Construction Manager-at-Risk Project Delivery for Highway Programs (2010)

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27 INTRODUCTION SEP-14 was launched to allow the FHWA the ability to imple- ment, on an experimental basis, various contracting practices suggested by DOTs (Transportation Research Circular 386 1991). Under SEP-14 and later laws allowing the use of alter- native practices agencies requests approval for use of the alternatives. It has been stated that, Quasi-public and government organizations predominately use the design-bid-build method, but clearly, many have tried other methods and most would consider either CM-at-risk or design- build to be the best-value alternatives. Changing the delivery methods used, in the case of these organizations, will often require changing laws and politics, but that is happening, too, because the public is best served when it gets the best value for its tax dollars. . . . CM-at-risk will likely become the more dominant delivery method for this group as long as the experience is positive (Doren 2005). In addition to the federal laws, it is important that the DOTs consider state and local laws pertaining to project delivery and contracting. To implement alternative project delivery methods DOTs have established methods of selecting proj- ects that are appropriate for alternatives, such as CMR, and procedures for execution. STATE LAWS State laws can be more restrictive than federal laws pertaining to the use of alternative project delivery methods such as CMR. In the survey, conducted as part of the report, respondents were asked about the laws in their states pertaining to CMR (see Table 14). All 47 states that responded to the survey are allowed to use DBB within the DOT. Only 26% of the respon- dents are allowed to use CMR, whereas 62% are allowed to use DB for DOT projects. When asked about other agencies within the state using CMR, 36% of the respondents indicated that other public agencies in their state have the authority to use CMR. Seventy-nine percent of the respondents did not know of other transportation-related agencies in their region that use CMR. A survey conducted by the AGC and the National Associ- ation of State Facilities Administrators explored the legal status of CMR in five areas in all 50 states and Washington, D.C. The five areas of interest were state building construction, schools for kindergarten through twelfth grade, higher edu- cation, local government, and horizontal non-building DOT projects. The survey found that 38 states allow CMR in at least one of these areas. Seven states do not allow CMR in any of the areas investigated and three states were across the board inconclusive. For DOT projects 12 states plus Washington, D.C. allow CMR, 24 states do not, and 14 states were inclusive (see Table 15) (“Nationwide CM at-Risk Survey Results” 2009). Note that these figures are somewhat at odds with those shown in Figure 6, which are the output of the survey. This is probably because of the difference in timing of the literature sources and the survey respondents’ knowledge. It is also likely that some of the survey respondents did not know and reported that they could not use CMR because they have never used it. Therefore, they are reported as inconclusive and the reader take care to not draw conclusions about the status of CMR in those states. Use of Construction Manager-at-Risk When considering use of alternative delivery methods one needs to consider owner attributes as well as project attributes. The literature, case studies, and content analysis of solicitation documents of this project find similarities in the characteris- tics described. The literature and case studies provide most of the information, as the content analysis of solicitation docu- ments remains fairly silent on the decision of project delivery methods (see Table 16). Appropriate Owner Characteristics When considering the use of an alternative project delivery method an owner first considers if the authority exists to use the method. If the authority exists then the owner needs to determine if it is compatible with the chosen system. Factors to consider include: • Construction sophistication, • Current capabilities, • Risk aversion, • Restrictions on methods, and • Other external factors (Gordon 1994). The Oregon Public Contracting Coalition Guide to CM/GC Contracting (Gambatese et al. 2002) echoes these ideas and states “that a significant amount of owner participation is CHAPTER THREE PROCEDURES

required compared with other contracting methods. The owner participates and collaborates to a great extent with the other project team members to administer and coordinate the CM/ GC process, identify and develop the project scope, man- age the project budget, and evaluate and negotiate changes. The public agency maintains sufficient resources available to undertake these duties.” Further, “the mindset which the owner brings to the project is of importance as well. It is crit- ical to the success of the project that the owner view CM/GC as a collaborative, coordinated process as opposed to separate and confrontational.” The “owner must be able to make timely decisions,” and “owner personnel assigned to the project should have the authority to make the needed decisions . . . [and] stay abreast of what is happening on the project” (Gambatese et al. 2002). Appropriate CMR Projects The selection of a project delivery method for a particular project is dependent on a number of factors. These project factors may include: • Time constraints, • Flexibility needs, 28 • Preconstruction services needs, • Design process interaction, and • Financial constraints (Gordon 1994). More specifically, the Oregon Public Contracting Coalition Guide to CM/GC Contracting (Gambatese et al. 2002) notes that “the benefits resulting from the use of CM/GC can be greatest for projects that”: • Are high risk, • Possess a high level of technical complexity, • Are governed by significant schedule constraints, • Require complex phasing, • Contain budget limitations requiring a construction cost guarantee during design, or • On which value engineering will result in substantial cost savings. An evaluation of projects completed by UDOT found that “CMGC requires additional preparation and effort in the Concept Development stage . . . however, contractor involvement in design reduced errors and improves con- structability. . . In general, DB will support large projects with little right of way or utility risk while CMGC is more useful No. of responses Percentage of responses Delivery method allowed by DOT DBB 47 100 CMR 12 26 DB 29 62 CMR use allowed by other public agencies in state Yes 17 36 No 27 57 Donít know 3 6 CMR use by other transportation-related public agencies in region Yes 10 21 Not that I know of 37 79 TABLE 14 AUTHORITY TO USE PROJECT DELIVERY METHODS BY STATES Allow DOT CMR Do not allow DOT CMR Inconclusive Alaska Alabama Minnesota Hawaii Arizona Arkansas Mississippi Idaho Colorado California Missouri Kentucky Florida Connecticut Nebraska Maine Michigan Delaware New Hampshire Maryland Nevada Georgia New Mexico Montana Oregon Illinois North Carolina New Jersey Rhode Island Indiana Ohio New York Texas Iowa South Carolina North Dakota Utah Kansas South Dakota Oklahoma Washington Louisiana Vermont Pennsylvania Washington, D.C. Massachusetts West Virginia Tennessee Wyoming Virginia Wisconsin Source: “Nationwide CM at-Risk Survey Results” (2009). TABLE 15 AGC AND NASFA SURVEY OF LEGISLATION FOR DOT PROJECTS

29 for projects with right of way and utility concerns and where UDOT wants to control design and select innovative solu- tions that a contractor is not experienced with” (Alder 2007). One benefit of CMR is that the contractor is selected before completion of the design so that the design can be tailored to the contractors experience, methods, and techniques. In 2007, Trauner Consulting Services (2007) submitted a report to the California DOT (Caltrans) regarding innovative procurement practices in which it evaluates selected strategies. This evaluation includes a set of project selection criteria. • Large projects with multiple phases and contracts; • Fast-tracking—Staged construction; • Time-sensitive construction; • Limited internal agency management resources and expertise; • Requirement for specialized resources or expertise; • Limited time or funding constraints; • Minimal public controversy; • Complete or obtainable environmental documents and permits for the entire project; • Established project footprint; • Well-defined project conditions, with minimal third- party conflicts/uncertainties; and • Acquired right-of-way (Trauner Consulting Services 2007; Anderson and Damnjanovic 2008). Before making the decision regarding project delivery methods DOTs need “to create a project selection tool.” This “would involve developing a process to align project goals and objectives with the alternative delivery, procurement, and contracting methods that would most likely achieve these objectives (Trauner 2007).” Project objectives that align with CMR include: • Accelerate delivery, • Promote innovation, Characteristics Gordon (1994) Gam- batese et al. (2002) Alder (2007) Trauner (2007) Anderson & Damn- janovic (2008) Case Studies (Table 1 case no.) Content Analysis Owner Characteristic Sophisticated construction experience X X X All Sufficient resources X X 2,3,4,5,6, 8,10 No opposition or restrictions to CMR X X X All Project Characteristic Benefit from integrated design X X X All 2 Benefit from augmented resources X X 5,8,9 Constructability essential for project success X X All 1 Volatile material costs X X 1,2,6,7,8, 9,10 1 Financial constraints X X X X 1,2,3,4,6, 7,9,10 2 Needs flexibility during construction X 1,2,3,5,6, 7,8,10 Technically complex X 1,2,3,5,6, 7,9,10 2 Need to manage possible public controversy X X 4,5,8,9,10 Phased construction X X X X 2,3,5,6,8,9 1 Flexible risk distribution 1,2,3,4,6, 9,10 1 Explore innovation and technology X X 2,3,6,7,8 1 Benefit from preconstruction services needs X All Specialized resources needed X 1,3,6,7,8,9 Time constraints X X X X All 3 Opportunities for value engineering X X 2,3,4,5,6, 8,9,10 1 Third party concerns (utility, railroad, etc.) X X 1,2,4,5,6, 7,8,9,10 1 TABLE 16 OWNER AND PROJECT CHARACTERISTICS THAT LEND THEMSELVES TO CMR PROJECT DELIVERY

• Enhance quality/performance, • Early cost certainty, and • Staffing considerations (Anderson and Damnjanovic 2008). UDOT has a process that involves project screening for the use of CMR, which includes “justification, geographic location, and project type. Project justification will include a comparison of using Design/Build vs. Design/Bid/Build vs. CMGC. The comparison of the three contracting methods may include an evaluation of risk, schedule, design, environmen- tal, material availability, and innovation” (Alder 2007). This comparison also involves design and constructability, costs, project types, and impacts on the public (Alder 2007). PROJECT DELIVERY PROCEDURES CMR is well-accepted in Utah and, as a result, UDOT has developed a formal procedure for its use. This includes a concept development, design, and construction phase (see Figure 8). The concept development phase includes three sub-processes, the design phase two sub-processes, and the construction phase one sub-process (Alder 2007). The focus of the concept phase includes the identifi- cation of risks and analyzes them within the scope of the possible project delivery methods. If the analysis points to CMR as the appropriate delivery method, then the process moves into the design phase and selects a consultant to begin the design and the CMR. Early work packages are 30 also procured during this phase by the CMR. Once a GMP has been established, the project moves to completing the construction. The overall process described for UDOT is similar to every other project delivery system in that it starts with a concept, design follows, and finally, construction. The difference is who is involved and how they are involved in the various phases. Within the UDOT concept development phase, the project delivery methods are evaluated (see Figure 9). As previously discussed, this involves a comparison of project delivery methods on a number of different levels includ- ing risk, location, and other factors. The outcome of this process is the determination of the project delivery system (Alder 2007). This process starts with a risk analysis for the project. An evaluation team is then assembled to explore the use of the different delivery methods. This involves a consideration of project characteristics and how these characteristics align with the strengths and weaknesses of the delivery methods. When considering CMR the process also involved consider- ation of the funding source. If federal funds are included than the FHWA approves the use of CMR. If the FHWA does not approve the project for CMR, the evaluation team reevaluates the project characteristics and delivery methods. The point here is that UDOT looks at CMR if the comparison between DB and DBB does not indicate DB. Thus, it uses CMR as a means to capture the integration benefits found in DB without the loss of design control. Concept Development Design Phase Construction Phase Traditional Concept Development Selected Project Risk & Benefit Analysis Evaluate Project Delivery Methods Organize and Plan CMGC Project Create Design Consultant & Contractor Early Phase Construction Final Construction FIGURE 8 UDOT CMR process (adapted from Alder 2007).

31 Region Program Managers screen projects for DBB using Evaluation Guide Risk Analysis on non- Traditional projects Project Development Assembles Evaluation Team Evaluate Method Against Project Characteristics DBB DB Region submits projects twice a year (January and July) Project Development submits combined submittals to FHWA CMGC Compare Methods CMGC Traditional Project Dev Approval UDOT Approval State Funded FHWA Approval Yes Traditional CMGC Yes No No Yes No DB DBB FIGURE 9 UDOT evaluates contract delivery methods process (adapted from Alder 2007).

Once the UDOT team is selected, the process then moves to the Design Phase (see Figure 11). The Design Phase includes selection of the designer and selection of the contractor. Esti- mates are produced and the CMR is either awarded the project or not. If not, and there is a decision not to continue to work with the CMR, the project is advertised and awarded to a low bid contractor. If UDOT decides to continue to work with the CMR the design is refined. Once the contract for construction is awarded construction can commence. Within the Design Phase there is a contractor selection sub-process (see Figure 12). This sub-process involves the 32 The final sub-process in the Concept Development Phase is to Organize and Plan CMR Project (see Figure 10). This sub-process includes determining who at UDOT is going to be on the project team. Once the team is selected, the project tasks are identified and assigned. UDOT then begins to develop the scope in greater detail and select a contract method for the project. An independent cost estimate (ICE) is also developed by a consultant. The RFQ is then developed or a contractor is chosen from a pool. Once the consultant is selected a contract is negotiated. Finally, UDOT and the other parties develop a staffing plan, financial plan, the project schedule, and the cost of the project. Select Project Team Identify Project Tasks Develop Scope Develop ICE Assign Tasks Pool Contract Method Choose Contractor Develop RFQ Advertise and Select Consultant Negotiate Contract Develop: Staffing Plan Financial Plan Schedule Cost Schedule UDOT Resources FIGURE 10 UDOT organizes and plans CM/GC project sub-process (adapted from Alder 2007). Design Phase CMGC Project selected from Approved Program Acquire Designer Select Contractor Plan Project Phases Multiple Phases Region recommends multiple phases to project development Independent Designers & Contractor Design Project Designers & Contractor Design Phases Designer creates Engineer Estimate Consultant creates Independent Estimate Contractor creates Cost Estimate Red Flag Analysis Bids/ Estimates submitted to Electronic Vault Bid Accepted Continue CMGC Award to Contractor Advertise & Award to Low Bid Contractor Begin Phase or Construction Designer & Consultant refine Design No No No No Yes Yes Yes Yes FIGURE 11 UDOT design phase (adapted from Alder 2007).

33 selection of a team that evaluates the proposals, possibly inter- viewing the proposers, and making a recommendation about contractor selection. The final outcome of this sub-process is either the award of the CMR contract, re-advertisement of the RFP, or deciding to continue with the project through DBB. SUMMARY Assuming that the laws are in place to allow for the use of CMR, owners using CMR typically consider their own char- acteristics as well as those of the project before deciding to use CMR project delivery. A documented procedure for proj- ect delivery selection may also prove helpful. Conclusions It is concluded from the literature, case studies, and content analysis that important characteristics for agencies that want to use CMR are as follows: • Sophisticated construction experience; • Adequate level of resources for current projects; and • Minimal policy, statutory, and political constraints on implementing CMR project delivery method. Additionally from the same analysis, the characteristics of a project that is a good candidate for CMR project delivery as found in the three study instruments are: • Requires integration of the design process with con- struction expertise, • Requires constructability, • Early cost certainty, • Control costs owing to financial constraints, • Meet schedule challenges, • Large project size, • Multiple construction phases, • Opportunity to promote innovation, • Ability to implement value engineering, and • Need/ability to manage third-party issues (utilities, rail- roads, business impact, public relations, etc.). Effective Practices One effective practice was identified. Owners develop a documented procedure for selecting CMR as the project delivery method based on project characteristics. Project Development Assembles Team w/ Region Coordination Develop RFP with selection criteria and weights Project Manager determines bid items and quantities Project Development Team reviews weighting criteria Project Development Team reviews status of CMGC Program Advertise RFP Pre- proposal Contractor meeting Team Members individual score proposals Selection meeting Ranking by consensus Interviews? Interview all Contractors Selection by Team consensus Team Award Recommendation Deputy Director Approval Re-advertise RFP or process as DBB Award Contract Yes No Yes No FIGURE 12 UDOT contractor selection sub-process (adapted from Alder 2007).