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.
