HomeMy WebLinkAbout12 - City Hall - Options for Project DeliveryA
CITY OF NEWPORT BEACH
CITY COUNCIL STAFF REPORT
Agenda Item No. 19
September 27, 2005
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Public Works Department
Stephen G. Badum, Public Works Director
949 - 644 -3311
sbadum @city.newport- beach.ca.us
SUBJECT: CITY HALL - OPTIONS FOR PROJECT DELIVERY
ISSUE: Should the City consider alternative project delivery methods to
construct a New City Hall and other future building infrastructure
projects?
BACKGROUND:
On February 8, 2005, City Council approved a professional services agreement with
Griffin Structures, Inc. to prepare schematic design' for a replacement City Hall,
replacement Fire Station #2, and parking structure. Since that time, City staff and
Griffin's team have been working with the City Council Building Ad Hoc Committee to
complete the schematic design. Upon completion and presentation of the schematic
design, City Council will deliberate on whether to proceed with the next step in the
process which is to proceed with the final design phases and construct the project. If
the Council elects to proceed with the project, there are several alternatives which can
deliver the completed facility. Alternative project delivery methods are gaining
popularity and have been extensively used in California and nationwide. Most of these
alternatives involve a variation of the Design -Build method. The key factors for
comparison of alternative project delivery methods are: 1) Cost - controlling design and
construction cost growth; 2) Time - meeting or accelerating project schedule; and 3)
Quality — ensuring quality in the completed facility. It is the balance between these
factors that ensures an appropriate public building project which meets public
expectations concerning efficiency and effectiveness. For comparison purposes, this
report will concentrate on the traditional (Design- Bid - Build), Design - Build, and Program
Manager at Risk.
Design- Bid -Build
' In building projects, the design process is broken down to three phases: Schematic Design which
generally includes the basic floor plan layout, dimensions, and preliminary aesthetics of a building; Design
Development which includes functional and aesthetics aspects; and Construction Documents that include
the actual plans and specification that will be used for the actual construction.
SUBJECT: City Hall Options for Product Delivery
September 27, 2005
Page 2
Traditionally, the City has used the Design— Bid —Build process which involves:
1) Retaining a design consultant using quality based selection (QBS) procedures
who provides construction plans, specifications, estimates, and bid documents.
2) Soliciting completive bids with a fixed time bid opening when the City Clerk
opens and reads the bids.
3) Awarding a construction contract to the lowest responsible bidder and staff
manages the contract to completion.
This traditional project delivery method is linear with each step in succession. Variations
on this process have included contractor pre - qualification and contract construction
management. The current Mariner's Library project utilized both of these variations.
Advantages of Design- Bid -Build
1) Provides for clear cut checks and balances due to the separation of designer,
builder, and owner.
2) Competitive bidding process.
3) This method is widely applicable with well established and clearly defined roles.
4) We have the most experience with this technique, however, City staff has limited
experience constructing complex building facilities.
Disadvantages of Design- Bid -Build
1) This method often creates an adversarial relationship between Contractor and
City which can lead to costly claims and disputes.
2) Process is linear and therefore more time is required. Each step must be
completed before moving to the next step creating a slower process which is not
suitable for tight deadline projects.
3) Encourages Contractor to detect and exploit potential errors with the contract
plans and specifications. This is especially true if the low bidder has made a
mistake in his bid or improperly interpreted the complexity of the project and has
under bid the project ( "left money on the table "). Change orders are common and
inevitable.
4) The designer may have limited ability to assess real world scheduling and
current and projected cost ramifications because they are insulated from the
contractor.
5) The contractor is not involved in the design process so there are fewer
opportunities to identify constructability issues because he only gets involved at
the completion of design.
6) The City is exposed to contractor claims over design and constructability issues
with limited remedies. Errors and omissions coverage is limited to the damage
caused by an error or omission. For example: if the designer omits a required
item such as fire sprinklers in one of the meeting rooms, the City may be entitled
to recover redesign costs and costs due to delay but not the actual cost of the
missing fire sprinkler. The cost of the missing item will be a change order.
7) Requires close oversight by city staff to ensure quality. Contractor has incentive
to cut corners.
r
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September 27, 2005
Page 3
8) Design problems and unforeseen conditions can lead to costly change orders.
Since change orders are not competitively bid, costs can run above average.
Capital improvement projects typically realize 5 -15% in cost overruns due
adjustment in project conditions and minor changes to the design.
9) Savings due to value engineering or implementation of alternative construction
methods remain with the contractor.
10)Lowest responsible bidder doesn't guarantee the best value.
Design -Build
This project delivery method merges the responsibility for design and construction into
one entity. The Design -Build process starts with the City staff and /or a contract
consultant developing a detailed building program. The typical building program
identifies space needs, functionality requirements, and other basic design criteria such
as architectural style, types of building materials, type of construction, site amenities,
and other key features. The next step involves requesting proposals to identify
potential designer - builders. A.quality based selection is performed to identify two or
more of the most qualified potential designer - builders. Those designer - builders are
asked to develop and submit detailed proposals which include design documents and a
cost for construction. A proposal is selected on the basis of the lowest responsible bid.
The City awards the contract and the designer - builder is responsible for constructing
the project per the proposed design and at the construction cost bid. Variations in this
process are possible such as the completion of schematic plans by the City's architect
and those plans being used as the basis for the building program.
Advantages of Design -Build
1) Can reduce project delivery time because construction and design can overlap.
2) Contractor can be involved from the beginning which will improve the
constructability of the project plans which leads to lower costs and higher quality.
3) Single point of contact for the City reduces City management time and cost.
Simplified contract and possible reduction in adversarial relationships.
4) The Designer - Builder assumes the responsibility and risk to deliver the project.
He has a built -in incentive to resolve problems between the designer and
contractor.
Disadvantages of Design -Build
1) The City would have less control over the project. Requires a high level of trust
between the Designer - Builder and the City. Problems with the design or
potentially less costly design alternatives can be hidden from the City.
2) The City would have less involvement and be distanced from the process.
Opportunities for timely input could be lost.
3) Inherent conflict of interest between the architect and contractor (Finger
pointing).
4) The Design -Build firm performs as a "vendor" and adverse relationships can
develop similar to City /contractor relationships under traditional Design- Bid - Build.
SUBJECT: City Hall Options for Product Delivery
September 27. 2005
Page 4
5) Requires a high level of expertise and experience as well as a significant
investment of time during the compilation of the building program. Poor building
program documents are the primary factor in projects that have problems.
6) Design -Build firm receives all of the benefits from cost saving or value
engineering. If they can build it cheaper, they keep the savings. Cost
breakdowns for individual building components are not readily apparent due to
lump sum pricing.
Program Manager at Risk
Program Manager at Risk is a combination of Design -Build and traditional bidding that
reduces some of the pitfalls of both the Design -Build and Design -Bid -Build methods.
This process typically starts with the quality based selection of the Program Manager
and his team. The typical team includes architectural and construction management
services. The Program Manager acts as the City's agent and manages the schematic
design process. Once the schematic plans are completed, the Program Manager
prepares a guaranteed maximum price (GMP) proposal based upon the schematic
plans or Design Development plans and agreed upon building project specifications.
As with the management of the schematic plan process, the Program Manager is paid a
"not to exceed" fixed fee for management services. The Program Manager and his team
proceed with final design and prepare bid packages for the trades such as: heating,
ventilating, and air conditioning; electrical, plumbing, structural systems, roofing
systems, landscaping, and general contracting for miscellaneous items. These bid
packages are reviewed and approved by the City and competitively bid. Bids are
received by the City and the lowest responsible bidders are designated by the City.
The contracts for these bid packages are assigned to the Program Manager who is
responsible for managing the contracts and completing the work. The Program
Manager is responsible for any aggregate increases over the GMP. If there are
aggregate savings, the City receives 100% of those savings.
Advantages of Program Manager at Risk
1. The City will have a Guaranteed Maximum Price and the risk of high bids,
construction overruns, schedule problems, and material cost escalation are
transferred to the Program Manager. The GMP allows the City to avoid the risks
associated with traditional projects which creates a positive public perception of
the project.
2. Most industry studies show this method as superior to Traditional and Design -
Build in controlling construction costs and schedule.
3. The Program Manager, the Architect, and Contractor are involved from the start
which provides the best opportunity to maximize constructability and value
engineering.
4. The combination of quality based selection and competitive bidding provides the
best value. Key management of the project is selected by qualifications with
straightforward single discipline subcontracts bid at competitive market rates.
SUBJECT: City Hall Options for Product Delivery
September 27, 2005
Page 5
5. Like Design - Build, overlapping design and construction phases can save time.
For example: the bid package to build foundations can be bid and awarded
before the lighting design is completed.
6. Single point of contact for the City reduces City management time.
7. Because the program manager, designer and construction manager are on the
same team design problems get resolved quicker and with less cost.
8. Program Manager is paid a not to exceed fee, so there is no incentive to
generate change orders and extra work.
9. The City receives all (100 %) of the benefits of cost savings and value
engineering.
10. All trades are bid publicly and competitively.
Disadvantages of Program Manager At Risk
1. A relatively new process and less common method of project delivery.
2. The City's project may cost more in exchange for risk assumption and
comprehensive project management. However, increases in cost attributable to
project management would be present in all delivery methods based upon the
City's current staff expertise.
3. Requires active City involvement and significant amount of time to develop
schematic plans, specifications, and a GMP.
Other Issues to consider
• With the exception of the depression years, material and labor cost indexes have
historically increased every year (per data from Engineering News Record).
More recently, a construction boom in China and recent natural disasters have
seen material and labor costs continue to rise. Construction experts have
recently estimated that Hurricane Katrina will cause construction costs to rise
over 15 %.
• The cost of money also continues to rise. Recent efforts to curb inflation have
caused the cost of borrowing money to rise from its historic all time low last
spring.
• Current City staff has a limited experience in building complicated buildings.
Most of the past Public Works building projects were park restrooms and
remodeling projects. Contract construction management should be considered
under any scenario.
Alternative Delivery Methods and the Proposed Civic Center Project
The key advantages in using the traditional Design- Bid -Build method to construct the
proposed Civic Center project are that this process is universally understood and
competitive bidding ensures the best price based upon the current construction market.
The key downside of this method is that the process is long. If the City started
preparing construction documents today, we would not have completed plans and bid
SUBJECT: City Hall Options for Product Delivery
September 27, 2005
Page 6
package until summer of 2006. With current market conditions, rising construction
costs, and increasing interest rates, the bid prices will be much higher a year from now
than today's market prices. Another key downside is that complex projects such as
ours, always require changes which ultimately increase the cost of the project 5 to 15 %.
The outward appearance of the completed project is that there is a cost overrun which
critics are quick to emphasize.
The key advantages of Design -Build for the proposed Civic Center project are that we
be able accelerate the schedule, take advantage of lower interest rates, and be able to
lock into lower construction costs sooner than the traditional Design- Bid -Build method.
The design would be substantially improved because of the early involvement of the
contractor. The most significant downside is that the City would have less control over
the project. This would be extremely problematic because of the Council's and staffs
desire to be intimately involved in this project to ensure a cost effective and quality
facility. Another problem for the City on this project would be that the potential start of a
Design -Build project would require significant delay. Staff would need to hire a
consultant to develop a detailed building program before a competitive bid process
could be initiated to hire the Design -Build Team. A prequalification process would also
be required to ensure a quality Design -Build team which may also delay the schedule.
While time will be made up due to the overlapping of the design and construction
phases, the start up time would negate much of that advantage.
The Program Manager at Risk method provides a blend of the two previously described
methods and is superior in controlling cost and schedule. The key advantages are the
shift of risk and responsibility to the Program Manager and the guaranteed maximum
price (GMP). This method allows the City to immediately lock in the construction cost
and minimize financing costs due to the low current rates. The GMP virtually eliminates
cost increases and overruns that are often cited by critics. While the transfer of risk and
the level of project management required does increase the cost, the City would need
to hire a construction management team under the other delivery methods which would
be virtually equivalent in cost. The potential downside of this method is that the City
must commit to moving forward with the project with schematic (20%), level plans.
How did we get here?
The condensed history is as follows:
1. July 2001, Staff proposed several office expansion options including the addition of
office trailers to address current space needs. Council directs staff to pursue more
analysis.
2. August 28, 2001, City Council approved the work scope and directed staff to issue
an RFQ for a Facilities Space Utilization and Needs Analysis. The consensus was
to invite all of the firms that did past work for the City and all Architectural firms that
are in Newport Beach. Staff solicited recommendations from other cities as well.
SUBJECT: City Hall Options for Product Delivery
September 27, 2005
Page 7
3. Eight firms responded. City staff narrowed the field down to three firms; Thirtieth
Street Architects, Dougherty +Dougherty, and Griffin Structures. All three submitted
detailed proposals that were evaluated for completeness, approach, experience,
and quality of personnel. Griffin was selected as the most qualified because of their
extensive experience with municipal buildings and more specifically, City hall
projects. References were checked and all yielded positive comments.
4. January 8 2002, City council approved a PSA with Griffin Structures to perform the
Facilities Space Utilization and Needs Analysis.
5. April 8, 2003, the results of the Facilities Space Utilization and Needs Analysis were
presented.
6. June 10, 2003, Council approved a second PSA with Griffin to prepare schematic
plans for the City Hall project which now includes a replacement Fire Station #2 and
parking garage. However, the contract is not executed due to conflict of interest
concerns.
7. June 24, 2003, City Council forms the Building Ad Hoc Committee consisting of the
Mayor and two Councilpersons.
8. February, 25, 2005, Conflict of interest concerns are resolved; City Council re-
approves a PSA with Griffin Structures to prepare schematic plans for the City Hall
project which now includes a replacement Fire Station #2 and parking garage.
9. Public workshops were held on March 5 " and April 2otl, 23rd, & 251'.
10.May 10, 2005, City Council provided direction to staff to pursue full building
replacement, 350 space parking structure, community room, LEED Certification,
potential lot line adjustment with adjacent property owner, and develop potential
financing for the project.
11.August 9`h and 23" , 2005, City Council provided direction regarding space
allocation, features, elevations, and various options.
12. September 13, 2005, Staff presented financial options.
What's Next
As stated above, the Griffin Structures team is nearing completion of the Schematic
level plans and the completion of their current contract with the City. City Staff has
asked the Griffin Structures Team to prepare a GMP for City Council consideration at a
future meeting. At that time, the Council may consider moving forward with the project
using alternative project delivery. Council may also want to reaffirm the selection of the
current project team or consider others. An RFQ could be issued and the City could
interview project teams to ensure that we have the best team to Shepard the project to
completion. However, such a process would delay the schedule and increase costs
associated with bringing the new project team up to speed under any delivery scenario.
The delay for bringing on a new Program Manager at Risk would be substantially longer
SUBJECT: City Hall Options for Product Delivery
September 27. 2005
Page 8
as the new PM would need time to become intimately familiar with the project to a point
where the PM could be confident with their GMP number. Potential actions are
summarized below:
Design- Bid -Build
1. Request the architect (LPA) from the current design team to prepare a proposal
to provide plans, specifications, estimates and bid documents; or, direct staff to
issue a Request for Proposal (RFP), perform a quality based selection. Retain
LPA or the most qualified firm from the QBS process.
2. Request current Program Manager (Griffin) to prepare separate proposals for
Program Management (Design phase) and Construction Management
(construction phase); or Direct staff to issue a Request for Proposal (RFP),
perform a quality based selection. Retain Griffin or the most qualified firm from
the QBS process.
3. Prequalify potential contractors and bid project.
4. Award to lowest responsible bidder and construct project.
Design -Build
1. Request the architect (LPA) from the current design team to prepare a proposal
for developing a building program; or Direct staff to issue a Request for Proposal
(RFP) and perform a quality based selection. Retain LPA or the most qualified
firm from the QBS process.
2. Request current Program Manager (Griffin) to prepare separate proposals for
Program Management (Design phase) and Construction Management
(construction phase); or Direct staff to issue a Request for Proposal (RFP),
perform a quality based selection. Retain Griffin or the most qualified firm from
the QBS process.
3. Prequalify potential Design -Build Teams and bid project
4. Award to lowest responsible bidder and construct project.
Program Manager at Risk
1. Request Current Program Manager (Griffin) to provide GMP; or Direct staff to
issue a Request for Proposal (RFP), perform a quality based selection, and
request GMP.
2. Prequalify larger trade contractors and bid.
3. Assign trade contracts to PM and construct.
Submitted by:
S adum
ublic Works Director
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Project Delivery
Alternative Means and Methods:
Design- Bid -Build
Design /Build
Program Management at Risk
September 27, 2005
"Design- Bid - Build ": Defining Features
❖Three key players: City, A/E, Contractor
•:•Two contracts: City and AIE; City and Contractor
Three linear phases: Design, Bid, Build
•: A/E selection based upon quality (QBS)
-*-Contractor selection based on lowest bid
r------ -- -- -'
—� Program /Const'
i
Manager
-- ►a- to- I1 -05
1
"Design- Bid - Build ": Characteristics
• Typical characteristics
Contract documents must be completed in a single package
before construction begins.
Price of construction based on lowest responsible bid received
Requires design and construction decisions well in advance of
execution.
,Traditional roles based upon established legal and procedural
guidelines.
Based on theory that `low -bid" gives a "market price"
• How it works
Starts with Designer is chosen by QBS.
r Upon completion of PSBE, project is publicly bid
Construction contract awarded to the lowest responsible bidder
"Design- Bid - Build ": Pros and Cons
• Pros
Universally understood and traditional checks and balances.
Competitive bidding process
The City has a defined, fully designed project prior to bid
2
"Design- Bid - Build ": Pros and Cons
Pros
Universally understood and traditional
;w Competitive bidding process
%The City has a defined, fully designed project prior to bid
• Cons
The process is linear (and slow, which adds costs)
%Non-fiduciary & often an adversarial relationship
Changes orders are common (or inevitable). Contractors take
advantage of "competitive process" (often resulting in change
orders). Change orders add risk to the City (Schedule & Cost).
%Delay claims and disputes are common
Design does not benefit from direct contractor and
subcontractors involvement
All below- the -line "savings" remain with the Contractor
% Lowest Responsible bidder doesn't guarantee the best value
"Design - Build ": Defining Features
Two key players: City, Design - builder
DB Firm can be led either by an architect or a contractor
One contract: City and Design - builder
Often requires additional City consultant/rep to oversee the DB
Variations: Quality based selection or competitively bid
' rogra Cons
�� Program /Const
: Manager
DB Entity ` - - - - -" - " "-
a
3
"Design - Build ": Characteristics
• Typical characteristics
Requires development of a Building Program
Continuous and overlapping execution of design and
construction (fast track)
Design & construction decisions ongoing after the start of the
project
Due to contract format, overall project planning and scheduling
done in advance of mobilization.
Can be a negotiated GMP or competitively bid
• How it Works (one variation)
City or Consultant prepares Building Program
Design Builders pre - qualified by City
Pre -qual. DBs bid competitively on delivering Building Program
Low DB team designs and builds the project.
"Design- Build ": Pros and Cons
- Pros
Speed of delivery, design and construction overlap.
Early involvement of the contractor
Single point of contact
Simplified contracting & possible reduction of adversarial
relationships
Improved cost containment and shifting of risk
18
"Design - Build ": Pros and Cons
Pros
➢Speed of delivery, design and construction overlap.
Early involvement of the contractor
i Single point of contact
v Simplified contracting & possible reduction of adversarial
relationships
Improved cost containment and shifting of risk
Cons
y Typically less control over the process
May distance the City from the process and timely input
r Inherent conflict of interest between contractor and architect
Non - fiduciary relationship between City and DB
'r Significant up -front investment of time, (building program)
Ongoing pro- active management requirements by the City
All below- the -line "savings" remain with the DB
"PM at Risk ": Defining Features
,Two key players: City and PMR
• PMR provides comprehensive design and construction services
One single contract: City and PMR
Total cost is not the only criterion used to select the PMR (since all
trades are bid competitively in the process)
PMR takes on all risk of designing & building the project
• Risk includes design, bid, construction, performance, and
schedule risks
• A bonded GMP is established significantly in advance of actual
bidding
City
PMR
AIE Construction
Manager
Primes
5
"PM at Risk ": Characteristics
• Typical characteristics
➢Accommodates overlapping phases: design and build (fast track)
DThe PMR is hired in advance of the design team. PMR then retains
all design consultants and construction manager
➢Preconstruction services offered by the PMR include community
outreach, design management, constructability review, bid
strategies, bid management, etc.
%Due to single - point -of- responsibility, overall project planning and
scheduling is done in advance of mobilization
r PMR serves as a fiduciary to the City. Compensated by flat fee.
➢All project savings returned to the City ( "open book" process)
➢ Quality of materials, systems, etc., assured through periodic City
review and approval
"PM at Risk ": How it works
• Program manager (PM) is selected using quality based selection.
PM consists of A/E and construction manager
• PM acts as the City's agent and manages the schematic
design /design development process
• Upon completion, PM develops a Guaranteed Maximum Price
proposal based upon the schematic /design development plans and
specifications
• The City accepts the GMP and enters into a contract with PM
• PM is paid a fixed fee to manage final design and construction
• PM prepares final design and bid packages for trades
• Bid packages are competitively bid by City
• Lowest responsible bid contracts are assigned to the PM
• PM manages construction
• Any costs over the GMP are absorbed by the PM
• Any Savings under the GMP go to the City
A
"PM at Risk ": Pros and Cons
• Pros
Assumption of all project risk; No change orders. PMR has total
project responsibility
Shorter total project duration and improved cost control
Single point of contact. Serves as the City's agent. The PMR has a
fiduciary responsibility to the City.
i PM, A/E, and CM are involved from the beginning
>All trades bid publicly and competitively per public bid code
➢100% of savings returned to City (open book process)
QBS combined with Competitive Bidding provides best value.
"PM at Risk ": Pros and Cons
• Pros
Assumption of all project risk; No change orders. PMR has total
project responsibility
Shorter total project duration and improved cost control
Single point of contact. Serves as the City's agent. The PMR has a
fiduciary responsibility to the City.
,Significant reduction in technical staff required by the City
All trades bid publicly and competitively per public bid code
r 100% of savings returned to City (open book process)
QBS combined with Competitive Bidding provides best value.
Cons
A Comparatively less common method of delivery
An increased price (in exchange for Risk assumption and
comprehensive project management)
;e Active involvement & up -front investment of time by City thru
establishment of the GMP
Analytic Experience
Based on an article in Popular Government, Fall 2004
. P: d,ea roses always manna m�mly �ed�rod wx
EIPn,. ..a ,.ft, met and rarely reduced H`.
Proiea mzs are ra,ery met and never reduwd 53•x.
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Controlling Project Costs to Owner fiv ax t0`� to
DBB DB PMR
■ Pro,.. .c W. always. and us,nuy a<celerabd
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36%
ux
Meeting Owner's Project Schedule nll nil
DBB DB PMR
Factors in Making the Choice
City's willingness to absorb risk of:
— Change orders
— Scope and schedule "creep"
— Labor and material pricing
— Other course-of -construction cost increases
- City's in -house resources available to the project:
— For contract management administration
— For project cost accounting (various funds sources)
— For schedule oversight and control
-:Time available for project execution
•: City's need to fix costs as soon as possible
- Rising financial rates
- Rising building costs
Alternative Delivery Methods vs. Civic Center
Estimated scenarios
Design- Bid- Build
• Design completion, October 2006; Construction start, January
2007; & Completion June 2008.
• Key issue - Where will financial, material, & labor rates be in 2007?
Design —Build
• Building Program complete and design begins February 2006;
Construction start, October 2006; & Completion April 2008.
• Key issues — Improved schedule but less control over the project.
Program Management at Risk
• GMP in November 2005 locks in cost and financials; Construction
start May 2006; & Completion October 2007.
• Key issues — Best for schedule & cost. Risk virtually eliminated.
ENR Building Cost Index History
4500
4000
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3500
--
3000
2500
2000
- —
1500
1000
500
x
-- - —— --
0
S 1900 1920 1940 1960 1980 2000 2020
Year
,7
Alternative Delivery Methods vs. Civic Center
Estimated scenarios
Design- Bid- Build
• Design completion, October 2006; Construction start, January
2007; & Completion June 2008.
• Key issue - Where will financial, material, & labor rates be in 2007?
Design —Build
• Building Program complete and design begins February 2006;
Construction start, October 2006; & Completion April 2008.
• Key issues — Improved schedule but less control over the project.
Program Management at Risk
• GMP in November 2005 locks in cost and financials; Construction
start May 2006; & Completion October 2007.
• Key issues — Best for schedule & cost. Risk virtually eliminated.
e Real World Experience:
James Ross
Public Works Director
City of Santa Ana
10