Design-Build Done Right, Design-Build Done Wrong What Lessons Have We Learned? 2012 VTCA Spring Transportation Construction Conference Michael C. Loulakis, Esq., DBIA Capital Project Strategies, LLC

What is the Current State of the Use of Design-Build? • Robust use of the process in all industry sectors – Evident from industry magazines and association flyers – Evident from the fast pace of legislative changes

• Nature of owner questions have changed – Focus is less on why DB should be used – Focus is far more on how to do DB the right way 2

Objective Research Shows Market is Expanding • RS Means Reed Construction Data Market Intelligence (May 2011) – 1 million building construction projects from 2005 to 2010 – 95% of public projects and 75% of private projects

• Results showed that DB has: – 40% market share – 50% market share on projects over $10M – Heavy use in Pacific and Mid-Atlantic region 3

Market Share Per Delivery Method

4

Design-Build Market Size

5

Robust Procurement Reform • Every state allows some form of design-build for the public sector • Ohio (Summer 2011) – Covered both DB and CMAR – ODOT right to use best value and stipends

• New York (December 2012) – Covered NYDOT and Department of Environmental Conservation – 3 year sunset 6

7

8

9

What are Owners Doing Right? • Establishing processes to expedite and optimize the use of design-build – Creation of infrastructure for design-build procurement and contracting (e.g., model forms) – Refinement of evaluation protocols

• Initiating design-build training programs • Learning from others and implementing continuous improvement mindset • Willingness to consider different forms of designbuild delivery and procurement – Two-phase low bid (i.e., technically acceptable, low bid) – Progressive (QBS) design-build 10

Pricing Timeline: Best Value Design-Build

DesignBuilder

Lump Sum Proposal

Design Definition

Owner’s Advisor

0%

30%

60%

90%

100%

Proposal Estimate 11

Pricing Timeline: Progressive Design-Build DesignBuilder

Cost Model Development

GMP

Design Definition

Owner’s Advisor

0%

30%

60%

90%

100%

Initial Cost Estimate

12

What are Design-Build Teams Doing Right? • Recognizing that what it takes to win the job also leads to project success – Putting best people on the design-build projects – Teaming with those that have design-build experience and past relationships

• Willingness to talk with owners about issues with procurement and execution • Heightened focus by contractors on managing the design process 13

What are Some Owners and Design-Build Teams Doing Wrong? • “One-size-fits-all” design-build and procurement approaches • Forgetting about what makes for design-build success – Failing to develop clear front-end definitions and scope – Resorting to design-bid-build personalities

• Miscalculating the importance of design • Killing the golden goose 14

Challenge 1: Deciding on the Right DesignBuild Approach • Most agencies started with and still use twophase best value process • Challenges with the two-phase best value process: – Cost and time of procurement – Spearin liability on RFP design documents

• An owner doing design-build right will: – Consider what design-build approach meets the unique needs of the project – Be aware of the distinct advantages and drawbacks of each approach (e.g., single phase low bid)

Challenge 2: Planning the Program and Procurement Process • Major programmatic decisions are required by owner for any project: – Contract packaging, scope and interfaces – Obtaining the project information and resources to run an effective procurement

• An owner doing design-build right will: – Carefully balance the need to use best practices with the pragmatics of a quick procurement – Remember that core elements of the project that need to be defined for an effective competitive DB process – Devote sufficient internal resources to get the job done right – Remember that rushing a design-build procurement creates high risk of mistakes, cost overruns and conflict

Challenge 3: Accounting for Meaningful Distinctions between Offerors • After a period of time, every proposer starts looking the same, particularly in the shortlisting process – Owners compound this by not asking for true “differentiators” – Proposers compound this by often failing to clearly explain how they are different

• Design-build done right will focus on the meaningful distinctions between teams – Past design-build experience and team working together – Individual who will interface with design and construction – Project understanding and risks 17

Challenge 4: Making Shortlist Decisions • Shortlists have been at the core of most public sector design-build procurements • Use of shortlist process is being strained: – Some contractors and designers feel left out – Some owners want to increase the number of shortlisted proposers or use single phase process

• Design-build done right tactically considers the consequences of these decisions: – Stipends and marketplace interest – Dynamics of the design-build relationship – Historical problems when shortlists were not used 18

Challenge 5: Scoring Non-Price Selection Factors • Owners getting better but still find it difficult to do well – Long and tedious process that is heavily reliant on technical advisors – Evaluator “zone-out” – Protest risk

• Owners trying to do design-build “better” are moving away from strict numerical ratings – Increased use of adjectives and consensus scoring – Technically acceptable/pass-fail selections 19

Challenge 6: Assessing Proposer’s Finances and Claims History • Frequently asked questions that provide muddled responses: – What you do with the information you are furnished? – How do you compare one firm to another? – How can you really assess claims orientation?

• An owner doing design-build right tends to eliminate these broad questions in favor of: – Asking for financial information really needed to support project success • Bonding and minimum net worth • Default, suspension and debarment issues

– Using project references as way to get intelligence on offeror’s business approach 20

Challenge 7: Level of Flexibility in Design Process • Players often send mixed signals – Owners praise design-build because they want ingenuity, but don’t want anyone messing with their concepts – Design-builders believe design-build gives them right to design what they want regardless of the contract

• Major commercial/legal ramifications to each of these positions • Design-build done right will: – Minimize the use of prescriptive specifications, but establish “no fly zones” – Allow an effective alternative technical concept process during as part of the proposal phase – Use proprietary meetings – Have each party standing behind the designs they submit

Challenge 8: Determining Site Information to be Relied upon by Proposers • Industry continues to struggle with this issue – Owners are concerned over liability and rely upon historical exculpatory language – Design-builders want to avoid risk of uncertainties

• Design-build done right will balance competing concerns: – Use of GDRs, GBRs, and differing site conditions clause – Scope validation period – Obligate design-builder to conduct appropriate site investigations

Challenge 9: Bad Contracts and Ineffective Contract Management • Another area that the industry struggles to get right – “Upstream” parties want risk shifted to “downstream” parties – Tendency for parties to ignore contract requirements

• Design-build done right will: – Have clear, reasonable and enforceable contract language that the parties actually follow – Fairly address: • • • •

Time extension remedies and damages for delay Consequential damages Risks from 3rd parties Flow-down issues for subcontractors

Challenge 10: Bad Conduct • Projects never go perfectly – How will parties deal with problems? – Will philosophy be “protect your position” at all cost?

• Design-build done right will: – Recognize partnering philosophy throughout the contract – Establish non-project senior executives to watch over the relationship – Ensure that problems are resolved quickly

Metcalf Construction Co., Inc. (2011) • Housing project at Marine Corps base in Hawaii – $50 million project cost $75 million to complete – Main issues involved differing site conditions and failure of Navy to act reasonably

• Design-builder was unable to prove its claims despite: – Finding “moderate to high” expansive soils vs. “slightly” expansive – Navy requiring remediation of chlordane when Navy said this would not be required – Clear examples of over-inspection (rejection of a countertop 1/64th of an inch off specification) – Acknowledgment by Navy witnesses that this project was “a war … with no breaks” – Incompetent Navy project manager

Final Thoughts • Design-build remains a work in process, and best practices are evolving • Before you ascribe to the “nothing is wrong, nothing is right” philosophy, consider: – Why is the owner using design-build on a specific project? – What are the measures of success and failure on that project? – What are the expected outcomes on that project? – Will success or failure on that project impact the ability to use design-build on future projects?

Design-Build Done Right, Design-Build Done Wrong What Lessons Have We Learned? 2012 VTCA Spring Transportation Construction Conference Michael C. Loulakis, Esq., DBIA Capital Project Strategies, LLC

Design-Build Execution What Happens After the Contract is Signed? 2012 VTCA Spring Transportation Construction Conference Susan Shaw, VDOT Lane Lee Yowell, RK&K

Rich McDonough, Steve Kuntz, Dewberry