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10 A Guidebook for Selecting Airport Capital Project Delivery Methods add Section 47142, which established DB as an acceptable delivery method under the AIP. On June 20, 2001, the FAA issued a memorandum allowing the procurement of DB contracts using either a qualifications-based selection (QBS) or a competitive proposal selection process. Subse- quent to the successful experience of using DB in several projects, many states passed new legis- lation and codes to allow alternative project delivery methods, i.e., DB and construction manager at risk (CMR). Adding the responsibility of operation and maintenance to DB projects expanded to another delivery method called design-build-operate-maintain (DBOM). The difference among delivery methods, the unique characteristics of each project, and the variety of parameters affect- ing project delivery method selection have made the delivery method selection decision com- plicated for many airports. The purpose of this guidebook is to facilitate decision-making by clarifying the differences among the delivery methods and proposing a structured decision- making approach that incorporates all the pertinent 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 construction project owners and the indus- try have experimented 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 to the project's technical requirements. This guidebook provides a set of standard project delivery definitions (see below and Appendix B) 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 responsibilities of the entities involved in a project. The Associated General Contractors of Amer- ica (AGC) define project delivery method as "the comprehensive process of assigning the contrac- tual responsibilities for designing and constructing a project. A delivery method identifies the primary parties taking contractual responsibility for the performance of the work" (AGC 2004). Thus, the 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 (CII) maintains that there are really only three fundamen- tal project delivery methods: DBB, DB, and CMR (Construction Industry Institute 1997). While there are a multitude of names for project delivery methods throughout the industry, CII is essen- tially correct. Therefore, this guidebook will focus its information on those three methods. The AGC (2004) also distinguishes between the delivery method and the management method. The management method "is the mechanics by which construction is administered and super- vised" (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 construction manager (CM) to represent the owner's interests during design and construction. Theoretically, any management method may be used with any delivery method. For example, the owner may hire an agency CM to manage a DBB, DB, or even a CMR project. It is also important to note the distinction between a delivery method and a procurement method. A recent Transportation Research Board report breaks procurement methods down into three cat- egories: low-bid, qualifications-based, and best-value. These are defined as follows (Bearup et al. 2007, Scott et al. 2006):

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Literature Review and Definitions 11 A low-bid procurement method is one in which a contract is awarded on the basis of a low price alone. No other factors are considered. A qualifications-based procurement method is one in which a contract is awarded on the basis of qualifications alone. Price is not considered. A best-value procurement method is one in which a contract is awarded on a combination of price and other key factors such as qualifications, schedule, technical approach, and so forth. Once again, each of the delivery methods can theoretically be procured by any of the above pro- curement methods. It is important to factor the procurement method that will be used into the project delivery method selection decision. The issue here is to ensure that a perceived advantage of a given project delivery method is not in fact turned into a disadvantage by the procurement method used by the construction project owner. The final issue that must be considered when selecting a project delivery method is the con- tracting process that will be used to get to a final award. Three possible contracting processes-- one-step, two-step, and multiphase--are defined below: In a one-step contracting process, competitors are asked to submit all required information at one time. Those submissions are evaluated, and an award is made in accordance with the selected procurement methodology. In a two-step contracting process, competitors are asked to submit qualifications in the first step that are then evaluated to form a short list of qualified competitors. The second step com- prises the submission and evaluation of all other required information. Again, the award is made in accordance with the selected procurement methodology. In a multiphase contracting process, the project is divided into phases and the winning com- petitor is selected using the qualifications-based procurement method. Upon selection, the required information is submitted and evaluated on a phase-by-phase basis until the entire project is awarded. (Note: this is an emerging process with which there has been only anecdotal experience) (Cornell 2007). Included in each of the above contracting processes are considerations for the contract type that will be ultimately executed for the project. The literature lists four ways in which the owner can compensate the winning competitor: guaranteed maximum price (GMP), cost plus, negotiated lump sum, and lump sum (Bearup et al. 2007). Once again, the perceived advantages and dis- advantages of each candidate project delivery method must be reviewed in the context of the con- tracting process to ensure that the potential benefits of selecting a given delivery method are not rendered unattainable by the contracting process. Figure 2-1 is conceptual representation of how the various components of project delivery interrelate. The intent of the discussion above is not to overcomplicate the project delivery decision- making process by turning it into a four-way matrix with a multitude of permutations and com- binations of possible outcomes. Airport owner/operators have standing procedures that they use to deliver capital projects, and, in most cases, they will continue to use their preferred man- agement, procurement, and contracting processes. The purpose of the discussion is to alert the reader that the selection of a project delivery method cannot occur in a vacuum. The analysis of candidate project delivery methods must be undertaken within the context of a given deliv- ery method, procurement method, contracting process, and management method to ensure that the result is specific both to the project and to the airport organization that will ultimately deliver the project. The remainder of this report will focus on its subject: selecting an appropri- ate project delivery method. It should be noted that it can be useful to retain the services of a project delivery professional to review the owner's needs and ensure that the best combination of delivery method, procurement method, and implementation procedure is chosen (Warne and Beard 2005).

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12 A Guidebook for Selecting Airport Capital Project Delivery Methods Feasible combination for Delivery the specific project Method Management Procurement Method Method Contracting Process (Adapted from Bearup et al. 2007.) Figure 2-1. Graphic illustration of the inter- relationship of the components of project delivery. Descriptions of project delivery methods (DBB, CMR-CM/GC, and DB) are given below. To assist the reader in putting the contents of this report into proper context, each project delivery method description includes a graphic displaying contractual relationships. Note that the lines of communication shown in the graphics represent the ability to exchange information through for- mal and informal requests among the various entities in the project. DBB DBB is the traditional project delivery method. In this method, a project 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 responsible for the details of design and warrants the quality of the construction design documents to the con- struction contractor. Figure 2-2 shows the basic relationships among project participants in a DBB delivery system. The owner "owns" the details of design during construction and, as a result, is financially liable for the cost of any design errors or omissions encountered in construction. This principle 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 minimize the cost of change orders in this delivery method. In fact, there can be quite the opposite effect. A builder who has won a proj- ect by submitting the lowest 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 et al. 2007): Owner Contracts Communication Designer Builder (Adapted from American Institute of Architects, California Council 1996.) Figure 2-2. Design-bid-build.

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Literature Review and Definitions 13 There are separate contracts for design and construction, Contractor selection is based entirely on cost, and Design documents are 100% complete. DBB projects can also be awarded on a negotiated basis and a best-value basis (Scott et al. 2006). In both cases, the probability that the project will be awarded to a builder who has submitted a mis- takenly low bid is reduced. Additionally, in both cases, the builder will be motivated to complete the project in such a way that it will be invited back to do the next negotiated contract or that will reflect well in the next best-value selection. Regardless of the procurement 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 competition in both the design and con- struction areas. All qualified designers can compete for the design without restriction. Addition- ally, all constructors who can furnish the requisite bonding can compete without constraint. Design subconsultants and construction trade subcontractors can also compete with minimal restriction. Finally, as DBB is normally viewed as the traditional project delivery method in the United States, it is well understood and well accepted by owners and members of the design and construction industries. CMR or CM/GC CMR projects are characterized by a contract between an owner and a CM 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 details of a project's lifecycle. The idea of CMR is to furnish professional management of all phases of a project's life to an owner whose organi- zation may not have those capabilities. These projects normally use the qualifications-based procurement method to select the CMR. It is possible to apply best-value procurement with the CMR's qualifications and proposed fees being taken together to form the best-value metric. Typically, CMR contracts contain a provision in which the CMR stipulates a 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 convert it to a firm fixed-price contract and administer the construction as if it were a traditional DBB project thereafter (American Institute of Architects 2005). CMR contracts can contain provisions for the CMR to handle some aspects of design, but generally the owner retains the traditional responsibility by having 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 2-3). The CMR will usually be paid for furnishing preconstruction services such as cost engi- neering, constructability review, and development of subcontractor bid packages. According to AGC (2004) the defining characteristics of the CMR are the following: The designer and the CMR hold separate contracts with the owner and The CMR is chosen based on criteria other than just the lowest construction cost, such as qual- ifications and past performance. According to Bearup et al. (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,

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14 A Guidebook for Selecting Airport Capital Project Delivery Methods Owner Contracts CM at Risk Communication Designer Trade Subs (Adapted from American Institute of Architects, California Council 1996.) Figure 2-3. Construction manager at risk. 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 the American Institute of Architect's (AIA's) "Construc- tion 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" (American Institute of Architects 2005, p. 1). Constructability and speed of implementation are the major reasons an owner would select the CMR method (3D/International, Inc., undated). Additionally, CMR greatly facilitates phased construction if that is a requirement for 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. Preconstruction services include budgeting, cost estimating, scheduling, constructability reviews and value engineering studies" (3D/International, Inc., undated, p. 4). In CMR, the CM essentially becomes the GC at the time the GMP is established. While some experts attempt to distinguish between CMR and CM/GC, due to perceived levels of risk, many agencies use these terms more or less interchange- ably.2 The CMR can and is expected to provide realistic project cost estimates 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 construc- tion services. Many states reserve the right to go out for bids if they think that the CMR's price is not competitive (Minchin et al. 2007).3 As the design selection process in CMR virtually mirrors the design selection process in DBB, implementing CMR does not inherently restrict competition among designers and design sub- consultants (American Institute of Architects 2005). Owners occasionally require the designer in a CMR project to have previous CMR experience, which will impose a constraint on competition. Also, as the constructor is selected on a basis of qualifications and past performance and must have the capability to perform preconstruction services, CMR project delivery can constrain com- petition to those constructors that have previous CMR experience. Most public CMR laws require 2 According to AGC (2004), there has been some confusion about the terms CMR 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 CMR. The emphasis in this work is CMR. Agency CM is not a project delivery method because the CM is not contractually responsible for delivering 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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Literature Review and Definitions 15 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 QBS of the GC as CMR. DB DB is a project delivery method in which the owner procures design and construction services in the same contract from a single, legal entity referred to as the design-builder. A variety of approaches exist for selecting the design-builder. The most common contracting processes are the one-step and the two-step processes. The one-step process provides for competitive evalua- tion 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 (Molenaar et al. 1999). The two-step process separates the technical proposal from the price. The method typically uses request-for-qualifications (RFQ)/request-for-proposal (RFP) procedures rather than the 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 construction services. The DB entity is liable for all design and con- struction costs and usually provides a firm, fixed price in its proposal (El Wardani et al. 2006, Ibbs et al. 2003, Graham 1997). DB projects can and have been delivered using all three procurement methods. Experience in the highway industry with low-bid procurement for DB projects has been less than satisfac- tory, and the AASHTO Guide for Design-Build Procurement specifically recommends against it (AASHTO 2008). The reference recommends the use of two-step, best-value procurement as the preferred method for highway transportation projects. Qualifications-based procurement can also be used on DB projects and allows the owner to bring the design-builder on board at an early stage to assist in project development activities. Indeed, the survey of nine U.S. airports by the research team showed that several had used the qualifications-based procurement process. The qualifications-based procurement process is combined with a negotiated GMP contracting process, which may also use the multiphase process. This combination has been referred to as "DB progressive GMP." Its aim is to reduce the contingency for scope creep dur- ing the design phase that is typically contained in a lump-sum DB price proposal by not forc- ing the design-builder to commit to a price until the details of the design are reasonably stable. Figure 2-4 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 Owner Design- Contracts Builder Communication Designer Builder (Adapted from American Institute of Architects, California Council 1996.) Figure 2-4. Design-build.