design-build: risks or rewards for the consulting engineer?

Design-Build:

RISKS OR REWARDSfor the

Consulting Engineer?

Presented at the FIDIC Annual ConferenceSeptember 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 structureswere 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

PROJECTSTART

SELECT CE

Design-Bid-Build

Project Time Line


CONSTRUCTION

DESIGN

PROJECTCOMPLETION

BIDDING/AWARD

OWNER

Construction Management At-Risk


CM / GCCE

SELECT CE

PROJECTSTART

SELECT CM/GC

Construction Management At-Risk

Project Time Line


CONSTRUCTION

DESIGN

PROJECTCOMPLETION

PRE-CONSTRUCTION

OWNER

Design-Build


DESIGN-BUILDER

OWNER’S CEOR IN-HOUSE CE

Design-Build

Project Time Line


OWNER’S CE

PROJECTSTART

OR IN-HOUSE

CONSTRUCTION

SELECT DESIGN

BUILDER

PROJECTCOMPLETION

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

?