Expedited Procurement Procedures for Emergency Construction Services (2012)

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44 CHAPTER FOUR EMERGENCY PROCUREMENT DESIGNER/CONTRACTOR SELECTION METHODS INTRODUCTION It is imperative for all the parties involved in an emergency project where full and open competition has been waived or limited that the contract award selection method be fair, equitable, and transparent (Houston 2011). An insightful article by Cordell Parvin (2000), a construction attorney, articulated the importance of clearly communicating the method for selecting the winner in a procurement with lim- ited competition. Parvin indicates that it is mandatory that the owner “clearly state the evaluation criteria and weight given for each item and ensure that the evaluation team uses them.” Parvin’s article describes several cases where the award was successfully protested because the method for selecting the winning contractor was unclear and/or subjective. Award protests and their subsequent headaches are completely avoidable if the agency invests the upfront resources necessary to develop a fair and equitable system to select the winning bidder before the emergency event. Chapter six reviews the case law with regard to emer- gency procurements. This chapter focuses specifically on the mechanics of selecting both design consultants and con- struction contractors using expedited procurement proce- dures. The selection process has three major components: 1. Definition of the appropriate level of competition 2. Requirements for prequalification, if any 3. Pricing/compensation protocols that influence the selection process. DEFINING THE APPROPRIATE LEVEL OF COMPETITION The Federal Acquisition Regulation (FAR 2008) uses a definition for “effective competition” that directly applies to emergency procurements: Effective Competition: “A market condition which exists when two or more contractors, acting independently, actively contend for the Government’s business in a manner which ensures that the Government will be offered the lowest cost or price alternative or best technical design meeting its minimum needs. (FAR 34.001)” (Shields 1998, emphasis added). The italicized words in the definition stress the operat- ing concepts contained in the idea of not merely competi- tion but effective competition. The independent actions of multiple sources of the desired service or product pro- vide the agency with value for money, especially in emer- gency procurements where betterments must be carefully managed, meeting the minimum need of the emergency. Therefore, when determining an appropriate level of competition in an emergency, the selection official must alter the routine definition of best value to one that solves the problem at hand (1) in a satisfactory manner, (2) on a timely basis, and (3) at a reasonable/realistic cost (Jeffrey and Menches 2008). The remainder of this chapter will use those three tests as the basis to report the findings of the research. Figure 25 illustrates the spectrum of competition, from sole source at the bottom with no competition to full and open at the top where routine competition is the norm. It is not meant to be all-inclusive but rather to portray the idea that many possible options are open to the agency to procure the requisite design and construction services to resolve an emergency situation. FIGURE 25 Spectrum of increasing competition (after Perry and Hines 2007). The survey asked respondents to cite the various defi- nitions of competition used in their agencies. They were allowed to select more than one if all selected were used based on situational circumstances. Figure 26 illustrates the result. Minimum numbers of either quotations or com- petitors was the most often used metric to define competi- tion. In the “other” category, most indicated employing an existing active contract for short-term emergency work by modifying the base contract to cover the emer- gency scope.

45 FIGURE 26 Survey result for competition definition. EMERGENCY PROJECT DELIVERY METHODS The selection of an engineering consultant or construc- tion contractor on an emergency basis cannot be separated from the DOT’s decision to select a specific project delivery method. A project delivery method is the comprehensive pro- cess by which designers, constructors, and consultants pro- vide services for design and construction to deliver a complete project to the owner (Migliaccio et al. 2008). However, terms surrounding project delivery methods can be confusing, and experienced professionals often misuse them. Understanding the differences is essential to understanding project delivery and the facts involved in this study (Molenaar et al. 2009). • Contract payment provision: The contract language that defines how design and construction profession- als will be paid for their services. The four primary contract payment provisions are lump sum, GMP, unit price, and cost reimbursable. • Project delivery method: The comprehensive process by which designers, constructors, and consultants pro- vide services for design and construction to deliver a complete project to the owner. Although names can vary in the industry and owners often create hybrid delivery methods, there are essentially three primary project delivery methods: DBB, CMGC/CM-at-Risk, and DB (see glossary for details and diagrams). • Procurement procedure: The process of buying and obtaining the necessary property, design, contracts, labor, materials, and equipment to build a project. The four primary procurement procedures are low bid, best value, qualifications based, and sole source procurement. Emergency Project Delivery Method Selection The literature, survey, content analysis, and case studies all contain examples of the various combinations and permu- tations possible among the three components. The purpose of this synthesis is not to advocate any specific combina- tion but rather to analyze the options and identify trends that are visible in the record of successful emergency projects. The literature advocates selecting a project delivery method based on the project’s risk profile (Touran et al. 2009). Thus, the survey asked the DOTs to rate each of the three primary project delivery methods based on its ability to address typi- cal risks during both design and construction. Figures 26 and 27 illustrate the results of the survey. FIGURE 27 Project delivery method vs. risk during design.

46 The results of this analysis are quite clear. CMGC is the preferred method for dealing with risk during the design pro- cess. The literature credits early contractor involvement in the design process with reducing risk during construction. “Managing risk is the most important aspect of CMGC proj- ect delivery success. Risk can be managed by a number of mechanisms such as open books accounting, iterative pricing, and blind bid comparison” (West et al. 2012). Another paper explains the types of risk that CMGC can mitigate: “Contrac- tor experience and expertise can aid the design team in pre- paring more cost effective traffic control plans, construction staging plans, and perhaps more realistic construction sched- ules” (Anderson and Damnjanovic 2008). Martinez et al. (2007) advocate making “the construction manager respon- sible for coordinating and updating the design schedule… the construction manager may be asked to perform quick esti- mates to be used as part of a [design] decision-making process in selecting systems.” Figure 27 shows that CMGC is judged to be more effective than DB in all categories during design except cost and time growth. Touran et al. (2009) state that owners typically select DB project delivery to accelerate the schedule, which may explain the better rating on time growth. Additionally, DB requires the design-builder to commit to a firm fixed price before design is complete (Koch et al. 2010), so the better cost risk rating is probably the result of the earlier cost certainty to the owner found in DB project delivery. The result regarding risk during construction (Figure 28) finds DBB as the highest rated project delivery method in every category. Although the questionnaire did not ask for reasons, one must remember that the ratings are for emer- gency projects, not routine projects. Hence, the greater control that is afforded the DOT with DBB project delivery may be the reason why the traditional method is perceived to be better at addressing construction risk. This connects with an earlier finding that using a project delivery method with which both the agency and its contractors are familiar removes the stress of implementing a new set of construction administration rules in the midst of a crisis. Since many of the respondents have either limited or no DB experience, it is not surprising that they are expressing a higher level of comfort with DBB than the other methods. Emergency Procurement Procedure Selection The survey also asked respondents to rate procurement pro- cedures’ ability to address risk during design and construc- tion. Figure 29 shows the results for design. Low bid was rated the highest only when it came to the risk of protest. QBS was preferred for the rest of the risks in design. This is not surprising, in that QBS is the major procurement proce- dure used in routine design contracts. Sole source selection ranked second, supporting the literature recommendation to use as much competition as time will allow. A time-critical event requires speedy reaction, and sole source is the fastest (Perry and Hines 2007). Figure 30 shows the responses to the same question for risk in the construction phase. Although the trend is not as clear as in Figure 28, the same result can be found: Low bid procure- ment, a hallmark of DBB project delivery, appears to be the preferred method for addressing risk in construction. Again, this is probably the result of the familiarity of both DOT staff and construction contractors with low bid projects. FIGURE 28 Project delivery method vs. risk during construction.

47 Emergency Payment Provision Selection Figure 31 shows the results of the survey with regard to emergency payment provisions. It shows a distinct preference for lump sum payment. The most often used provision is the combination of lump sum and unit price. Once again, most respondents prefer to stick with routine procedures. FIGURE 29 Procurement procedure vs. risk during design. FIGURE 30 Procurement procedure vs. risk during construction.

48 EMERGENCY CONTRACT AWARD PROCEDURES The emergency project award decision that carries the great- est risk of protest is the method chosen to advertise and award the contract. In this area, design and construction contracts are different. Design consultants are accustomed to being selected on the basis of qualifications as a result of the Brooks Act (NSPE 1995). As a result, that sector is more comfortable with sole source selection and QBS than its counterparts in the construction industry. The construc- tion industry, however, is firmly convinced that full and open competition with the award going to the low bidder is a means of preventing government corruption and provid- ing a level playing field for all contractors (Schexnayder and Mayo 2004). This belief is well documented by the following statement on the Associated General Contractors of Iowa’s (AGCI) website: “Competitive bidding on Public Works has provided quality work and good prices for the Iowa taxpayer. Public improvements, other than highways, must be let to the lowest responsible bidder. Highway letting authorities may take into account the price of the bid, financial abil- ity, experience and equipment” (AGCI 2012). As a result, the choice of emergency contract award methods requires careful thought. As previously stated, the rule of thumb is to create as much competition as the circumstances will permit to avoid a protest (Perry and Hines 2007). Figure 32 illustrates the results of the survey questions regarding the use of various options for advertising and awarding emergency design and construction contracts. The figure shows the stark difference between design and con- struction contracts. If one removes the result for sole source, assuming that those awards are used only when there is no other option, the preference for awarding design without price competition is evident, as is a similar preference for awarding construction contracts with as much price compe- tition as practical. Prequalification Requirements for Emergency Contract Awards The most often used method was the invitation for bids to prequalified contractors with a low bid award. The result connects with an effective practice to be discussed in chapter five regarding the maintenance of a standing list of prequali- fied design consultants and construction contractors that are willing to work in an emergency. The literature review found that all authors without exception believe that the qualifica- tions of a given contractor can have a marked impact on the success of the projects it builds. One paper reported that the most qualified contractor “correlates to the lowest adminis- trative burden” for the agency (Molenaar and Songer 1998), implying that a well-qualified contractor requires less over- sight and can be trusted to comply with contract require- ments such as contractor quality control (CQC). Scott et al. (2006) justify prequalification by saying that “because of constrained staffing and budgets, it is not possible for state agencies to “inspect” quality into the work.” The same authors provide a succinct definition and motivation for establishing a thoughtful prequalification process: Prequalification in its simplest form is an assessment of financial responsibility, which often mirrors what sureties look for in making their underwriting decisions relating to issuance of bonds for public works projects. FIGURE 31 Emergency contract payment provisions.

49 It also may include other factors such as demonstrated ability to perform a certain type of work. Whether by prequalification or other methods, public owners are increasingly exploring ways to include non-price factors, both qualitative and quantitative, in the procurement process to motivate contractors not only to improve their performance during construction, but equally as important, to build value into the end products of construction (Scott et al. 2006). Putting this information into the emergency contract’s context, the preference shown for limiting bidding to prequal- ified contractors leads to the conclusion that maintaining a prequalified list of emergency consultants and contractors is one way for the DOT to manage the increased exposure to risk that comes in a crisis situation. Indeed, this practice allows the DOT to regulate the amount of competition that it allows by the requirements of the emergency. The MoDOT case study project that included a “nested” DB landslide con- tract is an example of providing full and open competition on the majority of the project while limiting competition to a single prequalified source in the event of an emergency. Protest Experience on Emergency Projects Chapter six discusses the salient issues regarding protests in emergency contracts, so this section is restricted to a short discussion of the literature, survey, and case study experience with protest of the award of emergency con- tracts. The legal review completed by Perry and Hines (2007) found four practices that had successfully insulated DOTs from protests: 1. “The careful adherence to their laws, regulations, and policies has obviated this problem for most of the states. 2. [E]mergency contracts must be limited to those sup- plies, services, or construction items necessary to meet the emergency…. once the immediate need is met, then further goods or services must be obtained by following usually mandated procedures. 3. Employing regulations that prohibit the renewal, without competitive bidding, of a contract that has been awarded on an emergency basis.” 4. The South Carolina DOT “works from a list of prequalified bidders … all of whom get notice when a contract is to be issued, and in that way has avoided complaints. In the area of equipment purchases, par- ticularly replacement signals, the Florida DOT also employs a prequalified products list.” Six survey respondents reported protests of their emer- gency contract awards: Alaska, Delaware, Minnesota, Ohio, Oregon, and Utah. All protests except Minnesota’s were dropped without going to court. Minnesota successfully defended the process. Thus, the results of the synthesis sur- FIGURE 32 Emergency contract advertising and award policies.

50 vey agree with the 2007 survey by Perry and Hines and find that “there was not a showing or reporting of difficulty expe- rienced in the award of emergency contracts.” CONCLUSIONS, EFFECTIVE PRACTICES, AND FUTURE RESEARCH RECOMMENDATIONS Conclusions Based on the survey and literature, maintaining a prequali- fied list of emergency consultants and contractors is one way for the DOT to manage the increased exposure to risk that comes in a crisis situation. Additionally, the use of a prequal- ified list has been shown to be an effective measure to reduce the potential for a formal protest or a lawsuit. Effective Practices and Future Research Recommendations No new effective practices were identified in this chapter. Nor were are any recommendations for future research made.