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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Project Examples

Dulles Rail, Phase I $1.6 billion contract for first phase of WMATA extension to airport – Virginia PPTA procurement process – Investment by design-builder in the preliminary engineering through unsolicited proposal – Negotiated lump sum price at completion of 30% design (preliminary engineering) after open book process – Project on line 2014 Allowances used to overcome certain pricing issues Interim agreements used to address ROW/utility/design issues pending federal funding

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

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