Design-Build: Not Necessarily What You Thought it Was

Terrel M. Emmons

Naval Facilities Engineering Command

Because of shrinking resources, all federal agencies are undertaking innovative initiatives, especially in contracting. Within the Naval Facilities Engineering Command (NAVFAC), new contracting approaches include privatization, especially for housing; the use of various indefinite delivery contracting approaches for design services; the bundling of two or more projects together in a single design and/or construction contract; and design-build.

I will describe one design-build innovation NAVFAC used for the new Naval Facilities Engineering Services Center headquarters facility in Port Hueneme, California. In this case, we applied many of the concepts that are being promoted as a result of the National Performance Review and other government reforms. I will also raise one overarching question about the use of such novel approaches, namely, do they sacrifice quality, particularly the approach of design-build?

NAVFAC is a very decentralized organization. Our field offices have a great deal of leeway to experiment with different concepts in contracting. Thus, we have looked at privatization, and also at "bundling" (perhaps over even more than one fiscal year), to make a more attractive package to an architect-engineer (AE) firm to do design, although bundling does not appeal very much to small business.

Recently, at a visit to our southern division in Charleston, I found they were using an indefinite delivery requirements approach that I at first found disturbing. As the design advocate at NAVFAC headquarters, I tend



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--> Design-Build: Not Necessarily What You Thought it Was Terrel M. Emmons Naval Facilities Engineering Command Because of shrinking resources, all federal agencies are undertaking innovative initiatives, especially in contracting. Within the Naval Facilities Engineering Command (NAVFAC), new contracting approaches include privatization, especially for housing; the use of various indefinite delivery contracting approaches for design services; the bundling of two or more projects together in a single design and/or construction contract; and design-build. I will describe one design-build innovation NAVFAC used for the new Naval Facilities Engineering Services Center headquarters facility in Port Hueneme, California. In this case, we applied many of the concepts that are being promoted as a result of the National Performance Review and other government reforms. I will also raise one overarching question about the use of such novel approaches, namely, do they sacrifice quality, particularly the approach of design-build? NAVFAC is a very decentralized organization. Our field offices have a great deal of leeway to experiment with different concepts in contracting. Thus, we have looked at privatization, and also at "bundling" (perhaps over even more than one fiscal year), to make a more attractive package to an architect-engineer (AE) firm to do design, although bundling does not appeal very much to small business. Recently, at a visit to our southern division in Charleston, I found they were using an indefinite delivery requirements approach that I at first found disturbing. As the design advocate at NAVFAC headquarters, I tend

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--> to prefer the traditional design-bid-build approach, which provides an ideal solution for every project, with the AE selected uniquely for that project. My initial reaction was to wonder how design quality could possibly be guaranteed. They were awarding a single contract to an AE firm, renewable in one-year increments over five years, to do all the installation's design work. How could one AE firm be best for all these different types of projects? On further inspection, I found that, for these 33 projects, the AE firm was able to use various contractors, when the prime contractor did not have the capabilities for a particular project. Additionally, after appropriate reviews and approvals, the AE could contract for a project using the traditional approach. Design-Build at NAVFAC NAVFAC uses essentially four variations of design-build. New legislation requires us to use a two-step design-build process. But of NAVFAC's four different approaches, the two-step approach is probably the one that we use least and like least. My case study illustrates that there are better ways of doing design-build. I hope that as we begin using newer approaches to contracting we maintain the quality of our facilities. When we talk about design-build, we often talk about trade-offs: what they are, when we should make them, and whether they sacrifice design quality. However, we may be overemphasizing the trade-offs between facility quality and project execution, as I believe the case study also shows. The case, again, is our Naval Facilities Engineering Services Center headquarters in Port Hueneme, California. In 1993, as part of the Base Closure and Realignment (BRAC) initiative, we were directed to vacate the aging, Navy-owned, 13 acre compound adjacent to the harbor in Port Hueneme. We were to consolidate critical engineering functions in a single building at the adjacent Pacific Seabees base. The facility will house many diverse technical functions as well as provide engineering office space for five major departments. The budget for this project was $20 million. We had deadlines associated with the base closure that prevented us from using traditional design-bid-build. We also had various congressional mandates that we wanted to accommodate: to use commercial products, reduce project cycle

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--> time, use performance specifications, and encourage alternatives through different contractors. We solved these challenges through innovation, creativity, leadership, commitment, and appropriate risk taking by the Navy in partnership with industry. Nevertheless, there were still five major hurdles that we had to clear. Overcoming Barriers to Successful Design-Build First, we had to minimize the owner's control of project design. In the Navy, we have the philosophy not simply to satisfy the customer, but to delight the customer. How can the customer be delighted without participating significantly in project design? Yet, in design-build, by definition, problems are not solved initially, but by the designer-builder. In this case, the owner was quite resistant to the approach, however much the circumstances seemed to demand it. We finally sat down and discussed it at length, which I believe is the key to getting any customer to agree to design-build. We observed that the current facilities were not designed for their current use, and that anything would be better. Moreover, in the private sector, industrial parks and office buildings seem to serve multiple purposes—and even changing purposes—quite well. We decided the real issue was not the new building's appearance or mechanical system, but the individual work spaces. And this is what most customers want to know: how am I going to function? We decided to use general purpose spaces for work layouts and to accommodate the layouts during construction. We finally convinced the customer to take a leap of faith, and we guaranteed a quality facility. With this step undertaken, the second challenge was to determine the content of the request for proposal (RFP). We think the best value or source selection approach is the key to successful design-build. In the best value approach, the technical selection factors must accurately reflect facility requirements. Based on these factors, a respondent is selected from among all respondents, based on a combination of price and technical solution (or best value), in a one-step process. Initially, we believed that the technical requirements must be specified very tightly for successful design-build. However, Captain Robert Moeller, then Commanding Officer of NAVFAC's Engineering Field Division in San Bruno, California, suggested that we limit the RFP to 25

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--> pages, to allow the proposers to come up with more innovative ideas. Rear Admiral Patrick Drennon, the Director of Military Construction Programs for the Navy, agreed, asking that the new engineering facility additionally provide a model of energy efficiency and maintainability to show what can be done when the customer supports the initial investment in quality. Clearly, writing this RFP would be a challenge. We consulted industry, which suggested that the burden on proposers be minimized and that technical evaluation factors be limited, to avoid distracting attention from the more critical factors. They also observed that, the more specific we became in our requirements, the more we limited the proposers' alternatives. In short, we should carefully stipulate anything genuinely required, and leave everything else to the design-builder. For example, we felt very strongly that we needed raised flooring because of the facility's research purpose and changing technology. Raised flooring systems in an office environment provide the ability to reconfigure office layouts with minimum cost and labor. They also make it possible to accommodate evolving electronic equipment support requirements with minimum impacts on the facility or the workers. Raised flooring therefore became a requirement. Many other features, including the building's appearance, footprint, number of stories, construction system, and heating, ventilating, and air-conditioning (HVAC) systems went unspecified. One strategy we took from the project's beginning also facilitated creative solutions: the establishment of an ''acquisition team,'' with representatives from contracts, project management, engineering, and field construction. A third challenge we faced was ensuring quality in the design-build process. In the Navy, we typically provide contractors with a 75-page quality assurance program. Industry has told us, however, that any major company in business today must have its own quality program to be competitive. To save time all around, then, we decided instead to ask the proposers how they themselves would maintain quality. Ultimately, we found that any of the proposers' quality programs would have been acceptable. Our final RFP even beat the 25 pages; we did it in 18 pages. For the technical design requirements, we identified four basic kinds of functional space that we needed: engineering and administrative office space, a small amount of wet and dry bench laboratory space, indoor high-bay industrial area where we could do research and which had utilities on

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--> perimeter walls, and enclosed storage. We assigned a square footage value to each of these four types of space. We also decided we were really interested in flexible general purpose space and made that one of the technical evaluation factors. Since we had decided not to be overly prescriptive in our technical RFP, we needed to introduce quality as an incentive in the proposals. We chose five evaluation factors to achieve that objective: Flexibility of the facility. We felt it was critical that there be flexibility within individual spaces across the entire building, and even in the outside area, to make any modifications we needed to the building. Flexibility was required to reconfigure office and laboratory space and associated utilities easily. Energy efficiency. We wanted a state-of-the-art, energy-efficient facility that took into account life-cycle costs of the proposed lighting, heating, cooling, and ventilation systems, including initial capital costs, annual energy consumption, and annual operations and maintenance costs. Architectural features. The military base had a Spanish Colonial architectural theme. We wanted a design that was compatible with the adjacent station environment, including the headquarters building and the proposed Naval Reserve Center, while still distinctive in its own right. We also wanted laboratory, office, and lay-down spaces to show good integration, relationships, and work flow patterns. Project management plan. The proposers plan was to be evaluated in terms of completeness, practicality, and efficiency. Specifically, we wanted information on the schedule, qualifications of key personnel, qualifications and experience of subcontractors, quality controls, and a subcontracting plan. Past performance. Our final evaluation factor was the contractor's performance record with projects of similar scope and complexity, where a design-build format was used. While the first three factors related to the project solution itself, the last two had to do with the design-builder. For pricing, we asked that proposers use a variant of the Army's total cost method. Under this method, proposers are asked to set the construction completion time and to give the price for the work, as well as to pre-price their overhead rates for any time extensions. A formula is used to estimate the total cost of the

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--> completed project by adding to the basic price a predetermined change order rate and time extensions with their associated costs. The formula also made adjustments based on differences in completion time using rates for liquidated damages to put a value on time differences. This Evaluated Total Cost was then used as project cost in the price analysis required under source selection procedures for best value determination. The fourth barrier we confronted was how to limit the burden on proposers. We have consistently heard from those doing design-build that it is too expensive and cumbersome, in short, too much of an investment for the potential payback. In fact, the current legislation on design-build has a provision that allows federal agencies to pay the design-builders for their proposals. When we talked to industry, they indicated that the critical issue was to control the proposal's documentation. We therefore told contractors to limit the proposal to 50 pages and 5 drawings. Instead of interviews, which may or may not be uniformly conducted and usually require travel for some members, the contracting officer allowed a one hour videotape to be included with the proposals. We did not want to expend everyone's time on presentations, and we even asked that the video not be professionally prepared. (In fact, the videos we received were all excellent, rich in information and short on glitz.) Additionally, the award was to be based on the initial proposal, without further burdening the proposers. The fifth and final challenge we faced was limiting the burden on us, the government. Historically, the technical evaluation and selection process has been viewed by many as labor-intensive and lengthy. The solution flowed naturally in part from the submission requirements. However, we also assembled a team of experts who, in one week, reviewed all the proposals and made an award. First, they evaluated technical merit without knowledge of price, and then they assessed these results against price, to identify best value. This evaluation was a success, because we used top-level people for the team. The single most important factor in a project's success, we believe, is the selection of the AE firm or design-builder. Therefore, the best resources must go to this selection. Our evaluation team consisted of nine technical experts who reviewed the proposals from a technical standpoint during two days. They were then joined for the last few days by two captains, a GS-15, and a senior executive service (SES) person, to complete the review.

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--> This endeavor proceeded so smoothly that the contract award was ready to be made long before the program managers expected it. The contract was awarded in May 1994, at a fixed price of $16,188,000. Even with change orders the Navy later made and contract administration costs, the project was delivered under the $20 million initial budget. Groundbreaking occurred June 24, 1994. The project utilities, site preparation, and foundation work were all underway while final design of the building was being completed. Interior layout and finishing schemes followed. The project was completed in early 1996, nearly two years sooner than it would have been had we used the traditional design-bid-build approach. We also went back and debriefed the other eight bidders who were not successful. Most welcomed the opportunity for feedback and dialogue. All said that they liked the process and felt it was fair and valuable to go through. We may use the process again should the situation arise. Additional Keys to Success Another key to our success was tailoring our acquisition plan specifically to the project. I strongly believe that you have to take every project individually, with decision making based on an acquisition board or some other mechanism, or at least on good knowledge of the customer, the nature of the project, its complexity, and similar factors. All methods of procurement should initially be available for consideration. Additionally, we used formal partnering techniques. NAVFAC has had nothing but success using partnering techniques similar to those developed and promoted by the Army Corps of Engineers and the Associated General Contractors of America. In keeping with the partnering requirement that we included in our RFP, from the outset we had extensive participation of the contractors, the users, the host Seabee base where the building was to be located, and the claimant. We also put the project on a fast-track basis, and we kept it there no matter what.

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--> Conclusions Our project captured all the traditional benefits of design-build: saving time, avoiding change orders, and encouraging creative design solutions. Through the specific process that we used, we also eliminated most, if not all, of the drawbacks of design-build. The jury is still out on the quality of the facility—how it functions over time—but we are looking forward to assessing this against our acquisition strategy. We do have a mechanism in place to evaluate the functionality of the building. I would emphasize again that the quality of a facility does not reduce simply to meeting schedule and budget, but must be understood also in terms of the productivity and pleasure of those who use it. Let me sum up by noting the comments of one of our senior engineering directors over in the Navy Yard. Seeing the 18 page RFP, he said, "You are crazy." When we awarded the contract, he said, "You are still crazy." His reaction when the building was finished was, "You were lucky.'' In fact, we suggest that luck had nothing to do with it. We applied creative but well-founded methods to determine the best solution.