There’s no longer room for complacency in healthcare. As health organizations’ profit margins have weakened and budgets have tightened over the past decade, leaders must bring laser focus to operations, costs and efficiencies. Typical hospital profit margins are currently around 2%, but leading advisers suggest those could drop significantly into the red over the next 10 years without significant change.
It’s time for new ideas. No longer can health providers simply do what they’ve always done. It’s time to look to other industries, it’s time to push hard on innovation and it’s time to revamp how we design and construct our facilities.
Most healthcare facilities to date have been constructed under a design-bid-build model, or DBB–a three-party paradigm in which the owner contracts separately with both a designer and a constructor. As a result, the process is very linear and prototypically fragmented with sequential design, procurement and construction. Moreover, the division between designer and constructor can often lead to increased errors, disputes, higher costs, delays and additional risk for owners.
Data prove it’s an ineffective system. In a 2015 KPMG report, 53% of owners reported having suffered one or more underperforming projects relative to budget and/or schedule in the previous year and only 31% of the owners’ projects’ came within 10% of budget in the previous three years. Still, even with this evidence, the industry continues to rely on DBB heavily.
Fortunately, the healthcare industry’s openness to change is also influencing design and construction efforts. The same 2015 report cited above revealed 43% of owners called a more integrated project delivery approach “the most exciting trend in facilities” in 2014, versus just 8% in 2013. Some healthcare organizations have been finding success leveraging single-source delivery options such as design-led, design-build for better results relative to cost and schedule. Under these delivery models, the design and construction teams are one entity, resulting in enhanced collaboration. Also, these delivery models significantly reduce owners’ risks relative to litigation as they’re contracting with one entity as opposed to multiple parties that could sue one another.
These single-source delivery offerings are a better route for healthcare organizations. They allow chief financial officers to realize the most cost-effective solutions and maximize investment via real-time price tracking against target project cost throughout design and construction. They allow COOs to leverage concurrent actions across the design/build process to eliminate redundancies. They allow legal teams to feel better about contracts.
Allegheny Health Network in Pittsburgh turned to design-led construction to create its Wexford Health & Wellness Pavilion. Having identified a need for diverse options focused on coordinated wellness in the Western Pennsylvania marketplace, Allegheny wanted to bring a transformational healthcare facility—that would improve patient convenience, care coordination and quality—to market as soon as possible. The design-led construction model allowed them to achieve a 22-month design and construction schedule (construction completed on time in 18 months—an estimated 30% faster than the DBB model would have achieved) while also adhering to an early established $57.4 million guaranteed maximum price and incurring $0 in error and omission change orders.
AHN isn’t alone. Sharp Chula Vista Medical Center in San Diego leveraged single-source delivery with its recent emergency department expansion. This delivery method helped the medical center team devise a new layout that improved operational flow within the ED, decreased the number of project phases from three to two and reduced the project schedule by nine month.
Northwest Community Hospital in Illinois leveraged a design-led, design-build approach to expand and renovate its day surgery space. This integrated method allowed NCH to construct the project across four phases and ensured the unit could function at full capacity throughout construction—ensuring revenue streams and operations were uninterrupted. In both instances, these delivery methods helped the organizations meet budget and condensed time frames that resulted in speed-to-market advantages.
Healthcare organizations across the country are looking for ways to improve their bottom line and operating efficiencies. But every time they turn toward historical multisource construction delivery models, they’re putting these priorities at risk. It’s time for the industry to stop dipping its toe into single-source delivery and embrace it as a path toward reduced risk, accelerated revenue capture, improved project timelines and better performance.
Deborah Sheehan is executive director of client strategies at CannonDesign.
