By Roland Piccone and Howard Sole

“All politics are local” with the development of land resources. Economies of scale, local knowledge, and the desire for reasonable timeframes for gaining necessary approvals dictate that much of the work must be accomplished locally. For this reason the utilization of Program and Construction Management (PCM) firms, with local specialists in land resources is becoming far more prevalent throughout the United States.

Historically, much of this work has been accomplished by small local design firms. With the shifts in population and the intensity and sheer volume of the land resources work required, particularly in major Sunbelt growth corridors, this is no longer practical. Local design firms are overwhelmed with competing projects, permitting delays, and shortages in local personnel resources, resulting in compromised quality and project delays. Money is being lost. Developers and project investors are financially impacted, and some projects are compromised.

Under the professional management scenario, design firms are performing the services that they are uniquely qualified to perform… create and design, while professional management firms are steering the projects through the maze of ever-changing land development regulations and jurisdictional agencies while seeking permits.

 The services of a professional PCM firm are segregated into four broad categories or phases:
• Preliminary Services
• Pre-Planning
• Planning
• Horizontal Design and Construction

Depending upon the size and locality of the developer, and the level of visibility of the project, the service needs and packaging will vary. A brief discussion of the PCM approach and its benefits follows:

Preliminary Services
During this phase, the PCM firm may work with the developer to identify an appropriate piece of available land; develop associations with local land resource professionals; and perform some of the networking to identify interested parties who could provide short and long term funding for the project. Exploratory discussions may be held with the developer to reset an “at risk” scenario, whereby the schedule and budget may also be guaranteed by the PCM firm. This approach ensures clarity of accountability from the onset. Issues of financing and profitability can be projected with much greater reliability, while the project elements may have built-in flexibility.

By providing this service, the PCM firm places the smaller local developer on the same playing field with the large land development firms. The services are very similar to those performed in-house by many of the large land management firms. It is not, however, always the case that these services are desired by only local developers. Out-of-area developers or large land management firms may require these services in order to localize the service or supplement an overburdened internal staff.

Pre-Planning Phase
During the pre-planning phase the PCM may contract, or perform, the necessary due diligence for acquisition of the site. This may involve securing boundary and topographic surveys, species and habitat surveys, wetlands identification, tree surveys and soils investigations, etc. A review of existing easements, drainage basin(s) and available utilities (water, wastewater, and power) are researched.

Based upon this information, the PCM will develop a preliminary budget, schedule, and information management system to control/manage the entire development process.

What is the value of this approach? With an orderly approach from the beginning, accountability is established, financing is easier to obtain and profitability can be anticipated with greater reliability. As is often said, “plan the work and then work the plan.”

Planning Phase
The horizontal elements of the project are conceptualized during this phase. A concept plan is prepared, and any obstacles to a possible rezoning procedure regarding the property are identified. Partial Planning approvals are secured from the local planning agency.

Horizontal Design Phase
How many times have developers or local officials been held up or stymied by the lack of adequate attention to their project by the local design professional? This is not the case when a PCM approach to land resource development is used.

Avoiding these delays begins with the procurement of design phase service. An experienced PCM firm will include performance clauses in the design contract and then manage the details of design progress in a diligent manner.

The design firm will be placed on a milestone-based schedule with appropriate and timely review of the design progress. Should the project fall behind schedule, a recovery schedule will be required and developed. Should this become difficult or deemed unachievable, the contract will most likely be terminated and placed with a firm that can meet the recovery schedule. A proactive management of design will enable the developer to identify challenges early and the desired results achieved.

In addition to the management of time, the professional management firm will, in cooperation with the selected design firm, develop an estimate of probable costs for the horizontal design. A design-to-cost scenario will then be enforced throughout the design. Should the project design begin to move outside the budget, value engineering services may be performed to reduce the cost without jeopardizing the quality of the program. Appropriate contract packaging for maximum efficiency will also be developed. Contracts with vertical developers would be initiated at this point.

When the horizontal design reaches approximately 80 percent completion, constructability reviews will be performed on the design to ensure that what is designed can be achieved in the field. The PCM firm will also begin to pre-qualify contractors for construction or choose contractors from a pre-qualified list to negotiate pricing for the construction.

Construction Phase
During the negotiation of pricing for the construction phase, a detailed construction schedule is completed including measurable milestones, resource and cash loading. This agreed-upon schedule is then enforced by the PCM firm throughout construction. In critical projects, incentives and/or damages may be established. When a project becomes 10 days behind schedule, a recovery schedule will be required. Each contractor is paid off of the schedule on an earned value basis. Why make the effort to perform these tasks? Managing time and cash flow all translate into profitability.

In addition to schedule management, quality control inspections are also coordinated and performed by the PCM firm. These services protect the profit that is made from unnecessary warranty claims and litigation during the warranty period. Profit that is temporary is not profit but rather an expense reserve account. The PCM’s job is to turn reserves into profit.

Summary
The use of a PCM firm by a local developer places them on equal footing with some of the major national firms. Major national land resource development firms may also benefit from the use of a local PCM company.

Why would developers take this approach? Quality, reliability, and profitability are three good reasons! A summary of the benefits follows:

Increased stability in the process which pleases lenders, and/or improves cooperation with financial institutions;

Costs are known up-front, and then the process is managed to remain within the overall cost projections;

Time and money are more proactively managed during the planning, design, and construction phases. For example, interest costs may be up $7,000 to $10,000 per day on a $50 million loan. Further, the opportunity cost of interest earned may be of equal value. Consider the loss of profit while the project remains in someone’s “in” or “out” basket;

Quality is controlled to protect apparent profits, which may become expenses;

Quality and well-organized developers receive timely attention by reviewers and regulatory agencies. Trust is a large part of protecting the public interest.

Why would developers take this approach? The better question is: Why wouldn’t they?  SLDT