Cancer Institute Penn State Milton S. Hershey Medical Center Hershey, Pennsylvania

1. Cancer InstitutePenn State Milton S. Hershey Medical CenterHershey, Pennsylvania Chris Voros Construction Management April 25, 2007

2. Thesis Content • Project Overview • Building summary, existing conditions, construction sequence, cost analysis • Structural Breadth-Foundation Redesign • Intermediate, Geopier-reinforced Mat Slab vs. Micropile Foundation System • Avoid subsurface issues encountered at nearby Parking Garage project • Conclusions- $500,000 Cost Increase with new system; Children’s Hospital Option • Electrical Breadth- Utility Redesign and Energy Impact • Utility rerouting plan & energy loss study for PSHMC’s East Campus • Phase HV utility installation in one activity for PG, CI, & Children’s projects • Conclusions- $55,000 construction savings, $225/yr energy savings • Depth Study- Industry Influences on Subcontractor Markups • Identify factors that impact a subcontractor’s “multiplier” value

3. Building Respect: Industry Influences on Subcontractor Markups

4. Goal Improve Construction Manager and General Contractor Relationships with their Subcontractors Approach Identify factors that go into a subcontractor’s “multiplier”- the value added above allowable bid package markup Methodology Two surveys, one tailored to CM/GC professionals and one to Subcontractors Create a “Multiplier Matrix” that predicts a BP multiplier based on a given set of conditions Compare and Contrast results from both surveys with respect to perceived markup determinants

5. CM/GC Anonymous Mailed Packet Qualitative/ Written Responses Question Base: 10 Questions Bid Package vs. Contract Markups Determinants of a BP Markup Company Self-Assessment Survey Contents • Subcontractors • Anonymous • Online Survey • Quantitative & Qualitative • Question Base: • Part 1- • 10 Questions/Scenarios • Select impact on multiplier based on a scale from -3 (decrease) to +3 (increase) • Part 2- • 3 Case Study Analyses • Assign a markup/multiplier and provide reasoning

6. CM/GC Survey Results • Contract Markups: • 10% to 20% (incl. OH&P) • Dependent upon trade • Bid Package Markups: • -2% to 8% • Multiplier factor • CO Negotiations • “Fair but Firm” • Extensive in-house review • Self- Assessment: • Reputable companies • 90-100% Returning Subs • 70-90% Repeat Clients • Markup Determinants • Majority are objective/quantifiable

7. Subcontractor Survey Results- Part 1 • Relationship-oriented Factors: • Past successes with CM/GC, incl. some of team personnel • Bad history with company, but none of personnel • Bad history with CM/GC personnel

8. Subcontractor Survey Results- Part 1 • Business-related Factors: • AIA Contract is vague with respect to markup procedures (for subs and subs’ subs) • CM/GC bid-shops on a regular basis to trim • overall bid to owner • CM/GC uses “nickel-and-diming” practices on • CO negotiations • CM/GC keeps to schedule • and meets all milestone dates • (Not pictured - Avg. = -0.28)

9. Subcontractor Survey Results- Part 1 • Regional Factors: • CM/GC is a start-up company • CM/GC is national firm, but new to region • Project at bid is a “target of opportunity” • (one-shot deal)

10. Subcontractor Survey Results- Multiplier Matrix • Apply to Part 2 case studies to test validity of Part 1 responses Using the Matrix: 1. Choose which scenarios apply and calculate an overall average. 2. Use the Markup Impact Scale to determine the magnitude of the expected markup.

11. Subcontractor Survey Results- Part 2 Case Study #1: Alpha Construction Company -Dominant CM/GC moving into region -Generally negative scenario for subs due to business practices and CM personnel on Project (superintendent) Case Study #2: Beta Contractors -Start-up company of experienced principals -Good and bad factors- personal versus company experience; largest job to date Case Study #3: Choice Management -Respected CM, by owners and subs alike -Overall desired scenario- good people and reputable company • Alpha Survey Average = 3.31% • Beta Survey Average = 1.6% • Choice Survey Average = 0.1%

12. Survey Comparison: Key deciding factor is Regional Economics (supply vs. demand, work availability, competition) CM/GC professionals take an objective view, placing less emphasis on business relationships Subcontractors value reputations of CM/GC/A/E above other factors, contradicting CM/GC survey responses CM/GC companies need to value & actively maintain their sub relationships in order to minimize BP markups

13. There are simply too many factors (many subjective) influencing a sub’s markup that a prediction matrix is not feasible Subcontractors place great value in a CM or GC’s reputation Maintain positive business relationships to build respect among subcontractors Positive relationships result in favorable markups Closing Remarks

14. -AE and Construction Management Faculty: Dr. David R. Riley Dr. Michael J. Horman Dr. John I. Messner Professor Parfitt Professor Holland -The Penn State Milton S. Hershey Medical Center: Dick Aradine Mike Lekey Donna Martin -Gilbane Building Company, Hershey Project Team: Dennis Vance Don Hergenreder Patrick Hardister Tom Gutherman Andrew Notarfrancesco Marianne Jones-Pichler John Vicanovick Dan Munn -Chris Leyenberger, Centerline Associates -Mike Connor, Array Healthcare Facilities Solutions Acknowledgements -Dick Harris, PSU Office of Physical Plant -Shad Hoover, CMT Labs -John Masland, ARM Group, Inc. -Kord Wissman, Geopier Foundation Company, Inc. -GeoStructures, Inc: Mike Perlow Eric Hilberath Ed O’Malley -James G. Davis Construction Corporation: Bill Moyer David Argentieri -All the survey participants …and to My Family and Friends- Thank you all! Questions?