December 11, 2015
Robert Connors, PE, CCS
Under a traditional design-bid-build construction delivery model, the owner has separate contracts with the designers and the builder—this creates a liability gap. The designer is responsible to meet a standard of care. The builder is responsible to build to plans and specifications. In design-build (D-B), the owner has a single contract and a single point of contact.
This article, the second in a three-part series on bridging documents for D-B projects, examines issues related to risk allocation and the procurement process. (The previous article explored the basics surrounding project definition.)
As the design is only partially complete at the time of bid and must be finished by the design-builder, the owner’s risk related to the design is low. However, the design-builder is in a high risk position for final design, construction product, quality, and schedule. Its bid is based on the loosely defined bridging documents.
The design-builder produces the final design product, and assumes the risk for the final project schedule and the construction activity. Ideally, the project allocates risk to the party best able to manage, price, and insure the risk. Bridging documents are used to allocate risk between the owner and design builder.
Conditions in the construction market will affect the response to the request for proposals (RFP). It is important for owners to be able to gage the market conditions and what the construction market will accept. Design-build-operate-maintain, design-build-maintain, and public-private partnerships (P3s) are long-term contracts and have various payment mechanisms. It is particularly important to feel out the market conditions on long-term projects.
For example, the Town of Dartmouth, Massachusetts, requested bids for wind turbine developers. The developers would receive revenue from power purchased by the town, depreciation tax credits, and renewable energy credits (REC) over the 20-year contract term. REC prices vary and can be sold forward in the market, but at a discount. Some bidders sought an adjustment if the renewable energy credit market fell substantially. The town felt the risk of a drop in renewable energy credits was something they would not accept, so it disallowed the contract adjustment. Three compliant bids were received, but some potential bidders chose not to partake.
Terms of contract
Since the project agreement is the sole document defining contractual requirements, it is important to have an agreement consistent with the project and owner needs. It is advised to provide a copy or draft of the proposed project agreement with the RFP. The project agreement is the document ultimately defining the project and allocating risk.
The procurement process is framed by applicable laws and the owner’s experience with design build. Important decisions in the procurement process are the selection method, handling of alternate designs, and use of incentives and stipends.
The selection process establishes how design-build proposers exchange information with the owner. Agencies often pre-qualify bidders through a request for qualifications (RFQ) process. The bidders are most often joint ventures design and construction firms. Typically, three bidders are prequalified.
Prequalification ensures only high-quality bidders receive the request for proposals, and minimizes the risk of default during implementation. Prequalification also increases the bidder’s likelihood of success and often identifies who its competitors are. The RFQ evaluates both technical and financial capabilities of bidders; the submissions usually undergo a completeness review by the owner to determine compliance to the terms and conditions.
Once prequalified D-B teams are identified, an RFP is issued, requesting project-specific information, including costs. Types of selection methods for complex design-build projects include cost/design competition (i.e. ‘best value’) and cost competition.
Best-value selection methods provide for the consideration of cost, schedule, and other more subjective factors such as project management, design, QC, and team reputation. This type of selection is gaining in popularity among design builders and owners due to the ability to consider all relevant factors.
Best-value D-B means the highest overall value to the owner, considering quality and cost. The contract award is based on the lowest adjusted score, which is determined by dividing the price proposal by the technical proposal score or similar equation. Essentially, value = price/quality.
Incentives and disincentives
Similar to what might be expected on a design-bid-build project, monetary incentives and disincentives encourage certain project outcomes and discourage others. However, in design build, the D-B team will finish the design and has more room to innovate, which gives it greater control over project outcomes. The incentives and disincentives in bridging documents should be carefully written, and are usually capped with a maximum cumulative incentive or disincentive.
An example can be found with the Fore River Bridge, spanning the Weymouth Fore River in Quincy and Weymouth, Massachusetts. For this project, traffic impacts were a high priority. The bridging documents enabled the design builder to restrict traffic during limited time periods. They allowed monetary incentives to minimize the restrictions, and disincentives for exceeding the traffic restrictions.
The RFP may allow proposers to submit alternate designs. Alternates may also include project schedules and construction methods. Review of alternate designs can take significant time and effort, so alternate designs are sometimes not allowed, or are limited in number. Alternate designs are kept confidential between the owner and the alternate design proposer and are not usually shared with other proposers. However, if an alternate design is approved that changes the basis of the bid, project constraints, or project risk allocation, other proposers may be notified of the changes to the RFP. Agencies should define the preferred design direction and limit alternate design direction(s) in the RFP.
After selection, the design build team may identify alternate designs or value engineering change proposals (VECP). The latter usually consists of a design change and change in project value. Bridging documents should include whether VECPs will be allowed and, if so, how they will be handled.
Stipends are partial compensation to unsuccessful proposers for their proposal development costs. Stipends are not always provided. Their amount varies depending on how attractive the project is to potential bidders. Acceptance of stipend may affect use of unsuccessful bidder’s information. If stipends are provided, bridging documents must clearly state conditions for award of the stipend (e.g. submission of a compliant bid by a shortlisted team).
In the final installment of this three-part series on bridging documents for D-B projects, this author will explore a range of general best practices to help ensure success with the construction delivery method.
Robert Connors, PE, CCS, has more than 25 years of experience in engineering and management. He has a varied project portfolio that includes buildings, bridges, rail, wind turbines, and maintenance facilities. Connors specializes in procurement documents, project management, construction cost estimating, cost accounting, scheduling, claims analysis, finance, and contract administration. A certified construction specifier, he is also past treasurer of the Design-Build Institute of America’s (DBIA’s) New England Region. He can be reached at email@example.com.
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