Progressive DesignBuild Examining the Structure Procurement and Contracting

Progressive Design-Build: Examining the Structure, Procurement and Contracting Principles Michael C. Loulakis, Esq. , DBIA Capital Project Strategies, LLC March 1, 2016

Introduction and Background • Project delivery studies show benefits of: – Early contractor involvement – Highly qualified teams – Group cohesion and team integration • Design-build offers opportunity to accomplish these goals • But typical public sector design-build (fixed price) creates some challenges

Why Owners May Decide Against Using Design-Build • Owner’s desire to be involved throughout design process • Direct contractual relationship with designer • Interest in making all design decisions • Owner’s ability to quickly respond to design submittals • Owner’s need to have design fully completed before construction • Cost and time of a competitive, price-based, procurement • Owner’s inherent ability to trust the contractor

Progressive Design-Build • Overall objectives – Introduce design-builder to project early in design process – Work in collaboration with owner to advance design – Overall project price negotiated after design is developed • Single or two phase procurement process – Pure qualifications-based – Best value procurement with minimal price-based factors

Progressive Design-Build (cont’d) • Overall project price not meaningfully considered during procurement – Open book estimating – GMP/lump sum developed post-award • Can establish this at 100% of design completion • Normally see price commitment at 50 -70% of design completion • Should be no Spearin liability, as there is no design “handoff” • The typical approach for industrial and process design-build (i. e. , EPC)

Reasons Owners Choose Progressive over Fixed Price Design-Build • Ability to introduce design-builder to the project as early as possible – Design-builder becomes a strategic partner in planning and project definition – Avoids Spearin liability – Facilitates having design-builder involved in permit and other development activity • Substantially reduced cost and time for procurement helps everyone, including small design firms

Reasons Owners Choose Progressive over Fixed Price Design-Build (cont’d) • Owner interest in being involved in design and procurement – Development of design solutions in conjunction with designbuilder – Direct discussions with design-builder on O&M/life cycle costing – Procurement of subcontractors and suppliers • Owner access to real-time information – Enhanced cost and schedule information during design development – Facilitates designing to budget – Open book pricing allows transparency into design-builder’s costs • Process fosters collaborative relationships

Reasons Owners Choose Fixed Price over Progressive Design-Build • Statutory restrictions – Mandates that overall price be provided at time of contract – Constraints on hiring and integrating subcontractors • Owner interest in: – Obtaining a competitive fixed price for entire project during procurement – Developing detailed technical requirements prior to starting procurement – Seeking different technical solutions through a competitive procurement process • Owner concerns about exercising the contractual “offramp”

Reasons Owners Choose Fixed Price over Progressive Design-Build • Statutory restrictions – Mandates that overall price be provided at time of contract – Constraints on hiring and integrating subcontractors • Owner interest in: – Obtaining a competitive fixed price for entire project during procurement – Developing detailed technical requirements prior to starting procurement – Seeking different technical solutions through a competitive procurement process • Owner concerns about exercising the contractual “offramp”

Choosing Between CMAR and Progressive Design-Build • Benefits of CMAR – Ability of Owner to have a direct contract with a designer who is independent of contractor – Easier ability to exercise “off-ramp” • Benefits of progressive DB – Owner does not have to manage/procure designer – Slight schedule benefit – Ability to obtain performance guarantee and other benefits of design-build • Elimination of Spearin liability • Enhanced relationship between contractor and designer

Fundamental Procurement Objective of Progressive Design-Build • Keep the process as streamlined and simple as possible to pick the right team • The right team is the one that: – Will work well and collaboratively with the owner • Group cohesion • Team integration – Offers the best chance to meet the owner’s project goals and required outcomes – The owner believes is trustworthy, fair, transparent and reasonable

Key Issues to Assess Before Starting a Progressive DB Procurement • Legal authority, and whether it will allow agency to use PDB in a way that accomplishes its goals – Is the process clearly allowed? – One step vs. two step process? – QBS or best value? – Self-performance requirements and limitations – Bonding requirements – Specific evaluation factors • Confirmation that agency’s leadership is aligned with PDB process

Key Issues to Assess Before Starting a Progressive DB Procurement (cont’d) • Design status at start of procurement • Market conditions, particularly in terms of number of interested teams • Number of shortlisted firms (if two-step) • Pass-fail or evaluated financial capacity • One or two contracts (i. e. , preliminary services and/or entire design-build relationship) • Form of contract (standard industry or one-off) • Conditions to award and authorization of price (i. e. , how many times does the board need to approve)

How is Price Handled under Progressive Design-Build? • Pure QBS – No price information submitted whatsoever – Price information submitted but not evaluated • Opened after “winner” determined • Used as a basis for negotiating a reasonable price • Best Value • Price information often includes: – – – Preliminary services fee Hourly rates Overall design-build fee Markup on wages of direct employees Anticipated general conditions

Preliminary Services Create the Biggest Commercial Challenges • Ability of design-builder to • rely upon owner-furnished information • Design and cost submittal • periods • Cost estimating processes • and assumptions • • Early work packages • Subcontractor and vendor procurement Subcontractor and vendor involvement during preliminary services Establishing the GMP/lump sum Owner’s off-ramp rights Liability for preliminary services

Project Examples

Dulles Rail, Phase I • $1. 6 billion contract for first phase of WMATA extension to airport – Virginia PPTA procurement process – Investment by design-builder in the preliminary engineering through unsolicited proposal – Negotiated lump sum price at completion of 30% design (preliminary engineering) after open book process – Project on line 2014 • Allowances used to overcome certain pricing issues • Interim agreements used to address ROW/utility/design issues pending federal funding

DC Water Headquarters • New HQ to be built over an operating pumping station – 2 -phase procurement with shortlist of 3 – Design competition – iconic design that would satisfy permitting agencies, based on $55 MM budget – $75, 000 stipend – Skanska USA Building, with Smith Group as lead architect – Weighted criteria approach used for technical approach • Solicitation of only lead constructor and lead designer • Pricing information provided for informational purposes • Single contract with two phases • GMP proposal will be provided at 80% design

Other Progressive Design-Build Projects • Substantial number of water/wastewater projects – City of Houston’s Northeast Water Purification Plant Expansion – Northern Treatment Plant, Colorado – South Florida Water Management District – Town of Longboat Key, Florida • Los Angeles World Airports • Port of Seattle International Arrivals Facility