1. Julia M. I. Holden Davis Innovative Project Delivery Methods for Infrastructure Authored by: Pekka Pakkala Presented January 24, 2012

2. Purpose of study –Describe practices/methods to allow clients to more effectively procure products and services –Specifically considering progressive or innovative methods Study based upon –Australia, Canada, England, Finland, New Zealand, Sweden, and United States Two categories of projects –Capital Projects –Maintenance Contracts

3. Capital Projects –Discussed Methods Design-Build Design-Build Operate Maintain Design-Build Finance Operate Full Delivery or Program Management –“Innovative aspects” Partnering Value Engineering Constructability Reviews Incentive and Disincentives Performance Specifications Multi-parameter Bidding (A+B+Quality) Lane Rental

4. Maintenance Contracts –Discussed Methods Traditional 3 – 5 year duration Hybrid type contracts (Lump sum and unit price) Longer term maintenance contracts Performance Specified Maintenance Contracts –Added Innovation Long Term Agreements Partnering Lump Sum Contracts Quality-based Contractor selection Subcontractor sharing (long-term arrangement and sharing risk/reward) Innovation throughout contract

5. Historical background –Prior use of IPD changed during industrial revolution Trend toward specialization –Maintenance provides new innovation opportunities Present situation (driving study) –Finnra (Finnish Road Association) privatized “pure client organization” –Finnish Road Enterprise (production organization) State-owned enterprise, architectural / engineering support Competes – full/open competition (profit expectation) –Changes lead to demand for more efficient and effective process

6. Existing process –Concerns in existing process Funding Extend driven by price Quality concerns Lack of integration, true partnering or teaming Workforce Lack of maintenance contracting methods Criticisms of laws and bureaucracy Lack of trust –Primarily using DBB with some DB –Limited use of DBFO (public reluctance toward tolls) –Maintenance historically by FR Enterprise

7. Other Countries –Capital Design-build England – DB and DBFO New Zealand – trying “Full Delivery” –Seeks complete level of services/products »Conception to usable life condition –Maintenance Most common yearly/multi-year at unit prices New shift: Fully integrated Client Services –Longer term –PSMC (Performance Specified Maintenance Contract) –Recognized differences between infra-sectors

8. Client Services –Increased options allows for “Fully Integrated Client Services” Pavement Maintenance; resurfacing; rehabilitation/reconstruction; guard rail repair/replacement Asset/corridor management Vegetation control/mowing Signs/signals; lighting Emergency response Drying/Drainage Traffic services Seasonal maintenance –Goal “Best Value”

9. Partnering –Recognized difficulties in public procurement –Goals/justification Resolve differences Trust and commitment Common goals/mission Potential for innovation (maintenance contract) –Deemed “essential” in long-term maintenance contracts Particularly between general and subcontractors Recommend same time frames –“client organizations had more difficulty in understanding and practicing the partnering concept”

10. Performance Specifications (Capital) –Pavement criteria, warranty –Justification cost savings Risk transfer Increased flexibility (and therefore innovation) for contractor –Works well with design-build Outcome-based criteria (Maintenance) –Roughness, skidding, rutting, visibility –Need to define consequence of failure to meet

11. Capital Procurement –Fundamental Elements for Public Infrastructure Client-defined scope Direct competition among producers Fair treatment of competitors Transparency Safety (Engineering review of Producer’s Design) Competition open to technological change Sound financial analysis (Client and Producer) Correct procurement strategy Client decision-making Re-establishing pace/level of investment (variable)

12. Desired Elements for Public Infrastructure (driving change) –Cost savings –Innovation –Staff reductions –Integration and technology –Partnering potential –Litigation avoidance –Bringing trust back

13. Figure 4D-B-BD-BCMDBOMDBFOFD OR PM AustraliaXX (RARE)XXX Alberta, Canada X BC CanadaX Ontario Canada XToll EnglandXXShadow Tolls FinlandXXShadow Tolls New Zealand XXUpcoming (2001) SwedenXX USAXX

14. Review of advantages/disadvantages (Table 5) –Design-Bid-Build Advantages: history, competition, distinct roles, owner flexibility, ease of tender Disadvantages: Lack of innovation, typical cost overruns, disputes, risks remain with owner, linear –Design-Build Advantages: reduced administration, single-source, innovation, cost savings, speed, risks to Design-Builder, more reward to Design-Builder, Partnering and Trust, accountability Disadvantages: limited competition, high cost of tender, new method – unfamiliarity, need for quick owner decisions, client reducing impact of process through “over” design

15. Review of advantages/disadvantages, cont. –Construction Manager at Fee (or at Risk) Advantages: Managing/Administering all phases; integrates planning, design and construction; some cost and schedule control; assist clients with insufficient staff; provides GMP; owner flexibility; close interaction Disadvantages: No contractual relationship with trades; client retains risk; more paperwork; difficult to manage; some duplication; difficulties to fast track –Design Build Operate Maintain Advantages: Integrated process under one contract; consideration of maintenance and operations during design; faster completion; better life-cycle, DB aspects Disadvantages: Longer and costly tendering, see DB

16. Review of advantages/disadvantages, cont. –Design Build Fund Operate Advantages: Projects with funding issues; integrated process, consider maintenance and operations, better net present value and life cycle costs; private financing with no revenue risk Disadvantages: Increased costs overlong run, longer/costlier tendering, see DB, difficulty with long term relationships; political climate –Full Deliver/Program Management Advantages: Shorter completion time; fully integrated; maximizes planning; greater quality; single source expertise Disadvantages: Difficult to tender; uncertainty of cost, compatibility issues; negotiated (quality based); need for rapid owner response

17. Review of advantages/disadvantages, cont. –Build Own Operate & Build Own Operate Transfer Advantages: same as DBFO; typically used for toll roads; includes operations; transfers ownership Disadvantages: same as DBFO; difficulty with long term relationships; political challenges

18. Suggestions/Recommendations –Select based on goals Design-Build Selector TM (Univ. of Colo., GA Tech & NSF) Project Procurement System Selection Model (PPSSM), Reference Journal of Construction Engineering & Management, May/June 2000 –For innovation DB, DBOM, DBFO, FD/PM, BOT/BOOT

19. Maintenance Procurement –Historical background Typically contracted by diverse activity, e.g., mowing, guard rail, striping Typically paid for by time/materials, unit price, and less often lump sum –Studies show outsourcing/privatization leads to cost savings and better efficiency –Leads to change in some countries to privatize Example: Finnra only keeps emergency, traffic and safety management as strategic resources; all else privatized

20. Current shift to Fully Integrated Client Services –Generally longer term (up to 10 years) –Combines maintenance activities –Used in New Zealand, parts of Australia, and England –Country-by-country analysis Cultural needs Industrial expertise Drivers and ability to change

21. Driving forces of change –Challenge to present better infrastructure when demand and high levels of competition for limited government funds –Cost savings and better budgeting –Risk sharing –Reductions in client staffing –Potential for partnership, innovation, better asset management

22. Driving forces of change, cont. –Road user satisfaction –Focus on strategic issues (safety, reliability, traffic) –Over administration –Lack of profitability and competition –Lack of expertise, aging workforce, lack of future prospects Shifts burden of organizational resources from client to private sector

23. Innovative Procurement Methods –Traditional 3-year contracts Output based (unit prices for quantities) –Hybrid contracts (lump sum/unit price/rates) –Long-term maintenance contracts –Performance Specified Maintenance Contracts Quality determined by level of outcome criteria –Under consideration: Privately Financed Managing Agent Contractor –Some countries use consultant to manage traditional and hybrid contracts

24. Long Term Contracts –Advantages: Cost savings, full integration, risk transference, innovation, better asset management, easier budgeting, partnering potential, better level of service, develops a new industry, –Disadvantages: Costly and longer tendering (may be reduced by removing rehabilitation from scope), reduction of competition (social justice), change of client role (loss of expertise), uncertainty of long term relationships, mobilization issues, risk of inappropriate outcome criteria, loss of control, loss of financial flexibility, timing of application –Emphasis on partnering

25. Lessons Learned –Need for political and social sensitivity –Need better objective measurements for cost savings –Maintenance costs have not risen despite inflation, added traffic volume, and perception of improved quality –Essential nature of partnering and trust Yet partnering difficult for many clients –7 year minimal duration –Recognize potential loss of control by client –Understand changed role and requirements on client –Need to address cost/time of tender

26. Lessons Learned, cont. –Need to address pre-qualifications –Need to review long terms needs, strategy, conditions –Need for better data on actual conditions –Perception of minimum level of effort by contractor –Quality suffers first year –Need incentives and disincentives in contracts –Need for coordination between officials –Need to address innovation, expectancies, and metrics –Match methods to expectations

27. Suggestions and Recommendations –Maximize innovation through Long term agreements (over 7 years) Partnering Lump Sum Contracts Quality-based contractor selection Share long-term agreements and risk/rewards with subcontractors Transfer risk to contractor Provide ability to use innovation throughout contract

28. Contractor selection –Common issues: Clearly defined scope Transparent tendering Fair competition –Common criteria: Technical skills Personal skills (resources) Management team Supply chain management Methodology Environmental criteria Relevant Experience Past performance

29. Contractor selection, cont. –Challenge/Goal Find appropriate balance between criteria Make criteria clear and evaluation fair

30. Other concerns: –Type of Contract (as relates to price) –Quality considerations –Environmental issues