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CHAPTER 3 Advantages/Disadvantages of Each Project Delivery Method Introduction There are numerous issues that transit agencies need to consider when selecting a project delivery method. In this chapter, the information collected during this research on pertinent issues is synthesized for use in Tiers 1 and 2 of the selection system presented later in the guide- book. These pertinent issues and their interactions with different project delivery methods are presented in the format of a descriptive pro/con analysis. The issues were identified through a literature search, the personal experience of the research team, case studies, and interviews with the project directors of the case study transit projects. Please see the TCRP Project G-8 final report, published as TCRP Web-Only Document 41: Evaluation of Project Delivery Methods, for presentation and discussion of the literature search, case studies, and interviews with the proj- ect directors of the case study transit projects. TCRP Web-Only Document 41 is available on the TRB website at http://trb.org/news/blurb_detail.asp?id=9886. The issues are organized into the following categories: Project-level issues, Agency-level issues, Public policy/regulatory issues, Lifecycle issues, and Other issues. In this chapter, each issue is first defined and then the advantages/disadvantages of each deliv- ery method are explained. The analysis is based on the trends found in the interviews (which are cited using brackets) and is supported by quotations from relevant literature. A list of references used is provided in Appendix A. It should be noted that there are overlaps and redundancies in the issues and how they are affected by the choice of delivery method. While there was an effort to separate issues so that redundancy and double counting would be minimized, it was not pos- sible to treat the issues completely independently. Project-Level Issues Project-level issues are those that are specific to the project under consideration and include such items as project size, cost, and schedule, as well as project risk management, risk allocation, and possible certification for sustainable design and construction (e.g., LEED certification). Issue 1: Project Size Project size is determined by transit project dollar value and physical dimensions. Transit projects are usually larger than $100 million in value; however, transit agencies sometimes get 19

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20 A Guidebook for the Evaluation of Project Delivery Methods involved in smaller projects, such as construction of parking garages. It seems that project size would strongly influence the choice of delivery method. However, current literature and the case studies conducted in this research document successful projects in a range of sizes using DBB, CMR, or DB project delivery methods. A possible exception seems to be DBOM, which has been considered mainly for larger transit projects. Because each of the three main delivery methods (DBB, CMR, and DB) can be applied to projects of all sizes, it seems clear that project size needs to be considered in combination with other issues, such as schedule, agency staffing, and risk management in order to determine an appropriate project delivery method. Issue 2: Cost This issue includes several aspects of project cost, such as ability to handle budget restrictions, early and precise cost estimation, and consistent control of project costs. Below, each project delivery method is evaluated with regard to cost control and cost estimation. DBB This delivery method may provide a cost benefit because it includes marketplace competition, which increases the likelihood of receiving low bids when the project is bid out. Furthermore, having a complete design before awarding the project increases certainty about cost estimates because the owner has the engineer's estimate as well as several estimates submitted by the bidders. The level of cost certainty increases even more when the payment method is lump sum. Another cost advantage of DBB is that transit agencies can choose unit price bids as the payment method when the project line items and their cost estimates are known but the quantities are not known with certainty. This payment method allows the constructor to bid on unit prices rather than the total price. In this way, the constructor does not have the risk of fluctuating quantities, while the owner does not have to pay for constructor contingencies included in the bid because of quantity uncertainties. CMR This delivery method has two main characteristics relevant to project cost: (1) it is usually com- bined with a GMP payment mechanism and (2) the constructor is involved in the project before bidding the project out. These two characteristics directly affect the performance of this delivery method with regard to project cost. An advantage is that there may be cost savings because of early constructor input to the project ("CM/GC White Paper, Public Contracting Coalition" 2000) and competitive pricing through "open book" accounts (Irwin 2003). Usually, the owner can negoti- ate and set the GMP at about 60% of design completion (AGC 2004). If the project requires the services of major trade or specialty subcontractors, bringing them on board during the design phase is recommended. This way, the project team can benefit from their knowledge and experi- ence and establish a more reliable budget early on. The cost drawback to this project delivery method is losing the opportunity to bid the work out. Potential schedule compression by some overlap between design and construction can be an advantage to CMR if the inflation rate will sig- nificantly escalate project cost. Also, the owner will know the estimated cost earlier in the project lifecycle than a project owner using the traditional DBB method would. At the same time, own- ers using the CMR delivery method need to closely monitor costs on the project because of the cost-reimbursable payment method (Walewski, Gibson, and Jasper 2001). Also, it is somewhat difficult to evaluate the validity of the GMP compared to a traditional bid process. DB DB performs relatively well when there is budget restriction (Gordon & Rees LLP 2005) because it reduces the potential of cost overruns due to claims and delays. TCRP Research Results Digest 53 shows that there are fewer cost overruns in DB (Harrington-Hughes 2002). Another study shows

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Advantages/Disadvantages of Each Project Delivery Method 21 that DB outperforms CMR in operation and maintenance costs, unit cost, and cost growth (Kon- char and Sanvido 1998). The DB method can also provide the owner with a firm, fixed price ear- lier in the design phase. Through the use of a lump sum contract in a DB procurement, the owner can establish a firm cost estimate relatively early in the process (Walewski, Gibson, and Jasper 2001; Gransberg and Barton 2007a). The AASHTO Procurement Guide states that DB gives earlier cost certainty and has less cost growth than traditional DBB (Molenaar et al. 2005). DBOM Early certainty in project costs and mainly operation and maintenance costs is a direct result of awarding operation and maintenance to the constructor of the project. The constructor gen- erally cannot seek additional compensation for excessive operations or maintenance costs result- ing from inadequate design since it is a responsibility of the DB entity. On the other hand, it can be difficult to estimate operation and maintenance costs at the early stages of a DBOM project (when the price proposals are being evaluated) since in most cases the project is only at a 15 to 30% design level. This difficulty can lead to increased contingencies, which result in higher prices if the entities submitting proposals are required to price operation and maintenance in response to the DBOM RFP because the constructor will have to cover all risks and uncertainties. Awarding the project with a DBOM contract extends the scope of the contract. This expan- sion in the contract scope allows the constructor to bring some innovations to the project in order to decrease the project costs (Kessler 2005). Issue 3: Schedule This issue involves two aspects of a project schedule: controlling the schedule (keeping the duration of the project within the expected timeframe) and shortening the schedule. In other words, in this section, each project delivery method is evaluated with regard to schedule control and schedule compression. DBB DBB has a sequential process and usually does not have room for significant schedule compres- sion. This sequential process results in a longer schedule than is required by DB, CMR, and DBOM (Walewski, Gibson, and Jasper 2001; Gordon 1994). A longer schedule is the price that is paid for the owner to have the project designs completed prior to the project award. DBB sched- ule growth also tends to be larger than the schedule growth of the other delivery methods. NCHRP Report 561 showed that DBB projects had the greatest average time growth (Scott et al. 2006). Inability to compress the schedule in DBB has been one of the main reasons that owners choose other delivery methods. One way of compressing DBB projects is to break down the program into several packages and let each package separately [Silver Line Project]. One problem with this approach seems to be the coordination effort required and the issue with abutting primes. CMR Having a constructor on board helps the project team develop a more practical and realistic schedule for the project. A study has shown that CMR has the ability to meet or exceed schedule requirements (Minchin, Thakkar, and Ellis 2007). This delivery method can also help owners with projects that are schedule sensitive (Walewski, Gibson, and Jasper 2001) and can save some time in the project because of concurrent design and construction ("CM/GC White Paper, Pub- lic Contracting Coalition" 2000). DB Flexibility in schedule increases in DB because designer and builder are one entity ("Design- Build White Paper, Public Contracting Coalition" 2002). Many experts believe that DB results

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22 A Guidebook for the Evaluation of Project Delivery Methods in a faster schedule delivery (Walewski, Gibson, and Jasper 2001; Konchar and Sanvido 1998; Gransberg and Molenaar, 2007b; Molenaar and Scott 2003) and has the least schedule growth (Konchar and Sanvido 1998, Scott et al. 2006). Another effect of DB is earlier schedule certainty (Molenaar et al. 2005) because the design-builder submits the project schedule at the time of con- tracting, which is comparatively early in the project life. Another important characteristic of DB for transit agencies is that it obligates design and construction funds before the end of a given fis- cal year (Gransberg et al. 2007b). This can help agencies award a project and allocate the avail- able funds without waiting for the project design to be complete. DBOM This delivery method can increase schedule certainty and early delivery of the project (Kessler 2005). It has all the characteristics of DB, so it can be used as a means of schedule compression. Issue 4: Risk Management Each new project has some level of uncertainty during various phases of its development. Strategies for coping with these uncertainties are built into each delivery method. The effect of each delivery method on risk identification, quantification, and mitigation is different; therefore, selection of a delivery method is dependent on the owner's risk management approach. These dif- ferences are considered under this issue. Tier 3 of the selection system presented in this guidebook is based on risk allocation. Also, it should be noted that the effect of risks is prevalent in many of the issues discussed in this chapter and is not limited only to Issues 4 and 5 of the chapter. DBB This delivery method has a long history of application and a rich background in terms of statu- tory laws and standard contracts that entail developed risk management processes. When the project scope is clearly definable, the owner of a transit agency can follow the traditional meth- ods of managing risks in DBB (Gordon 1994). Although risks and rewards are easy to under- stand in this method, disputes often arise over authority, responsibility, and quality (Walewski, Gibson, and Jasper 2001). In other words, having separate contracts for design and construction may or may not help the owner manage the risks of a transit project, and the owner's success in mitigation of risks depends upon the proficiency and experience of the owner and its consult- ants in risk management. CMR The risk for the CMR comes from the CM holding the trade contracts and taking the perfor- mance risk of the project (AGC 2004). The use of a GMP structure can create a mechanism to share cost risk between the constructor and the owner agency, in the hopes of ultimately reduc- ing costs. Early constructor involvement may result in a better understanding of the project risks, and more efficient risk allocation can be achieved. This delivery method is conducive to team work. The constructor shares information with the owner and designer on trade subcontracts, value engineering, and so forth. This sharing of information is why some experts believe that CMR theoretically reduces the risk of every entity involved in the project (Minchin, Thakkar, and Ellis 2007). DB Risk allocation and risk management are inherently different in DB delivery than they are in DBB and CMR delivery. The risk for errors and omissions in the plans is transferred from the owner to the DB contractor. Having single point accountability for design and construction helps the owner avoid a situation in which the designer and constructor are blaming each other for changes in the cost or the timeframe of the project (Harrington-Hughes 2002; Riley, Diller,

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Advantages/Disadvantages of Each Project Delivery Method 23 and Kerr 2005; Irwin 2003). From the owner's perspective, the DB approach reduces the size and frequency of change orders (Molenaar and Scott 2003; Riley, Diller, and Kerr 2005) as long as the owner understands the loss of its control over design and also does not change the scope. Agencies should realize that although the risks are contractually transferred to the design- builder, a poorly defined initial scope in the RFP may result in significant cost increases. Accord- ing to the design-builder's scope of work, which includes the project design, the DB contractor may be required to have errors and omissions insurance (which is usually required from design firms) in this transfer of risks (AGC 2004, Irwin 2003). In essence, the risk for errors and omis- sions does not go away, but is transferred to the DB contractor, who has more of an economic incentive to manage the risk than the owner in the DBB system. DBOM The DBOM entity assumes the risks assumed by the constructor in DB delivery, as well as assuming the risks involved with operations and maintenance, system integration, and project start-up. Agencies expect that the DBOM entity will be more inclined to ensure quality of design and workmanship since it will be responsible for operations and maintenance. Also, the DBOM delivery method does not allow the DBOM entity to claim compensation from the agency for inadequate operation and maintenance considerations because the designer and the con- structor are on the same team. As the contract includes the operation and maintenance phase, uncertainty during the operation and maintenance period is reduced by awarding the whole package to the constructor (Garvin 2003). One problem that may surface with DBOM delivery is the commercial/financial approach to risk management by the constructor (Kessler 2005). The DBOM constructor makes money out of the project and may accept higher levels of risk in safety or lower levels of commuter satisfaction to increase its income. This difference between the view- points of an agency and a contractor may increase the risk of having safety issues or commuter satisfaction problems. Issue 5: Risk Allocation Research in the area of risk management has indicated that the most effective approach for risk management is risk allocation--assigning project risks to the parties in the best position to manage them. This means that the party assuming a certain risk should be the party who has the most control over that risk and is also most likely to survive the negative impact of such risk. The main vehicle for risk allocation is the contract. The type of project delivery method selected by an owner will have a profound impact on risk allocation. Some methods allow the owner greater flexibility in allocating risks to the parties involved. Tier 3 of the project delivery method selec- tion system presented in this guidebook is based on an effective method of risk allocation. For example, schedule risk is sometimes addressed by choosing a DB approach (as discussed above). It is important to note that risk allocation affects many of the issues discussed in this chapter and is not limited to Issues 4 and 5. DBB This delivery method can help the owner divide risks between the designer and the contrac- tor, but the risk of additional construction costs resulting from erroneous design remains with the owner, which the owner usually transfers to the design team (AGC 2004). Scope definitions of design and construction contracts in DBB play an important role in risk allocation. The owner will face challenges if the duties are not defined clearly and ambiguity remains in the contracts. CMR Although CMR facilitates risk management, it is not necessarily the best method for risk allocation. Having an experienced constructor on board improves the whole process of risk

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24 A Guidebook for the Evaluation of Project Delivery Methods management, including risk allocation, but the increase in the number of parties directly involved in the project and some overlaps between their duties may make the risk allocation more difficult [Portland Mall Project, Weber County Commuter Rail]. Although GMP as a means of risk allo- cation should decrease the owner's risks, there is always the possibility that the owner and the onboard contractor will not come to an agreement on GMP in a timely fashion. The owner in this case may have to bid out the project and will suffer from the resulting delay imposed on the project as well as taking the chance of getting bids that are higher than expected. DB Because the design-builder is the single point of responsibility in this delivery method, risk allocation is simpler. The owner must carefully decide which risks it can best manage and assign the design-builder the risks that the design-builder can best bear. It is unwise to allocate total risk to the DB contractor because that would drastically increase the contingency and the construc- tor's insurance costs, which will be transferred to the owner through the bid (AGC 2004). Exam- ples of other risks include the risk of obtaining various environmental permits or purchasing real estate. Experience shows that the owner is in the best position to assume these risks [Greenbush Commuter Rail]. DBOM Risk allocation in this method is similar to risk allocation in DB, but an allocation of risks is added for the operation and maintenance phase. If the owner can identify the risks of the project early enough to allocate them at the time the project is awarded, DBOM can have some advan- tages with regard to risk allocation. In other words, DBOM facilitates risk allocation if the owner is able to identify the project risks up front. DBOM has an advantage over other delivery methods in cases in which the system provider does not guarantee the system if operated by another entity (Kessler 2005). One of the major risks in this approach is the owner's ability to provide clear scope and objectives; if the owner cannot provide these, the consequences of disputes in the later stages may be significant. Issue 6: LEED Certification Sustainable design and construction features are becoming more common and may become mandatory in the future for public infrastructure projects. Thus, it is important to gauge a proj- ect delivery method's ability to include these features in accordance with the owner's needs. The U.S. Green Building Association's Leadership in Energy and Environmental Design (LEED) cer- tification is often used by public agencies as a means of articulating their desire to design and build both energy-efficient and environmentally responsible projects. Although LEED certification has not become a requirement in transit projects, how each delivery method functions with regard to this issue can be a benefit or a drawback. For example, one benefit of establishing LEED as a cri- terion is that it can be used as a metric to evaluate sustainable design and construction options whether or not LEED certification is sought for the project. LEED prerequisites (including selec- tion of site and construction activity pollution prevention) can yield environmental benefits while reducing regulatory risk. On the other hand, LEED requirements may increase project costs because of extra tasks and documentation. One important fact to remember is that LEED stan- dards are evolving in an effort to accommodate a range of project types. The adoption of LEED criteria as a selection requirement may need to be phrased to indicate that the most current iter- ation of LEED criteria should be consulted rather than a particular, existing LEED standard. DBB In DBB, the owner has a clear opportunity to define sustainable design with LEED criteria. The builder's lack of input in DBB means that there will be little opportunity to take advantage