Healthcare Design Not for Commodity Buyers

Posted on September 14, 2012

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The other day I was ruminating on why construction projects are so difficult to successfully execute for so many hospitals and healthcare systems. It might be because most institutions have no standards in place to make smart comparisons; it all resides with Facilities, Strategic Planning, Support Services, the CFO, CEO or another executive.  And when that position turns over, so does the whole project management and professional services strategy.  Without opportunity, it is pretty hard to get good at anything.  Hey, purchasing project expertise takes practice!

So, often a buyer reverts to a defensive position, mainly out of ignorance or ‘safe’ logic:  “I don’t know where to begin, so I’ll hire a program manager, write an RFP, and select the lowest fee by percentage”.  A commodity buying mindset is an atrocity with something as complex as design, engineering and construction for healthcare.

A commodity buyer might see a 4% difference between a CM-at-Risk delivery and Integrated Design-Build and not investigate why Design-Build costs more. The design input backing the construction effort on price, schedule and quality is discounted:  ‘not worth it’.  The single-team entity and responsibility is discounted:  ‘where’s the benefit?’  The early GMP and shield from escalation and change orders is discounted:  ‘my job won’t run up 4% worth of problems’.  Pay now or pay later, but usually such a price delta ‘premium’ is not valued until the end of a project.

I am always surprised how commodity-focused a hospital executive can be with a purchase as complex as design and construction services, and yet, I doubt she is nearly as rigorous with her own grocery shopping. Are all the brands in her grocery cart private label, because generic is the cheapest?

I checked in a couple months ago with a hospital who ran an RFP recently (we did not make the short-list). This client does not build very often. They negotiated a deal with an architecture firm and let the architect run wild on design for five months without pricing oversight (‘the Board needed a rendering asap to raise money!’) while the hospital ran an RFP for a CM.  Five months became eight and—surprise—they are behind schedule and over-budget, and CDs are not even begun. One executive involved with the project told me:  I was expecting things to move quickly, decisions to be made.  We should have gone design-build.  We would be farther along, and without budget and schedule issues.

The 4% difference in cost for an Integrated Design-Build team over a CM-at-Risk would have easily paid for itself, if for no other reason than avoiding the embarrassment of having to go back to the Board with bad news.

Commodity buyers can be very successful under certain circumstances, but few fit the criteria.  Going low is like gambling against the House in blackjack. To buy like a commodity (or play blackjack and come out ahead), these types of buyers have to follow an established protocol (like basic strategy in blackjack), buy with frequency (practice), do everything with rigor (say no to the free drinks), and be well-informed about what is being sold (knowing the game, the odds, and how they change).  Even then, like blackjack, it is risky with a thin margin for error. Otherwise, commodity buying for your next healthcare project is an unsophisticated, high-risk gamble the House is likely to win.  Don’t gamble; know the differences between what you are buying, and spend money smartly. In an economy like this, forgiveness is hard to come by.

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