FSK to DBIA

The following speech provides some insight into Fred’s approach to design-build. I was intimately involved in preparing this presentation with Fred. All things considered he delivered the message uncharacteristically well at an annual Design Build Institute of America (DBIA) session held at a hotel owned by the man himself.

Fred Kummer Keynote Speech 
to Design-Build Institute of America

October 13, 1999 
at the Adam’s Mark Hotel in Dallas

Good Afternoon. I’m very pleased to be here today – and talk about Design-Build the way we have practiced it for 40 years. HBE Design-Build method is not for every project and it won’t work for every company, but for us it has been the key to our success. Design-Build is what my company HBE is all about. Some people have called me a legend in the industry. What they mean is that I am an old guy. And by that standard, I AM a legend. In fact, we’ve done very well over the years. We’ve made a great many customers happy. We’ve built a lot of buildings. We’ve built a chain of hotels-You’re sitting in one now. We limit our construction activities principally in three industries: Health Care, Financial Facilities and Hotels. So today I want to tell you about HBE, what we do, why we believe we are successful, and what our methods can mean to the construction industry. Yes, I believe it is the CONSTRUCTION industry and NOT architecture, engineering, and construction as separate disciplines. Everything we do at HBE – and everything we’ve done since I started the company back in 1960 – is based on one idea. We deliver VALUE to our customers. Value means a functional building that does what our clients need at a price that allows them to build. Value also means satisfying our clients’ needs in line with their priorities. It means working with our client to understand what his priorities are and to respond to those priorities to the fullest extent possible, given the resources available. Every project is different. Every client’s priorities are different. If image is a top priority, perhaps a lavish lobby makes sense. If instead, a hospital needs more operating rooms, that’s where the client should put his money. It’s our job to help our client fully understand the options AND cost associated with those options so that a value judgment can be made. A judgment only the client can make. There are people who know the COST of everything, but they know the VALUE of nothing. You have to know the value of something before you can determine if it justifies its cost. Sometimes the client is a hospital administrator who sees his facility is too old and run down. The ideal might be to abandon and replace that hospital. But that might cost $16 million and he might not have $16 million to make that happen. In that case, the best value for that client might be to spend $8 million to renovate his existing facility. It might not be ideal, but it is realistic. Often we come into a hospital or financial facility and analyze the cost of a new building vs. alterations and additions to the existing building. It forces our clients to make judgments. And they can only make these judgments if they know the costs so they can make the value judgment for their alternatives. This is an enormous responsibility for us and for our clients.

Design-Build is only possible when you have a cohesive organization that looks at value and cost simultaneously. Cost does not necessarily equal value (a difficult idea for many), but value cannot be measured without understanding cost. I’ll bet everyone in this room has a VCR at home. You can buy a basic one for about $200. For $400 you can get a lot of buttons and switches. Now if you need those buttons and switches, they are a value to you. But if you don’t they are just a cost. In designing a building the same thing is true. You have to look at the cost and value of every button and switch.

Remember, you might not get what you pay for, but you will always pay for what you get. One option might be to put a three story marble atrium in a hospital lobby. Is that the best use of resources? Maybe and maybe not. But if that atrium means that doctors and nurses don’t have room to deliver care to their patients, that hospital hasn’t maximized value, it has maximized cost and probably reduced value. Forty years ago – Design-Build, as we practiced it, was used only on relatively small, less complicated projects. Some of my early ones were a donut shop, a car wash, a restaurant and a small bank – none of them – I don’t think – exceeded $100,000. An owner would go to a builder and describe his needs in terms of both cost and function. The builder would work with architects, engineers, and specialty contractors of his choosing to put together the complete package. The contractor would price the project as a lump sum proposal. If the proposal met with the owner’s approval, the project moved forward. If for any reason it did not meet with the owner’s approval, the contractor bore all of the costs of developing the project to that point. This gave the contractor an incentive to control costs while providing value to the owner. Providing value to the owner is the key to success of any project – no matter what the delivery method. If you want to be successful in Design-Build business, you must develop a reputation for value and reliability. I know – some may say our method of Design-Build is still the way smaller uncomplicated projects are done but that it won’t work on bigger more complex projects. I hear you, and I know that most organizations may not be able to function the way we do. But HBE has designed and built nearly $7 Billion worth of hospitals, financial facilities and hotels using this method and this method only. We sometimes have as much as $3 million at risk on one project before we have a contract for a building. That is putting the risk where it belongs, with the design-build firm.

Our work is not the $100 million projects. In fact the largest project we have done for others is in the range of $50 million. We have built more than 1,100 projects in every state of the union except Alaska. Every one of them used a contracting method that many don’t think will work with major institutional projects. Design-Build, as we practice it, will not work for every project and every client. Clients must have confidence in their ability to make the same value judgments they make when they hire an architectural and engineering firm for design and then move to construction. Design-Build should face up to the idea of reward for performance in creating value. Many firms are not willing or able to assume the risk this requires. The contractor must be at risk in a very significant way for a process to be called design build.

As I said a minute ago, we sometimes have as much as $3 million at risk on a single project. In the distant past, projects were built by someone called a Master Builder. In fact, most of the world’s enduring structures were built by Master Builders. The pyramids, The Sphinx, even the Statue of Liberty were the work of Master Builders. The Master Builder was the person with the vision, skills, tools, people and the experience to get the job done. In Design-Build you must also have a Master Builder. Design-Build is not and cannot be simply having all of the players in the construction process in the same room and saying each should do his thing. Design-Build must be lead by the Master Builder. In my judgment this is the contractor, for his is the one with the greatest up-front risk. For a builder to function in Design-Build arena, he and his staff have to have a total understanding of all the pieces and parts of the process – and a full understanding of the cost implications of those pieces and parts. The old Master Builder may have had a saw, a plane, a hammer – the new Master Builder has architects, mechanical engineers, and concrete suppliers. He must know how to use all of those resources to deliver value to the client.

Cost-Plus does not have to produce value; it only has to produce cost. At HBE, we produce outstanding value, which is quickly and easily identified by our clients. This means we spend more time and money looking at options because it is in our economic interest to find the most effective solution and the greatest value for our clients.

At HBE, Design-Build works because everyone is involved in the process from the beginning – our clients, our architects, our engineers, and our builders. We don’t want designs that can’t be implemented efficiently and effectively. We design our buildings to be built, operated and used. Early planning is critical to the success of a project. You can save big money early in the planning process. That’s where millions of dollars can be saved or wasted many times tens of millions. In developing a project, you can save tens of hundreds or thousands of dollars and sometimes a million or two. In the building process you can save nickels and dimes by comparison. The big differences come in the early planning. That only happens when everyone is engaged from the beginning. Design-Build is not about everyone trying to get a bigger piece of the pie. Design-build is about working together on the pie. This is where you need the leadership of the master builder. You can put the best folks in the world together in a room but without a Master Builder they won’t come up with the best solution.

The Master Builder must make sure that all of the various disciplines communicate with each other. Engineers, architects, and construction people often speak different languages – and stress different values. If they don’t figure out how to talk to each other and share those values – nothing gets done well. You all remember the story of the Tower of Babel. I was just a kid back then, but I remember it as one of the first great design-build projects. Those people were going to build a tower to Heaven – reach right up to God. Everyone was working together – because they all spoke the same language. But God wasn’t having any of THAT, thank you.

So just as the architect was suggesting that the tower needed a marble atrium, God made them all speak different languages. And that was the end of THAT project.

Design-build works only when we’re all speaking the same language. Architects, engineers, and builders need to be able to share their ideas and concerns in a way that makes sense to everyone in the room. And they have to LISTEN to each other. We’ve all been in meetings where the guy who talked the most had the least to say. You don’t learn by talking – you learn by listening. You have to listen to find out what the building’s about – what the client needs – where the value is for the client and how we can maximize that value. A Master Builder is like an orchestra conductor. It is the conductor’s job to lead 100 musicians to make music but while respecting what the composer intended. In the same sense, the Master Builder has to be a broad perspective guy who directs the efforts of his team. Of course, it has to be in the context of the client’s priorities and values. Recently, we presented designs for a nursing unit in Indiana. We designed it with a mixture of private and semi-private rooms. One physician on the board insisted that all the rooms be private. That led to a lot of discussion. That is something the board will have to decide, not us. Our job is to give them information about costs of the various options but not to make the ultimate decision. Once they’ve made their decision our job is to build the facility they have decided is the best value for them. You know there are a lot of awards around in our business – and it’s fun to win one now and again. But the only award that means anything to me is the one that comes from our clients, the people who use the building we build. At HBE we design buildings to win awards from our clients. There is a real need for creativity in the design-build process. But creativity must be directed to solving real problems – not  created or imagined ones. I’m talking about true creativity – looking for the best way to make a building do what it needs to do both aesthetically and functionally.

Once we know our client’s needs and budget, everyone at the table is focused on finding creative practical solutions for every aspect of the project. They work as checks and balances to each other. I think a lot of us forget what business we’re in. We’re in the building business. We are not in the master planning business, or the drafting business. We are in the Building business. The value for everyone involved is in the product – the finished building. We spend the required amount on planning to maximize value; sometimes that amount may exceed any preconceived budget. That’s because we consider it so important to understand the client’s need and dealing with the constraints of budgets. We feel strongly that for a project to be successful the client and we must have to reach a mutual understanding of these wants, needs and budget. That is a difficult and time-consuming process, but it’s the only way a project can achieve the value we talked about earlier. This is the heart of design-build. It’s all focused on the finished building. 40% of our business is for clients who have already been through a design process. In some cases they have invested a lot of money in working drawings and consulting services that do not meet their needs – nor can they afford. In many cases they cannot afford to build projects they have just paid to develop. By understanding and then concentrating on what’s really important, we have often delivered a building that works for them at a cost they can afford. It’s easy to over-engineer a solution. Looking inside today’s hospitals and you’ll find very complicated mechanical and electrical systems. That’s because we have demanding complicated needs – so many changes of air, difficult balances along with energy considerations. The tendency of engineers is to design using the latest stat-of-the-art systems. But mechanical and electrical systems are almost never designed with the operators in mind - they are the people who will ultimately determine the value of the systems. Over the years, I have seen millions of dollars of abandoned systems that were too complicated or too sophisticated for the people who have run them. This does not produce value to the customer. It produces negative value. But it does produce cost. It is the job of the leader – the Master Builder – to see that this doesn’t happen. The latest state of the art equipment may be attractive from an engineering point-of-view but if the client can’t operate it - it has no value, especially when a simpler and less costly system that will in the long run provide better service.

At HBE: If we don’t do our job, we don’t get paid. Our business is to design and build to meet clients’ needs – and to be paid for our work. If we develop a project that can’t be financed, we’re not paid – and we don’t deserve to be. If we develop a project that doesn’t meet our needs, we’re not paid – and we don’t deserve to be. But you know what? That doesn’t happen. Because we design buildings to be built. To be a value for our client. To be a value for us. It’s not magic. It’s not genius. It’s surely not cost-plus. We think hard. We design hard. We work hard.

It’s what we do every day at HBE. I’m proud to have you all in my building. I’m happy to have spent this time with you. Thank you.