early contractor involvement: hpo’s key to success

US Army Corps of EngineersBUILDING STRONG®

Early Contractor Involvement: HPO’s Key to Success

Luis A. Ruiz, P.E.Chief, Geotechnical BranchJacksonville District

SAME Post Meeting

Jacksonville, FL

28 August 2013

BUILDING STRONG®

Agenda

Background ECI Contracts Basics HPO Projects Solicitation Design phase Contract administration Lessons learned Wrap-Up

2

1828

BUILDING STRONG®3

BUILDING STRONG®

A Priority of Two Administrations

“Now, even as we continue our recovery efforts, we're also focusing on preparing for future threats so that there is never another disaster like Katrina. The largest civil works project in American history is underway to build a fortified levee system. And as I — just as I pledged as a candidate, we're going to finish this system by next year so that this city is protected against a 100-year storm.”

4

President Barack ObamaXavier University, New OrleansAugust 29, 2010

BUILDING STRONG®

Best PracticesSystem Program Management

Acquisition Strategy Design Build / Cost Plus Contracts Best Value Source Selection Early Contractor Involvement (ECI) Program Management Support Contract

Construction Materials Government Furnished Borrow Supply Contracts for Sheet Piles & Borrow

Improved Techniques Value Engineering – systems study complete Pile Load Tests – in advance of contract award Press Pile, Spiral welded piles Deep soil mixing, sand blanket and wick drains

Earned Value Management System (EVMS)

Leverage National & Regional Resources

5

BUILDING STRONG®

ECI Contracting A Fixed Price Incentive contract IAW FAR 16.403

A project delivery method where the Corps engages the services of a general contractor to provide “preconstruction services” concurrent with design effort

The contract includes the Government’s ability to exercise an option for the construction

Provides for successive target price adjustments as the design matures, with the objective of managing the final construction cost to optimum.

Contract includes terms and conditions to allocate risk among the parties

6

BUILDING STRONG®

What it ain’t… Design Contract

Government retains design responsibility either through in-house or with a separate AE contract.

Preconstruction services are not “Brooks Act” services. Non-competitive acquisition

Contract is procured IAW FAR 15 and application of FAR 16.403.

Price and non-price factors are evaluated. Design-Build Contract

Two separate entities (designer & construction manager/general contractor)

Both report to the owner (Government).

7

BUILDING STRONG®

Phase Traditional Acquisition(D-B-B)

Early Contractor Involvement(ECI, also I-D-B-B)

Design Completed prior to advertisement of construction contract

Preconstruction Services – construction contractor provides input on design constructability, VE, means & methods, construction phasing, etc

Award Complete designs are used to advertise and award construction contract

Construction option - awarded when major design decisions are complete and price negotiated (designs may be <100%)

Construction NTP and construction begins after award of contract

Construction can begin prior to final designs being completed

Acquisition Strategies Comparison

8

BUILDING STRONG®

Relative Project Delivery TimelinesP&D

FundingConstruction

FundingDesign Construction

Design Construction

Design Construction

Time

ECI ProjectDelivery

Design Bid Build ProjectDelivery

Design-BuildProjectDelivery

Total duration equal or less than ECI, but cannot commence design/construction until construction funding is received.

CM selection and design begins with P&D funds.

PY -1 PY

ECI delivery advantage depends upon timing of design and construction funds.

9

BUILDING STRONG®

ECI Contract Fixed-price Incentive (successive targets) contract (FAR

clauses 16.403-2 and 52.216-17)

RFP will provide SOW for preconstruction services (Base) Concept engineering solution with typical sections for proposal

preparation for construction initial target pricing (Option) Ceiling price Evaluation criteria, based on best value tradeoffs, including price

Negotiated Procurement Award of preconstruction services (Base) as a Firm Fixed Price Exercise of Construction (Option) as a Firm Price Incentive

10

BUILDING STRONG®11

Contract Schedule

ITEM NO. SUPPLIES/SERVICES QUANTITY UNIT UNIT PRICE AMOUNT

0001BASE

Preconstruction Services FFP

1 Lump Sum

$____________ $____________

0002OPTION

Construction PhaseFPI

Initial Target Cost Initial Target Profit

1 Lump Sum

$____________$____________

NTE $____________NTE $____________

An example of ECI Solicitation Line Items are shown below. This is remitted with the proposal.

Additional line items may be added for long lead items if required.

BUILDING STRONG®

When to Use ECI Urgency - very tight mandated schedules

Funding - funding stream is available

Complex “one of a kind” project, with no standard design

Size - large enough to attract experienced firms

Uncertainty – risk in delaying award while requirements are being developed

12

BUILDING STRONG®

When to Use ECI - Other Challenging site, or other unique aspects that

would benefit with a Contractor’s input during design phase

It would be advisable to have a collaborative effort during design and construction between Designer, Builder, Owner, User to ensure Project success

13

BUILDING STRONG®

New Orleans ECI Projects

14

LPV 14530,800 FT T-Wall

LPV 14636,600 FT T-Wall

LPV 14843,100 FT T-Wall

LPV 11127,720 FT DSM

Seabrook GateIHNC

West Closure Complex (PRO)

BUILDING STRONG®

New Orleans East Largest Deep Soil Mixing Project in the World

15

BUILDING STRONG®

New Orleans East Levee

16

Old

Levee

New Levee

Bayou Sauvage National Wildlife

Refuge

~1 Football FieldOver 1 Superdome of Clay

(4.9 mil cy) Required

BUILDING STRONG®

Raise and Strengthen Levees / Floodwalls

Orleans Metro

Higher Floodwalls and Levees

New T-wall

OldI-wall

New Orleans East

St. Bernard Parish

New 32-foot T-wall

Old Levee Elevation

17

BUILDING STRONG®18

23 M

iles L

ong

(2 m

iles c

onst

ruct

ed p

er

month

)

50 Eiffel Towers of

Steel

St. Bernard FloodwallMRGO

MRGO

Central Wetlands

BUILDING STRONG®

Top of Floodwall: EL +32’

Top of Stabilization Slab: EL +17.5’

Top of Base Slab: EL +21’

100-YEAR STILL WATER ELEVATION*: EL +18’

500-YEAR STILL WATER ELEVATION*:EL +22.5’

St. Bernard Floodwall, near the IHNC Tie-In(not to scale)

HURRICANE KATRINA’S STILL WATER ELEVATION* AT THIS LOCATION: EL +18’

*Still water elevation does not include waves

Katrina storm surge elevationswere much higher elsewhere

along the Gulf Coast.

19

Designed for a 100-year Surge

BUILDING STRONG®20

Seabrook Floodgate Complex

BUILDING STRONG®

Seabrook Floodgate Complex

21

CONSTRUCTION COFFERDAM ALLOWED TO ACHIEVE HYLA BY 01 JUNE 2011

BUILDING STRONG®

West Closure Complex

The WCC removed 26 miles of levees and floodwalls from the first line of defense

22

BUILDING STRONG®

West Closure Complex

23

BUILDING STRONG®

Solicitation Award Preconstruction Services early in design phase (15 – 30%) Pricing schedule includes:

Preconstruction services Initial Target Cost: option Initial Target Profit: option

Selection of Contractor – ECI Specific Evaluation Factors Experience with preconstruction services Local market knowledge Plan to involve major subcontractors Oral interviews

Sufficient design information for contractors to adequately provide an Initial Target Cost

SOW section defining preconstruction services and expectations ECI specific clauses

24

BUILDING STRONG®

Solicitation – Scope of Work Preconstruction services and expectations

Cost estimating (live market conditions) Design consultation Constructability reviews Subcontractor input Value engineering – cost control Bid package development Design and construction scheduling Construction phasing Risk management

Project orientation and partnering Construction/design integration – design liaison

25

BUILDING STRONG®

Solicitation – Scope of Work Escape clause – Govt. not obligated to exercise option:

Poor preconstruction participation Excessive team turnover and lack of commitment Lack of Congressional authorization/appropriation Can’t negotiate within funds available

Competitive subcontractor pricing – Govt. attends subcontractor bid openings

Defines production point for use in FAR 52.216-17 (100% design)

Addresses payment processes

26

BUILDING STRONG®

Solicitation - ClausesSuccessive Target Pricing Midway Target Price scheduled when all major design

decisions have been made Midway Target Price includes:

+ Midway Target Cost (MTC, Based on 35-90% Design)+ Midway Target Profit (MTP, 1.5% - 3% of MTC) Midway Target Price < Ceiling Price

Midway Target Price recognizes significant scope changes

If Midway Target Price is under ceiling, the contracting officer may elect to exercise the construction option

Addresses similar details for final Firm Target Cost and Profit at 100% design

27

BUILDING STRONG®

Solicitation - Clauses Adequate Accounting System: Self certification

that accounting system is in compliance with FAR 16.403-2(c)(1)

Earned Value Management System (EVMS) Certification► Offeror’s accounting capable of supporting EVMS► EVMS - Size dependent:

• Under $20M: not applicable• $20M to $50M: offeror self-certifies compliance• Over $50M: offeror self-certifies and is audited

28

BUILDING STRONG®

Solicitation - Clauses

FAR 52.216-17, Incentive Price Revision – Successive Targets Defines ceiling price (ECC) Outlines alternative if firm fixed price agreement is not reached:

► Profit adjustment formula (% negotiated)► Profit increases if final price is lower than Initial Target Cost► Profit decreases if final price is higher than Initial Target Cost► Final price determined after completion of work, using profit from profit

formula Failure to agree is not subject to Disputes clause Incentive

► Profit can go up as CM controls/cuts costs between the Midway and Firm Target Prices.

29

BUILDING STRONG®30

Example: Profit Adjustment FormulaScenario: Example

Paragraph (d)(3) blanks are negotiated at the Midway Target Pricing with the following values: Increase/Decrease Profit by 5%, Range of FTP is 2% - 6%

Initial Trgt Cost (ITC): $17,000,000 Firm Trgt Cost (FTC) : $16,000,000

Initial Trgt Profit (ITP): $800,000 Firm Trgt Profit (FTP): * $850,000

Initial Trgt Price: $18,140,000 Firm Trgt Price: $17,170,000

Ceiling Price: + $18,300,000 Ceiling Price: ** $18,300,000

+ The ceiling price was inserted in the solicitation [paragraph (a), blank no. 2] as $18,300,000.

* The Firm Target Profit is calculated based on the following: FTP = ITP – (5%) [FTC-ITC] - or – FTP = 800,000 – (5%) [$16M-$17M] = $850,000.

** Under this scenario, the project scope did not change between the initial target pricing and the Midway Target Pricing. Therefore, no change to the ceiling price was warranted and the FTC is lower than the ITC and the Contractor’s profit increased. You should notice that the Construction Reserve amount (2% of the FTC) has been lowered to $320,000.

BUILDING STRONG®

Design Phase Jointly develop bid packages & design schedule: design

team, CM, Corps & User Design estimates shared until negotiation point reached

(IGE still close hold) Exercise construction option at optimum stage of design

(project dependent) Establish Final Target Price @ 100% design - settle as

FFP w/incentives Tie payment during design to design milestones Control designer bright ideas after construction option is

exercised

31

BUILDING STRONG®

Validation Phase (HPO Only)

Construction of access roads► Necessary for Project Access & Pile Load tests

Construction of Working Platforms► Set-up of Contractor’s staging areas

Perform Pile Load Tests► Support completion of Final Designs► Establishment of No-Work Zones► Allowed Pre-Ordering Steel H-Piles

Test Sections► Complete DSM Mix Designs

32

BUILDING STRONG®

Managing Cost & Pricing Data After Construction Award

Cost and Pricing data were required for the firm target proposal only.

Otherwise, consent packages and Vouchers gave the Government a good look at the Contractor’s actual pricing without a further requirement for cost and pricing data.

33

BUILDING STRONG®

ECI Contracting Benefits Model allowed to arrive at well documented fair and

reasonable costs ECI contract vehicle allowed the Government to make

common sense changes to the contracts prior to fixing the price

► Facilitated both price increases/decreases► Encompassed the Non-Federal sponsor concerns► Eliminated the need for modifications

Streamlined the administrative process for both the Government and the Contractor and saved costs for both parties

Allowed for additional resources as necessary to maintain the contract completion dates

34

BUILDING STRONG®

Lessons Learned Approach ECI with different mindset – more

open way of doing business on all sides Better education of entire team of what ECI

means (particularly customer) Staff big and staff early (Voucher Validators,

Scheduler, Cost Estimators) Coordination - SOW for A-E and ECI contractor Collocation of Team Members Facilitate interaction between designers and

contractor Review risk analysis at each major milestone

35

BUILDING STRONG®

Lessons Learned (cont.) Establish control of late sponsor comments by

emphasizing schedule and bid packages Clearly define process for notifying PDT of

design changes, amendments and modifications Allocate resources according to design schedule

(more Civils early, more Mechanicals later) Allow more time for joint estimates or different

approach to joint estimates Improve sub-contractors involvement in pre-

construction phase Good risk decisions made w/ contractor input

36

BUILDING STRONG®

HQUSACE PolicyLegal Sufficiency Requirements

1. Why FFP contract not suitable2. Use FAR 52.216-17, Incentive Price Revision – Successive Target

clause3. Ensure the contractor has an adequate accounting system4. Ensuring adequate price competition and fair and reasonable

pricing (include cost realism)5. Negotiating the ceiling price – Recommend offerors to propose6. Level of design at award of preconstruction services7. Scope of preconstruction services8. Structure of the contract and predominance9. Funding the construction management contract (P&D vs Constr.)

37

BUILDING STRONG®

ECI Results

HPO ContractInitial Target

PriceInitial Ceiling

PriceFinal

Negotiated Price

Difference

LPV 111.01Archer, Western, Alberici $294,894,736 $411,600,000 $342,275,251 $69,324,749LPV 145Chalmette Levee Constructors $357,245,988 $488,000,000 $237,128,127 $250,871,873LPV 146St. Bernard Levee Partners $280,484,886 $452,000,000 $272,294,417 $179,705,583LPV 148.02Cajun Construction $300,000,000 $380,000,000 $349,999,235 $41,582,109 IHNC-01 SeabrookAlberici Constructors

$154,000,000

$181,450,000 $164,511,456 $16,938,544

Sub-Totals >>>$1,462,857,13

0 $1,924,850,000 $1,366,427,142 $558,422,858

Savings to the Government: 29%

38

BUILDING STRONG®

The Delivery Team

Committed to ensuring that New Orleans could handle a 100-year storm surge by 1 June 2011.

39

BUILDING STRONG®40

BUILDING STRONG®41

BUILDING STRONG®42