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CHAPTER 3 Advantages and Disadvantages of Each Project Delivery Method Introduction There are numerous issues that airports 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 Tier 1 and Tier 2 of the selection system presented later in the guidebook. These pertinent issues and their interactions with different project delivery methods are pre- sented in this chapter in the format of a descriptive pro-con analysis. The issues were identified through a literature search, past project delivery research experience, case studies, and inter- views with airport authorities during this effort. These issues are organized into the following categories: Project-level issues, Airport-level issues, Public policy/regulatory issues, and Other issues. Table 3-1 provides a list of these pertinent issues. In this chapter, each pertinent issue is first defined and then the advantages and disadvantages of each delivery method in dealing with that particular issue are explained. The analysis is based on the trends found in the interviews and is supported by citations from relevant literature. A list of the references used is provided in Appen- dix A. A brief summary is provided at the end of each section that combines the results of the interviews and the literature search. Readers should note that analysis of the pertinent issues in relation to the various project deliv- ery methods is complex. The results presented in this chapter represent trends and, in some cases, national averages for each of the pertinent issues. Each project and each owner are unique. The interaction of a given project delivery method with a given issue may in general be advantageous (or disadvantageous); however, for a specific project this may not be the case. The result of the analysis therefore represents the majority of projects, but not all of them. Furthermore, for the DB project delivery method, the effect of the chosen procurement system (best-value selection or QBS) is described for each pertinent issue if the procurement system has an effect on the project deliv- ery selection decision in the context of that pertinent issue. Project-Level Issues Project-level issues are those that are specific to the project under consideration and include such items as project size/complexity, schedule, cost, risk management/allocation, lifecycle, and maintainability. 20

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Advantages and Disadvantages of Each Project Delivery Method 21 Table 3-1. Pertinent issues for airport projects. Project-level Issues 1. Project size/complexity 2. Schedule compression 3. Schedule growth control 4. Early cost precision 5. Cost control 6. Risk management/allocation 7. Lifecycle costs 8. Maintainability Airport-level Issues 9. Airport experience/staff capability 10. Airport control of project 11. Security 12. Control of impact on passengers and operations 13. Third-party stakeholder input to design and construction Public Policy/Regulatory Issues 14. Competition and local talent 15. DBE/small business impacts 16. Legal and statutory constraints 17. Sustainability and LEED certification Other Issues 18. Adversarial relationships 19. Construction claims Issue 1: Project Size/Complexity This issue reflects both the dollar value and complexity of an airport project based on the type of project. Paving projects, while large in dollar value, can be less complex than systems upgrades for luggage-handling operations. There is a wide variety among airport projects, which include both horizontal and vertical projects that can range in cost from a few thousand dollars to hun- dreds of millions of dollars. For instance, over the past 5 years, Logan International Airport's projects have ranged in cost from $10,000 to $165 million. Airport projects are sometimes larger than $100 million in value (e.g., terminals); however, air- ports most often undertake smaller projects, such as the construction of parking garages or the renovation of building facilities. Through studying project size and complexity, airports seek to determine which delivery method is suitable for a project with a given size and complexity and how changing the size may impact the choice of delivery method. DBB DBB has been used successfully on projects of all sizes. However, as projects grow in size and complexity, airport oversight of DBB can become burdensome. Two of the interviewed airports indicated that they tend to select DBB for smaller sized projects (less than $10 million) [Logan International Airport, Hartsfield-Jackson Atlanta International Airport]. At least two airports have been hesitant to use DBB for large and complex projects [Tampa International Airport, Hartsfield-Jackson Atlanta International Airport]. CMR This delivery method seems to be more suitable for large projects and projects with complex managerial requirements. This aspect of CMR is due to the increased focus on project manage- ment that is realized through CMR's preconstruction services, which result in added value to the project (Barnstable Municipal Airport 2007, Kuhn 2007) [Hartsfield-Jackson Atlanta Interna- tional Airport]. Some airports have restrictions on the size of projects with which CMR can be

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22 A Guidebook for Selecting Airport Capital Project Delivery Methods used; for example, Logan International Airport applies this method to vertical projects larger than $10 million. DB This delivery method is usually selected for large and complex projects (Florkowski 2007b). Some airports use DB only in projects that exceed a certain dollar value [Norman Y. Mineta San Jose International Airport]. As an example, DB projects in Logan International Airport must be horizontal and larger than $5 million. Large and complex projects can benefit from the use of QBS with a negotiated price if the airport has experience in negotiating prices on large proj- ects. Best-value procurement shifts more risk for a fixed price onto the design-builder on large/ complex projects; however, airports have successfully procured design and construction proj- ects using this procurement method. One of the airports interviewed has used low-bid DB on three relatively simple green-field building projects. It should be noted however, that the use of low-bid DB is not indicated in most circumstances and will not be considered explicitly in this guidebook. Issue 2: Schedule Compression From the owner's viewpoint, each delivery method affects project schedule in two different ways: (1) schedule shortening and (2) schedule growth control. The effect of project delivery method on schedule compression will be discussed here. The effect of project delivery method on schedule growth control will be discussed in the next section. DBB DBB uses a sequential process that makes significant schedule compression difficult. This sequential process results in a schedule that is longer than the schedules of the two alternative deliv- ery methods due to the need to complete project designs prior to the award of the construction contract. (Gordon 1994, Walewski et al. 2001). Analysis of the airport interviews shows that the inability to compress the schedule and control time growth (due to delays caused by design errors) in DBB has been one of the main reasons that owners choose other delivery methods. One way of compressing DBB projects is to break a project down into several phases/packages and award each package separately. However, coordinating the efforts of multiple contractors can be problematic; the possibility that abutting primes will interfere with each other's work is increased and because of this so is the risk of delay claims. CMR It has been shown that CMR has the ability to meet or exceed schedule requirements (Minchin et al. 2007). CMR also has been successfully used to deliver airport projects (e.g., Fairbanks Inter- national Airport) that must be phased due to operational reasons (Storm 2007). This delivery method can also help owners with projects that are schedule sensitive (Walewski et al. 2001) and can save time during the project because of concurrent design and construction (Oregon Pub- lic Contracting Coalition 2000), but some airports have not found this time savings to be a dis- tinguishing advantage for CMR and do not believe that it can save considerable project time [Logan International Airport]. DB Schedule flexibility increases in this delivery method because designer and builder are one entity (Oregon Public Contracting Coalition 2002). Many experts believe that DB results in faster project delivery (Gransberg and Molenaar 2007, Konchar and Sanvido 1998, Molenaar and Scott 2003, Walewski et al. 2001) and has the least schedule growth (Konchar and Sanvido 1998, Scott et al. 2006). All nine airports interviewed for this research cited this issue as the most important

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Advantages and Disadvantages of Each Project Delivery Method 23 reason for choosing DB. Schedule compression will not be significantly affected by the design- build procurement process. Issue 3: Schedule Growth Control This section discusses the effect of project delivery method on controlling and preventing time growth in a project. Schedule growth and project delays have been major problems in construc- tion activities. For example, according to a recent survey (FMI/CMAA Undated), 40 to 50% of all construction phases experience schedule growth. DBB DBB schedule growth tends to be higher than the schedule growth of other project delivery methods. According to NCHRP Report 561: Best-Value Procurement Methods for Highway Con- struction Projects, DBB projects had the greatest average time growth (Scott et al. 2006). Due to the owner's liability for delays resulting from design errors and the fact that differing site condi- tions will be found after construction award, the owner has limited ability to control project time growth and very little ability to recover the schedule if a delay is realized with DBB. Dallas/Fort Worth International Airport uses DBB when it has no need for speed. CMR Early involvement of the constructor helps the project team develop a more practical and real- istic schedule for the project if construction managers with significant construction experience are selected. Analysis of the interviews with airports shows that this delivery method has the best performance in developing an accurate preconstruction schedule and achieving it. Dallas/Fort Worth International Airport uses CMR when it feels a need for speed. DB Many experts believe that DB has the least schedule growth (Konchar and Sanvido 1998, Scott et al. 2006). Another effect of DB is earlier schedule certainty (AASHTO 2008) because the design- builder submits the project schedule at the time of contract award, before the design is complete. Another important characteristic of DB for airports is that it obligates design and construction funds before the end of a given fiscal year if a project is awarded through a best-value, fixed-price option (Gransberg and Molenaar 2007). This can help airports award the project and allocate available funds to a project without waiting for its design to be complete. Dallas/Fort Worth Inter- national Airport uses DB when it believes speed is of the utmost importance. With the exception of obligating funds, schedule growth will not be significantly affected by the DB procurement process. Issue 4: Early Cost Precision Early and precise project cost estimation is always sought by airports. This section discusses the effect of each project delivery method on the ability to accurately estimate costs. DBB Basing the engineer's cost estimate on a complete design before advertising the project increases the certainty of cost estimates. Additionally, after bids have been received, the owner learns the value of the project's scope in the context of current market conditions. The owner also has the opportunity to cancel the project or alter the design and scope, losing only part of the design cost if the bids exceed its budget. The level of cost certainty increases even more when the payment method is lump sum.

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24 A Guidebook for Selecting Airport Capital Project Delivery Methods 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's design phase prior to bidding subcontractor work packages. These two characteristics tend to improve cost accuracy in this delivery method. Usually, the owner can negotiate and set the GMP at about 60% design completion (AGC 2004). If the project involves the services of major trades or spe- cialty subcontractors, they can be brought on board during the design phase to furnish technical input to the design. This way, the project team can benefit from their knowledge and experience and establish a more reliable early budget. The drawback is the loss of the opportunity to seek competitive bids on these packages. Some airports are prohibited by law from hiring subcontrac- tors without going to public bidding. Using CMR, the owner will know the estimated cost earlier in the project lifecycle than it would using DBB [Logan International Airport], but it is somewhat difficult to evaluate the validity of the GMP compared with a traditional bid process. The risk is that in some cases it becomes difficult to agree on a GMP with the CMR. Failure to negotiate the GMP in a timely manner may affect the project schedule and increase the project costs. However, the owner always has the option to cancel the CMR contract, pay the CMR for its preconstruc- tion services, and put the construction project out for bids with the completed design [Dallas/Fort Worth International Airport]. DB DB can be procured though both a best-value, firm fixed price or a QBS negotiated price. When design-builders provide a firm fixed price, the airport can establish a firm cost earlier in the process than it can with the other delivery methods (Gransberg and Molenaar 2007, Walewski et al 2001). The AASHTO Guide for Design-Build Procurement states that DB gives earlier cost certainty and has less cost growth compared with traditional DBB based on the fact that highway agencies use firm fixed-price procurements (AASHTO 2008). When using QBS, the airport's ability to achieve early cost precision is similar to that of CMR. The owner does have one additional advantage with QBS in DB in that the design-builder is liable for designing to cost at a higher standard of care than an engineer in a CMR project delivery approach who has no less knowledge of the costs of the work that they design. In both cases, the major risk revolves around the owner's ability to precisely define the scope of DB work before awarding the DB contract (Beard et al. 2001). Issue 5: Cost Control Cost control is a project success criterion and can drive owners to select a particular project delivery method according to its ability to (1) reduce total project costs and (2) minimize project cost overruns. DBB The owner of a DBB project has a determined cost estimate based on a complete set of designs, but potential change orders and errors in design may cause considerable cost overruns. The liter- ature shows that although this delivery method has the best performance in accuracy of quanti- ties and design calculations, its ability to achieve post-award budget is the poorest among the delivery methods (Konchar and Sanvido 1998, Scott et al. 2006). CMR This delivery method helps the owner control project costs because of two main characteris- tics: (1) it is normally awarded with a GMP payment mechanism and (2) the constructor is involved in the project design phase, furnishing real-time cost information to assist the designer with keeping to the budget. These two characteristics directly affect the performance of this proj- ect delivery method with regard to project cost control. One advantage is that there may be cost

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Advantages and Disadvantages of Each Project Delivery Method 25 savings because of early constructor input to the project (Oregon Public Contracting Coalition 2000) and also competitive pricing through "open book" contingency accounts (Irwin 2003). Usually, the owner can negotiate and set the GMP at about 60% design completion (AGC 2004), although the GMP can be set at other times depending on the nature of project, the amount of detail available about the design, and the owner's desire to know the cost as early as possible (National Association of State Facilities Administrators [NASFA] and AGC 2007). Phasing the design to permit the CMR to bid out design packages containing materials with volatile prices such as asphalt or structural steel allows the CMR to reduce inflation risk as well as compress the schedule for fabrication and delivery. Five out of nine of the airports interviewed for this research indicated that this delivery method is often selected for projects with budget constraints. Although this project delivery method helps the owner achieve post-award budgets, close cost monitor- ing on the project is highly recommended due to the manner in which the GMP is established (Walewski et al. 2001). Finally, it is possible to create an incentive to control cost by including a shared savings below the GMP clause in the contract (Kuhn 2007). DB Incomplete design documents at the time of award may result in costly scope changes dur- ing the construction phase [Tampa International Airport]. A TCRP study of major transit projects shows that there were fewer cost overruns with DB than with other delivery methods (Harrington-Hughes 2002). Another study shows that DB outperforms CMR in operations and maintenance costs, unit cost, and cost growth (Konchar and Sanvido 1998). The AASHTO Guide for Design-Build Procurement states that DB gives earlier cost certainty and has less cost growth than traditional DBB (AASHTO 2008). DB also has relatively good performance when there is budget restriction (Gordon & Rees LLP 2005) because it reduces the potential of cost overruns due to claims and delays (Beard et al. 2001). Issue 6: Risk Management/Allocation Each project has some level of uncertainty during various phases of its development. Methods to cope with these uncertainties are inherent in each delivery method. Research in the area of risk man- agement has indicated that the most effective approach in risk allocation is to assign 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 most likely to survive the nega- tive impact of that risk (Touran et al. 1994, Allen and Touran 2005). The main vehicle for risk allo- cation is the contract. Thus, the project delivery method will have a profound impact on risk allocation. The effect of each project delivery method on other aspects of risk management like risk identification, quantification, and mitigation is different; therefore, selection of a delivery method is dependent upon the owner's risk management approach. These differences are considered in this section. It should be noted that the effect of risks is prevalent in many of the issues discussed in this chapter and is not limited to this section. It should also be noted that the concise format of this dis- cussion does not allow for an in-depth treatment of risk management and risk allocation. DBB This delivery method has a long history in terms of statutory laws and standard contracts that entail developed risk management processes. This delivery method can help the owner divide risks between the designer and the constructor, but the risk of additional construction costs resulting from erroneous design remains with the owner (AGC 2004). When the project scope is clearly definable, the owner of an airport can follow the traditional methods of managing risks in DBB (Gordon 1994). Although risks and rewards are easy to understand in this method, disputes often arise over author- ity, responsibility, and quality (Walewski et al. 2001). In other words, the usefulness of having sep- arate contracts for design and construction in helping the owner manage the risks of an airport project depends upon the proficiency and experience of the owner and its consultants in risk man-

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26 A Guidebook for Selecting Airport Capital Project Delivery Methods agement. For example, one airport [Tampa International Airport] recommended not using DBB in a complex project because DBB does not facilitate the owner's need to manage project risks. DBB can help in risk allocation through the use of 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 [Hartsfield-Jackson Atlanta International Airport]. 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 will not have to pay for constructor's con- tingencies included in the bid because of quantity uncertainties. CMR CMR can aid in appropriate risk allocation between the airport and the constructor because the CM is hired before a price is negotiated. The "risk" in the term "Construction manager at risk" stems from the CM holding the trade subcontracts and taking the performance risk of the proj- ect (AGC 2004). The risk of design errors and omissions is similar to DBB because the owner holds separate contracts with the designer and CMR. The use of a GMP structure can create a mecha- nism to share cost risk between the constructor and the airport in the hope of ultimately reduc- ing costs. Although GMP as a means of risk allocation should decrease the owner's risks, there is always a possibility that the owner and the CMR will not be able to consummate an agreement on the GMP in a timely fashion (for example, the CMR asks for more contingency than the owner feels is reasonable [Dallas/Fort Worth International Airport]). The owner in this case would need to terminate the CMR contract and convert it to a DBB project, potentially suffering from the resulting delay in advertising and awarding the construction project and possibly getting bids that are higher than expected. Early constructor involvement may result in a better definition and understanding of the proj- ect risks, allowing a more efficient risk allocation to be achieved [Logan International Airport]. This delivery method is conducive to teamwork. The constructor shares information with the owner and designer on trade subcontracts, value engineering, and so forth. This is one reason some experts believe that CMR theoretically reduces the risks of every entity involved in the proj- ect (Minchin et al. 2007). 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 management, including risk allocation, but the increase in the number of parties directly involved in the project and some overlaps among their duties may make the risk alloca- tion more difficult (Touran et al. 2009). 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 design is transferred from the owner to the DB contractor. Having single point accountability for design and construction removes the owner from designer-versus-constructor disputes over responsibility for changes in cost or time of project execution (Harrington-Hughes 2002, Irwin 2003, Riley et al. 2005). From the owner's per- spective, the DB approach reduces the size and frequency of change orders (Molenaar and Scott 2003, Riley et al. 2005). Agencies should realize that although the risks are contractually trans- ferred to the design-builder, a poorly defined initial scope in the RFP may result in significant cost increases. Also, it is not wise to allocate all risk to the DB contractor because that drastically increases the contingency and constructor's insurance costs, which will be transferred to the owner through the bid (AGC 2004). As the design-builder's scope of work includes project design, the design-builder may be required to carry 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 omissions is transferred to the DB contractor.

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Advantages and Disadvantages of Each Project Delivery Method 27 A major point of risk allocation in DB project delivery involves the choice of procurement and payment system. Risk is involved in both the type of procurement system chosen and the point of time in the project development process in which the procurement system is fixed. When DB is used in conjunction with QBS and a GMP, the risks for costs are similar to CMR (except that the DB holds the risk for errors and omissions in the drawings). When DB delivery is used in conjunction with best-value procurement and a fixed price, the design-builder assumes more risk earlier in the process. Primarily, the design-builder is assuming risk for the details of design and the associated costs from time of award through completion of the project. The design- builder commits to a design and a firm price early in the process, and the airport stands at less risk for cost growth. Issue 7: Lifecycle Costs The effects of project delivery methods extend to the operation and maintenance phase. The opportunities or barriers that each project delivery method provides with regard to lifecycle costs are discussed below. DBB The owner is in control of design details and construction quality assurance submittals and can help tailor these details to a project's long-term lifecycle goals. The owner, through the designer, has the ability to choose the intended lifecycle of all construction components. For example, the designer can specify a pavement mix design that has an expected lifecycle, and the general contractor will bid on that design. Likewise, a designer can closely specify equipment that meets the intended service life. However, DBB allows for little constructor input into lifecycle cost issues. CMR The owner keeps the same level of control over the design of the project as in DBB and also ben- efits from the constructor's advice regarding future costs of the project. The CMR will be able to provide input to design alternatives that impact lifecycle performance. For example, the CMR may have specific knowledge of how locally available material can impact the constructability of a given pavement design or may be able to comment on first cost issues surrounding design alternatives with equal service lives. However, lifecycle performance criteria must be well understood during the development of the GMP. Once a GMP is fixed, the CMR will have difficulty incorporating any changes into the final product. Additionally, the use of fast-tracking in CMR can also add chal- lenges to meeting lifecycle goals. DB DB creates the greatest challenges with lifecycle performance because many of the products are not defined at the time of award. The airport can use performance criteria to set lifecycle performance standards and rely on design-builder innovation to achieve these standards. If lifecycle issues are difficult to define through performance criteria, a GMP pricing structure could allow for more owner input than a fixed-price option. In the fixed-price option, the owner needs to keep a close eye on the issue of increasing project lifecycle costs mainly because the design-builder must design to the budget defined by the project's contract amount. This creates a potential conflict with lifecycle costs if the design-builder is struggling to keep the project on budget. In some cases, owners consider multiyear warranties in DB contracts in order to ensure long-term construction quality, but this approach requires resolving many challenging issues (e.g., warranty bond terms, appropriate warranty length, impacts of main- tenance, and so forth).