wickwire gavin, p.c. minnesota department of transportation november 29, 2000 michael c. loulakis,...
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Wickwire Gavin, P.C.Wickwire Gavin, P.C.
Minnesota Department of TransportationNovember 29, 2000
Michael C. Loulakis, Esq.
Minnesota Department of TransportationNovember 29, 2000
Michael C. Loulakis, Esq.
Design-Build: Understanding the Basics
Wickwire Gavin, P.C.Wickwire Gavin, P.C.
Presentation OverviewPresentation Overview
What makes design-build different?What makes design-build different? How are design-builders selected?How are design-builders selected? How are design-builders organized?How are design-builders organized? What are the key design-build What are the key design-build
contract and risk issues?contract and risk issues?
Wickwire Gavin, P.C.Wickwire Gavin, P.C.
What Makes Design-Build Different?
What Makes Design-Build Different?
Approach is structurally different Approach is structurally different from other delivery systemsfrom other delivery systems
Single point of responsibilitySingle point of responsibility Procurement optionsProcurement options Performance specificationsPerformance specifications Role of design professionalRole of design professional
Wickwire Gavin, P.C.Wickwire Gavin, P.C.
Owner
Contractor
Architect/Engineer
TradeSubcontractors Suppliers
Design-Bid-Build
Wickwire Gavin, P.C.Wickwire Gavin, P.C.
System StrengthsSystem Strengths
Lowest initial construction costLowest initial construction cost Full design developed before money spent Full design developed before money spent
on constructionon construction A/E hired by Owner directly to act in A/E hired by Owner directly to act in
Owner’s best interestOwner’s best interest Owner can be actively involved in design Owner can be actively involved in design
processprocess Completed plans and specifications as Completed plans and specifications as
benchmark for performancebenchmark for performance Predictable rights & responsibilitiesPredictable rights & responsibilities
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System WeaknessesSystem Weaknesses
Linear nature of processLinear nature of process Actual construction cost determined Actual construction cost determined
after design completedafter design completed– little chance to influence design without little chance to influence design without
project delayproject delay– no contractor involvement in design or no contractor involvement in design or
conceptual pricingconceptual pricing
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PERFORM BUSINESS PLANNING
PERFORM PRE-PROJECT PLANNING
EXECUTE PROJECT OPERATE
FACILITY
I N F L U E N C E
E X P E N D I T U R E S
RAPIDLY DECREASING
INFLUENCE LOW
INFLUENCE MAJOR INFLUENCE
EXPENDITURES INFLUENCE
High
Low Small
Large
Cost Influence CurveCost Influence Curve
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System Weaknesses (cont’d)System Weaknesses (cont’d)
Challenges in obtaining high quality Challenges in obtaining high quality productproduct
Owner warrants sufficiency of plans Owner warrants sufficiency of plans & specifications to Contractor& specifications to Contractor
High potential for adversarial High potential for adversarial relationshipsrelationships
Unrealistic Owner expectationsUnrealistic Owner expectations
Wickwire Gavin, P.C.Wickwire Gavin, P.C.
Standard of Care Not Exact Science: Moundsview v. Walijarvi
Standard of Care Not Exact Science: Moundsview v. Walijarvi
“Architects, doctors, engineers, attorneys and others deal in somewhat inexact sciences and are continually called upon to exercise their skilled judgment in order to anticipate and provide for random factors which are incapable of precise measurement. The indeterminate nature of these factors makes it impossible for professional service people to gauge them with complete accuracy in every instance * * * an architect cannot be certain that a structural design will interact with natural forces as anticipated * * * The law has traditionally required, not perfect results, but rather the exercise of that skill and judgment which can reasonably be expected from similarly situated professionals.”
Wickwire Gavin, P.C.Wickwire Gavin, P.C.
Owner
Design/Builder
ProfessionalSubcontractors
Trade Subcontractors Suppliers
Design Criteria
Consultant
Design-Build
Wickwire Gavin, P.C.Wickwire Gavin, P.C.
ProfessionalSubcontractors
Trade Subcontractors
Suppliers
Design/Builder
OwnerDesign Criteria
Consultant
Maintenance & Operation
Finance
SiteAcquisition
Design-Build “Plus”
Wickwire Gavin, P.C.Wickwire Gavin, P.C.
System StrengthsSystem Strengths
Single point of responsibilitySingle point of responsibility Facilitates project financingFacilitates project financing Shorter time to develop projectShorter time to develop project Total cost can be determined very Total cost can be determined very
earlyearly
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Team Integration:Scheduling
Team Integration:Scheduling
Construction team brought on after design, with open bidding:
ProgDev
PrelimDrwgs
FinalDrawings Bid Construction
Award
Construction team brought on early, facilitating fast-tracking:
ProgDev
PrelimDrwgs
FinalDrawings
Procurement& Construction
Cost Established
Wickwire Gavin, P.C.Wickwire Gavin, P.C.
System StrengthsSystem Strengths
Single point of responsibilitySingle point of responsibility Facilitates project financingFacilitates project financing Shorter time to develop projectShorter time to develop project Total cost can be determined very Total cost can be determined very
earlyearly
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System Strengths (cont’d)System Strengths (cont’d)
Design innovation more readily Design innovation more readily achievedachieved
High level of accountability can High level of accountability can result in higher qualityresult in higher quality
Potential construction cost savingsPotential construction cost savings Reduced conflictReduced conflict
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CII Quality Study
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DBB
Wickwire Gavin, P.C.Wickwire Gavin, P.C.
System WeaknessesSystem Weaknesses
Time & cost of implementing Time & cost of implementing competitive processcompetitive process
Overly involved Owner may impact Overly involved Owner may impact Design-BuilderDesign-Builder
Price provided before design Price provided before design documents completeddocuments completed
A/E doesn’t work directly for OwnerA/E doesn’t work directly for Owner
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System Weaknesses (cont’d)System Weaknesses (cont’d)
Constraints with public procurement Constraints with public procurement lawslaws
Antiquity of licensing lawsAntiquity of licensing laws Unrealistic Owner expectationsUnrealistic Owner expectations Lack of substantial judicial precedentLack of substantial judicial precedent
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How Are Design-Builders Selected?
How Are Design-Builders Selected?
Direct design-buildDirect design-build Competitive negotiationCompetitive negotiation Best value proposalsBest value proposals Low price proposalsLow price proposals
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Negotiated Design-Build Procurement
Negotiated Design-Build Procurement
Short-listShort-list InterviewsInterviews Selection based upon:Selection based upon:
– team’s experienceteam’s experience– financial capabilityfinancial capability– key peoplekey people– current & projected workloadscurrent & projected workloads– similar projectssimilar projects– pricing: fee & general conditionspricing: fee & general conditions
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Competitive Design-Build Procurement
Competitive Design-Build Procurement
Short-listShort-list Selection based upon:Selection based upon:
– weighted criteriaweighted criteria– adjusted low-bidadjusted low-bid– equivalent design/low-bidequivalent design/low-bid– fixed budget/best designfixed budget/best design– meets criteria/low-bidmeets criteria/low-bid
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Weighted Criteria ExampleWeighted Criteria Example
ProposerQualitative
Score(60 max.)
Price Proposal
Price Score (40 max.)
Total Score (100 max.)
Firm "A" 51 1,629,000 37 88
Firm "B" 53 1,546,000 39 92*
Firm "C" 44 1,510,000 40 84
* award to proposer with highest total score
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Adjusted Low-Bid ExampleAdjusted Low-Bid Example
ProposerQualitative
ScorePrice Proposal
Adjusted Price
Firm "A" 0.85 1,000,000 1,176,471
Firm "B" 0.95 1,300,000 1,368,421
Firm "C" 0.5 800,000 1,600,000
Note: The adjustment of the bid is for selection only. The firm’s priceproposal is the actual contract amount.
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Procurement ChallengesProcurement Challenges
Remembering “the design-build Remembering “the design-build difference”difference”
Using consultantsUsing consultants Bridging/detailed designBridging/detailed design Establishing qualitative criteriaEstablishing qualitative criteria Objectively analyzing criteriaObjectively analyzing criteria
Wickwire Gavin, P.C.Wickwire Gavin, P.C.
Procurement Challenges (cont’d)Procurement Challenges (cont’d)
StipendsStipends Using information of unsuccessful Using information of unsuccessful
proposersproposers Keeping A/E involved throughout Keeping A/E involved throughout
projectproject Integrating procurement laws into Integrating procurement laws into
solicitationsolicitation
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Balancing the Structural Framework of the ProjectBalancing the Structural Framework of the Project
Project delivery systemsProject delivery systems Procurement methodologyProcurement methodology
– NegotiatedNegotiated– CompetitiveCompetitive
Contracting approachesContracting approaches– Lump sumLump sum– Cost plus (GMP)Cost plus (GMP)– Unit PriceUnit Price
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How Are Design-Builders Organized?
How Are Design-Builders Organized?
Integrated Design-Build FirmIntegrated Design-Build Firm Contractor as leadContractor as lead A/E as leadA/E as lead Joint VentureJoint Venture Developer as leadDeveloper as lead
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What Organizational Structure Works Best?
What Organizational Structure Works Best?
Owner’s needs & comfort level are Owner’s needs & comfort level are key driverskey drivers
Nature of projectNature of project Licensing requirementsLicensing requirements Relationship among team membersRelationship among team members
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Owner
Design-Builder(Integrated)
Suppliers
Integrated Design-BuildIntegrated Design-Build
TradeSubcontractors
Consulting Engineers
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Owner
Design-Builder(General Contractor)
SuppliersDesignerTrade
Subcontractors
Contractor-Led Design-Build
Wickwire Gavin, P.C.Wickwire Gavin, P.C.
Owner
Design-Builder(Designer)
General Contractor
Trade Subcontractors
Designer-Led Design-Build
Suppliers
Consulting Engineers
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Owner
Joint Venture(General Contractor
& Designer)
GeneralContractor
Trade Subcontractors
Joint Venture/LLC Design-Build
Suppliers
Designer
Consulting Engineers
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Design-Build(Developer Model)
Architect/Engineer
At-Risk CM
Trade Subcontractors
Suppliers
Developer
OwnerDesign Criteria
Consultant
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What are the Key Design-Build Contracting Issues?
What are the Key Design-Build Contracting Issues?
Standard form contractsStandard form contracts Identifying scope of workIdentifying scope of work Ownership of documents Ownership of documents Owner's rights to review designOwner's rights to review design Changes of lawChanges of law Establishing the GMPEstablishing the GMP
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Current U.S. Standard Form Design-Build Contracts
Current U.S. Standard Form Design-Build Contracts
AGC (1999)AGC (1999) DBIA (1998)DBIA (1998) AIA (1997)AIA (1997) EJCDC (1995)EJCDC (1995)
Wickwire Gavin, P.C.Wickwire Gavin, P.C.
What are the Key Design-Build Contracting Issues?
What are the Key Design-Build Contracting Issues?
Standard form contractsStandard form contracts Identifying scope of workIdentifying scope of work Ownership of documents Ownership of documents Owner's rights to review designOwner's rights to review design Establishing the priceEstablishing the price
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Key Contracting Issues (cont'd)Key Contracting Issues (cont'd)
Changes of law Changes of law Permits Permits Site conditionsSite conditions Time extension issuesTime extension issues ChangesChanges
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Key Contracting Issues (cont'd)Key Contracting Issues (cont'd)
Limitations of liabilityLimitations of liability Performance guaranteesPerformance guarantees Acceptance criteria Acceptance criteria Warranty and design liabilityWarranty and design liability
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Unique Contract Issues: Design-Builder and Designer
Unique Contract Issues: Design-Builder and Designer
Designing to budgetDesigning to budget Role of contractor during designRole of contractor during design Duties during construction Duties during construction
administrationadministration Financial considerationsFinancial considerations
– Contingencies Contingencies – Bonus/penaltyBonus/penalty– E&O coveragesE&O coverages
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Unique Contract Issues:Design-Builder/Subcontractor
Unique Contract Issues:Design-Builder/Subcontractor
Design-build vs. trade Design-build vs. trade subcontractorssubcontractors
Bidding on incomplete plans & specsBidding on incomplete plans & specs Determining when subcontractor Determining when subcontractor
becomes involvedbecomes involved
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Wickwire Gavin, P.C.Wickwire Gavin, P.C.
Major Design-Build Risk AreasMajor Design-Build Risk Areas
Single point of responsibilitySingle point of responsibility Design liability Design liability Fair business dealingsFair business dealings Ownership of documents Ownership of documents Contract formationContract formation LicensingLicensing
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Wickwire Gavin, P.C.Wickwire Gavin, P.C.
A/E vs. D/BClaims Frequency Per 100 Firms
A/E vs. D/BClaims Frequency Per 100 Firms
0
5
10
15
20
25
30
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
# o
f C
laim
s
A/E Firms Design-Build Firms
Source: Victor O. Schinnerer Company
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Why Does History Show a Reduction of Liability Exposure?
Why Does History Show a Reduction of Liability Exposure?
Merger of design & construction Merger of design & construction promotes cooperationpromotes cooperation
Professional attitudesProfessional attitudes Quality playersQuality players Owner fear of processOwner fear of process Partnering approachPartnering approach
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Wickwire Gavin, P.C.Wickwire Gavin, P.C.
Where is Design-BuildLiability Heading?
Where is Design-BuildLiability Heading?
Owner's role with design Owner's role with design development & reviewdevelopment & review
Business deal & scope of workBusiness deal & scope of work Procurement disputesProcurement disputes
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Wickwire Gavin, P.C.Wickwire Gavin, P.C.
Where is Design-BuildLiability Heading? (cont’d)
Where is Design-BuildLiability Heading? (cont’d)
Subcontractor - prime disputesSubcontractor - prime disputes Contingent liability for performance Contingent liability for performance
breachesbreaches Magnitude of dollars when Magnitude of dollars when
something goes wrongsomething goes wrong
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