A $580 million hospital replacement project boasting a 21st-century design also reflects the diversity of the current and future U.S. contracting industry.
More than a year after Northwestern Memorial Hospital in Chicago broke ground on its 2 million-square-foot replacement, executives are reaching their goal of awarding 25% of the hospital's contracts to minority-owned businesses. They also are slightly ahead of their target to contract 5% of construction dollars to businesses owned by women.
"We see this program as good business and a good-faith effort for the community," said Kathleen Murray, Northwestern's executive vice president and chief operating officer.
Northwestern set aside $100 million of the project's $300 million in construction spending for minority- and women-owned businesses.
The building project includes a 496-bed hospital and an ambulatory-care center. Northwestern is the anchor of Northwestern Healthcare, a system of nine Chicago-area hospitals. Northwestern Healthcare, with $3.5 million in assets and 3,200 acute-care beds, is one of the Chicago area's largest systems.
Northwestern sent requests for proposals to minority- and women-owned contractors and subcontractors and enticed them to participate by agreeing to pay all their general liability and workers' compensation insurance business. The total premium for the life of the project is about $23 million.
"With an owner-controlled insurance program, contractors don't have to worry about workers' compensation and general liability costs, which typically keep smaller subcontractors from bidding on projects," Murray said.
Depending on the kind of construction work being done, insurance costs can equal 5% to 7% of bid costs.
"We required contractors to reduce their bid by the amount of insurance costs they would have had as part of their bid," Murray said. Thus far, Northwestern has broken even on what it would have cost the hospital if it hadn't paid the contractors' insurance.
However, future premiums could be lower if the project has few work-related injuries or accidents, Murray said. As of last week, the project celebrated its first 50,000 hours without a work-related day off from an accident or injury, Northwestern said.
Northwestern also hired minority-owned Seaway National Bank of Chicago to service a disbursement account for contractors and subcontractors on the project. With some $235 million in assets, Seaway is the largest African-American-owned bank in the country.
Northwestern's account at Seaway maintains a zero balance, but it serves as a clearinghouse for immediate payments to contractors and subcontractors.
Richard Abrams, Seaway's executive vice president, said banks are able to adapt disbursement accounts for practically any need. "We tailored the account around the hospital," he said.
From Seaway's perspective, the millions of dollars going through the bank aren't a major financial benefit.
"It hasn't impacted our institution as far as earnings or growth, but we'd like to get more of their business in the future," Abrams said. "We earn a buck a transaction now." The transactions only generate about "$50 to $60" a month, he said.
But Northwestern has been able to guarantee prompt payments to subcontractors who otherwise may have to wait between 60 and 90 days to be paid by contractors.
Other key elements of Northwestern's program include a resource center on the project site where minorities can inquire about job opportunities.
Construction is scheduled to be completed by January 1999, with more than 5,000 workers expected to be involved during the life of the project.
As of Feb. 1, 29% of the project's journey workers were minorities, and 81% of the laborers were minorities; 10% of the journey workers were women, and 14% of the laborers were women.
"We want this to be a real effort, so we made sure that the businesses (actually) employed minorities and women," Murray said.
The project's success has led to inquiries from the city of Chicago, which is considering a similar program for attracting women and minority contractors to other construction projects. Cook County, Ill., which is planning to replace the aging Cook County Hospital with a new $570 million structure, and the University of Alabama at Birmingham, which is building a new $15 million rehabilitation hospital, also are looking at Northwestern's efforts to include women and minority contractors.