The Construction Insiders: Episode 1
Jason: Welcome to the Construction Insiders podcast, where our host, Jessica Busch, talks with industry experts about new trends, best practices, and how to successfully deliver construction projects in today’s market. Whatever your role on a project, we think you’ll find these discussions interesting and worth your time.
Jessica: Thanks, Jason. Alright, welcome to the Construction Insiders podcast. This is our first podcast and we’re sitting down with Pete Melucci. He has been with our firm for as many years as I can remember, but he’s been in the industry for more than 30. He is a veteran, he knows what he’s talking about when it comes to the MEP space and construction in general, so we couldn’t think of anyone better to sit down with for our first session here. He specializes in everything from HVAC to fire protection and plumbing systems. Cost estimating is his jam and that’s why we’re here, to talk with him about the value of using published metrics when costing out and estimating these large-scale projects.
Alright, so Pete: when talking about these published metrics and the value they bring and the value that our clients see from us using these metrics — what is that value? And why use them? Why not use just our own company metrics? Why go to these published sources?
Pete: Thanks for having me. There’s actually a few reasons. It’s kind of interesting, I’m very fortunate. I’ve worked on the subcontracting end of the business for many years and I transferred over to the general contracting end of the business, and I’ve been about 12 and a half years with Cumming on the consulting end of the business. What I’ve learned in that time is that many of the different companies and groups in the industry are not fully aligned on their approach to how they’re estimating or costing projects. So the subcontracting community takes one approach, the general contracting community will take a second, and on the owner’s representation side that we are currently, we take a third approach, and that’s not even inclusive of all the other companies that have a home-grown or proprietary method for costing and pricing. There’s a lot of misalignment when we’re comparing or discussing, in some cases it’s to the point where firms cannot even communicate as to what’s included or not included because they have trouble even getting on the same page. And that’s something I’ve realized over the years that necessitates these metrics to be more uniform across the industry.
Jessica: So, it not only benefits us working with our partners, it’s also the end game to benefit the client and the project and that whole process throughout — is that what you’re saying?
Pete: Yes, absolutely. In other words, our clients can become frustrated because if a subcontractor has generated his estimate and he has different opinions as to labor or material, a different firm may not [share those opinions], and they’ve not constructed any of their estimates with those similar metrics. So, at that point it becomes almost impossible for them to align. Whereas, for example, if a mechanical contractor had been using MCAA standards for piping productivity and say a general contractor reconciling, or an Owner’s Representative used the same, right off the bat from the beginning of the process, they’re already aligned on which metrics they’re using and the discussions can be more limited to multipliers or other aspects of their approach.
Jessica: You mentioned that one method, are there other metrics or other published metrics? Is there one universal? Is there a handful? How do you navigate that and what does that look like?
Pete: That’s a great question. For example, MCAA, which I just mentioned, is for piping; there’s SMACNA, which is the Sheetmetal and Air-conditioning National Association, for sheet metal; NECA for electrical, those metrics are published. They’re not uniform for every firm, but the majority of the larger firms that are doing more of the high-profile work, most of their estimating systems at the subcontractor level are set up on those published metrics. So it’s the less granular firms, the general contractor, the owner reps, that would more so need to get on board and establish their systems with tools, people, and metrics so that they can communicate and compare with the subcontracting community. It’s not always cheap to build your tools around that, but I think it’s something that yields tremendous dividends and if more firms were doing that, it would eliminate a lot of the confusion and inability to discuss these projects.
Jessica: You mention cost and it not being cheap. So is cost one of the big reasons these firms are not going to universal metrics? Or is it just that they’ve always done it one way and they don’t want to convert? It just seems like everyone should be using these metrics and it’s confusing as to why they wouldn’t.
Pete: Well the smaller firms, in all honesty, trust some of their home-grown proprietary spreadsheets, databases, productivity, items of that nature, and they also may be reluctant to spend thousands of dollars to set up tools to execute their estimating with those metrics. It’s definitely possible, it’s a big commitment, some of these software [programs] are not cheap. You need to subscribe to these metrics, and you have to set up your organization on those metrics. And yes, that’s one of the barriers to entry that would make someone say, “Hey do I really need this?” or “Do I not need it?” and in all fairness, they may not be doing work that requires it in some cases. A smaller firm or someone like that, they may not have a value.
Jessica: And smaller local projects, things like that, that wouldn’t require that?
Pete: But I would have to believe that anyone who is working on these larger, high-profile projects, they would absolutely need to be within these published metrics in order to communicate with the balance of the industry.
Jessica: Ok, just talking about it, do you have some examples? I’m sure over your years that you’ve seen some of the successful outcomes of using these universal metrics, versus, we don’t need to mention any names, lessons learned of when not using these metrics has caused major confusion or has been to a disservice to a client? I’m sure you have quite a few stories.
Pete: Oh yeah, there’s an unbelievable amount of those types of circumstances. I’ll just run you through a quick scenario of a situation where one firm might be using these tools, another may not. So let’s say we were to generate our estimate for an HVAC package and we’re following published metrics for sheet metal, for piping, etc. We’re using Harrison for our materials and we have the appropriate discounts. Essentially, we’re emulating what a subcontractor would actually pay for his material or his labor based on wage rates or productivity. Well, if there’s a large disparity between ourselves at this owner’s rep firm that we work for and any one of the contractors, you need to vet that out and find the differences. So everyone would sit down and laptops come out and everyone’s at a conference room table. Well, if one group is using these metrics and saying, “Hey, this is kind of the established metric, this is what it is,” we’d only need to discuss a multiplier. Or you know, what do you have versus what do I have? If you don’t even have a lineman in how you approach the productivity, as an example, you can’t really discuss it. I might say, “Hey we’re at a 0.9 of MCA across the board for our piping, and there’s a 50% disparity. What did you guys use for MCAA?” If they have the published metrics inserted into their templates and tools they’ll say, “Hey we’re actually at 1.2 because of X, Y, Z reasons.” But if they do not, their response is, “Well we don’t use MCAA and I don’t know.” And now we kind of come to a loggerhead. We’re saying, “Well, Mr. Client, here’s the tools we’ve used. These metrics are industry standard. I don’t know, the contractor doesn’t really have a metric. He’s not really illustrated what he’s used in Harrison or MCAA.” How do we move forward to reconcile this, or how do we move forward to resolve it? It just makes the situation that much more difficult and complex, because you’re not even playing on the same field at that point.
Jessica: Without that data, those universal numbers. I see. Ok.
Pete: Yeah, well we can even call them universally accepted standards or practices. I think it’s important to point out, the published metrics, just because they exist, they can be modified with a multiplier. So, in other words, it all starts at — again, let’s use MCAA. But you can be 0.8, 0.9, or 1.2 depending on the severity of the project and how difficult it may be to install the work in question.
Jessica: Ok, and so you talk about these metrics a lot, but with the nature of our business and what we do, people have a huge, huge part in these projects. Can you talk a little bit more about it’s not just the tools and the metrics, it’s the people and how do those all kind of come together to make it successful?
Pete: Yeah that’s a great question. People have come up to me repeatedly and said, “Hey Pete, you know, I’d love to build something along the lines of what you guys have done.” It’s fairly typical in the subcontracting community to be built on MCAA or SMACNA, but it’s not as typical in all cases in say the general contracting community or the owner’s representative firms, and some people wrongly believe it’s just about setting up the database with those metrics. It’s a big part of it, but it’s also a question of what tools are you using. Are the tools able to quantify down to those metrics, the people you have? Those are kind of the three aspects, right? The metrics, tools, and the people. And I think the people is the most overlooked aspect of it. In other words, if you’re not hiring people with that level of granularity, that truly understand the metrics, understand the tools, and understand the scope of work to that level, it’s not going to succeed as they thought it would just by subscribing to these or setting up their database. It can work, but it’s not the optimal approach.
Jessica: Gotcha. Okay. Talking about getting everyone on board, what would be your first step if this was your dream world? How do you get the industry all to go in one direction together? What would that look like?
Pete: Yeah, it’s kind of a Herculean task. I’ve devoted a lot of my career, I guess my life, to kind of preaching this approach. Like I say, a lot of the subcontractors are already structured that way. The general contractors, thankfully, even more so than ever are starting to adopt these metrics and tools and getting on board. I think on the owner’s rep side or CM-for-fee that we are on, we are seeing less adoption. Some are using means or other pricing books. That’s better than nothing or saying, “Hey I have some empirical data that I’ve cobbled together,” you know, but they would all need to be on board. If the industry had more awareness of it through groups like ASPEE, and RICS is also another great group quantity surveying.
Jessica: So getting industry groups on board and associations as well you think would be helpful?
Pete: Exactly. For example, the subcontractors will already contend, “Hey you guys aren’t even using the metrics we use.” “Hey, you guys aren’t even truly estimating it in the professional way that’s acceptable from my viewpoint.” You know, they have that criticism that perhaps the generals and the CM-for-fee firms just can’t even be on that level. So, you’d need to have the general contractors, owner’s representatives, all the other firms that are not going down to that level of granularity. You need them to adopt, to see the value, to invest in those tools, those people, and those metrics. And then their deliverables, and the estimates they’re generating, they can be tied back. And again everyone, or the majority of them in most circumstances, they’d be able to agree if not on the pricing or the productivity, they can at least agree on that platform. And they can all start in the uniform location that’s easily understood by everybody in the room. Whereas today, you often have people who can’t even connect on what they’re talking about because there’s no standardization.
Jessica: No one is speaking the same language.
Pete: Right. “Hey guys, we all know that this job should be about a 1.0 MCAA, do we all agree to that?” And then we can move on from there. We’re not at that point yet. I think with the advent of more construction people from the subcontracting community now materializing with the general contractors, in other words, general contractors are hiring people from the subs for their own preconstruction estimating. The owner’s representation firms, the CM-for-fee firms, we’ve seen a huge spike where they’re now recruiting from the subcontracting community. You know, the “rubber hits the road” approach is becoming more en vogue in a lot of circles, especially projects that are very intense and they really need to be looked at hard.
Jessica: So people are bringing in that expertise and people familiar with these approaches.
Pete: Right, aside from the metrics and the tools it has to be the people who have done it, they’ve walked the walk, they’ve talked the talk.
Jessica: And they’ve seen the benefit.
Pete: Exactly, they’ve seen the benefit.
Pete: Otherwise, it’s still to this day in many meetings and circumstances very difficult to reconcile and discuss these projects.
Jessica: Ok. This all sounds wonderful and it sounds like it’s what should be happening across the industry, but to play devil’s advocate, why wouldn’t this be happening? Are there any negative repercussions that you’ve seen over the years where maybe it didn’t work out on one project? I’m just kind of missing why this hasn’t happened yet. Have you seen that firsthand?
Pete: I think in the earlier stages of an estimating process, where you’re estimating a schematic, programmatic, conceptual, anything like that — the published metrics lend themselves to granularity. They’re very detailed. They’re based down to, say a fitting or you know footages of conduit, so in order to generate those types of estimates you’d really have to flesh out the scope of work. So the people involved, they would need some sort of engineering skill or design skill to at least conceptualize what would be drawn for the facility or the application in question. I don’t know if I’d call it a negative, but having these published metrics and this level of detail wouldn’t serve you as strongly at the earlier stages, unless you were actually designing the project and then consequently estimating it. The reason I say that a lot of times the earlier stages, things are kind of quicker, they’re dirtier, there’s not as much time, possibly there’s not as much fee if you’re a for-fee company, and it’s just really the amount of work to get down to even use the published metrics…
Jessica: To the level, the detail level…
Pete: Right, it’s just not always available. I’ll give you an example. Someone might call up and say, “Hey Pete, we have an SD drawing. It’s only showing some major equipment and the rest is not there.” Let’s say we have some strong people and we say, “It’s not a problem.” We can lay it out and it would replicate what it will likely be as design progresses, it wouldn’t be exactly right, but it would be close, and it would have a lot of different items that we can talk about and we can check. Well, they might say, “That’s all fine and dandy, but it’s due tomorrow and we only have $1,000 in fee to arrive at it.” So that’s the kind of instance where higher-level or benchmark estimating may be more valuable, or the metrics really wouldn’t come in to serve. They might be too unwieldy, it’s too much that would need to be done to get you where they would provide value. And so maybe just looking at similar projects might be more advantageous or just comparing it to similar things you’ve done, due to speed and lack of funding, that might be the better route.
Jessica: So looking at projects in the same sector within a similar region and just kind of getting those benchmark numbers in that situation would be more beneficial?
Pete: Right, and that’s more common in the industry overall. A lot of the other firms that do what we do, they’re paying a lot more attention to benchmarking, looking at similar projects, possibly geo-modifying, or chronologically modifying an older project and trying to bring it into the present, and that’s a point of frustration for some of the clients. As the drawings are developing, information becomes available via meetings, the design really starts to flesh out, some firms are still using very high-level analysis as they proceed. And with our approach, like I say, if we come along and start laying these systems out and we start taking an approach where we say, okay some strong experienced people can lay out piping, lay out ductwork, quantify it, you can get to a much closer reality to what it will be. So some people would say, “Oh, but it’s not right.” My response to that would be, “Well, yeah it’s not right, but it’s close to what it’s going to be and it’s also going to create a lot of questions.” So if somebody put a scope of work in and says, “Hey, we think we’re going to have three chillers,” someone would say, “Well, wait a minute, we were thinking about having two chillers for that project.” Well, even though no chillers were drawn, the intent was understood, and it was discussed at the early stages. So having all that extra detail, even at the early stages, pays dividends at the end. And as the drawing continues to flesh out, and the specs become more hardened, everything just comes together near the end.
Jessica: And so, this might not be an issue but just kind of sitting here and listening to you talk — are there certain trades that if you didn’t have your utopian dream of the whole industry as one moving towards these published metrics, are there certain trades that it’s the most important or would make a huge difference if those certain trades got on board? And does that have anything to do with if it’s private or public sector at all? I don’t know, just your thoughts on that.
Pete: Yeah, I don’t think the sector matters as much, public sector clients have mandated metrics as times that they request people to use or firms to use.
Jessica: And that’s coming from the client?
Pete: Yeah, that’s actually coming from the client, so in some cases they’re actually ahead on that particular item. Now whether those metrics are one we’d agree with, that’s a separate question. With regard to trade, of course I’m biased, the MEP trades are I always believe the most complicated in many cases. A lot of the risk, they all seem to emanate from the MEP trades. We do a lot of change order review, for example, at our organization, the predominance of them are MEP-related. A lot of scope gaps, errors, issues, problems, they just, there’s a huge quantity of MEP issues.
Jessica: Now is that the complexity of the MEP trades?
Pete: Yeah, typically if you look at the most complex projects — not all, but many of them — the MEP is where you would find all of your problems, so to speak, or where there’s a lack of tradesmen, or where a lot more time has to be spent, or where a lot more money has to be spent across the board. Again, I just want to stress, that’s not every project. You know, you get into your mission critical projects, your healthcare projects, your laboratory projects. When we’re referring to vertical construction, your most complicated facilities, it’s the MEP that drives that complication or that risk or those issues. So, for example, if you were to talk to an engineer and you were to say, “Hey, John, where are most of your problems coming from on these projects,” he’d say, “Oh, it’s the HVAC or the plumbing or the low voltage or the electrical.” Seems to be very common. I think published metrics could help everybody. I’m not familiar with the architectural side as much, which would govern or which are the strongest or which are the most commonly accepted, but we do know those for the MEP side of the house.
Jessica: Ok, and so the public vs. private you don’t see as a big play, it’s just the MEP itself in the projects.
Pete: Yeah, I don’t see private vs. public being a tremendous determinant. For example, if a subcontractor provides his estimate and he’s using Harrison and he’s using MCAA and he’s using SMACNA and we’ve done the same, we can talk, we can analyze, we can come to agreement quicker and more efficiently. We can speak the same language. The same can happen on a public sector project. It’s really a matter of tools and do they have the similar math and metrics.
Jessica: Wonderful. So before we wrap it up, is there anything else, any lessons learned over the years that you’d like to share?
Pete: Well, you know, part of the way that I took such an interest in this, and I began personally analyzing this, you know — we would be called in very frequently to reconcile. I’m again just giving examples. I can’t even tell you how many meetings I walked in, had my laptop open, we have in some cases a team of people. Another group would walk in, a contractor, and they have their multiple people and their laptops. And so, we’ve received some of their information, they’ve received some of ours. Possibly there’s a gap. The frustration level with the client, for the client, when he would see all these people and all this money being spent, the client really wants to understand what’s going on and why and wants to resolve it. That’s all he really wants. They want to make informed decisions. They want to know that they’re understanding it correctly. I’ve had meetings like that where it was very, very difficult to even compare and contrast all that great work that both parties had done because they were just done in such dissimilar fashions with dissimilar tools or even dissimilar people. I’ve actually seen people fly out for meetings, only to find out that with all those files, possibly all that paperwork they printed, that they have this tremendous amount of difficulty even coming to some kind of agreement on these items. People have certain scopes of work lumped in on one section whereas someone else has it lumped in another section. Somebody has plumbing lumped in with piping and say the metrics they’re using are home-grown but one group has equipment connections, another group has them separate. All of that just kind of piles up to this very difficult kind of detective game of trying to sort everything out before you can even compare or contrast or discuss anything. It becomes an apples-to-apples exercise more so than anything, and in some cases it’s never even able to be gotten apples to apples. Optimally, this is found out before a lot of time and money is spent. Unfortunately, in some cases, it’s nobody compares notes early enough to notice there’s an issue and everyone comes, and everyone sits around that conference room table and that’s when they realize it’s very difficult to even understand what each other has done. And it’s very unfortunate because there are these standards more or less in place.
Jessica: And this must be absolutely frustrating as the client or even as the construction consultants coming in — how frustrating that you’re spending your time trying to get to apples-to-apples, versus just getting the project done and producing the product.
Pete: Yeah, and the client can be frustrated with both of us, all parties involved, and to be honest I don’t blame them. I think one thing we try to do is look at the perception of all parties, so from the client’s perspective, he’s thinking, “I’ve spent all this money on this contractor, I’ve spent all this money on these engineers, I’ve spent all this money on this CM-for-fee firm, and this is what I get? I get a bunch of guys who are telling me that they can’t really reconcile, discuss what they’ve done because of the way they’ve done it or the metrics they’ve used or the tools or the people or the different approaches, they don’t speak the same language.” I can imagine and I’ve seen them in some cases express that frustration, right there live in concert sitting in the conference room.
Jessica: So, Pete, are you saying that the clients are driving this change towards the published metrics, or what exactly are you saying with that?
Pete: No, actually, you know we are hired as the client’s trusted advisor. So the bulk of our clients don’t have a tremendous amount of construction people or estimators, etc. Some of the larger clients do have somewhat of a team, but they’re very much relying on us to make their informed decisions, to guide them, to be that trusted advisor. I would love for more clients to be advocating it. So what we are doing is we’re kind of introducing this to our clients and we’re saying this is an approach we’ve been overwhelmingly successful with when we’ve communicated, and if you can stand with us in having the contractors and subcontractors and other consultants that are working align with this process, they would see the results. And those clients that have done so, they’ve reaped tremendous rewards.
Jessica: And seen the benefit in action using these metrics.
Pete: Absolutely. And then it becomes the norm hopefully down the road. And we have some clients where it is already the norm in place.
Jessica: That’s wonderful. Well, there we go. Thank you, Pete, for joining us today and taking some time out of your day to sit down with us. So, hope it was beneficial to all those that listened, and we’ll have you back soon.
Pete: Thanks for having me.
Jason: If you enjoyed this episode of Construction Insiders, we encourage you to check out our website at www.ccorpusa.com. That’s ccorpusa.com, where you can find our full knowledge library under the “Insights” tab. It’s all great stuff, we’re really passionate about it, and we hope you’ll check it out. Thanks for listening.