Loading...
The URL can be used to link to this page
Your browser does not support the video tag.
Home
My WebLink
About
SS2 - Project Management and Alternate Project Delivery for Major Building Projects
CITY OF NEWPORT BEACH CITY COUNCIL STUDY SESSION STAFF REPORT Study Session Item No. ss2 December 11, 2007 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Public Works Department Stephen G. Badum, Public Works Director 949 - 644 -3311 or sbadum @city.newport- beach.ca.us SUBJECT: PROJECT MANAGEMENT AND ALTERNATIVE PROJECT DELIVERY METHODS FOR MAJOR BUILDING PROJECTS ISSUE: Should the City consider alternative project delivery methods in an effort to control costs, reduce schedules, and maintain quality control for the construction of future building projects? BACKGROUND: The top priority of the newly reorganized Public Works Department is to improve on our CIP delivery program. Staff has been looking at alternative methods to reduce costs, improve quality, and streamline the delivery of our capital projects. Over the next two months, we will be reviewing all of our processes including the hiring of consultants, workflow, manpower, project permitting, prioritization, procurement, and construction. One of the areas that we've looked at in the past and would like to re -visit with you is alternative project delivery methods for our building facility projects. Alternative project delivery methods are gaining popularity with the public sector 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 schedules; 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 project delivery methods. With the Public Works departmental reorganization, we will be recommending the City use contract program managers to oversee and manage all future replacement building projects within the City's Building Replacement Master Plan, regardless of the project delivery method. The program manager would serve as surrogate staff and will report to the Public Works Director. Project Management and Alternative Project Delivery December 11, 2007 Page 2 TRADITIONAL DESIGN- BID -BUILD PROCESS Under the City's traditional Design— Bid —Build process, the process steps look like this: 1) Retaining a program manager using quality based selection (QBS) procedures. 2) Retaining a design consultant using quality based selection (QBS) procedures that provide construction plans, specifications, estimates, and bid documents. 3) Conducting a contractor pre - qualification process. 4) Soliciting competitive bids from pre - qualified contractors with a fixed time bid opening when the City Clerk opens and reads the bids. 5) Awarding a construction contract to the lowest responsible bidder with the program manager managing the contract to completion. 6) Overseeing work of program manager by City and coordinating administrative functions. This traditional project delivery method is linear with each step in succession. The above process has been used successfully recently on the Mariner's Library, Newport Coast Community Center, and SAH Fire Station No. 7 projects. Advantages of Desian- Bid -Build 1) Provides for clear cut checks and balances due to the separation of designer, builder, and owner. 2) Incorporates competitive bidding process in accordance with Public Contracting Codes. 3) This method is widely used with well established and clearly defined roles. 4) We, and most other public agencies, have the most experience with this technique. Disadvantages of Design- Bid -Build 1) This method can create an adversarial relationship between the contractor and City, which can lead to costly claims, change orders, and disputes. 2) The process is linear and therefore more time is required. Each step must be completed before moving to the next step. This creates a slower process which is not suitable for tight deadline projects. 3) It encourages the 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 underbid the project ( "left money on the table "). Change orders are common and inevitable. Increases of up to 15% are common. 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 during the design process. 5) The contractor is not involved in the design process so there are fewer opportunities to identify constructability issues or value engineering 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 Project Management and Alternative Project Delivery December 11, 2007 Page 3 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 require a change order. 7) Requires close oversight by City and contract staff to ensure quality. Contractor has incentive to cut corners to pocket savings. 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 to 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)Awarding to the lowest responsible bidder doesn't guarantee the best value. Some of our projects have been completed at the minimum standard due to poor quality contractors. DESIGN -BUILD This project delivery method merges the responsibility for design and construction into one entity and collaborative process. 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, results in a simplified contract and a possible reduction in adversarial relationships. 4) The Designer - Builder assumes the responsibility and risk to deliver the project and has a built -in incentive to resolve problems between the designer and contractor. Project Management and Alternative Project Delivery December 11, 2007 Page 4 Disadvantages of Design -Build 1) The City would have less control over the project. It 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. This could be somewhat mitigated with regular meetings with a Council Building Committee. 3) The potential inherent conflict of .interest between the architect and contractor finger pointing can exist. 4) The Design -Build firm performs as a "vendor" and adverse relationships can develop similar to City /contractor relationships under traditional Design- Bid - Build. 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 which have problems. 6) Design -Build firm receives all of the benefits from cost savings 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 or eliminates many 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 structure generally includes architectural and construction management services. The Program Manager acts as the City's agent and manages the overall design process. Once the design process is completed and prior to the development of the construction drawings and bidding documents, the Program Manager prepares and submits a bonded guaranteed maximum price (GMP) proposal based upon the approved design plans and agreed upon building project specifications. The City, at its own discretion, may elect to accept the GMP. If the GMP is rejected, the City would have the option of proceeding with the traditional bidding process. As with the management of the design process, the Program Manager is compensated on a "not to exceed" fixed professional services fee for management services and overall project delivery. The Program Manager and his team proceed with the construction plans, specifications, and prepare bid packages for all 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, permitted, and approved by the City and competitively bid by the Program Manager on behalf of the City in full compliance with the requirements of the Public Contracting Code. Bids are received and opened by the City Clerk and the lowest responsible bidders are designated by the City. The low bidders for each trade are approved by the City Council and then the contracts for these bid packages are contractually assigned to the Program Manager, who is responsible for managing the contracts and completing the project. The Program Manager is responsible for any aggregate increases over the GMP. All additional costs over the GMP area borne by the Program Manager and his team. If there are savings Project Management and Alternative Project Delivery December 11, 2007 Page 5 (the final cost of the project is below the GMP), the City receives 100% of those savings. The process is completely transparent and, if desired, subject to the City's audit. Advantages of Program Manager at Risk 1. The City will have a guaranteed maximum price. 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 in turn creates a positive public perception of the project. 2. Most industry studies show this method as superior to Traditional and Design - Build methods in controlling construction costs and schedule. 3. The Program Manager, the Architect, and Contractor are involved from the start. This provides the best opportunity to maximize constructability and value engineering. 4. The combination of quality based selection and competitive public bidding of the actual construction provides the best value. Key management of the project is selected by qualifications with straightforward single discipline subcontracts bid at competitive market rates. 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. The Program Manager is a single point of contact and contract responsibility to the City, thus reducing City management time. 7. Because the Program Manager, designer and construction manager are on the same team, design problems get resolved quicker and in a cost efficient manner. 8. Program Manager is paid a "not to exceed" flat fee, so there is no incentive to generate change orders and extra work. 9. The City receives all (100 %) of the benefits of all cost savings and value engineering. 10. All trades are bid publicly and competitively and conform to the Public Contract Codes. Disadvantages of Program Manager at Risk 1. A relatively new process for the City and less common method of project delivery. However, the Back Bay Science Center was constructed with a similar method and was very successful. 2. Requires active City involvement to keep up with the fast moving process. Although, we see this as a positive when viewed with our reorganization strategy. 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. The most recent Engineering News Record (ENR) Building Cost Index increased 2.6% in the last year. Skilled Project Management and Alternative Project Delivery December 11, 2007 Page 6 Labor is up 4.5 %, Cement is up 6.3 %, Steel prices have leveled off and is only up 1.7 %, and lumber is down 7 %. • The cost of money also continues to rise. • Competition for qualified contractors. ENR just released their 2008 Construction Outlook and has predicted the following: "Institutional buildings will rise 4% in dollar volume, while square footage edges up 1 %. School construction is expected to strengthen again after its 2007 pause Public works construction will move up 3% Commercial buildings will slip 6% in dollar volume and 11% in square feet. Multifamily housing will slide 8% in dollars and 11 % in units" Alternative Delivery Methods and the Proposed Oasis Senior Center Project The key advantages in using the traditional Design- Bid -Build method to construct the proposed Oasis Senior 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 and inevitably subject to change orders. The City has just approved the design contract with Robert Coffee Architect. The current schedule calls for: the completion of design development plans in April 2008; completed construction plans, specifications, and bid package by October 2008; approved Building Permit by January 2009, award a construction contract by February 2009; and construction starting in March 2009 with completion and use by May 2010. With current market conditions, rising construction costs, and increasing interest rates, the bid prices will be substantially higher in January 2009 than in today's market prices. Another key downside is that complex building projects always require change orders, 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 Oasis Senior Center project are that we can accelerate the schedule, take advantage of potentially 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, community's, and staffs desire to be intimately involved in this project to ensure a cost effective and quality facility. This would be significant in a project such as the Oasis Senior Center project. Another problem for the City in using design build on the Oasis project is that we've already hired an architect and have started design development. The current design contract would need to be scrapped. An independent architect or design consultant would need 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. Retaining the current architect would be in jeopardy as the successful bid may not include that architect. Based upon the universal acceptance of the current concept scheme, this would be undesirable and we would lose design continuity with a new architect. While time will be made up due to the overlapping of the design and construction phases, the start up time and additional steps would negate much of that advantage. Project Management and Alternative Project Delivery December 11, 2007 Page 7 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 lock in the construction cost at the completion of Design Development (April 2008 versus January 2009) and minimize financing costs due to the lower current rates. The GMP virtually eliminates cost increases, overruns, and numerous change orders that are often cited by critics. While the transfer of risk and the level of project management required may slightly increase the cost, the City would need to hire a construction management team under the other delivery methods which would then make these delivery options virtually equivalent in initial cost. In the Program Management at Risk approach, the City's costs are capped by the GMP, while any savings are returned in full to the City. In the traditional approach, there are no opportunities to participate in project savings as all savings are the contractor's. The current design contract could be assigned to the Program Manager, ensuring continuity. This could happen immediately or at the completion of design development. The overlapping design and construction allows us to save time in the schedule. Grading and foundations can start while interior plans are still being finalized. We estimate that approximately 4 to 6 months could be saved in the OASIS project over the traditional design bid build process. In addition to the time saved, locking in costs earlier in the process could realize substantial savings. What's Next? ' As stated above, the City has retained the architect, Robert R. Coffee Architect + Associates. The City has reviewed the qualifications of several potential program management consultants and has had recent positive experience with Griffin Structures, GKK Works and Douglas E. Barnhart. If desired, staff could interview those potential consultants and select the most qualified consultant, or staff could prepare a formal request for qualifications and send it to the program /construction management community. However, the latter will require delaying the start of the design process by approximately six weeks. Based upon Council's direction, City staff will bring a proposal based upon a traditional or alternative project delivery to the City Council consideration at a future meeting. In addition to the above information, a short PowerPoint presentation will be made by staff to highlight the key points in utilizing alternative project delivery. Submitted by: tephen G. 9adum Public Works Director SS2 - )2 -11 -o-7 Capital Improvement Project Management &Delivery Chapter 1 - Alternative Means and Meth December 11, 2007 • Cost — Deliver projects for less in the current market place • Schedule — Deliver projects faster. Streamline processes for design, permitting, and construction Quality — Deliver projects that will meet the City's needs and standards. WA • Rising Construction Costs* — The ENR Building Cost index increased 2.6% in the last year; ENR Skilled Labor increased 4.5% in the last year; ENR Materials - Cement is up 6.3 %, Steel is up 1.7 %, Lumber is down -7 %. • Competition for Qualified Contractors — ENR just released their 2008 Construction Outlook and has predicted the following: "Institutional buildings will rise 4% in dollar volume, while square footage edges up I%. School construction is expected to strengthen again after its 2007 pause Public works construction will move up 3% Commercial buildings will slip 6% in dollar volume and 11% in square feet. Multifamily housing will slide 8% in dollars and 11 % in units" * From Engineering News Record, McGraw -Hill, Dec. 11, 2007 3 • Regulations and Modern Operational Standards— New Building /Fire codes, Coastal, Water quality • Green Building Cost • Cost Mitigation Costs • "Cost Creep" 4 5 Processes that govern delivery and schedule: • Consultant selection (Architect, Engineer, Project Managers) by Quality Based Selection per State code & Council Policy F -14 • Public Contract Code, bidding process, prevailing wage, labor codes • City Charter Section 1110; sets bidding process and minimum threshold ($30,000) • Permits, Building /Fire, Water Quality, California Coastal (when required) • CEQA Traditional linear project delivery steps: • Architect & Project Manager selection, 6 -8 weeks • Schematic Design, varies by project • Design Development, varies by project • Construction plans and Bid documents, varies by project • Building Permit, 3 months; California Coastal Permit, 6 months • Contractor pre - qualification, concurrent with design • Advertise, 4 weeks • Open bids, award, execute contract, 4 -6 weeks • Construction, varies by project • Fixtures, Furnishing, & Equipment, 4 -8 weeks Other issues: • Current project management capacity of City Staff • Availability of contract employees /consultants and their current workloads • Competition for Contractors and subcontractors • Availability of materials; concrete, steel, asphalt • Architect/Engineers /Program Manager are hired through quality based selection looking at project experience, key personnel, and references • Outreach to stakeholders, public officials, and affected parties to establish needs, constraints, and standards. • Constructability Reviews and Value Engineering • Contractor Pre - Qualification process to ensure experienced and financially stable firms that are capable of delivering successful projects. • Traditional Design Bid Build (DBB) Our current project delivery method. • Design Build (DB) Common in private sector. Doesn't fit public projects well. Limited competitive bidding. Less City control. • Program Manager @ Risk (PM @R) Blend of DBB & DB. Includes Guaranteed Maximum Price (GMP). Can reduce schedule and limit costs. Transfers risk from City to PM. 0 PM @R Team `, "PM @ 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 (DD) • PM develops a Guaranteed Maximum Price proposal based upon the completion of 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 11 • Guaranteed Maximum Price- Limits traditional cost risks, locks in earlier in process • Overlapping design & construction minimizes schedule • Team approach from start maximizes constructability and value engineering & minimizes conflicts • Combines QBS and competitive public bidding • Management selected by qualifications with straightforward single discipline subcontracts bid at competitive market rates. 12 • Relatively new process for City and less common method of project delivery. However, Back Bay Science Center was constructed with a similar method and was very successful. Several cities, including Santa Ana, Rancho Santa Margarita, and Cypress have used this process successfully. • Requires active City involvement to keep up with fast moving process. We see this as a positive when viewed with our reorganization strategy. 13 Analytic Experience Based on an article in Popular Government, Fall 2004 Project costs always met and usually reduced Project costs typically met and rarely reduced Project costs are rarely met and never reduced Controlling Project Costs to Owner 74% ■ Project schedule always met and usually accelerated Project schedule typically met and rarely accelerated Project schedule are rarely met and never accelerated Meeting Owner's Project schedule 60% q 64% m 89% PMR 80% PM R 14 Factors in Makina 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 ❖Schedule Overlapping design and construction can reduce schedule ❖Cost - City's desire to fix costs as soon as possible - To establish financing needs as the best rate - To help minimize rising building costs 15 Potential Options • RFQ for traditional Project Management • RFQ for Program Management @Risk • RFQ for traditional Project Management with option to convert to PM @R at the conclusion of design development 16 Construction Cost Index A year -end lull in wage negotiations held the labor component steady and material casts fell. CONSTRUCTION COST 8089.45 -0.1 +2.6 COMMON LABOR 17083.82 0.0 +3.4 WAGE S /HR. 32.46 0.0 +3.4 Building Cost Index The SCI's labor component increased 4.5% this year, up from a 3.6% increase during 2006. BUILDING COST 4556.15 -0.1 +2.6 SKILLED LABOR 7795.74 0.0 +4.5 WAGE $IHR. 43.27 0.0 +4.5 Materials Cost Index A 1 % decline in lumber prices undercut a 0.3% increase in steel prices, pulling the MCI down 0.2% for the month. MATERIALS 2676.78 -0.2 -1.1 CEMENT $lTON 101.18 0.0 +6.3 STEEL $ /CWT 40.45 +03 +1.7 LUMBER $1MBF 434.02 -1.0 -7.0 PROM THE MPA PROGRAM Public Construction Contracting: Choosing the Right Project- Delivery Method Aiiv construction project that misses its deadline and is millions of dollars over budget receives unwanted attention. It receives even more attention if it is funded by taxpayers' money. Public owners (state agencies, counties and towns, universities and community colleges, and hospitals) often seek new ways to make construc- tion projects adhere to both deadlines and budgets. Many experts believe char the key to the success of a construction project is the process by which it is or- ganized and managed, or the "project -. delivery method." Recently the choices . among methods have expanded. Pro- ponents of each method claim that theirs is the best choice to save money, reduce time, improve quality, and decrease . administrative burden. Historically, North Carolina's laws restricted . public owners to using a project delivery method called design -bid -build using separate -prime bidding (explained. later).' In 2001 the North Carolina Gen- eral Assembly added two options for project delivery::. design- bid -build using single -prime bidding and construction manager at risk? The North Carolina statutes also include a special . provision that allows the State Building Commis- sion to approve alternative contracting techniques? The most commonly ap- proved method is design - build. Now, with four methods available and various opinions bombarding the industry; pub- lic owners are wondering which one best suits their projects. The author is a -2003 graduate of the MPA Psograrn. She is currently pursuing a. Pb.D. in architecture at the Georgia Institute of Technology,. specializing in construction-project delivery systems. Contact her at valerie. riecke@arch.gatech.edu. 22 POPULAR GOVERNMENT Valerie Rose Riecke This article offers guidance to public officials in assessing the different project delivery methods. Construction industry professionals interested in public - sector work also will find the article of interest. The study reported in the article is not a quantitative study that determines which the published literature on the four project delivery methods, identifying the advantages and the disadvantages of each using four construction- contracting industry goals as evaluation criteria: (1) controlling project costs, (2) meeting or accelerating the schedule, As UNC was about to embark upon a massive capital program in excess of $4.2 billion, it was clear that a greater number of construction delivery options were necessary for success.The North Carolina General Assembly's approval late in 2001 to add construction manager at risk and single -prime bidding to the long -used multiple -prime bidding was a watershed event. —Kevin MacNaughton, special assistant for capital projects, UNC at Chapel Hill method is the most cost - effective and least expensive. Many quantitative studies claim to have determined the most effective approach, but a precise, comparative analysis is impossible.4 My analysis moves the industry one step closer to understanding the implications of each method. Research Design and Methodology Opinions on the relative merits and risks of each method vary. To account for the differing opinions, I sought input from experts representing all construc- tion industry disciplines. I first studied (3) ensuring a quality product, and (4) decreasing the administrative burden .5 To apply the findings of the literature review, I distributed a questionnaire to construction industry experts. They in- cluded academicians, architects, engineers, construction managers, general contrac- tors, legislators, local and state officials in North Carolina, and prime contrac- tors. I chose them using referral sam- pling: I surveyed experts who were initially interested and available to par- ticipate, and they referred me to addi- tional experts. In total, I incorporated fifteen responses into the study.' Definitions of Project Delivery Methods Many variations of project delivery methods exist in the construction in- dustry. Because of this, there are no standard definitions? Therefore it is important to understand how these methods are being applied in North Carolina. The descriptions that follow use the North Carolina General Statues as a basis and add information from the literature review and experts' comments. (For graphic representations of the methods, see Figures 1 -4.) Words that appear in boldface are defined in the glossary (see page 26). Design- bid -build using separate- (or multiple -) prime bidding. This project delivery method has four sequential phases: selection, design, bid, and con- struction. The selection phase entails hiring the designers, who are chosen on the basis of qualifications.' Once the designers are selected, de- sign begins. It has three phases: (a) sche- matic design, during which the basic appearance and the plan are developed; (b) design development, during which the functional and aesthetic aspects of the project and the building systems that satisfy them are defined; and (c) con- struction documents, during which the details of assembly and construction technology are finalized. FALL 2004 23 During design the public owner creates the project requirements, also known as the project program. Also, the designers develop the design documents on the basis of those requirements. Next, the designers create bid pack- ages for the following trades: heating, ventilating, and air conditioning; plumb- ing; electrical work; and general con- 24 POPULAR GOVERNMENT struction (any work not included in the other three categories). Then bidding begins on the construction project. Bids are received from pro- spective prime contractors and awarded to the lowest, most responsible bidders. At the end of the bid phase, contracts are executed with each of the prime contractors. In the final phase, construction takes Place. Under this method, it occurs after the design documents are complete, and the pubic owner contracts separately with the designers and the prime contractors. Design - bid -build using single -prime bidding. This project delivery method also has four sequential phases: selection, design, bid, and construction. Activities in the selection and design phases are largely the same as in separate -prime bidding. The exception is that the de- signers create one bid package from the design documents, as opposed to mul- tiple packages. After one bid package is developed, construction bidding begins. Bids are received from general contractors and awarded to the lowest, most responsible bidder. At the end of the bid phase, one contract is executed. Construction is the project's final stage. It takes place after the design doc- uments are complete. The public owner contracts separately with the designers and the general contractor, and the general contractor holds contracts with subcontractors. Construction manager of risk (con- struction management).9 As with the design- bid -build methods, there are four phases of project delivery: selection (of a designer), design, bid - selection (of a con- struction manager), and construction. First, the public owner develops the pro- ject program and then requests proposals from prospective designers. 10 As with other methods, the public owner awards the contract on the basis of qualifications. The designer then develops design documents. During this process the public owner requests proposals from prospective construction managers." The construction manager is selected on the basis of qualifications. Once the construction manager is selected, the contract has two phases of execution. In the preconstruction phase, the construction manager works with tracts with the designers and the con- struction manager, and the construction manager contracts with the prime contractors and the subcontractors. Design- build. Unlike the design -bid- build and construction- manager -at -risk methods, this method has only three Employing single -prime bidding on less complex projects has ensured a single source of responsibility. Many institutions have found that the pre- qualification of these hard -bid contractors is worth the effort on most jobs. the public owner and the designers until the design documents are about 80 percent complete. Then the contract is renegotiated to include a guaranteed maximum price for the construction.12 After the guaranteed maximum price has been set, the construction manager may begin construction, even though the design documents are not complete. If construction begins early, the construction manager creates multiple bid packages from the incomplete design documents and opens bidding.13 Contracts are awarded to the lowest, most responsible bidders, and construction takes place. Under this method, construction begins before the design documents are complete. Also, the public owner con- —Kevin MacNaughton phases: bid - selection, design, and con- struction. The public owner first pre- pares a detailed project program and then requests proposals to attract a design - builder. The design- builder is either a single company or a partnership of two or more companies. Several companies are selected on the basis of their qualifications. The design - builders then develop detailed proposals, which include design documents and a cost for construction. A proposal is selected on the basis of the lowest, most responsible bid.14 As with the construction- manager -at -risk method, the design - builder may begin construction after being hired. Under this method, construction begins before FALL 2004 25 the design documents are complete. The public owner contracts only with a design- builder. Findings The study found that opinions vary greatly on the relative merits and risks of each method. The findings are pre- sented in the following sections accord- ing to the evaluation criteria identified earlier. Controlling Project Costs Although many studies claim to have de- termined the most cost - effective or the least- expensive project delivery method, as noted earlier, the task is impossible. So, for each method the questionnaire asked if project costs were always met and usually reduced, typically met and 26 POPULAR GOVERNMENT rarely reduced, or rarely met and never reduced. I deemed the most effective method to be the one cited by the highest percentage as always meeting and usually reducing project costs. Overwhelmingly, experts indicated that the construction- manager -at -risk method is the most effective. (For a graphic presentation of the results, see Figure 5.) Seventy -three percent of the experts responded that costs are always met and usually reduced because the construc- tion manager assumes the financial risk associated with any profit or loss.15 If the budget is exceeded, the construction manager must work without charge to arrive at the guaranteed maximum price. Experts also ranked this method high because the construction manager is involved in all project phases. There are more opportunities for value engineering and cost estimating. Even though this method ranked highest, experts said that public owners may have difficulty enforcing the con- tract. The guaranteed maximum price is based on incomplete design documents and is .a defined price for an undefined product. The design -build method also is effective in controlling project costs, although not as effective as the construction- manager -at -risk method. Forty -seven percent of experts responded that costs are always met and usually re- duced. Additionally, 53 percent responded that costs typically are met. Experts ranked this method high because there are not as many change orders or as many claims stemming from errors and omissions in the design documents. The designers and the "constructors" (the general contractors or the prime con- tractors) are under one contract. Further, as with the construction- manager -at -risk method, a project using this approach benefits from increased value engineer- ing and cost estimating during design. Nevertheless, public owners should be aware of the increased financial risks of using this method. Because the fixed price is based on the design documents developed during the bid phase, changes in the project program are likely to oc- cur. Any such changes can be costly once construction is under way. Although not as effective as the others, the two design- bid -build methods also were effective in controlling project costs. Thirteen percent of experts re- owner can make changes in the project program at a moderate cost during the design phase because construction has not begun. could have four change orders from a design error when they are using separate - prime bidding, as opposed to one when they are using single -prime bidding. We have used construction manager at risk with great success.We built our new Justice Center under this method, and we just awarded bids for several large water department projects under a construction- manager -at -risk contract. In both instances the bids came in under projection.The Justice Center project came in on time and on budget— unheard of in government construction projects —and we saved over half a million dollars on the water department bids. So the finance officer, David Clawson, and I are big fans of this contracting method. —Norma Mills, attorney, Dare County, North Carolina ported that costs are always met and usually reduced using either design -bid- build method. Also, 67 percent responded that costs typically are met when using the single -prime bidding method, and 27 percent responded that they typically are met when using the separate -prime bidding method. With these methods the public owner benefits from the designers' expertise and advice. It also benefits from separating the designers from the contractor(s). The separation creates a system of checks and balances. Unlike the case with the other two methods, the public Overall, however, the design -bid- build methods together ranked low and the separate -prime bidding method ranked last, with 60 percent of experts responding that costs are rarely met. One expert attributed the low rankings to the contract - selection process. Because the contract is awarded to the lowest, most responsible bidder, contractors tend to underbid when they know that the project has problems. The problems will create change orders later. Also, because the chance for change orders increases in pro- portion to the number of contracts made on a project, public owners potentially Meeting the Project Schedule The questionnaire asked, for each method, whether the project schedule is always met and usually accelerated, typically met but rarely accelerated, or rarely met and never accelerated. According to the experts, the design - build method is the most effective in meeting or accelerating the project schedule. Sixty-four percent of experts responded that schedules are always met and usually accelerated, and 36 percent reported that schedules are typically met. (For a graphic presenta- tion of the results, see Figure 6.) FALL 2004 17 Experts responded favorably to this method because phased construction can occur. Using this approach, the design - builder can avoid scheduling delays by identifying long lead times early. Even though this method ranked highest in the study, one expert remarked that public owners with committees may encounter problems. In some cases, committees with multiple stakeholders may prolong the decision making. Phased construction relies on speedy decisions from the public owner. The construction - manager -at -risk method also is effective in meeting or accelerating the schedule. Fifty -three percent of experts responded that the schedule is always met and usually accelerated, and 47 percent responded that the schedule is typically met. As with the design -build method, phased construction explains the high ranking. However, design build reaps the benefits of phased construction earlier in the process than construction manager at risk. Also as with design - build, public owners must gain input from the stakeholders more quickly and earlier in the design process to reap the time savings of the phased construction. The two design- bid -build methods also were effective in meeting and ac- celerating the schedule, although less so than the other methods. Sixty percent of experts responded that the schedule typically is met using the single-prime bidding method, and 33 percent of ex. perts responded the same for the separate - prime bidding method. The main benefit to the public owner is the systematic checks and balances created by separating the designer and the contractor(s). The designers scru- tinize construction operations, while the contractors carefully review construc- tion administration by the designers. Even though several experts favored these methods, they ranked low overall. Twenty-seven percent of experts responded that the schedule is rarely met using single - prime bidding, and 60 percent responded the same for separate -prime bidding. Experts suggested that public owners be aware that stakeholders take the initial decision deadlines less seriously because changes can be made later. Another challenge with these methods is that checks and balances can create a 26 POPULAR GOVERNMENT Figure 5. Controlling Project Costs © Project costs are always met and usually reduced. Project costs are typically met and rarely reduced. Project costs are rarely met and never reduced. Separate -Prime Single -Prime Construction Design -Build Bidding Bidding Manager at Risk Note: The method in bold type is the most effective in controlling project costs. Figure 6. Meeting the Project Schedule The project schedule is always met and usually accelerated. The project schedule is typically met and rarely accelerated. The project schedule is rarely met and never accelerated. 64% Separate -Prime Single -Prime Construction Design-Build Bidding Bidding Manager at Risk !Vote: The method in bold type is the most effective in meeting the project schedule. strained relationship and hinder co- ordination. This is especially important in separate -prime bidding because the designer may work with four prime contractors. to the prime or general contractors.) Because of this and the expanded design phase, several experts indicated that a quality product is more common when using these methods. The designers are By all accounts the multiple -prime delivery system for this campus was a total disaster,and we have absolutely no intention of using this system for future construction projects.The majority of our future projects costing more than $15,000,000 will be candidates for construction manager at risk.The balance will in all likelihood be bid and awarded on the single -prime basis. —Clyde D. Robbins, director of design and construction, Appalachian State University Ensuring a Quality Project The definition of what makes a quality project varies in the construction indus- try. Because of this, the questionnaire asked whether the functional and aesthetic goals of a project are met, rather than asking if the methods ensure a quality project. There was little distinction among the methods. Forty percent of experts responded that functional and aesthetic goals are always met using single -prime bidding, construction manager at risk, or design - build. Twenty -seven percent thought that using separate-prime bidding is best. (For a graphic presentation of the results, see Figure 7.) Overall, experts indicated that public owners have the greatest chance for a quality project using construction manager at risk. Under construction manager at risk, public owners benefit from having input from construction personnel during design. This also is a characteristic of design - build. However, a conflict of interest can occur under design -build. Unlike the case with construction manager at risk, with design - build, the designer is no longer an independent adviser. When using this method, public owners should be aware that the design- builder is likely to cut corners because it both interprets design needs and may seek the lowest cost alternative. Like the case with construction man- ager at risk, under the design- bid -build methods, the designer is an independent adviser. (That is, under these methods the owner holds separate contracts with the designer and the construction manager, so they are not contractually responsible not under a deadline to produce high - quality design documents. All experts agree that having good design documents ensures a quality product. When asked about the risks of these methods, experts again cited the contract - selection process. One ex- plained that even well- qualified firms may be forced to shortchange the public owner on quality of supervisory staff in order to submit a bid low enough to win. Public owners should be aware of this risk and the probability that short- volved, or highly involved in the design, bidding, and construction phases. Responses indicated that design-build called for the least involvement, thus providing the greatest reduction of administrative burden. It was followed by construction manager at risk. Design- bid -build using single -prime bidding ranked a close third, and separate -prime bidding ranked last. In general, the results indicate that the administrative burden increases with the number of contracts. The design- build method benefits the public owner by involving only one contract. There is only one line of communication for the owner. With construction manager at risk and single -prime bidding, the public owner holds two contracts, and with separate -prime bidding, five. Each con- tract involves developing a bidding package, issuing it, receiving proposals, evaluating them, negotiating the contract, and overseeing its implementation. Even though the design- bid -build methods ranked low, experts stated that they are easy to understand and public owners have worked with them for some time. Many experts said that there is confusion in the industry because the Dare County found through experience that the single -prime process provided only a guaranteed minimum price for our new Justice Center and that the only incentive for maintaining a schedule was a punitive one in the form of liquidated damages.After much research and discussion and since it was before the passage of Senate Bill 914, the county obtained local legisla- tion to allow alternative methods for the project.The county ultimately decided upon a design plus construction- manager -at -risk approach. [The county had the design done before it solicited for a construction manager.] We were able to obtain a guaranteed maximum price for the project, to in- clude incentives for schedule improvements and for savings of the budgeted contingency, and to obtain a quality product knowing that both the architect and the contractor were on the same team and had the same boss. —David Clawson, CPA, finance director, Dare County changing will multiply as more con- tractors become involved. Reducing the Administrative Burden Experts were asked whether the public owner is less involved, moderately in- construction- manager -at -risk and design- build methods are relatively new and are used differently. For example, with construction manager at risk, opinions differ about when proposals should be requested for the construction manager. FALL 2004 29 Some public owners request proposals for the designers and the construction manager at the same time, while others request proposals for the construction manager after schematic design. Because these methods are relatively new, experts suggested that public owners consider using the design- bid -build methods until more experience is shared in the public contracting industry. Regardless of method used, owners' involvement depends on how much time they dedicate to a project. Experts think that public owners should carefully judge their involvement and capacity level so that they do not lose control of the project. Further Considerations Overall, the study reveals that experts think the construction- manager -at -risk and design -build methods control project costs, reduce time, improve quality, and decrease administrative burden more than the design- bid -build methods. However, public owners should recognize that additional factors will influence their decision in choosing the best method: whether or not they are developing a project program; whether or not they are working with multiple stakeholders; and whether or not they are using in -house design and construction staff. First, experts agree that the key to a successful project is a comprehensive project program. Some project delivery methods offer greater assistance than others during this process. Public owners should consider the design- bid -build methods if they do not develop a project program because the design period allows for more time. Because the construction - manager -at -risk and design -build methods have shorter design phases, public owners must ensure that a program is developed early using construction manager at risk and is well developed for design- build. For example, with design - build, develop- ment includes classifying detailed building components early on. 16 Next, stakeholder involvement may force public owners to choose one of the two design- bid -build methods. The longer design period of these approaches allows interest groups representing ja POPULAR GOVERNMENT Figure 7. Ensuring a Quality Project Functional and aesthetic goals are always met. Functional and aesthetk goals are usually met. Functional and aesthetic goals are rarely met. Separate -Prime Single -Prime Construction Design -Build Bidding Bidding .. Manager at Risk Note: The method in bold type is the most effective in meeting the functional and aesthetic goals of a project. . Figure 8. Reducing the Administrative Burden ©The public owner is less involved In the design, procurement, and construction phases. A design and construction representative allocates minimal weekly hours to contract oversight. The public owner is moderately involved in the design, procurement and construction phases. A part-time design and construction representative manages the contract(s). REThe public owner is highly involved in the design, bid, and procurement phases. A full -time design and construction representative manages the contract(s). Separate -Prime Single -Prime construction Design -Build Bidding Bidding Manager at Risk Note: The method in bold type is the most effective in reducing the administrative burden. several public agencies and the general public more time to discuss options. The phased construction approach used in the design -build and construction - manager -at -risk methods relies on speedy decisions by the public owner. Finally, public owners that have no in -house design and construction staff and whose staffs have heavy workloads or no training with the construction - manager -at -risk or design -build methods should consider the design- bid -build Methods until the public construction industry has more experience with these approaches. staff is less experienced. Because of this, public owners may find that the design- .bid -build methods, especially the single -prime bidding method, will con- tinue to be useful in many situations. Notes 1. The federal goverment has separate procedures for project delivery. The laws of North Carolina do not apply to Army Corps of Engineers projects, federal buildings, or federal military bases in North Carolina. 2. N.C. GEN. STAT. art. 8, Public Contracts, § 143 -128 [hereinafter G.S.I. 3. G.S. 143 - 135.26(9). Appalachian State University has to date initiated three projects using the construction- manager -at -risk delivery system: the Library and Information Commons ($47,586,800), the Rankin Science Addition and Renovation ($11,157,000), and the Athletic facilities Addition and Renovation ($16,000,000). The library project is proceeding in excellent fashion — on budget and ahead of schedule.The construction- manager -at -risk method for the Rankin project did not meet our expectations and was not continued beyond the preconstruction phase.The projectwas subsequently bid and awarded using the single -prime delivery system,which to date is proceeding satisfactorily. Conclusion Changes always are taking place in the construction industry. New tools are available to manage projects, and new building techniques are being used. Each new approach spawns claims that it will save money, reduce time, improve quality, and decrease administrative bur -. den. To protect themselves from mis- leading claims, public owners should stay abreast of new laws and information. This study has shown that experts consider the construction- manager -at- risk and design -build methods to be the best for controlling costs, reducing construction time, improving quality, and decreasing the administrative burden. However, public owners may not realize the benefits of these Methods if their project program is not well developed, many stakeholders are involved in decision making, and their —Clyde D. Robbins 4. To make a comparison, one would have to replicate a project exactly under each project delivery method. This would mean using the same design, staff, site, and time frame simultaneously. 5. The goals were developed during the literature review. 6. Confidentiality was assured to the experts during this research. 7. Representatives from the American Institute of Architects, the Associated Gen- eral Contractors of America, Design Build Institute of America, and Construction Man- agers Association of America are currently collaborating on developing industry-wide definitions documenting the variations for each method. 8. The public owner develops the selection criteria. They may include the public owner's previous experience with the firms, and the firs' financial capability, staff qualifications, history of litigations and disputes, and references from past clients. Bids are solicited using a request for proposals (RFP) or a request for qualifications (RFQ). 9. The term "at risk" refers to the construction manager's assuming high risk, for example, for the performance and the financial stability of subcontractors and vendors, fluctuations in prices of materials, adherence to schedule, and weather changes. The high risk also is linked to a guaranteed maximum price, which is explained later in the article. 10. In some cases the public owner at- tempts to attract a company that has the ability to perform both design and construc- tion management. If that happens, then instead of requesting proposals for a second time, it renegotiates a guaranteed maximum price with the company later in the design process. 11. Several experts noted that the selection process takes place when the schematic -design phase of design is complete. 12. The public owner determines the point in the design phase when the guaranteed maximum price is to be negotiated. Several experts indicated that the guaranteed maxi- mum price is negotiated toward or at the end of the construction - documents phase. 13. As with design- bid -build with separate - prime bidding, bid packages may be prepared for heating, ventilating, and air conditioning, plumbing; electrical work; and general construction. 14. After the design - builders develop the proposals, the public owner critiques each one. Then each design- builder responds with design changes that make all the proposals technically equivalent, adjusting the price accordingly. The public owner evaluates the revised proposals and makes the award on the basis of the lowest price. A lowest -price award is made because the public owner's critique created equivalent designs. 15. Experts revealed that savings produced during the execution of the contract revert to the public owner. In some cases the public owner and the construction manager share the savings. This is known as a "shared savings program." When the direct project costs, including profit and overhead, are less than the guaranteed maximum price, the construction manager and the public owner share the difference on the basis of some stipulated percentage. Experts said that the shared savings program provides an additional incentive to the construction manager to control project costs. 16. An example of such a component is a building's air handling units. The term "air handling unit" refers to equipment that is designed to move conditioned air. It contains fans, filters, and heating or cooling coils. Units can be classified as either a central system or a unitary system. Unitary equip- ment can be classified as a rooftop unit, a unitary package unit, a unitary split system, or a compound room unit. FALL 2004 31