Development, construction and acquisition in one firm, and why that was decided at the start

Holding the three functions in one company is expensive in ordinary times and pays for itself only on a building with no precedent, where a late change is resolved inside the firm.

"You are carrying a construction company you only need some of the time, and you are paying for it all of the time." That is the objection, in the words I have heard it put, and it is a good one. JDS Development Group has held development, construction and acquisition in one company since I started it in 2002, and this piece is for developers and development executives deciding how to organise a firm, and for the construction managers and consultants who work alongside one and wonder why it is built the way it is.

I want to take the objection seriously, in four forms, and answer each. The first three I can answer fully. The fourth I can answer only in part, and I will say so when I get there.

The first form is the one above: the cost of carrying capacity. A construction operation has people, equipment, systems and overhead whether or not there is a building to put them on, and a developer who hires a contractor for each project pays for construction only when there is construction. In ordinary times, on ordinary buildings, that objection is simply correct. Holding the three functions in one company is more expensive than hiring them in when they are needed, and I have never pretended otherwise. The answer is that the firm does not build ordinary buildings, and the cost is the premium paid for what happens on the other kind.

What happens on the other kind is change. A building with no precedent, a tower in a courtyard, a supertall over a bank, two towers joined by a bridge that moves, does not arrive at construction with every question answered, because some of the questions cannot be asked until the building is partly there. When a question arrives late, it has to be answered late, and the answer touches design, cost and schedule at once. Where development and construction sit in different companies, that answer is reached across a boundary between two companies with two sets of books, and the building waits while the two are brought into line. Where they sit in one company, the answer is reached inside a room, by people who are paid by the same firm and want the same building. That is the entire argument, and it was decided at the start because I did not want to learn it on a site.

The second form of the objection is about expertise. A specialist contractor has built more buildings than any developer's in house operation ever will, and that experience is worth more than any saving in coordination. This is true and it misses the point. The firm does not build alone; it brings in the specialist trades, the engineers and the consultants that every hard building needs, and credits their work. What it holds in house is the construction management: the sequencing, the logistics, the daily decisions about what goes in when. That is the layer at which late change is absorbed or refused, and it is the layer I want inside the firm. The trades stay specialists.

The third form is about acquisition. Why should the company that buys the land be the company that builds on it, when the skills have nothing in common. The answer is that on the sites this firm takes on, they have a great deal in common. The reason a site has been passed over is usually a constraint that only a builder can price: a footprint that will cost floor area to structure, a landmark that will set the sequence, a utility history in the ground. A firm that acquires without building has to take someone else's word for what the constraint will cost. A firm that builds can walk the site with its own construction lead before the offer is made, and the offer is better for it. Acquisition, in this firm, is the first construction meeting.

The fourth objection, answered in part

The fourth form is the one I cannot fully answer. It goes: a firm that holds all three functions has no one inside it to say no. A separate contractor will tell a developer that a change is impossible, or too expensive, or too late, and will mean it, because the contractor's interest is not the developer's. Inside one company that voice is quieter, and a building can be changed too many times because nobody has the standing to refuse.

Part of the answer is structure. The construction side of the firm has its own leadership and its own responsibility for schedule and cost, and it says no often, and is listened to. Part of the answer is culture, which is a weaker thing to rely on: the people who run construction here are hired for their willingness to refuse a change they think is wrong, and the firm has kept them when they did. But I will not claim that the check inside one company is as strong as the check between two. The internal check is weaker and it is faster, and on the buildings this firm makes, faster has been worth more than stronger. That is a judgement about a particular kind of building, and a developer who builds ordinary buildings should reach a different one.

The compromise, said plainly, is that the firm pays for capacity it does not always use, and accepts a weaker internal check in exchange for a faster one. Anyone deciding how to structure a development firm should retain a construction lead before deciding, and ask that person whether the buildings the firm intends to make are the kind where late change is the rule. If the answer is no, hire the construction in. If the answer is yes, the fourth objection is still there, and it is still only partly answered.

I have never found the rest of that answer, and I have stopped expecting to.