1. FACULTY OF ENGINEERING DEPARTMENT OF CIVIL ENGINEERING 2015-2016 SPRING SEMESTER ASSOC.PROF.DR. İBRAHİM YİTMEN CIVL 493 CONSTRUCTION MANAGEMENT

2. PROJECT DELIVERY SYSTEMS PART II

3. 3 DESIGN-BUILD CONTRACT (CONT’D) More use by private owner vs. public owners DBIA estimates Design-build firms share 27% of non- residential market Total non-residential market is $320B Design-build market share - $86.4B 10 years ago, Design-build was less than 5% of non- residential market

4. 4 DESIGN-BUILD CONTRACT (CONT’D) Reasons for increased popularity Owners are asking for it  TIME IS MONEY Enabling legislation/change of registration Information technology

5. 5 ADVANTAGES OF DESIGN-BUILD CONTRACT FROM THE DESIGN-BUILD INSTITUTE Time savings from 15% to 30% Cost savings from 3% to 15%.

6. 6 PROJECT DELIVERY SYSTEMS Cost Influence Cost of Change ++ Time SDB * Fixed Price Traditional SD CDB Construction Management (Phased Construction) * Fixed Price CD Construction CDBConstruction CDBConstruction CDBConstruction SD DD CD Design/ Build Construction * Fixed Price DD Construction

7. 7 * Costs are variable for all projects within department TIME AND COST SAVINGS FOR SOME FEDERAL PROJECTS

8. 8 DESIGN-BUILD ADVANTAGES (CONT'D) Fewer claims Design-build process averages 35% less than all- systems average Design-build process averages less than half the claims that Design-Bid-Build does

9. 9 ADVANTAGES OF A DESIGN- BUILD CONTRACT (CONT'D) Single source responsibility Blended incentives Designer and constructor focused on same goals Owner doesn't have two separate contracts to coordinate

10. 10 ADVANTAGES OF A DESIGN-BUILD CONTRACT (CONT'D) Using performance criteria/specs is the only system that rewards innovation Improved risk management: risk assigned to party best able to manage that risk Early knowledge of firm costs

11. 11 DISADVANTAGES OF DESIGN-BUILD Fragile delivery system Complexity of process Unfamiliarity with process Lack of availability of insurance and bonds

12. 12 DESIGN-BUILD DISADVANTAGES (CONT'D) Difficult to write performance-based specifications Case law is less extensive Designers and contractors must be experienced and qualified

13. 13 ENGINEER/PROCURE/CONSTRUCT (EPC) Technology and process dependent Used in industrial construction Requires a significant amount of engineering Mechanical/electrical intensive (piping, instrumentation) Typically involves large pieces of engineered equipment (e.g. paper machines, vessels)

14. 14 INDEFINITE DELIVERY/INDEFINITE QUANTITY Contracts signed for undetermined amount of work for limited time. Work executed through “task orders.” Task orders have dollar cap (relatively small). Task orders may be competitively bid or assigned.

15. 15 COMMERCIAL CONTRACT TERMS Stipulated Sum Contract (Lump Sum Agreement) Contractor assumes risk, owner implicitly pays more Separate designer and contract entities in general Provides owner advance knowledge of construction costs Costs can only be changed with owner approval Competitive bid process usually used

16. 16 COST-PLUS-FEE AGREEMENTS Separate designer and contract entities in general Shifts risk from contractor to owner Contractor is reimbursed for actual project cost plus an amount for profit and overhead The contract must clearly define what is reimbursable and what is included as overhead and profit

17. 17 UNIT PRICE AGREEMENT Separate designer and contract entities in general Often used for public works projects Material quantities are distributed to potential bidders for purposes of estimating unit cost Bidders base estimates on listed quantities and bid a unit price for each item

18. 18 UNIT PRICE AGREEMENT (CONT'D) Payment based on the number of units installed Neither the owner nor the contractor know what the project cost will be Approach allows estimator to spend more time focusing on the most economical approach to the construction process

19. 19 DELIVERY SYSTEMS & COMMERCIAL TERMS Project delivery systems and commercial terms can be cross-matched

20. 20 DELIVERY METHODS, COMMERCIAL TERMS, & BASIS OF AWARD MATRIX h

21. 21 ALTERNATE METHODS FOR CONTRACT AWARD A+B (Time + Cost, Multiparameter) Best Value (Price + Quality) Bid Averaging Method Optionally Combined Bidding

22. 22 WHAT IS A+B BIDDING? Basic Formula (A + B x RUC with I/D) or (A + B x RUC with LD) Bid value = A + B x RUC where, A= the contract amount B = total number of days (working or calendar) proposed by the bidder RUC = Road User Cost

23. 23 WHAT IS A+B BIDDING? (CONT’D) Incentive = (B - actual time charged) x $ RUC/day Disincentive = (Actual time charged - B) x $ RUC/day Liquidated Damage - may be combined with or used instead of I/D

24. 24 PROPOSED OTHER PARAMETERS Basic Formula (A + B x RUC with I/D) or (A + B x RUC with LD) Other Biddable Parameters Warranty Credit -- Maryland DOT Safety -- Utah DOT Past Performance -- Ontario MOT, Canada Warranty with Performance Payments -- Alabama & Michigan DOTs Lane Rental -- Arkansas, Maine, and Virginia DOTs

25. 25 PROPOSED OTHER PARAMETERS (CONT’D) Other Non-Biddable Parameters Warranty -- Indiana DOT Quality -- Consultant input Performance -- Construction Industry Institute (CII)

26. 26 OTHER BIDDABLE PARAMETERS Warranty Credit Bid is adjusted downward on a pro rata basis if the contractor provided more than the minimum required years of warranty Safety Contractor bids traffic management-related items separately on a lump sum basis Performance-related specifications are provided for traffic control

27. 27 OTHER BIDDABLE PARAMETERS (CONT’D) Past Performance Contractor’s bid is adjusted downward or upward based on past performance Example performance parameters Quality Schedule Cost

28. 28 OTHER BIDDABLE PARAMETERS (CONT’D) Warranty with Performance Payments Warranted portion is bid lump sum Two methods Retainage system Bonus system

29. 29 OTHER BIDDABLE PARAMETERS (CONT’D) Lane Rental Contractor bids on the total amount of time in days or hours that a lane, a shoulder, or a combination of lanes and shoulders are planned to be taken out of service A daily or hourly rental fee is assessed by the agency No Bonding required

30. 30 OTHER BIDDABLE PARAMETERS (CONT’D) Warranty Contractor provides extended warranties on satisfactory performance of certain parts of or the whole project Quality Percent Within Limits (PWL) Concept Performance-Related Specifications (PRS)

31. 31 OTHER BIDDABLE PARAMETERS (CONT’D) Performance Contractor is awarded incentives or assessed disincentives based on project performance Example performance parameters Quality Cost Schedule Safety

32. 32 BEST VALUE (PRICE + QUALITY) Bidders submit price and technical/management proposal. Proposals are scored and parameters weighted. Bidders may be called for discussion, and submit best and final offer (BAFO). Contract awarded to most advantageous plan (best quality/price).

33. 33 BID AVERAGING METHOD Contract awarded to bidder closest to average of all submitted bids. Reduces risk of awarding project to “bad” low bid, or contractor compromising quality to win or stay within bid. Contractor more likely to absorb changes/ less likely to file claims.

34. 34 OPTIONALLY COMBINED BIDDING Projects divided into biddable packages, or grouped together to form larger package. Contractors allowed to bid on divided projects and combined project, or any combinations. Used to open competition among bidders and reduce contract costs to agency.

35. 35 EXAMPLES

36. 36 EXAMPLES (CONT'D)

37. 37 EXAMPLES (CONT'D)

38. 38 FINANCING- OWNER/CONTRACTOR CONTRACT Self-funded- small residential projects Banks- short term construction loans or long-term mortgage Taxes- used to pay for schools, roads and bridges (TEA-21), and other pubic works

39. 39 FINANCING (CONT'D) Bond issue- used when taxes do not cover expenses- stadiums, large projects; must be approved by voters Bartering (in regions where money is scarce); e.g., services provided in the former Soviet Union for oil rights

40. 40 EMERGENCY PROJECTS Tampa, FL... tanker exploded and destroyed a bridge- rebuilt in 17 days California - an earthquake destroyed a major bridge Caused ~$1M per day in economic damage to the region Contractor earned $14M in early completion incentives South Carolina - a large textile plant was destroyed and completely rebuilt in 181days

41. 41 PRACTICAL RECOMMENDATIONS A successful project does not just happen! There are numerous factors, general and project- specific, that can influence the outcome of a project Project-dependent factors: certain types of projects have different signs of success