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Theses and Dissertations 1. Thesis and Dissertation Collection, all items

1997

Health care facilities construction and maintenance

Lee, Eric

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Health Care Facilities

Construction and Maintenance

A Study of Construction and

Maintenance Activities, Needs, and Procurement Policies of the Health Care Industry in the United States

By

Eric Lee

University of Washington Seattle, Washington 98195 (206) 543-7612

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TABLE OF CONTENTS

PAGE General Introduction .............0c cece cece eeceseccncccesceesceucceeseness l Regional Division of Facilities............. 0 eeeeeeeeeeee Z

Construction and Maintenance Activities, Needs, and Procurement Policies of Hospitals

Description of Hospital Respondents ............ cc ceeeeeee 3 er eMPPMUIEPIO INA CULVILY..:..:.....00+000000snsdanssedens>araceanateosnnencees 4 Pel MMe AACUVILY.,......020....0000800eseseseseeeeneezstdesnescteneeen 6 Mmenmimeeumne PrOCCAUIPES......:.........--.sededsseasareosennesueeasecseess y Amalysis by Facility ClianactenStic :................2.:.000000.60- 8 BZ OI Na Re MRE oo sso <'nnnda oo cece venduuaaubendbasssvue0sbededescees 8 IMTGSHISI Wis ecm eACINMELGS 5 cteneee cose sac 0 rte cccctassteencceecnse 9 FACT C Viernes. .ccycssacveecoueiemeemmea steven t aemmemenemnee nearer e eee 10 OC CUNIATON MINIS ee rapes. oe: ose unette Nae) ak sa laatedeteeess-0deees 10 Eni ay See river ACM oteee ts .c.ss,s5,00-sscnserlecseverseess’ 11 ENG PON A OM MeO Ss -.05 losis. ssssseshes.-.-0dudsenteeeeeeeee eve ee 13 Wonstruction Related PTODICINS ...22.......22s..cssse+.0.0002 Ie Future Trends Impacting Construction..............e eee 14 » OVPC] TOSCO Sena 5 cone coy SOc aN e 15 eS 1 = 1 eer sresade inte s ieee eae eae ets sss unnga sess t5eeUe 16

Construction and Maintenance Activities, Needs, and Procurement Policies of Long Term Care Facilities

Description of Long Term Care Facility Respondents ...32

Mera eMNUCUIOM NOUV IVY... ..cacls-ssccsesseet-cesanaeo-+------->--cnnuseas 33 Pee MATICE CVGEIVILY..........c2c.20c00--cidecr-+->seusegquagaiinesssees 34 RMIT AC ENO PP POG COULES &... ...01500..... Acsdscssgeseamersnnoscoeuesoe a7 Pandiveis by Facility CharacteriStiC......2......22050---+-cs0ee0e00s 38 Ze. Ol eM css iaeaes eva ncncgeesPno.a-cBencec tee... -o8tecwatea. 38 Sa Leu Nitisitnss hACTINULES 1.0. :csaicsvssseasameeeee-cos~0s-scce sere 38 FCM ENS rtssts eects cnn -c2eaes/cccceetemee cies is ret Cosas 39 Ge MD ACY IN ALC 03 25.3dsccevevsnesseaenas shea cess Peeneaeeesereere ee a) Pallolice VS: PEVatesaetles..,..:.s.0cs20rcs2. egueaeee oe 40 Reeei@ial IiTChENCES......0-20sso eee 42

Construction Related Problems .....................cccceeeeceeceeees 42

Pueeresiitends Impacting Construction...........:.............. 42 aT Nive. sda ese mean aise acedeeasaucicanen tad, ¢ 43 eres. 11-200... %,.....:c ee... 45 SPN LUNN ee Oe ee ii sa nsec ooecsasasessnoatscoscoste 6]

Survey of Hospital Construction Needs Survey of Long Term Care Facility Construction Needs

List of Tables

(Table 1-10 for Hospitals)

Table 1 General Description of Hospitals

Table 2 Information on Hospital Construction Expenditure

Table 3 Information on Maintenance

Table 4 Information on Contracting

Table 5 Variable Impacted by Size (# of Set-Up Beds) of Hospitals Table 6 Variable Impacted by % Intensive Care Beds of Hospitals Table 7 Variable Impacted by Age of Structure

Table 8 Variable Impacted by Occupancy Rate

Table 9 Difference between Public and Private Hospitals

Table 10 Hospital Characteristics by Region (Table 11-20 for Long Term Care Facilities)

Table 11 General Description of Facilities

Table 12 Expenditure on Construction, Maintenance, and Repair Table 13 Information on Maintenance

Table 14 Information on Contracting

Table 15 Variable Impacted by Size (# of Set-Up Beds) of Facility Table 16 Variable Impacted by Percent Skilled Nursing Beds Table 17 Variable Impacted by Age of Structure

Table 18 Variable Impacted by Occupancy Rate

Table 19 Difference between Public and Private Hospitals

Table 20 Hospital Characteristics by Region

List of Figures

Figure |

Relative Construction Budget Trends by Study Regions

(Figure 2-9 for Hospitals)

Figure 2 Figure 3 Figure 4 Figure 5 Figure 6 Figure 7 Figure 8 Figure 9

Breakdown of Private and Publicly-Owned Hospital Facilities Construction Expenditures

General Nature of Construction

Construction Budget Trends for Next 5 Years (1997-2001)

Relative Expenditures on Major Maintenance and Repair

Relative Contributing Cause for Major Maintenance and Repair Breakdown of Contracting Methods

Breakdown of Bidding Methods between Public and Private Facilities

(Figure 10-17 for Long Term Care Facilities)

Figure 10 Figure 11 emeure | 2 Figure 13 Figure 14 Figure 1'5 Figure 16 Figure 17

Breakdown of Private and Publicly-Owned Facilities

Construction Expenditures

General Nature of Construction

Construction Budget Trends for Next 5 Years (1997-2001)

Relative Expenditures on Major Maintenance and Repair

Relative Contributing Cause for Major Maintenance and Repair Breakdown of Contracting Methods

Breakdown of Bidding Methods between Public and Private Facilities

ill

General Introduction

This document contains the results of two surveys aimed at studying the construction activities, maintenance needs, and procurement policies of the U.S. hospitals and long term care facilities. A similar study conducted in 1989 was used as a baseline of the trend analysis presented in portions of this study. This 1996 survey did not ask some of the questions which were posed in the 1989 survey. Likewise there were questions concerning the trends of spending projection, major facility maintenance problem areas, and the source of maintenance requirements that were added to this survey.

The survey results show there are some marked differences between hospitals and long term care facilities. The average occupancy rate and number of admissions per year for hospitals are 66% and 8495, compared to 95% and only 199 respectively for long term care facilities. Hospitals also have a higher percentage of public ownership. The average construction budget for hospitals is three to ten times greater than that of long term care facilities, while the average number of set-up beds is almost the same.

On the other hand, the order of relative expenditures broken down by the different areas of the facility and the order of contributing cause for major maintenance and repairs are consistent between hospitals and long term care facilities.

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Regional Division of Facilities

The United States was divided into the seven regions shown in Figure 1 for the purpose of this study. Tables 10 and 20 summarize the respective regional differences in the hospital and long term care facilities.

Hospitals

Region _{overall | 1 | _2 | 3 14751611 Long Term Care Facilities ——esion__—_.averall | | 2} 3 a | Se

Figure 1: Relative Construction Budget Trends by Study Regions 2

Construction and Maintenance Activities, Needs, and Procurement Policies of Hospitals

DESCRIPTION OF HOSPITAL RESPONDENTS

A total of 173 responses were received from hospitals throughout the United States. These respondents represented facilities with an average of 309 licensed beds and 244 set-up beds. They also represented an average of 25 intensive care or critical care beds, 93 private rooms and 110 semi-private rooms. About 22 percent of the respondents (38 hospitals) also had wards.

The average occupancy rate was 66.3% with an average of 8,495 admissions per year or an equivalency of 34.8 admissions per set-up bed. The average age of the primary hospital structure was 30 years. Approximately 28% of the responding hospitals were publicly-owned, of which 43%, 25%, 29%, and 4% were owned by federal, state, county, and city agencies, respectively (Figure 2). While this survey represents fewer hospitals and fewer number of beds per facility than the previous study, percentage breakdowns are quite similar. Notable exceptions are a lower occupancy rate (from 71% to 66%) and a higher percentage of federally owned hospitals (from 28% to 43%) among the publicly- owned facilities. See Table 1 for details.

Publicly Owned 28%

Owned 12%

| Privately —~ —_ —>

Figure 2: Breakdown of Private and Publicly-Owned Hospital Facilities

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CONSTRUCTION ACTIVITY

Table 2 contains and Figure 3 depicts construction expenditure figures for 1995, 1996, and 1997. The average amount spent on construction during 1995 was $5.6 million. Of this, 29% was allocated to new construction, 19% was spent on maintenance and repairs, and 51% was spent on renovation and remodeling.

In response to the question of the general nature of construction, addition of the support space (laboratories, pharmacy, radiology space, etc.) accounted for 23%, followed by patient rooms for 11%, administrative space for 5.1%, operating rooms for 3.2%, psychiatric ward for 2.9%, and Alzheimer's ward for 0.4%. (Figure 4) The majority of respondents (53%), however, indicated that these funds were spent in "other" areas, which included general renovation/remodeling (27 respondents), outpatient facilities (12 respondents), emergency room expansion (9 respondents), clinics (8 respondents), parking (6 respondents), ambulatory care (6 respondents), MD offices (5 respondents), life safety code requirements (4 respondents), utility upgrade (4 respondents), and facelift (3 respondents). Some funds were channeled into new service areas. Examples of new or expanded services include sleep lab, express care room, TB Iso room, community education facility, youth development facility, CRC lab, cardiovascular program space, and radiation therapy wards. Some other areas mentioned were infrastructure, roof repairs, window replacement, conversion from semi-private to private rooms, replacement of beds, skilled nursing facility, urgent care facility, environmental upgrade, and fire alarm system upgrades.

The survey indicated only 16.4% (an average of $487,000) of the construction work (not including maintenance and repairs) was performed by hospital in-house personnel in 1995.

Hospital respondents projected that they would be spending an average of $6,017,000 in 1996 (25% for new construction, 23% for maintenance/repairs, and 52% for renovation) and $5,622,000 in 1997 (31% for new construction, 21% for maintenance/repairs, and 48% for renovation).

In projecting construction budgets for the next five years (1997-2001), Figure 5 shows 25%, 12%, 25%, 19%, and 19% of respondents respectively marked "Increase Significantly", "Increase Slightly", "Remain Roughly the Same", "Decrease Slightly", and "Decrease Significantly". Approximately 20% of all construction expenditures are received from government sources such as direct appropriations, tax supported bonds, etc. See Table 2 for further details.

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Figure 3: Construction Expenditures

| | Patient Room

= Wj Admin Space | i or San 0.40% 11% HE Psychiatric 19% 0 | | sae 5% Ward nn | Ae 3% 0 |_| Support Space Wy increase 0 ) ne 55% 23%, | || 19% 19) Significantly | a same | | | | Decrease 3% | Slightly 0 [ aeichers | 25% | |) Decrease Wl Alzheimers ! | Significantly Ward | oe | au | len ee | Figure 4: General Nature of Figure 5: Construction Budget Trends Construction for Next 5 years (1997-2001)

MAINTENANCE ACTIVITY

A series of questions were asked about the maintenance aspects of the facility (see Table 3). Figure 6 shows the tally of responses to the question of the source of major maintenance and repair costs. Mechanical (HVAC) system was ranked the highest (greatest expenditure), followed by roof, plumbing, electrical, "others" (not shown), flooring, interior walls, lighting, conveyance(elevator), handicap accessibility, windows, exterior walls, security, and structure. A total of seven respondents marked "others" for this question. The list of "others" consisted of life safety, steam plant, fire alarms, asbestos removal, parking, water distribution, and ground maintenance.

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Repair Expenditures

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Ranking of Sources of Maintenance and

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Figure 6: Relative Expenditures on Major Maintenance and Repair (Actual figures from Table 3 were adjusted by taking the inverse of a modified scale, 1-10, for a better visual representation of the ranking of expenditures)

A total of 70 responded on a question of what change would be made if any particular system or component were to be replaced based on the past problems. The largest group of respondents (41 respondents) expressed their concerns over HVAC systems, wanting either an increase in the capacity of the system, conversion of the system to DDC (Direct Digital Control), or more efficient Air Conditioning and Heating. Each of these desires reflects dissatisfaction with earlier system specifications. The roofing system was a concern for many respondents, but no clear conclusion could be drawn as to which type of roofing system was favored by most respondents. Some other examples of the changes they would like to make were more efficient lighting systems, flexible facilities, design, and elevator upgrade.

6

Figure 7 shows the response to the question of the cause of major maintenance and repair costs. Aging of the facility was ranked the highest (most contributing cause), followed by normal wear and tear; technology replacement; federal, state, and local laws; poor design; materials (accelerated deterioration); construction (poor workmanship); and "others".

| Ranking of Contributing Cause of Maintenance and Repair

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Figure 7: Relative Contributing Cause for Major Maintenance and Repair (Actual figures from Table 3 were adjusted by taking the inverse of a modified scale, 1-10, for a better visual representation of the ranking of contributing cause)

CONTRACTING PROCEDURES

A series of questions were asked about the awarding of construction contracts (see Table 4). An average of 9.1 construction contracts per facility was expected to be awarded in 1997. As shown in Figure 8, the majority (77%) of respondents use a lump sum (fixed price) contracting method, while 16% of them use a cost plus method. Approximately 7% responded that they used other methods. Examples of the other methods were GMP (guaranteed maximum price) (13 respondents), design build (4 respondents), time and materials (2 respondents), and a GMP with shared savings.

Most construction contracts (82%) are competitively bid. For these competitively bid contracts, only 30 % of them are "open to all contractors", 58% are "restricted to selected firms on bidders list", 9% are based on "negotiations", and 3% are "others". Examples of "others" include set-aside contracts for the small business and the small business owned by the disadvantaged group. The total percentage of the above breakdown exceeds 100% because some respondents marked more than one answer.

To the question of how the cost of construction contracts were distributed among different contractors in monetary terms, 59% was awarded to general contractors, followed by subcontractors (specialty contractors) (22%), professional construction management (CM) (11%), design build (9%), and "others" (0.6%). Examples of "others" included architect/engineering design, in-house personnel, and purchase order.

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Type of Contracts Invitation for Bidding Cost Other Others Open to all Plus 7% Negotiation 3% = Contractor 16% 30%

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Figure 8: Breakdown of Contracting Methods

ANALYSIS BY FACILITY CHARACTERISTIC

The survey results were analyzed to see how the construction budgets, contracting procedures, facility maintenance, and other facility related matters were influenced by different variables such as the size of hospital (number of set-up beds), number of Intensive Care Facilities, age of facility, occupancy rate, public vs private facilities, and regional differences.

Size of Facility

Responding hospitals were grouped into four different size categories, consistent with the 1989 study. Table 5 contains a tabulation of data with respect to these size categories. As one might expect, the total budgets of the hospitals and number of construction

8

contracts to be awarded increased with the size of hospital (number of set-up beds). The larger hospitals also had higher occupancy rates. Other variables noted to be related to the size of hospital was the ownership of the hospital. Larger hospitals had a higher percentage of government ownership compared to smaller ones, although the overall average percentage of government ownership regardless of the size of hospital was only 28.3%.

Many variables, however, did not reveal a discernible pattern in relation to the size of hospital. Examples of the variables that were not related to the size of hospitals were the allocation of the funds to new construction, renovation, and maintenance, the nature of expenditures in terms of adding different spaces, the percentage of construction work performed by in-house personnel, problem areas for major maintenance or repair. This was also true for the type of construction contracts awarded (lump sum or cost plus), percentage of competitively bid contracts, bidding process, and distribution of construction contracts (general, subcontract, design build, or professional construction management).

Intensive Care Facilities

Responding hospitals were grouped into five different categories on the basis of the ratio of intensive care/critical care beds to set-up beds. About 72% of 132 respondents accounted for the middle two categories of the ratio between 5% and 15% (see Table 6). It must be noted that intensive/critical care beds generally require a higher degree of focus on patient care, necessitating greater requirements for nursing care and patient monitoring. Hospitals with larger portions of intensive/critical care beds had higher total budgets for construction in 1995 through 1997. This is also true for the percentage of the construction work performed by in-house personnel and the occupancy rates.

Many variables, however, did not vary in a discernible pattern in relation to the portions of intensive/critical care beds. Some of the variables that were not related to the portions of intensive care/critical beds were the allocation of the funds to new construction, renovation, and maintenance, the nature of expenditures in terms of adding different spaces, problem areas and causes that had been the source of major maintenance or repair costs. This was also true for the type of construction contracts awarded (lump sum or cost plus), percentage of competitively bid contracts, bidding process, and distribution of construction contracts (general, subcontract, design build, or profession construction management).

There were some notable differences between the results of this survey and the one performed in 1989. In the 1989 survey, it was noted that the hospitals with a larger percentage of intensive/critical care beds occur in slightly smaller, newer, and private hospitals, and that no significant differences were noted between hospitals when compared on the basis of occupancy rates. This survey, however, showed that the hospitals with a larger percentage of intensive/critical care beds occur in larger hospitals, and did not present any discernible pattern for the age of structures and private hospitals. These results underscore the fact that such relationships cannot be assumed to remain the same from year to year.

Facility Age

The survey was analyzed by grouping into five different age categories (see Table 7).

The most unique aspect occurred in the first age category, less than five years of age. The uniqueness within this period was somewhat consistent with the 1989 survey result. For the hospitals less than five years of age, construction expenditures in 1995 and 1996 are disproportionally high compared to the older hospitals. This is also true for the ratio of the intensive/critical care beds to set-up beds as well as the percentage of the construction work performed by in-house personnel. However, if only hospitals with more than five years of age were considered, the construction expenditures generally increased with the age of structures.

Some other variables were related to the age of hospital. For example, newer hospitals had more beds in private rooms, which was consistent with the trends of the health care industry. Although the survey results indicate a higher percentage of government ownership for the hospitals with less than five and more than 46 years of age, no clear pattern could be established over the different age categories. The newer hospitals also spent a higher percentage of funds in adding supporting spaces such as laboratory, pharmacy, radiology, etc.

Many variables, however, did not vary in a discernible pattern in relation to the age of hospitals. The allocation of the funds to new construction, renovation, and maintenance, the type of construction contracts awarded (lump sum or cost plus), percentage of competitively bid contracts, bidding process, and distribution of construction contracts (general, subcontract, design build, or professional construction management) were not related to the age of hospitals.

Occupancy Rate

The occupancy rates are an indication of a hospital's activity. In this analysis, the hospitals were grouped into five different categories (see Table 8). The survey results

10

indicated larger hospitals had generally higher occupancy rates. This was also true for hospitals with more intensive/critical beds and more private beds.

The occupancy rates were closely related to the construction expenditures in 1995 and 1996. The numbers indicate that the higher occupancy rates necessitated more expenditures in construction. The trend of the construction expenditures in 1997, however, was not as striking without clear reasons other than the fact that the 1997 expenditures were future estimates, not actual or reserved, for most respondents. The categories of higher occupancy rates represent higher proportions of government-owned hospitals. Lower health care cost and more widely available trauma units might have attracted more patients to government-owned hospitals.

In responding to a question of construction budgets for the next five years (1997 - 2001), a higher percentage of hospitals in lower occupancy rate categories responded their budgets are likely to "Increase Significantly" or "Decrease Significantly", while a higher percentage of hospitals in higher occupancy rate categories responded their budgets are likely to "Remain Roughly the Same". Hospitals with higher occupancy rates appear to be more likely to maintain their current budget level, while budgets for the hospitals with lower occupancy rates will likely be fluctuating.

Many variables, however, did not show a discernible pattern in relation to the occupancy rates. Some of the variables that were not related to the portions of occupancy rates were the distribution of the funds to new construction, renovation, and maintenance, the nature of expenditures in terms of adding different spaces, problem areas and causes that had been the source of major maintenance or repair costs. This was also true for the type of construction contracts awarded (lump sum or cost plus), percentage of competitively bid contracts, bidding process, and distribution of construction contracts (general, subcontract, design build, or professional construction management).

Public versus Private Facilities

Responding hospitals were grouped into two different categories, public and private (see Table 9). Public hospitals, which account for 28% of all respondents, tend to be slightly larger and older facilities when compared to private hospitals. They also tend to have slightly higher occupancy rates as discussed in the previous section and a much lower number of admissions per year.

Construction expenditures and plans were examined for these two categories. It is notable that public hospitals compared to private hospitals spent more than twice as much in overall construction in 1995 and 1996, and were projected to spend slightly more in 1997. When hospitals were compared in terms of the budgets for the next five years, a

11

greater portion of private hospitals responded that their budgets will "Increase Significantly", while more portions of public hospitals responded that their budget will be likely to "Decrease Significantly". The conclusion, thus, could be drawn from these trends that differences in budgets between public and private hospitals for the next five years or so will level out. It is of interest to note that the 1989 survey results showed the private hospitals spent slightly more per facility than the public hospitals.

The allocation of funds to new construction, maintenance/repairs, and renovation was examined for public and private hospitals. There was a discernible pattern in allocating construction funds. The public hospitals allocated a higher percentage of funds in maintenance and repairs compared to private hospitals, while the private hospitals allocated a higher percentage of funds to renovation and remodeling. This may have to do with the average age of the public hospitals being greater than that of the private hospitals. Older facilities would naturally require more work in maintenance and repairs than newer ones. The survey results also revealed the public hospitals allocated more funds for the construction work performed by in-house personnel, compared to the private hospitals.

As expected, some significant differences were noted in contracting practices between public and private hospitals. A total of 93% of all contracts awarded for the public hospitals was the lump sum type contract, compared to 78% for the private hospitals. Only a total of 6% of contracts awarded for the public hospitals was the cost plus type contract, compared to 20% for the private hospitals. The private hospitals also utilize some (10%) other types of contract such as time and materials and guaranteed maximum price (GMP).

To a question of how the costs of construction contracts are distributed, the public hospitals awarded a majority (79%) of their contracts to general contractors and 19% to the specialty contractors, while the private hospitals awarded considerably less (51%) for general contractors and more (23%) for specialty subcontractors. Another notable fact was the private hospitals used design build and professional construction management (CM) contracts in 9.3% and 15% of overall contract awards, respectively, while the public hospitals utilized these types of contract for only 1.9% and 0.2%, respectively.

Figure 9 shows clear differences between public and private facilities on how contractors are invited to submit bids. Most public hospitals (80%) responded "open to all public", while this was the case for only 13% of private hospitals respondents. Most private hospitals (81%), however, used a bidding process that was "restricted to selected firms on bidders list", while this was the case for only 14% of the public hospitals.

I

Public Hospitals fos opto ||| Private Hospitals (gi 7

) ("] Open to | All | | All | | 0 Contractors | Contractors | >i | 10% 1% 13% ca | | mi CRResstricted | By ORRestricted 14% to Selected to Selected Firms on Firms on | bidders list bidders list | | ee a: 81% a Negotiation | Negotiation (Others | Mm (Others

ee ND an Figure 9: Breakdown of Bidding Methods between Public and Private Hospitals (The total exceeds 100% because some respondents provided multiple marks)

The public and private hospitals do not appear to differ appreciably when compared on the basis of the source and cause of major maintenance and repairs.

Regional Differences

Hospitals responding to this study were grouped into the same seven different geographic regions as for the 1989 study. (See Table 10 for details and page 2 for regional breakdown. Although it was generally difficult to note clear patterns on most variables, readers might be able to obtain information for specific variables on the interested regions from the table provided.

CONSTRUCTION RELATED PROBLEMS

One of the questions in the survey was "What is your top construction related problem?" A total of 68% (118 of 173) of respondents provided an answer to the question. The most frequently cited problem was the timely completion of the projects (17 respondents). Among other answers provided were: meeting state and safety code requirements (13 respondents); interruption of the hospital operation (10 respondents); lack of competent contractors (10 respondents); high construction cost and cost control after the contract award (10 respondents); poor, inflexible, and incomplete design (15 respondents);

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punchlist and contract close-out (5 respondents); impact of change orders (4 respondents); lack of quality CM (construction manager) and PM (project manager) (3 respondents); lack of funds (3 respondents); lack of planning including site visit (2 respondents); material availability (2 respondents); low bid selection contracting practice (2 respondents); compliance with the contract documents