressive for the prospective customers in the selection process.

Conclusions

Design-build projects have a significant percentage of the construction market. There are several differences between marketing strategies in the design-bid-build system, negotiations system and design-build delivery system. The companies planning to move to a design-build system should consider a different marketing strategy in their plan. To be successful in the new job market, firms need proper infrastructures to fulfill new costumers’ demands. Adopting a design office is an important part for contractors pursuing design-build projects. In-house design, subcontracting, consortia, buying, and preset teams are five different strategies for adding a design side. Selection of each of them depends on the company’s managerial experience, budget and type of projects. Adopting a value engineering section gives a competitive edge to the design-build company that can save money for clients. The sales department is essential for finding and cultivating new leads for design-construct firms. Educating current personnel for the new tasks and hiring new experts enhances credibility of the company for new clients as a single shopping source. Promotion of the company services by using advertisement tools is important for public awareness and confidence. For marketing purposes selling design service for free is recommended. Impressive design presentation is crucial for winning a job in the two-step selection process.

Acknowledgements

The authors wish to thank Mr. Rick Fauss and Mr. John Wygoski from R.L Fauss Builders for their valuable comments.

References

Design-Build Institute of America, (2003). URL http://www.dbia.org/fr_industryin.html

Kubasek, J., (1998). Millennium marketing. Concrete Product, 101(2), 32U,4P. 

Tulacz, G., (1998), Design-build explorers new markets as public sector shows interest. ENR, 240(24), 55.

Sickman, S., (2001). Permanent modular construction: a growing trend.URL http://www.mbinet.org/web/magazine/permmod5_01.html

United States Bureau of Census, (2002). Annual value of construction put in place.URL http://www.census.gov/const/C30/Total.pdf

United States Department of Labor, (2003). Employment situation summary.URL http://www.bls.gov/news.release/empsit.nr0.htm

Weiss, M., (2002). Design/Build. Professional Builder, 67(11), 93- 96.

Yates, J., (1995). Use of design/build in E/C industry. J. of Management in Eng., 11(6), 33-38.