It seems as if all sectors of the economy are being impacted in some way by the Affordable Care Act (“ACA”), and the construction industry is no exception. Many hospital building projects that had been on hold since passage of the ACA in 2010 are moving forward following the November Presidential election and the June decision of the U.S. Supreme Court to uphold the ACA.
Many observers predict that the ACA’s focus on primary care will increase demand for new primary care physician office space. The shift from having surgeries performed in hospitals to ambulatory surgery centers is expected to continue as a result of the ACA and due to patient preference and insurance company reimbursement policies. In addition, federal loan programs have spurred construction and refurbishment of skilled care and senior living facilities.
Health care providers are looking for cost-effective facilities that also give them the flexibility to meet patient needs by staying current with ever-changing health care delivery systems. And, they want the facilities to be comfortable and attractive. If it sounds like a tall order, it is!
Health care facility construction and design presents many unique issues that must be addressed in the planning stages to satisfy owner expectations and regulatory requirements. One of the most important steps that an owner can take is to assemble a group from the health care provider/tenant to work with the design and construction professionals to ensure that the issues unique to health care facility construction projects have been thoroughly addressed in the construction plans and policies, especially the statement of work for the project. This team (health care provider/tenant representative and construction/design professionals) must stay engaged throughout the construction process to address any changes in design and answer questions that arise. The team also plays an important role at the conclusion of construction to make sure that facility regulatory approval goes well.
Expansion or renovation of existing facilities can pose challenges. For example, patient and staff safety are extremely important concerns. Infection control, life support/emergency power systems, medical gas systems and HVAC performance requirements must be understood and addressed in construction documents and policies.
Other issues unique to health care facility construction or renovation include:
- Complying with religious directives
- Stark, Anti-Kickback and Anti-Fraud regulations
- Covenants not to compete/exclusive territories
- Covenants, conditions and restrictions regarding use and development of a hospital campus
Health care facility construction projects are plagued by many of the same problems that occur in other construction projects. A 2012 study by McGraw-Hill Construction reported that health care construction projects faced the following problems:
- Schedule and scope creep – 24% of projects were delayed
- Budget and cost overruns – 19% of projects exceeded budget
- Disputes – 11% of projects had disputes with an estimated average claim of $3 million
One of the best ways to avoid these problems is to make sure that the contract documents clearly address the scope of work. Again, this is where the team described above is critical to the success of the entire project.
It also is important to select the best method of project delivery. An owner will want to consult with counsel and the design/construction professionals before selecting the project delivery method.
The most frequently used construction delivery methods are:
This is the traditional method of construction delivery where an owner hires an architect to design the building. The architect then assists the owner in selecting a contractor to construct the project. One of the advantages of design-bid-build is that contractors will give the owner a lump sum price. A disadvantage of this method is the fact that the owner will not own the copyright to the plans when the facility is complete unless this issue is negotiated to the owner’s satisfaction when the architect’s contract is drafted. Another disadvantage is the fact that neither the owner nor the architect has had the benefit of the general contractor’s input during the design process. This may result in costly change orders to correct design errors and construction delays.
Construction Manager (“CM”) at Risk
This also is a well-established method of construction delivery that has recently been gaining favor in the construction industry. When the CM is at risk, the general contractor is hired at the same time the owner hires the architect. The CM participates in developing the construction plan and budget. The collaboration between the owner, the architect and the CM from the inception of the project is generally recognized as a way to save on construction costs and reduce the length of the construction schedule.
Many construction engineering firms also employ architects to support the design-build method, which essentially is “one stop shopping” for an owner to engage a firm to design and construct the project. This is becoming a popular method of project delivery. Some owners choose this method of construction delivery to streamline the process and reduce owner resources dedicated to administering two contracts. However, if an owner is not sophisticated in construction/design or does not have sufficient staff to oversee the construction/design process, this method may not be desirable.
Integrated Project Delivery (“IPD”)
The design-build method is taken to the next step with this project delivery method. In IPD, the owner, architect and general contractor enter into a tri-party agreement for the construction project where they share the risks and rewards of the project and they may even agree not to sue each other in the event of a dispute. The waiver of an ability to file a claim may make this a project delivery method more suitable for sophisticated owners with construction experience.
Prior to selecting a construction project delivery method an owner should consult with its internal team and counsel to evaluate the best method of project delivery. The type of construction project is a key consideration for determining the project delivery method as well as the resources - human and capital - that an owner has available for the project.