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10 A Guidebook for the Evaluation of Project Delivery Methods United States have limited the procurement of constructors to the lowest responsible, responsive bidder. The combination of these two procurement practices has helped solidify the proliferation of DBB in the public sector. This method was the traditional transportation project delivery method until the introduction of DB and design-build-operate-maintain (DBOM) in the Inter- modal Surface Transportation Efficiency Act of 1991.1 Another step was taken in 1996, when the Federal Acquisition Reform Act explicitly authorized the use of DB for federal projects. After that, the Transportation Equity Act for the 21st Century (TEA-21), Public Law 105-178, allowed state departments of transportation (DOTs) to award DB contracts if the enabling state-level legisla- tion was in force. Subsequent to the successful use of DB in several projects, many states passed new legislation and codes to allow alternative project delivery methods, i.e., DB and CMR. Adding the responsibility of operation and maintenance to DB projects created another delivery method, DBOM. The differences among delivery methods, the unique characteristics of each project, and the vast variety of parameters affecting the selection of a project delivery method, have made selec- tion of a project delivery method complicated for many owners. The purpose of this guidebook is to facilitate the decision-making process by clarifying the differences among the project deliv- ery methods and proposing a structured decision-making approach that incorporates all the per- tinent parameters. Definitions of the Delivery Methods Since the early 1980s, owners of construction projects have been putting greater pressure on the architecture/engineering/construction (A/E/C) industry to improve quality, reduce cost, and, more importantly, compress the period from project conception to project completion for all kinds of public and private facilities. As a result, both owners and the industry have experi- mented with various forms of project delivery with varying degrees of success. The adoption of alternative project delivery methods has added to the challenge of selecting the method most appropriate to the owner's needs and desires as well as the project's technical requirements. This report provides a set of standard project delivery definitions to help communicate the technical requirements for bringing a new project from the owner's conception to operation and finally to decommissioning. Project delivery method is a term used to refer to all the contractual relations, roles, and respon- sibilities of the entities involved in a project. TxDOT defines "project delivery method" as follows: "A project delivery method equates to a procurement approach and defines the relationships, roles and responsibilities of project team members and sequences of activities required to com- plete a project. A contracting approach is a specific procedure used under the large umbrella of a procurement method to provide techniques for bidding, managing and specifying a project" (Walewski, Gibson, and Jasper 2001). The Associated General Contractors of America (AGC) (2004) defines "project delivery method" as "the comprehensive process of assigning the contrac- tual responsibilities for designing and constructing a project. A delivery method identifies the pri- mary parties taking contractual responsibility for the performance of the work." Thus, different project delivery methods are distinguished by the way the contracts among the owner, the designer, and the builder are formed and the technical relationships among parties within those contracts. The Construction Industry Institute maintains that there are really only three fundamental project delivery methods: DBB, DB, and CMR (Construction Industry Institute 1997). While 1 In 1992, the FTA announced the initiation of a Turnkey Demonstration Program (Federal Register Vol. 57, No. 157, 8/13/92) and later selected five projects for DB implementation. These projects were (1) the Los Angeles Union Station Intermodal Terminal, (2) Baltimore Light Rail Transit, (3) San Juan Tren Urbano, (4) Bay Area Rapid Transit in San Francisco, and (5) Hudson-Bergen Light Rail Transit.

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Background and Definitions 11 there are a multitude of names for project delivery methods throughout the industry, the Con- struction Industry Institute is essentially correct. Therefore, this report will focus its information on those three methods. The AGC also distinguishes between the delivery method and the management method. The management method "is the mechanics by which construction is administered and supervised" (AGC 2004). This function is either retained by the owner agency or is outsourced. An example of outsourcing the management process is to hire an agency CM to represent the owner's inter- ests during design and construction. Theoretically, any management method may be used with any delivery method. For example, an owner may hire an agency CM to manage a DBB, DB, or even a CMR project. Graphics displaying the contractual relationships among the major stakeholders and their lines of communication are presented in Figures 2.1 through 2.3 to assist the reader in putting the contents of this report into proper context. Note that the lines of communication shown in the figures represent the ability to exchange information through formal and informal requests for information among the various entities in the project. Design-Bid-Build (DBB) DBB is the traditional project delivery method. In this method, an owner retains a designer to furnish complete design services and then advertises and awards a separate construction con- tract that is based on the designer's completed construction documents. The owner is responsi- ble for the details of design and warrants the quality of the construction design documents to the construction contractor. Figure 2.1 shows that the owner is situated squarely between the designer and the builder in the DBB project delivery method. In DBB, the owner "owns" the details of design during construc- tion and, as a result, is financially liable for the cost of any design errors or omissions encountered in construction; this is called the "Spearin Doctrine" (Mitchell 1999). The construction phase of DBB projects is generally awarded on a low-bid basis. There is no incentive for the builder to min- imize the cost of change orders in this delivery method. In fact, there can be quite the opposite effect. A builder who has won a project by submitting the lowest possible bid may need to look to post-award changes as a means of enhancing profit on the project. One author states that the defining characteristics of DBB are as follows (Bearup, Kenig, and O'Donnell 2007): There are separate contracts for design and construction. Contractor selection is based entirely on cost. Design documents are 100% complete. Owner Designer Builder Contracts Communication (Adapted from American Institute of Architects 1996.) Figure 2.1. Design-bid-build.

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12 A Guidebook for the Evaluation of Project Delivery Methods Despite the general definition of DBB given above, DBB projects can also be awarded on a negotiated basis and a best-value basis (Scott et al. 2006); however, DBB transit projects awarded in either of these two ways usually require FTA approval and frequently violate local laws. For projects awarded on a negotiated basis or a best-value basis, the probability that the project will be awarded to a builder who has submitted a mistakenly low bid is reduced. Additionally, in both cases, the builder will be motivated to complete the project in a such a way that it be invited back to do the next negotiated contract or that will reflect well in the next best-value selection. Regard- less of the award method, DBB involves less builder input to the design than DB or CMR. Thus, the owner must rely on the designer or agency CM (and not the builder) for a constructability review, if there is any at all. Nonetheless, in this method the owner has full control over the details of design, which may be a requirement for some complex projects. DBB is also characterized by the greatest amount of familiarity in both the design and construc- tion areas. All qualified designers can compete for the design without restriction. Additionally, all constructors who can furnish the requisite bonding and meet any agency prequalification crite- ria are also able to compete without constraint. Design subconsultants and construction trade subcontractors are also able to compete with minimal restrictions. Finally, as DBB is generally viewed as the traditional project delivery method in the United States, it is well understood and accepted by owners and members of the design and construction industries. CMR or Construction Manager/General Contractor (CM/GC) CMR projects are characterized by a contract between an owner and a construction manager who will be at risk for the final cost and time of construction. In this agreement, the owner authorizes the construction manager to handle the construction phase and give inputs during the design development. The idea of CMR is to furnish professional management of all phases of a project life to an owner whose organization may not have those capabilities (North Carolina State Construction Office 2005). Typically, CMR contracts contain a provision in which the CMR stipulates a guaranteed maximum price (GMP) above which the owner is not liable for payment. Often, these contracts include incentive clauses in which the CMR and owner can share any cost savings realized below the GMP. Some states, like Oklahoma, take the GMP and con- vert it to a firm-fixed price contract and administer the construction as if it were a traditional DBB project thereafter (AIA 2005). CMR contracts can contain provisions for the CMR to han- dle some aspects of design, but generally, the owner retains the traditional responsibility by keep- ing a separate design contract and furnishing the CMR with a full set of plans and specifications upon which all construction subcontracts are based (see Figure 2.2). The CMR will usually be Owner CM At-Risk Designer Trade Subs Contracts Communications (Adapted from American Institute of Architects 1996.) Figure 2.2. Construction manager at risk.

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Background and Definitions 13 paid for furnishing preconstruction services such as cost engineering, constructability review, and development of subcontractor bid packages. According to AGC (2004), the defining char- acteristics of the CMR are the following: The designer and the CMR hold separate contracts with the owner. The CMR is chosen on the basis of criteria other than just the lowest construction cost, such as qualifications and past performance. According to Bearup, Kenig, and O'Donnell (2007), additional defining characteristics are the following: The CMR contracts directly with trades and takes on "performance risk" (cost and schedule commitments); The schedule allows for overlapping design and construction; The owner procures preconstruction services from the CMR; and The owner expects the CMR to provide GMP and to commit to a delivery schedule. A final defining characteristic, noted in AIA's "Construction Manager at-Risk State Statute Compendium," is that "transparency is enhanced, because all costs and fees are in the open, which diminishes adversarial relationships between components working on the project, while at the same time eliminating bid shopping" (AIA 2005, p. 1). Constructability and speed of implementation are the major reasons that an owner would select the CMR method (3D/International, Inc. 2005). Additionally, CMR greatly facilitates phased construction when that is a requirement for a given project. Unlike DBB, CMR brings the builder into the design process at a stage in which definitive input can have a positive impact on the project. "The CM[R] becomes a collaborative member of the project team. Preconstruc- tion services include budgeting, cost estimating, scheduling, constructability reviews and value engineering studies." (3D/International, Inc. 2005, p. 4). In CMR, the CM essentially becomes the general contractor at the time the GMP is established. While some experts attempt to distin- guish between CMR and CM/GC, due to perceived levels of risk, many agencies use these terms more or less interchangeably.2 The CMR can and is expected to provide realistic project cost esti- mates early in the project lifecycle. It is anticipated that after a certain amount of the design is complete and the project is sufficiently defined, the owner will enter into a contract with the CMR for providing construction services. Many states reserve the right to go out for bid if they think that the CMR's price is not competitive (Minchin, Thakkar, and Ellis 2007).3 The timing of GMP negotiations varies among different agencies. In many cases, at least 60% of the design is completed before a GMP is established. In some cases, the design is 80 to 90% complete before a GMP can be effectively negotiated with the CMR. The timing of GMP negotiations depends on project complexity, agency rules, and external conditions such as inflation and the expected level of competition among subcontractors. In general, the CMR may feel that committing to a GMP while all the details of the design are not defined may involve incurring undue risk. Also, some agency rules may hamper early GMP negotiations. For example, if an agency insists on requiring a fully open competition for hiring of subcontractors, then negotiating an early GMP may be more difficult because some subcontractors may be reluctant to give their prices without 2 According to AGC (2004), there has been some confusion about the terms CM at-risk and CM/GC because of the assumption that the phrase "at-risk" connotes cost guarantee. Even if there are no cost guarantees, the CM is still at risk because the CMR holds the trade contracts (warranting the performance of the work). Because of this, some users choose to avoid the debate over the term "at-risk" and instead use the term CM/GC (p. 8). 3 There are two types of CM arrangements, namely agency CM and CM at-risk. Our emphasis in this work is CM at-risk. Agency CM is not a project delivery method because the CM is not contractually responsible for deliv- ering the project. The role of agency CM is purely advisory, and thus, the agency CM is usually not at risk for the cost and schedule of building the project.

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14 A Guidebook for the Evaluation of Project Delivery Methods a 100%-complete design. This in turn makes the CMR hesitant to provide a reasonable GMP for fear that money will be lost if the subcontract bids come in too high. As the design selection process in CMR virtually mirrors the design process in DBB, imple- menting CMR does not inherently restrict competition among designers and design subconsul- tants (AIA 2005). Owners, at their own discretion, occasionally require the designer in a CMR project to have previous CMR experience, which may result in fewer qualified proposers. As the constructor is selected on the basis of qualifications and past performance and must also have the capability to perform preconstruction services, CMR project delivery can constrain compe- tition to those constructors that have previous CMR experience. Most public CMR laws require competitively bidding out the construction trade subcontract work packages. The central idea of CMR is to get the advantage of price competition in the subcontract work packages combined with the qualifications-based selection of the GC as CMR. Design-Build (DB) Design-build is a project delivery method in which the owner procures design and construc- tion services in the same contract from a single legal entity referred to as the design-builder. A variety of methods exist for selecting the design-build constructor. Common methods are the one-step and the two-step processes. The one-step process provides for competitive evaluation of technical proposals, with the contract award decision based on best value to the owner agency. The determination of best value is based on a combination of technical merit and price. The two- step process separates the technical proposal from the price. This method typically uses request for qualifications (RFQ)/request for proposal (RFP) procedures rather than DBB invitation-for- bid procedures. There are a number of variations on the DB process, but all involve three major components. First, the owner develops an RFQ/RFP that describes essential project requirements in performance terms. Second, proposals are evaluated. Finally, with evaluation complete, the owner must engage in some process that leads to contract award for both design and construc- tion services. The DB entity is liable for all design and construction costs and must usually pro- vide a firm, fixed price in its proposal (El Wardani, Messner, and Horman 2006; Ibbs, Kwak, and Odabasi 2003; and Graham 2001). Figure 2.3 shows that from the owner's standpoint, DB simplifies considerably the project's chain of responsibility. As in CMR, the builder has early constructability input to the design process. As the owner no longer owns the details of design, the owner's relationship with the Owner Design- Builder Designer Builder Contracts Communication (Adapted from American Institute of Architects 1996.) Figure 2.3. Design-build.