By Michael C. Loulakis, Esq.
Design-build has been adopted by the water/wastewater industry at a fast and furious pace. Owners are not only impressed by the speed at which their projects are being delivered, but they enjoy contracting with highly-qualified design and construction teams that place a high value on innovation, quality and client relations. This is far different than the “blame the other guy” philosophy that seems inherent in the low bid design-bid-build delivery process.
The broad use of design-build has changed some fundamental questions that water/wastewater owners ask about project delivery. Just a few years ago, the most common questions were along the lines of: “What is design-build?” “Am I authorized to use it?” and “What do I really gain by using it?”
While those questions were not very difficult to answer, they required owners, and particularly their procurement and legal departments, to think differently. They had to learn how to work in an environment where designers contracted with construction contractors, awards were made on combinations of price and non-price factors and design-build teams pushed owners to use performance, rather than prescriptive, specifications.
The type of questions being asked today — e.g., “How do I take full advantage of design-build and do it the right way” — are much harder to answer. These questions require owners to think about how to optimize their design hand-off to the design-build team. They force owners to make difficult choices, such as how much of the design should the owner truly control and what risk does it assume in doing so. In short, they prompt thoughtful owners to constantly re-examine their design-build procurement, contracting and execution processes and assess whether these processes comport with best practices.
Move from Two-Phase Best Value to Progressive Design-Build
One of the major areas that owners have re-examined over the past few years is the stage at which they procure the design-builder. Most public sector owners have used a two-phase best value process, where they: 1) develop a shortlist of design-build teams based on responses to a Request for Qualifications (RFQ); and then 2) invite the shortlisted teams to respond to a Request for Proposals (RFP) and provide technical and price proposals. Under this two-phase approach, the team that provides the owner with the best overall value, as defined in the RFP, is the winner.
While the two-phase process can work quite well, it has some notable drawbacks. First, the RFP usually includes a mandatory baseline design that is approximately 35 percent complete, with requirements being stated in terms of specific design approaches that the design-build offers must follow. This approach not only limits innovation, but it creates a potential liability to the owner if there are problems in what it has furnished in the RFP. Second, the process of creating the RFP and evaluating the proposals can be costly and time-consuming.
Progressive design-build (PDB) is a direct response to these drawbacks, and is used by owners that have flexibility in how and when they choose their design-builders. Under this approach, the design-builder is selected primarily (if not exclusively) based on qualifications and is brought on as part of the owners? team at a very early stage of the design. The design-builder will either assist the owner in developing the design concept or advance the design from what the owner already has developed through its own personnel or an independent design professional.?
The design-builder completes the design to a higher level of definition and, at some point in the design process, submits a guaranteed maximum price (GMP) or lump sum for the total project. The GMP/lump sum is often established when the design is approximately 50 to 75 percent complete, but it can occur anytime up to when the design is 100 percent complete, depending on the amount of control the owner desires to maintain over the design definition.
If the parties reach agreement on commercial terms (including the GMP/lump sum), the design-builder will move forward with the final design and construction of the project. If they cannot reach an agreement, the owner generally has an “off-ramp” — enabling the owner to take the design and move forward in a design-bid-build procurement or with another design-builder.
There are several reasons that an owner would choose to use a PDB process vs. the typical two-phase best value process. It enables owners to get the benefits of having the design-builder introduced to the project at the earliest possible point. This enables the design-builder to use its expertise to influence the design development process and avoids the time and expense associated with having another designer create the design baseline and then “hand-off” the design to the design-builder after the completion of the procurement process. PDB also gives owners who want to maintain control of the design the ability to do so collaboratively with the design-builder, until, of course, the GMP/lump sum has been set.
Another important benefit of PDB is that the owner can achieve a high degree of construction cost certainty as the design is being developed. As part of its scope, the design-builder will provide detailed cost estimates concurrently with specific design submissions. Because of the integrated nature of design-build, these cost estimates are reliable, they come from the entity that will be committing to the price and should ensure that the owners’ budgets are met. Cost certainty under a two-phase design-build process does not come until the procurement is finished, as the expected design-build price is based on the owner’s (or owner’s consultant’s) opinion of probable cost.
States like Florida and Arizona have statutes that give a public owner the ability to procure their design-builders through pure qualifications-based selection processes such as PDB. The procurement rules for many water/wastewater agencies are also open enough to allow PDB. Assuming the owner has the procurement authority to use PDB, why would it choose not to do so? The answer is fairly clear — PDB calls for the owner to select the design-builder on the basis of qualifications without the benefit of price competition on the overall design-build price. Some owners find awarding a construction contract without full price competition to be politically impractical and prefer to have price factored into the selection process.
Decision Points for the Owner
As a qualifications-based selection process, PDB is fairly easy for an owner to administer. But there are some important decisions to make. For example, should the owner use a two-phase process to create a shortlist? While it will lengthen the selection process, this is a way to keep the costs of competing down for design-build proposers and enable the owner to limit the submission of detailed technical proposals to the shortlisted teams. It will also help the owner with having proprietary meetings and interviews.
Should the owner ask proposers for any price information and, if so, should this information be considered during evaluations? The answer to this can test how much the owner believes in ?pure? qualifications-based selection. Some owners will ask shortlisted proposers to submit their proposed fees for the period of time leading up to the submission of the GMP/lump sum proposal. This price information will not be looked at until the owner has selected a team based on non-price evaluation factors, and used in negotiating this first phase contract. Other owners will go beyond this, asking for and evaluating, as part of the selection process, not only proposed design fees but also proposed construction markups and general conditions expenses.? ?
Resources and Case Studies
Water/wastewater owners interested in using PDB have several places to turn for information.? Particularly notable is the Water Design-Build Council, which has recently published a five-volume Progressive Design-Build Procurement Guide.? The Guide not only explains the nuances of procuring a PDB project, but also includes a sample RFQ and RFP for both single phase and two-phase procurements. A sample PDB contract is ready to be released soon. Also worthy of review is the Council?s 2010 publication, The Municipal Water and Wastewater Design-Build Handbook, which has several case studies of PDB projects discussed in its appendix. The Design-Build Institute of America also regularly discusses PDB at its annual Design-Build for Water/Wastewater Conference.
Michael C. Loulakis, Esq., is president of Capital Project Strategies, LLC.
