Design-Build: RISKS OR REWARDS for the Consulting Engineer?

Presented at the FIDIC Annual Conference September 7, 2005 Gregs G. Thomopulos, P.E., FACEC

“Many of the old rules for project delivery that held sway in the industry no longer have the same potency as they once did…

“Design-bid-build still has its many followers among owners who believe that they can obtain the very best design and the most cost-effective construction by holding both sides separate…

“ Advocates of design-build believe that the sole-source method of procurement forces the team to iron out many of the project wrinkles on their own because the entire team will be held accountable…

“Still others believe that construction management for fee is the best way of ensuring that the owner gets the best of all worlds because there is an agent inspecting, measuring, observing and protecting the owner’s interest…

“Fans of CM At-Risk believe that the words ‘at ‑ risk’ say it all and force the CM firm to deliver what it promised on time and on budget or face the consequences. ” Engineering News-Record, July 19, 2000

Design-Build is not a new concept. Most of the world’s great structures were built under a Design-Build arrangement by master builders.

Project Delivery Systems  Design-Bid-Build  Construction Management (CM) CM At-Risk CM – Owner’s Representative  Design-Build  Other Variations Build-Operate-Transfer (BOT) Build-Own-Operate-Transfer (BOOT) Program Management

OWNER Design-Bid-Build  Contractual Relationship CE CONTRACTORS

PROJECT START SELECT CE Design-Bid-Build  Project Time Line  Contractual Relationship CONSTRUCTION DESIGN PROJECT COMPLETION BIDDING/ AWARD

OWNER Construction Management At-Risk  Contractual Relationship CM / GC CE

SELECT CE PROJECT START SELECT CM/GC Construction Management At-Risk  Project Time Line  Contractual Relationship CONSTRUCTION DESIGN PROJECT COMPLETION PRE- CONSTRUCTION

OWNER Design-Build  Contractual Relationship DESIGN-BUILDER OWNER’S CE OR IN-HOUSE CE

Design-Build  Project Time Line  Contractual Relationship OWNER’S CE PROJECT START OR IN- HOUSE CONSTRUCTION SELECT DESIGN BUILDER PROJECT COMPLETION DESIGN PRE-CONSTRUCTION

Why Owners Prefer Design-Build  Shorter Project Schedule  Better Cost/Budget Management  Efficiency and Innovation (Contractors’ Means & Methods)  Single Source Responsibility (Avoids Pointing of Fingers)  Risk Sharing (More Risks Passed Down to Design-Builder)  Fewer Claims and Litigations  Fewer Contract Modifications  Opportunity to Package Larger Contracts

How Owners Procure Design-Build Services In the U.S.  Negotiated Procurement Sole Source Selection (Strategic Alliance) Qualifications Based Selection (QBS) Best Value (Price and Technical)  Competitive Procurement Low Bid (Lowest Price Technically Acceptable) Adjusted Low Bid (Mix of Price, Schedule, etc.) Fixed Budget/Best Technical Proposal Best and Final Offer Weighted Matrix

Organization of the Design-Build Team In the U.S.  Integrated Firm (Design and Construction Capability in Same Firm)  Contractor As Prime  CE As Prime  Joint Venture Between the Contractor and CE

“Owners are willing to use alternate project delivery methods but firms worry that clients don’t always understand what they need.” Engineering News-Record, June 19, 2000 Design-Build Risks and Rewards

Risks for the Consulting Engineer  Pre-Proposal Design Cost  Reduced Fee for Share of Profit  Errors and Omissions  Liquidated Damages or Consequential Damages  Performance Guarantee  Participation in Loss  Joint and Several Liability  Client Relationships

Rewards for the Consulting Engineer  Success Fee  Mark-Up on Procurement  Higher Margins on Design Services  Share in Overall Profit

Design-Build “Best Practices” for the CE in the Unites States

 For The CE, Subcontracting Tier Preferred (Some Are Sometimes the Prime)  No Free Pre-Bid Engineering Service  Success Fee on Successful Bids  Design Fees Should Include Additional Margins  Design Fees May Be Reduced for Share in Profits  No “Sharing in Loss” Arrangements  Procurement Services for Additional Fees  Possible Joint Venture With Contractor Best Practices For The Consulting Engineer in Design-Build

Future Market Trends  Transportation - More DOTs Are Following Utah DOT’s Lead  Sports/Recreation Projects  Power Generation and Transmission  Communications  Hotels/Resorts  Medical/Health Care  Commercial Buildings ?