Improving contractor procurement must remain close to the top of the list in our search for positive change. George Nash joins us to share his personal experience in 35+ years with traditional versus alternative procurement methods. We'll talk about what has worked and what hasn't, and we hope to inspire you to lead positive change in contractor procurement wherever you are in the construction industry!

Transcript:

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00:00
Speaker 1
Good morning. I'm not saying it works. I wish you, Godspeed with all of that. I think that's really nice. You know, I'm not sure what kind of success you're gonna have with that today, because the world, my friend, has changed. Right? A lot of American construction workers, they have different needs.

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00:18
Speaker 2
They have completely different needs.

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00:20
Speaker 3
These awards have a huge, like, criteria that you have to fill out, and they usually have a community service or community relations portion, you know, the most with a high performance value. And, you know, sometimes it's 11 o' clock at night.

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00:38
Speaker 1
Funny, isn't it? Yeah. Not for me.

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00:41
Speaker 3
Not for me.

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00:42
Speaker 1
At 11 o', clock, I am guaranteed to be snoring.

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00:45
Speaker 3
So.

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00:55
Speaker 1
It's morning huddle time and we're having technical difficulties. We're live.

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01:00
Speaker 3
Good morning.

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01:04
Speaker 1
It's a part of the live experience. Embrace it. Own it. I apologize to our audience for anything that is annoying or glitchy, but I'm on location today with a client and operating in their conference room on a guest network that I hope is going to hold up. George, you're on location, too?

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01:24
Speaker 2
I am. Good morning. I'm in lovely Urbana, Virginia, at the Chesapeake Inn in their little conference room, and I can't wait to share with the crew why the heck I'm in Urbana, Virginia, today.

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01:39
Speaker 1
It's not. It's not for the oyster. I'm going to be in Urbana, Virginia, for the Oyster Festival. No, that's not me this fall yet. No, that's not why you're there. You have different reasons. Stacy, how are you? It's been so long.

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01:51
Speaker 3
I know. Well, I told you, I'm going to London and I'm really stressed out about the trip. My brother just landed last night. We're going for my other brother's wedding. So the scary part is the way home. The funeral takes place. So I have to head back into London when the funeral takes place. So I'm like, am I gonna make it back home? Am I not? I don't know. We'll see.

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02:17
Speaker 1
You're gonna have a lot of excitement.

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02:21
Speaker 3
Lots of stories, I'm sure.

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02:24
Speaker 1
Totally. Well, we're. We're all. Does that mean that you won't be on next week? Stacy, am I gonna have.

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02:29
Speaker 3
I will not. I have a sub, Seth Farger from Construction Video Pros. I think I'll be on the plane. So if I have Internet, I'll check in.

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02:41
Speaker 1
Right.

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02:42
Speaker 3
If.

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02:42
Speaker 1
Hey, if you're not on the plane, you can always just join the show. Yeah.

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02:48
Speaker 3
In the airport.

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02:50
Speaker 1
Yeah, exactly. Yeah. Live from Heathrow. Well, good deal. So, so let's jump into it. Today we've got George Nash and George is, I mean if you're involved in the construction industry in D.C. maryland or Virginia, chances are pretty good that you've had some exposure to George over the years. You've been involved in ABC on a national level, chances are that you've been exposed to George over the years. George is a leader in the industry, a good personal friend of many, including the two of us. And we're having George on today to talk about something that, you know, at the morning huddle we're always talking about driving positive change in the building industry and there are very few sources of negativity that are so intense as crappy procurement norms.

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03:36
Speaker 1
So we're going to talk about alternative procurement and ways to drive positive change through alternative procurement and hear George's personal experience and stories as it relates to that. So with that as sort of the intro, George, I think the first question that I have is when it comes to alternative procurement, the alternative to what is the traditional or typical procurement look like?

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04:05
Speaker 2
So Jack, for so long in our industry, the typical procurement on the public side and private side, mainly the public sector, was contractors submitted a bid, they were opened by the owner, read out loud and the low bid won the job. Yay. As some of us might say, that's driving the price to the bottom. And many private developers over the years have gone to different models, negotiating privately, doing open book GMPs and that's been in the marketplace for quite a while. Some develop, do that one one with a single contractor. Some developers will do it with multiple GCs through that pre construction process, bid the job to a select list and then negotiate with their, with their low bidder.

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05:00
Speaker 2
It's really been, I'm not sure what the timeframe has been but you know, maybe the last 10, 15 years where we've seen the public sector start to shift away from their rock bottom design, bid build process and go to these alternative procurements and that could be design build, that could be CM at risk, that could be CM agency. There are a lot of, there are different models that different government entities use throughout and Virginia created a law, I should know this but it's probably been on the bookshelf 20 years, 15, 20 years that allows on the public sector to go to these alternative procurements. And, and Chad froze up on us. Stacy.

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05:49
Speaker 3
Oh did he.

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05:52
Speaker 2
Look so good? So, so there he is, he's back a bit.

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05:56
Speaker 1
I'm like Watching it happen. It's a painful experience when you're freezing and you can see it, you're like.

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06:05
Speaker 2
I'm glad it's you, not me for once. And the reason I'm so excited about today, why I'm in Urbana, Virginia is that right across the river in the Lower Northern Neck, our Branch of Builds team has a three day kickoff with our design team with an owner and their stakeholders for three days to start the process on a design build project. And I know we'll get into this a little bit later, but to me there's nothing more exciting in the very beginning. This is before a drawing has been made to sit down with the owner and their stakeholders and find out who, what's their schedule, what's their budget, what are their needs? And really, you start with what are their needs? And you work to their budget and their schedule. So really interesting that we're talking about alternative procurement.

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06:52
Speaker 2
And I'm going across the river here shortly to kick off for three days, so.

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06:58
Speaker 1
So you've given some great examples of what alternative procurement looks like. Share some examples of the good, bad and the ugly of your personal experience in alternative procurement.

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07:12
Speaker 2
So I've had a project that had almost all of it right at the very beginning of the kickoff, similar to what I'm going today. The director for the owner set us all down and told us if he hadn't, if we had not read Stephen Covey's Speed of Trust, we should, because this relationship is all about trust. We all have to be on the same page. We all have to be devoted to the end goal. We all have to figure out problems together as a team. A and E had a contract with the owner. It was a seam at risk project. We had a contract with the owner and the owner had a fairly sizable team involved as well. And it was the first couple months, it was incredible. The team bought in. We were solving problems left and right.

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08:02
Speaker 2
We started every meeting with what's our goals, the budget, the number of students and the schedule. Right. These were all fixed. And we reminded ourselves that was our goal, that was our big target. And I don't know, about five months into that process, the director who had us all read Speed of Trust wasn't at a meeting and a problem came up and it was a pretty big problem. And the owner's team had. And the A and E looked at branch and said, how are you going to fix this? I'm like, well, that's not a really good team building exercise. And it was very, it was an uncomfortable moment for us. We got to the meeting the next day, the director called me, I was on the road and he said, George, I understand you guys had the not so good meeting yesterday.

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08:58
Speaker 2
I said, yeah, we did. And frankly I'm really disappointed in the team. And he said, before you say anything else, he goes, so am I. He goes, don't worry, we're going to regroup, we're going to get through this issue as a team. Like we said, we're going to. So we had a right, we had the really good. It got bad and ugly and then it got really good again. So. And yes we did and we did get through the issue. And to me that's really what this alternative procurement process allows you to do.

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09:28
Speaker 1
It requires. And I think what I pull away from that story so much is that it requires project leadership. It requires, it requires project leadership on the owner side probably so importantly. So, so talk about for me, what does an owner have to want and have to value in order to not do things in some version of the old fashioned way?

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09:54
Speaker 2
Yeah. I think I'll speak specifically to the D.C. maryland, Virginia market. We've got some public sector customers who have more staff and more expertise than many of the general contractors that bid their work. So they don't need our expertise. If you start to go out in some of the more urban areas, the counties and the programs are smaller and when they have a project, they don't have all this expertise on their team. Right. They really need a contractor and their trade partners to come in the very beginning when with the A and E again it could be CM at risk, it could be design, build the different models could apply. But what they really need is a true partner and to get them through from the, to help them track their soft cost. Right. Because they again, they do a project every five years.

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10:54
Speaker 2
They don't know. And I think what's encouraging, Chad, is that we have seen some of our larger public sector clients in this region start to go to alternative procurement. And I don't think there's any, what's the word I'm looking for. There's no surprise that is coming in the middle of coming out of a pandemic. Where are the workers coming from? And I can't get steel joist regenerators for 12 months.

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11:25
Speaker 1
Yeah, yeah. Events right now that owners I think are realizing that they need to lean on their partners more so than ever before. And, and I'm hearing what you're saying is that if you're an owner and you think you've got it all buttoned up, like you can handle the whole thing. You just really need somebody to build the damn thing. Yeah, maybe your tendency and it may be correct, is to say, you know, we'll bid it, we'll scope it. We're gonna figure out, right, we're just gonna figure out who the, you know, most qualified low bid is because we as owners are capable ourselves of qualifying that. But I, I would argue that ownership, who are creating that the majority of open book GMP negotiated jobs, okay, that are happening between owners and general contractors, that is a version of alternative procurement.

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12:28
Speaker 1
But, but then the bidding exercise that the general contractor is often then forced to do with the subcontracting community, that's pretty traditional. You know, at that point it's sort of, you know, low bid, you know, at that point. How do you, how do you square this if you're a. I know your experiences as a general contractor, George. Right. But, but you know, as a, for the subcontracting community that's operating in this open book GMP environment, which I think is, is extremely common in the commercial sector. How, what would you say to a subcontractor that's saying, sure feels like old fashioned, you know, procurement to me, it's just loaded. I mean, what's the difference for me?

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13:10
Speaker 2
So I think there's a couple different approaches. Some projects need and allow for a design assist. We'll just talk about the major trades of mechanical and electrical plumbing for right now and maybe site work, right. That allow for the contractor to interview just like the process went through, interview bring certain qualified partners to the table. They tell what their general conditions and what their margin is going to be and they commit to an open book and they work with the design team to keep the job on schedule and under budget. That is one method I would say most alternative procurements. Chad, we have to commit as a construction manager that we're bringing the best of the best. So our list of electrical firms is not 10 long, it's probably 3 long.

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14:05
Speaker 2
And if it's a job that I know about, I can guarantee you that for six months prior, if not longer, as long as I have, I'm chatting with those folks to let them know that, you know, we've got a project coming up, it's not going to be out in the street. Sometimes there's budgeting, sometimes there isn't. And I, I really think that is the difference because at the end of it, at the end of the quote, bidding process. So first off, we develop a scope of work and a schedule, site logistics. They have all that information that you don't have on a lump sum, low bid job and they're allowed, they bid it. There may be some alternate value engineering. They come in for an interview.

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14:47
Speaker 2
So, you know, we're making sure that the scope is correct, the schedule is right, their safety is correct, their quality is correct. And we're teeing all that up to ensure that we have. So in that model, the trade partners have the opportunity to, to win a project when you're not necessarily sometimes a little bit.

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15:10
Speaker 1
Right. And what I think I'm hearing you say is, you know that yes, it's still competitive. Yes, price is still a factor. But you're being interviewed. First off, your general contractor is bringing in a select group. So, so you can rest assured that you're going to be up against light competition. And then second off, once that has occurred, there's going to be more consideration than just your price as a part of the evaluative process. To me, I'll just say what I always tell my subcontractor clients is it all goes down to the general contractor's ability to sell value to their owner so that they have the credibility to sit across from their owner and say, these are the right teams, this is the right. Right. This is the right people in each trade. I know that this one's 4% more, this one's 2% more.

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16:03
Speaker 1
Right. But they work better together. They've got a proven track record and they know this job inside and out. We're going to deliver. If and if you as a general contractor aren't, you know, aren't there with your owner. Right. You're, you're, you might not be able to get there for your subcontracting community.

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16:19
Speaker 2
Yep, agreement.

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16:23
Speaker 1
All right. So, you know, one of the other.

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16:25
Speaker 3
Things.

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16:27
Speaker 1
That, I guess just in general, I think it seems pretty obvious that, you know, you feel like more scenarios than not it makes sense to do something other than low bid. I think by and large the industry is philosophically aligned with that. What keeps the industry from taking the next step and not just being like bought in conceptually to the idea that, right. Low bid, low bid is probably not the best idea. Right. What keeps them from actually taking the leap and doing it differently?

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17:03
Speaker 2
Unfortunately, the words, that's the way we've always done it. And I think that's one problem that's a paradigm that has to be broken. Some public sectors don't have the ability to go to an alternative procurement. So that's, you know, there's a legal law aspect to that. And again, going to the model of the end users who have six project managers on their staff who have scheduled and phased and done everything that's needed that we would do as an added value they just can't break away from. We've done all the work, we teed this job up, we've coordinated the drawings, we've caught all the problems, blah, blah, and we're going to put it out to bid, and that's there. On the public sector, I think on the private sector, especially in today's environment, you're back to the trade partners.

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18:13
Speaker 2
Today's environment, there's so much risk out there with availability, manpower and availability of materials and price escalation that we're all dealing with that. To me, if you're trying to get through this period focusing on October procurement, whether you're a CM or a trade partner, there's enough out there to do that. It's just a matter of can you make, make the most out of those opportunities?

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18:47
Speaker 1
So, you know, the jurisdiction. I want to focus on the jurisdictional piece of this for a second. So jurisdictional laws may prevent it. Is anybody fighting to change those laws? And, you know, any. I'm, you know, I'm literally not sure of how that works, how jurisdictions made the changes in the past and what.

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19:08
Speaker 2
Can we be doing on that at Virginia? Right. They, they have, they pass a law that covers the entire state and then each county has to adopt their own guidelines. We know in Maryland that they, that they, that there are certain counties that do different types of alternative procurement. There are certain ones that don't. And it's, and it's a matter of has that county gone in? I don't think anyone's fighting it. I don't think there's a, it's just a matter of, you know, has someone had the wherewithal to go in and work with the county procurement office and get those. And get that law on the books or get that regulation on the books, so to speak.

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19:50
Speaker 1
Yeah, I think that the only fight that I'm aware of is a fight of sort of educating people and, you know, kind of the good work that people at the Design Build association are involved in. Right. You know, that type of stuff. The, you know, Lean Construction Institute, you know, all these people are trying to kind of put out content that, that sways people. But nobody's lobbying. There's nobody fighting necessarily. Yeah, that's interesting.

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20:19
Speaker 2
And we again, we've seen that in our region pop up in different forms.

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20:25
Speaker 1
And at the end of the day, why these, the particularly on the private sector, the developers that have that kind of firepower, that kind of staff, why aren't they just GC in their own work? What do you see in there? What's your, what's your feed, you know, what's your feel there?

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20:40
Speaker 2
They're not stupid.

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20:43
Speaker 1
I had to put that one on a T. I'm sorry, I mean, you know, taking the joke out of it, why wouldn't that.

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20:51
Speaker 2
Why did I just call a contractor stupid? Self inflicted wound. So first off, they're a lot of time. They're, they're finance their financing model. Don't. Doesn't allow that. There are a couple of developers in our market that build for their own account. Sure. I think that there are some larger developers and we'll talk about high rise multifamily. Right. That will. In our D.C. metro area, their model is to have two or three general contractors provide preconstruction or free construction during a period of time and then they bid the job. The two or three. And one side of the argument you could say, well, why do that? Well, the construction manager, GC said well you know what, I've worked on this client for 20 years and this is their model.

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21:51
Speaker 2
And we're okay with it because we get every two, every four or fifth job, whatever it is our team gets. And we, and we're invested in that and we're okay with that. And it is. All I can say is that model works for those contractors and that developer. When you have a developer who doesn't have that firepower, who may be doing a job every three or four years, they're the ones who want a true partner from the very beginning. And we have a couple of those. And I tell you, they're awesome to work with because they share exactly what their proforma is in the very beginning.

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22:30
Speaker 1
Yeah, yeah. And I think what you described with the, you know, three GCs that provide comprehensive econ services and the pile of subcontractors that assist in all that endeavor, they kind of know what they're all getting into. But you know, when you and I talked about this, you know, in the past, we've had conversations about this in the past One of the things that I really loved is that you said, yes, but it works. But you don't get the kind of relationship, you just can't get the authenticity and the intimacy that you really would get if you weren't competing. Because in that environment, you and I, we all know that subcontractors are holding back right there. I mean, the incentive is to not tell you what the problem with the plans is.

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23:24
Speaker 2
We're not giving up our entire goods totally. We're waiting till the owner says it's going to be your job. And oh, by the way, did you consider this and this as potential cost savings? Because why, I would argue there's a lack of trust and that in that model, that you, that you. It's not that you don't trust and don't like the client. You do because you've done lots of work. Sure. And you know that they're awarding you the project. Yes. Because you're low, but because you performed for them. Right. Your team is being selected. Again, I get it.

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24:01
Speaker 2
But when we talk about meeting in the very beginning when they just have a, we want to build X amount of apartments on this property in Washington and I have no drawings and you sit down with a true partner and say, hey, let's talk about budget, schedule, design, team, all that together. Again, it's a different. I love the word relationship and intimacy that the team is bought in from the very beginning.

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24:36
Speaker 1
Yeah.

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24:36
Speaker 2
Again, some developers do that.

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24:38
Speaker 1
You, you have to have. The earlier that you award somebody the project, the earlier that you tell somebody you're in, you don't have to worry about not winning the work or your efforts being not rewarded. Right. You're in. The earlier you do that, the more possibility you unlock in terms of partnership and Right. Your collaboration. However, there's a leap of trust that really has to occur where an owner believes that's what they're going to get in return. Right. And, and so if there's a message that you would have for owners and you know, just a bite sized nugget here. What, what could they do to bridge the trust gap?

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25:30
Speaker 2
So I'll talk to the owners who develop a job every three or five years and it really, this applies to the owners and the contractors. Right. Don't have your first conversation when you know about a project. Go out and meet a project manager and superintendent for a firm that you think you might want to work with, that you heard good things about on Another project two years before your job hits the street. And the same thing with a contractor. Go develop that relationship. Invite the developer to that job and develop that. You know, develop that relationship early. Right. That's. That kind of stuff is BD101. But a lot of times we get so busy that we forget that if we want a true relationship.

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26:19
Speaker 3
Right.

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26:21
Speaker 2
Before I said, before I asked my dear wife if she, we. We got to know each other. I still don't know why. Yes, she's still kicking herself after. But it's, hey, it's a, it's the same model each other. We have to understand. From a perspective. We need to understand what the developer is all about.

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26:59
Speaker 3
Yeah. Okay. I think we're glitching up a little bit.

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27:06
Speaker 1
You're good. You're good. Stacy. I think it's time for audience questions anyway. Go for it.

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27:10
Speaker 2
Good.

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27:11
Speaker 3
So I have a few. I don't and I apologize if you already answered this one. So just let me know. Casey has two questions. It might be addressed later. But how is the change order processing improved in the method?

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27:27
Speaker 2
Oh, so on the public sector side, and I think that the private sector applies this to, on a couple of our projects. Right. We create a contingency up front. It's defined what that contingency is used for. If there is a hole in the scope that somehow we missed with the trade partner, that's a, you know, that's coming out of the contingency. If the, if the A and E had a couple doors that were supposed to be right handed swing, but they designed this left handed swing and we caught, we didn't catch it early enough that those kind of items are funded out of a contingency. Usually there are not scope ads by an owner.

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28:12
Speaker 2
I say usually because I said in the very beginning, you define the scope, the budget and the schedule and once you move forward with that final gmp, you know what you're delivering. Once in a while an issue will come up, but again, it's all open book and you've developed a level of trust with that client and they have some funds set aside to adjust that if they want to add something. Usually they don't.

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28:41
Speaker 3
Okay, great. His second question was, are the finishing contractors involved in this process like the major subs are or are they left out as is the normal case?

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28:56
Speaker 2
I would say in A, in this type of environment, we are getting A, we're getting budget pricing early and B, we're notifying our trade partners early that the project's coming up and why I just mentioned it multiple times. Manpower, materials. The last thing we. It doesn't matter if it's flooring, tile, painting, wall covering, drywall, ceilings. The last thing we want. We want is to tell an owner that, you know what, we forgot to talk to the flooring guy and sorry, your job's coming here three months late because the carpet's not available. Right. That's not doing our job. So yeah, these alternative procurements all. All the. I would consider the finished trades are part of that major package.

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29:43
Speaker 3
Cool.

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29:45
Speaker 1
Are they even involved in the design assist conversations? I guess insofar as they're informing on materials availability and saying, you know, look, you might want to consider something else.

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29:55
Speaker 2
Yeah, typically not. Sometimes if an owner is trying to decide on a different. A certain type of floor finish, we might take them to another project. You know, whether they're trying to side between terrazzo and polished concrete or different types of flooring, we'll take them to a project. And of course we're doing that. Finding out who that trade partner did that work and using that trade partner as part of that so they can answer any questions. That to me is the best path to get them involved if one's needed.

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30:28
Speaker 3
Okay. Have you seen technology play a role in changing procurement?

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30:41
Speaker 2
I don't know. I think some of the methods. Right. The lean we talked about earlier, a branch. We call it team center planning. It's not really a technology. Right. It's a method of scheduling and partnering that we apply on all of our projects, whether they're alternative procurement or design bit built. I would say the modeling. The BIM modeling has certainly helped. Right. If we can get a model from. Or when we get a model from the. We actually will put that model. We'll develop our initial budget off the model so you can have a meeting. And let's say the owner said, you know, I really don't want tile on all my bathroom walls. Can you change that to paint?

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31:31
Speaker 2
And the estimator pre kind manager can go right into the model, change that and the owner can see it live with that impacts or some of the stuff that's the technology has really helped us. Not in the procurement side, but in the delivery side.

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31:49
Speaker 3
Okay. Well that's all we have for questions except for Mark wants to know when you're going fishing next.

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31:59
Speaker 2
Mark really wants to. Let's see, what am I going fishing next? I think October.

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32:05
Speaker 3
He wants an invite.

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32:06
Speaker 2
I think Mark's not coming. He's never invited.

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32:12
Speaker 3
Bad luck.

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32:14
Speaker 2
No, it's not just bad guy. Really?

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32:16
Speaker 1
Oh, that guy. Oh, yeah. Agreed. All right, guys. George, thank you so much for joining us today. I think, you know, bringing the topic to a public square and discussing it regularly, helping to influence maybe people to take a shot and to get more involved in changing the old ways, you know, of doing things and buying into the idea that, you know, if you're really looking for a partner, the way you're doing it isn't the way to do it. Yeah, Right. So that's a fantastic message and we really appreciate you joining us today. Any, any parting words?

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33:02
Speaker 2
I really appreciate the opportunity to be part of your morning huddle today and kick off what Season 3.

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33:08
Speaker 1
Season 3.

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33:09
Speaker 2
This has been awesome. And I'm on different social media platforms and you can connect with me via our branch builds website. If anyone has any other additional questions or if you're a trade partner out there who wants to get connected with our team, please reach out to me. So thank you very much for having me. I appreciate it.

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33:29
Speaker 3
Thank you, George. See ya.

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33:32
Speaker 1
All right, Stacy, let's do a little wrap up here. First things first, new feature to our weekly show. The we're calling it the Steel Toe Marketing tip of the week as Stacy's business is Steel Toe Communications. And Stacy, what's the one, you know, simple thought that we can carry forward this week from a marketing standpoint.

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34:00
Speaker 3
So I think when you guys are doing video just to make sure that you understand most people, about 85% of people watch video without. So make sure to use captions. And the easiest way to do that is to visit rever.com and you can plug in your video and upload it within 24 hours or less. They'll shoot out the captions for you so you don't have to sit there and listen to your video and retype the captions out. So that's just a little tip.

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34:30
Speaker 1
Stacy, help us figure out captions for this show.

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34:34
Speaker 3
Oh, I totally can.

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34:36
Speaker 1
All right, fantastic. All right, guys, we will be back with you every week for the next 11 weeks as three of the morning huddle. Next week we are going to be having Ronnie Brewiard and Taylor Langley, which is a tandem, a force of marketing and business development that work at Chesapeake Contracting Group to talk to them about how they've differentiated marketing and business development in their organization and as a general contractor, how they have approached the strategy together and been such effective team, which I think they really have been. So we look forward to that conversation and as always, make sure that you are liking and subscribing. We now have a a LinkedIn page for the morning huddle. So make sure that you like the or follow. That is our huddle page and we have a YouTube channel.

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35:40
Speaker 1
Make sure that you're subscribed to that. We know a lot of people are switching over to watching YouTube live and as always, this is available on Apple Podcasts and on Spotify Podcasts, as well as other recorded formats in video form. So if you missed it or you just got the tail end, you can always go back. Thanks so much everybody. Stay.

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36:01
Speaker 3
Thanks. Have a great day.

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