A Guidebook for Selecting Airport Capital Project Delivery Methods (2009)

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6C H A P T E R 2 Before embarking on describing various delivery methods, it is important to note the features of airport projects that distinguish them from other transportation projects because these features may have an effect on the selection process. Several types of project delivery method are currently available to the owners and managers of airport projects in the United States. It is important, espe- cially in the case of large and complicated airport projects, to select the most appropriate project delivery method for a specific project. Contractual relations, contemporary laws and regulations, the project owner’s perception of risks, procurement award mechanisms, and the method of pay- ment are all factors in project delivery method selection. It is important to note that this research in no way advocates one type of project delivery method over another. The expressed purpose of this effort is to assist airports in making the proj- ect delivery selection decision in a defensible and consistent manner. The report authors firmly believe that all project delivery methods can be used to successfully complete airport projects. Nonetheless, each project has unique characteristics that will make a given project delivery method the optimal one for project delivery. In the paragraphs that follow, alternative project delivery methods will be compared with traditional DBB project delivery, which functions as the benchmark against which all other methods are compared. A review of the literature suggests that the use of an alternative project delivery method can accrue benefits for project owners. How- ever, the benefits of alternative project delivery methods presented in the literature occur most often across a population of projects rather than on an individual project. Thus, the reporting of benefits found in the literature should not be misconstrued as advocating one project delivery method over another. All project delivery methods have yielded both success and failure. Often failure is the result of selecting an inappropriate project delivery method. Distinguishing Characteristics of Airport Projects Wide Range in Size, Scope, and Cost One distinguishing characteristic of airport projects is the wide range in their costs. There is a wide variety in airport projects; they consist of both horizontal and vertical projects ranging in cost from a few thousand dollars to megaprojects worth hundreds of millions of dollars. For instance, Logan International Airport projects have ranged in cost from $10,000 to $165 million over the past 5 years. Security Security consideration is another important attribute of airport projects. An airport’s area is usually thought of as including two parts: “airside,” which comprises runways and other facilities Literature Review and Definitions

beyond the terminals, and “landside,” which includes an airport’s interface with ground trans- portation (Reid and Brown 2007). Sometimes an airport’s area is thought of as including three parts: airside, landside, and terminals (Transportation Security Administration 2006). The airside is a secured, non-public portion of an airport where movement of construction personnel and equip- ment is controlled. Further, access to the area adjacent to runways, taxiways, and gates is limited and under strict control. The terminal buildings, designed to accommodate the enplaning and deplaning activities of aircraft passengers, are the part of the airport with the highest level of secu- rity, safety, and operational requirements. The landside, excluding terminals, is a non-restricted area that includes area and buildings to which both traveling passengers and the non-traveling public have unlimited access. Construction in the secured zones of airports involves difficulties in providing security, which is time consuming and costly. Research has found that the cost of construction in areas beyond security checkpoints is 15 to 25% more than the cost of similar con- struction outside the secured area (Adrem et al. 2006). The reasons for this cost difference are numerous. Workers must be issued special security badges to enter the secure airside/terminal regions. This requires specific training and completion of a security clearance process, both of which take time. All vehicles and drivers have to get special licenses. Each morning, the workers are required to enter the secure zone via static security stations that may be remote from the work site. All materials trucks are not only security checked, but also escorted to the work site. Also, because of the presence of expensive aircraft and flammable material on the airside, the contrac- tor must take into account various safety regulations that are not necessary in landside projects. All of these issues reduce the daily production rate of construction, adding time and money to the airport project. Construction During Airport Operation Airport projects are usually executed while airport operations are ongoing. Because of this, it is important to manage design and construction in a way that minimizes impact on airport oper- ations. For example, construction work is often scheduled during periods of low airport activity. This usually means that much of the construction occurs at night (Adrem et al. 2006, Corey 2005). In some airports, like Los Angeles International Airport, a multiphased scheduling approach is tried that divides the project into phases and protracts the construction time to minimize delays to flight and passenger processing (Florkowski 2007a). The appropriate project delivery method should optimize available resources in achieving project goals in an active airport environment. Choosing the proper project delivery method can play a major role in minimizing the impact on airport operation and flight delays. Complexity of Airport Projects Airport projects are often complex: “Airport projects have a whole series of special systems which are seen nowhere else, on an enormous scale” (Merkel and Cho 2003). Some of these systems include sophisticated security devices (e.g., closed-circuit television, explosion detection systems, and X-ray scanners); electrical and data systems; special fire alarm and fire-fighting systems; and sophisticated baggage-handling systems. The spatial and circulation requirements of aircraft and related equipment and the crowds that ebb and flow throughout the day add complexity to airport design and construction. Some experts compare an airport to a body with multiple systems of inter- dependent organs; a failure in one system can shut down the entire terminal. Also, airports usually add or remove existing facilities instead of building a new one. This process causes problems such as establishing the terms of contract (allocation of responsibilities to project participants, especially the contractors) and ensuring that new additions are designed in a way that is compatible with existing facilities in terms of style and material. The challenge is to integrate the new and old facil- ities in an effective manner (Adrem et al. 2006). Literature Review and Definitions 7

Different Stakeholders Due to the various activities conducted in an airport and the far-reaching effect of some airport projects on adjacent communities (such as construction of new runways or expansion of existing ones), there are many different stakeholders in an airport construction project. All stakeholders want to optimize the design based on their concerns, and these concerns are sometimes in conflict. Even in the airport proper, stakeholders’ concerns can be in conflict. For instance, entities inter- ested in the commercial aspects of airport operation may prefer a design that exposes passengers to as many stores as possible, while entities concerned with terminal operations may prefer that passengers take the shortest possible route through the airport. Different agents, with specific duties, who may not be responsible for a project’s cost, make requisitions that may increase the cost of the project. The conflicting demands of project stakeholders can make it challenging for those in charge of a project to reach the needed agreements, and this may increase the design and devel- opment phase of the project (Adrem et al. 2006). Type of Funding Major airport financing comes from (1) federal assistance (FAA and TSA), (2) state assistance, (3) bond sales, and (4) airport cash and revenue funding (Airports Council International—North America et al. 2006). The Airport and Airway Trust Fund established by the Airport and Airway Revenue Act of 1970 provides the revenues used to fund the Airport Improvement Program (AIP), which assists sponsors, owners, or operators of public-use airports in the development of a nationwide system of airports adequate to meet the needs of civil aeronautics. In 1997, Congress enacted new taxes and funded the trust fund that guarantees a stable funding source whereby users pay for the service they receive. When aircraft operators are exempt from paying aviation taxes, their airport activity is not included in the justification or design for an AIP project (FAA 2005). Only those AIP projects considered by the FAA Administrator to be necessary to provide for a safe and efficient airport system and to meet the current and projected growth of civil aeronautics are considered for selection. Although AIP can fund multiyear projects, the funds are released on a yearly basis and based on an agreed-upon payment schedule. Because of this, cash flow and compliance with an AIP- approved fund schedule have important roles. Using this fund causes restrictions like competitive pricing of construction services, compliance with the Davis-Bacon Act, and good faith efforts to include Disadvantaged Business Enterprise (DBE) firms (Airports Council International—North America et al. 2006). In fiscal year 2005, the total amount made available for the AIP program was $3,590,506,982. This budget provided 2,099 grants, ranging from $10,925 to $38,826,223, with an average value of $1,710,580 (General Services Administration 2008). For a typical AIP-funded con- struction project, the grantee and the FAA follow a designated process. However, based on the work involved, type of sponsor, project size, and so forth, some steps can be eliminated from this process. AIP funds do not require that accounting procedures be in accordance with the Federal Acquisition Regulation (FAR); for all federal aid that comes from TSA, grantees must follow FAR accounting procedures (Airports Council International-North America et al. 2006). Another source of funds is passenger facility charges (PFCs). These are taxes charged on each airline ticket, collected by the airlines, and given to the airport. The airport has to follow FAA guidelines in order to use these funds (such as using the funds for airfield-related or terminal-related projects). State funding is another source of financing for airport projects. Many states assist capital improvement projects with grants through various programs. As with federal assistance, accep- tance of this funding imposes restrictions and compliances. These can include restrictions on the type of contract and disbursement of the state’s funds; competitive pricing of construction ser- vices; auditing and monitoring rules; required project record retention; involvement by the state 8 A Guidebook for Selecting Airport Capital Project Delivery Methods

in an airport’s selection process of professional consultant services; compliance with laws pro- hibiting job discrimination, the Davis-Bacon Act, the Civil Rights Act, and the Americans with Disabilities Act; and good faith efforts to include DBEs (Airports Council International-North America et al. 2006). In bond-funded financing, factors like project definition, cost analysis, budget commitment, and delivery schedule are critical because an airport authority wants to buy just the right number and amount of bonds at the right time. It should be noted that highly complex projects without a clear scope are not suitable for bond funding because of the inherent risk involved (Airports Council International-North America et al. 2006) and because in this approach investor confidence is of paramount importance. Another potential source of funds is airport cash and revenue funding; this source of funding gives airports that have consistent revenue streams the freedom to choose a delivery method with- out concern about outside restriction impacts such as those involved in other types of financing. Multiyear projects that need to have significant funding in place as the project commences cannot rely upon this type of funding. Revenue-Generating Projects Unlike other transportation projects, which have no potential for generating revenue, some air- port projects have the potential for generating revenue, such as those related to concessions, park- ing, and real estate activities. The revenue-generating potential of projects in these areas encourages airports to try to deliver these projects as fast as is reasonably possible [Tampa International Air- port, Dallas/Fort Worth International Airport]. Therefore, for these types of projects, the delivery method that can expedite the execution of the project is preferred. The risks associated with com- pressing a project delivery schedule are offset by the early return on investment. Evolution of Current Alternative Delivery Methods in Airport Projects Public procurement law has historically limited public entities to using only DBB project deliv- ery. The current wide range of project delivery methods is a relatively recent development for pub- licly funded projects in the United States. The development of the public procurement laws limiting public entities to use of the DBB project delivery method can be traced in part to the Brooks Act. Enacted in 1972, the Brooks Act (Public Law 92-582) states that design services on federally funded projects in the United States should be procured on the basis of qualifications only. Alternatively, numerous laws and statutes throughout the United States have limited the procurement of con- structors to the lowest responsible, responsive bidder. The combination of these two procurement practices has helped solidify the proliferation of DBB in the public sector. DBB was the traditional project delivery method in transportation projects until 1996 when the Federal Acquisition Reform Act explicitly authorized the use of a design-build (DB) project deliv- ery method for federal projects. While experimentation with the DB delivery method on transit projects started as early as 1994, alternative delivery methods started to be considered for airport projects only after 2000. In 2000, Congress established a pilot program for federally funded air- port improvement projects that allowed the FAA to test DB contracting and other alternative delivery methods (FAA 2005, Loulakis 2003).1 Title 49 of the United States Code was amended to Literature Review and Definitions 9 1 The Wendell H. Ford Aviation and Investment Reform Act for the 21st century.

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): 10 A Guidebook for Selecting Airport Capital Project Delivery Methods

• 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). Literature Review and Definitions 11

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): 12 A Guidebook for Selecting Airport Capital Project Delivery Methods Figure 2-1. Graphic illustration of the inter- relationship of the components of project delivery. Figure 2-2. Design-bid-build. (Adapted from Bearup et al. 2007.) Feasible combination for the specific project Delivery Method Procurement Method Management Method Contracting Process (Adapted from American Institute of Architects, California Council 1996.) Owner Designer Builder Contracts Communication

• 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, Literature Review and Definitions 13

• 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 14 A Guidebook for Selecting Airport Capital Project Delivery Methods 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. Figure 2-3. Construction manager at risk. (Adapted from American Institute of Architects, California Council 1996.) Owner Designer Trade Subs CM at Risk Contracts Communication

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 Literature Review and Definitions 15 Figure 2-4. Design-build. (Adapted from American Institute of Architects, California Council 1996.) Owner Designer Builder Design- Builder Contracts Communication

process. As the owner no longer owns the details of design, the owner’s relationship with the design-builder must be based on a strong degree of mutual professional trust (Beard et al. 2001). The design-builder literally controls this project delivery method. As a result, the DB project delivery method has proven to be highly successful in compressing the project delivery schedule and is therefore often used for “fast-track” projects. Bearup et al. (2007) state that the defining characteristics of DB are as follows: • A single point of responsibility, • A schedule that allows for overlapping design and construction, • A design-builder that furnishes preconstruction services during design, and • An owner that expects the design-builder to provide a firm, fixed price and to commit to a delivery schedule. DB creates the greatest constraint on competition in that all parties to the DB contract are selected using qualifications and past performance as major selection factors. Because the owner transfers responsibility for all design and construction in the DB contract, the owner loses the abil- ity to foster competition between design subconsultants and construction trade subcontractors. There is typically no requirement to competitively bid for subcontract work packages, and often the scale, complexity, and speed at which DB projects are executed precludes firms with no DB experience from being able to participate. Additionally, because the contract is awarded before the design is complete, DB can also create an unfavorable risk environment for subcontractors whose cost-estimating systems lack the sophistication to price work without competed construc- tion documents. There are many variations on the DB method. Design-build-operate-transfer, design-build- operate-own (sometimes called lease-back), and design-build-operate-maintain (DBOM) all require the DB contractor to remain with the project after construction is complete. DBOM is very similar to DB except that the contractor assumes the operation and maintenance risks and is responsible for operating the new facility according to a set of regulations and codes for a deter- mined duration (Wiss et al. 2000, Kessler 2005). Legality of Delivery Methods in Various States DBB has traditionally been used throughout the United States, and all state codes give author- ity to airports to use it in their projects. Alternative delivery methods do not have this clear statu- tory support. Some states do not allow airport entities to use them while other states have permitted one-time use of an alternative delivery method for a special project. Still another group of states have put some limits on the application of alternative delivery systems. For example, according to a current statute for airport projects in Massachusetts, the use of DB is restricted to horizontal projects that are $5 million and larger, and CMR is applicable only to vertical proj- ects that are $10 million and larger [Logan International Airport]. Developing pilot programs is a common approach in some states for implementing previously unauthorized project delivery methods, particularly DB. In order to update information on the legal status of alternative proj- ect delivery methods in various states, a thorough literature search needs to be conducted on the laws of all 50 states, which is beyond the scope of this work. Also, due to frequent changes in the regulations, the authors of this research believe that each airport is in the best position to assess the legality of a certain delivery method locally. According to federal laws, the FAA plays a minimal role in the procurement process used for air- port projects that are supported by the AIP. For instance, under 49 CFR §18.36, states that are spon- sors of airport projects are authorized to conduct procurement in the same way (complying with 16 A Guidebook for Selecting Airport Capital Project Delivery Methods

the same laws and using the same procurement systems) that they do for projects not funded in part or whole by the federal government. Likewise, non-state airport sponsors (e.g., cities) may use their own procurement systems as long as they comply with state and local laws and regulations and conform to 49 CFR §18.36 and other applicable federal laws. Requirements for third-party contracting, described in FAA Order 5100.38C (The Airport Improvement Program [AIP] Hand- book) (FAA 2005), are sufficiently flexible to allow airport sponsors to select their contractors through competitive bidding and/or competitive proposal/RFP (both price and other parameters considered). For DBB, FAA Order 5100.38C (The Airport Improvement Program [AIP] Handbook) (FAA 2005) allows the procurement of services through sealed bidding or competitive negotiations. For DB, the grantees must procure DB services through QBS or competitive proposal selection pro- cedures. It therefore appears that if a specific state or city allows an alternative project delivery method, federal regulations do not prevent an airport from deciding to use one. Existing Selection Approaches for Project Delivery Methods Selection of the appropriate alternative project delivery method is a complex decision-making process. The decision should be made as early in the design phase as possible; preferably in the project scoping process and certainly before the final construction estimates for the project are ready. The decision will be made when the owner still has little information about the outcome of the project and the project plans are not detailed enough to be reliable grounds for judgment about the project. In this situation, having a framework for decision-making is vital for airport projects. This framework should be simple, comprehensive, rational, and objective. The literature reviewed for this research shows that some experts have concentrated on this issue and have devel- oped a list of criteria and some decision-making frameworks (Airports Council International- North America et al. 2006, Debella and Ries 2006, Garvin 2003, Gordon 1994, Ibbs et al. 2003, Konchar and Sanvido 1998, Mahdi and Alreshaid 2005, Oyetunji and Anderson 2006). Several of these researchers have studied a few projects and have based their selection methodology on the characteristics of those projects. The relevant literature can be divided into two groups: (1) literature that compares the project delivery methods on the basis of the observed performance measurements collected from a group of projects and (2) literature that provides a list of criteria and a framework for decision-making. One of the best examples of the first group is an article by Konchar and Sanvido (1998) in which a set of criteria is defined for a performance comparison of different delivery methods (i.e., DB, DBB, and CMR) in 351 building projects. These criteria are mostly objective and measurable, such as cost growth, construction speed, and schedule growth. Some criteria are also defined to incor- porate the quality performance of the delivery methods, such as difficulty of facility start-up, num- ber and magnitude of call backs, and operation and maintenance costs. According to Konchar and Sanvido (1998), “when all other variables were held constant, the effects of project delivery method indicated design/build projects to be at least 5.2% less than design/bid/build projects and 12.6% less than construction management at risk projects on average in terms of cost growth.” In their study, Konchar and Sanvido (1998) divided the projects into six different groups (such as light industrial, complex office, heavy industrial, and so forth) in order to get clearer trends in each group. Because Konchar and Sanvido’s study (1998) did not specifically mention airports, it is important to be careful in using this data to draw conclusions about the performance of differ- ent delivery methods in airport projects. Two studies of DB versus DBB project performance in the federal building sector did make direct comparisons (Allen et al. 2002, Gransberg et al. 2003). One study compared 54 DBB proj- ects with 34 DB projects and discovered that DB projects had 16.4% less cost growth and 19.0% Literature Review and Definitions 17

less time growth than similar DBB projects (Gransberg et al. 2003). Another study, which looked at 110 Navy projects, also found that DB projects performed more efficiently, with 18.0% less cost growth and 60.0% less time growth (Allen et al. 2002). Additionally, NCHRP Report 561: Best- Value Procurement Methods for Highway Construction Projects furnished a direct comparison of transportation project performance that took into account delivery methods (Scott et al. 2006). While this study did not include CMR projects, it included DBB projects awarded on a best-value basis, which parallels the CMR delivery method. The NCHRP study found that DB projects had 4.7% less cost growth and 9.3% less time growth than DBB. Best-value projects had 2.0% less cost growth and 18.5% less time growth than DBB. Other researchers, such as Debella and Ries (2006) and Ibbs et al. (2003) have used a methodology similar to that of Konchar and Sanvido (1998), but they have narrowed down the scope of their research either to special kinds of projects or fewer performance measures. The second kind of literature mentioned above, literature that provides a list of criteria and a framework for decision-making, has focused on the decision-making process. This literature pro- poses mechanisms for decision-making and defines the necessary criteria and frameworks so that the most important project parameters are identified and used in the decision-making process. The frameworks are primarily intended to be simple, rational, and comprehensive. They range from basic flowchart methods (Airports Council International-North America et al. 2006, Gordon 1994) to more sophisticated processes based on methodologies such as multiple linear regression, the Analytical Hierarchy Process (AHP) (Mahdi and Alreshaid 2005), or the Simple Multi-Attribute Rating Technique with Swing Weights (SMARTS) (Oyetunji and Anderson 2006). Airports Council International-North America (ACI-NA) in an effort with the Airport Consul- tants Council (ACC) and the Associated General Contractors of America (AGC) developed a white paper in 2006 that offers basic guidelines for selecting the most appropriate delivery method for airport projects. The guidelines comprise a list of factors that owners should consider in relation to each delivery method (Airports Council International-North America et al. 2006). Gordon (1994) created a procurement method selection model that uses a flowchart for selecting the best contracting method. Within the flowchart are a number of drivers that direct the owner’s atten- tion to the most important issues in project delivery method selection. A/E/C Training Technolo- gies (Loulakis 2005) has developed a multimedia education compact disc and delivery selection tool. The tool integrates training on project delivery selection systems with a matrix-style deci- sion framework that owners can complete to make an informed delivery selection. Skitmore and Marsden (1988) presented a multi-attribute analysis technique and a discriminant method for selecting delivery methods. The multi-attribute method uses utility factors to evaluate the suitabil- ity of a delivery method with respect to a client’s priority criteria. Kumaraswamy and Dissanayaka (1996) propose a client advisory system with an expert system front end that will gather project information and model the project profile to generate a list of delivery options. Finally, Oyetunji and Anderson (2006) use a SMARTS approach for delivery selection. The approach utilizes a matrix that has 20 criteria, each with a given weight. The owner rates these criteria and goes through the required calculation, which gives a single rank to each delivery method. The delivery method with the highest rank is the one that should be chosen for the project. Looking at both kinds of literature, one finds that many of the important parameters that affect project delivery decisions early in the process fall into one of four groups: project-related parame- ters, agency-related parameters, legal parameters, and lifecycle issues. Project-related parameters are those parameters that pertain to project duration: estimated cost, quality level, project risks, limits on schedule growth, project complexity, and so forth. Agency-related parameters mainly consist of the legal status of the agency, the role of a project in the objectives and plans of the agency, the availability of funds, the level of experience and competence of the agency’s staff, flexibility needs in the construction phase, the level of risk assumption, the importance of preconstruction 18 A Guidebook for Selecting Airport Capital Project Delivery Methods

services, and the level of quality expected. The legal parameters mainly cover legal and contracting issues, such as statutory authority to use alternative project delivery methods and the permits needed for the project. Lifecycle issues cover the costs of maintaining and decommissioning the facility as well as the ability to minimize energy usage and any negative environmental effects of the project. One emerging requirement is sustainable design and construction, which is directly tied to project lifecycle issues. In the parameters mentioned above, the ability to transfer the risks of a project to entities other than the owner is a characteristic that is related to both the project and the owner agency. This parameter involves the level of risk and uncertainty of the project and also the ability of the owner to assume the risks or transfer them (risk-prone or risk-averse agency). Different project delivery methods provide different mechanisms for risk distribution among the entities involved. In sum- mary, the existing body of knowledge in this area, along with specific information collected during the interviews for this research, provide a solid foundation for developing a new selection system that is tailored to the needs of airport owners and operators. Timing of Project Delivery Method Selection As a project moves through various stages of development, the window of opportunity to select some project delivery methods will close. Therefore, it is important to try and make this decision as early as possible. For instance, Logan International Airport decided on a delivery method before the design stage of its project. Tampa International Airport hired a DB contrac- tor based on QBS at the beginning of project design and then a design-builder took the design to 60% complete while cooperating with airport staff. In most airports, the default delivery method is DBB; however, based on factors such as schedule compression, cost control, type of funding, control of design, and so forth, some airports may consider an alternative delivery method [Norman Y. Mineta San Jose International Airport, Hartsfield-Jackson Atlanta Interna- tional Airport]. Table 2-1 maps project delivery method selection with project development phase. Project development has been broken into four phases: conceptual design (including the scoping), pre- liminary engineering, final design, and construction. Table 2.1 shows that it is desirable to select a project delivery method relatively early in the project development process. Most of the bene- fits can be realized by engaging the constructor as soon as possible. The decision point for proj- ect delivery method selection should not be confused with the time that the constructor is engaged. As an example, an owner may decide to engage a DB contractor at the end of prelimi- nary engineering or even later in the process in order to clarify the project scope and reduce uncertainty. However, the owner should have decided on the project delivery method (e.g., DB) much earlier, so that the design documents could be developed to properly accommodate the type of delivery method. Literature Review and Definitions 19 Table 2-1. The timing of project delivery method selection. Project delivery method At the end of conceptual design At the end of preliminary engineering At the end of final design Construction DBB CMR DB / DBOM Desirable Feasible Not feasible