Value, Benefits, and Limitations of Qualifications-Based Selection for Airport Project Delivery (2019)

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4 The 1972 Brooks Act (Public Law 92-582) mandated the qualifications-based selection (QBS) procurement process for the selection of architect/engineers (A/Es) for design contracts with federal design and construction agencies. Essentially, the spirit of the law requires the govern- ment to select the most qualified design professionals for federally funded projects and prohibits the use of price as the sole selection factor, whereas construction contracts typically are awarded to the lowest responsive, responsible bidder. This dichotomy has existed for decades and begs the logical question: If the government demands that the project be designed by the best avail- able design professional, why would the government not want to have the project constructed by the most qualified construction contractor? Hence the primary thrust of this synthesis is to explore the existing practices, constraints, and potential benefits associated with QBS of construction contractors for airport projects. The constraints on the project procurement and delivery process are often imposed by the source of the project’s funding. As stated above, federal funding comes with a well-documented set of restrictions. The same is true with most sources of public funding. After the passage of the Brooks Act, a large majority of the states followed with their own “mini-Brooks acts” that promulgated QBS for design professionals. At the same time, no changes were made to the low-bid system for construction projects. The same is true for many municipal public agencies. However, as an agency’s level of government went lower (e.g., state, county, or city), the availability of different types of fund- ing increased, further increasing the variety of restrictions that each source of funding carried. This is not to say that all the restrictions are the same. In fact, they are different, and, in many cases, the constraints associated with state or federal funding do not apply. However, it is common to simplify the given agency’s contract administration system by applying the most conservative and hence most restrictive set of rules to establish a modicum of uniformity to a very complex project delivery financing. The result is a failure to utilize the available flexibility in the selection of service providers and a reluctance to deviate from past commercial practices. The advent of alternative contracting methods (ACMs), like design–build (DB), construction manager at-risk (CMR), and public–private partnerships (PPPs) challenged the procurement culture of the status quo. In each of these, the design services were integrated to varying degrees with construction services, giving the construction contractor the ability to make input to the final design solution. The ACM movement brought with it a new procurement method termed “best value” (BV). NCHRP Report 561: Best-Value Procurement Methods for Highway Construc- tion Projects (Scott et al. 2006) defines BV as a selection process where the award is based on something other than the lowest cost alone. The report goes on to detail at least seven different C H A P T E R 1 Introduction to Qualifications-Based Selection Administrative prequalification merely establishes a benchmark for financial capacity, not technical capability. . . . Reliance on performance bonding does not protect the public owner from marginally competent contractors who have a strong financial foundation. Minchin and Smith 2001

Introduction to Qualifications-Based Selection 5 BV award algorithms. One called “fixed price–best proposal” in federal acquisition regulation (FAR) terms has no price competition because the owner has set the budget and is awarding to the proposers that maximize the “bang for the buck.” In all cases, there are elements of qualifica- tions and past performance in the selection process. In most cases, qualifications are evaluated in the first step of the procurement process and result in a shortlist of the best-qualified com- petitors. Members of the shortlist then proceed in the second step of procurement to submit technical and price proposals for evaluation and ultimate BV award. It is important to remember that in FAR definitions, DB is classified as a construction contract because the government’s deliverable is the constructed facility, not a set of construc- tion documents that are the deliverable of an A/E contract. A Comptroller General decision [Lawlor Corp., B-241945.2, 70 Comp. Gen. 375, 91-1 CPD 335 (Comp. Gen. Mar. 28, 1991)] determined that, as such, DB contracts were not governed by the Brooks Act. That theory has been extended to most FAR-based ACMs including versions of CMR and indefinite delivery/ indefinite quantity (IDIQ) contracts (more commonly called job order contracts) where the contractor will furnish both limited design and construction services for a narrow set of repeti- tive project types. Thus, the utility of selecting construction contractors based on qualifications, past performance, and price has been well proven in the federal sector. Similar results have also been observed in the nonfederal public sector. The advent of ACMs has included variations on the theme where QBS is the primary selection mechanism and price is negotiated as the design is advanced to completion. For example, the Tampa Airport has used progressive design–build (PDB) for well over two decades, selecting the DB team using a QBS formula. The Phoenix Sky Harbor Airport procures CMR services with a straight QBS with no fees involved. Many transportation agencies in the transit and highway sectors procure CMR using QBS and a preconstruction services fee. While this is not QBS, recent research has shown that the amount of the preconstruction fee is small, ranging between 0.25 and 0.5% of construction costs (Gransberg et al. 2013). International airports, like the East Midlands Airport in Manchester, England, have experi- mented with integrated project delivery (IPD) where the project delivery team is selected using QBS. A cursory search of the literature shows that U.S. IPD airport experience appears to be limited to projects completed directly by the commercial airline sector with no public participation. Note that IDIQ contracts are in use in airports to provide construction services on a long-term, multiyear basis. The Hartsfield-Jackson Atlanta International Airport (ATL) uses a procurement method that it calls managing general contractor services (MGCS) in which it stipulates a percentage as the contractor’s fee for managing self-performed and subcontract work and pays the contractor its direct cost on a time and materials basis. Hence, it would appear that since the fee is fixed and not included in the selection decision, the ATL MGCS contract would be properly classified as a QBS procurement. Lastly, TCRP Web-Only Document 41: Evaluation of Project Delivery Methods (Touran et al. 2008) found that the New York City Metropolitan Transit Authority has in its enabling statutes the ability to make a best-value contractor selection with the greatest weight being assigned to qualifications for projects whose design is complete and that the Transit Authority believes are so complex that the risk associated with awarding to an unqualified contractor is unacceptable. Another common example of QBS awards for construction services is found in emergency infrastructure repair and replacement projects whose urgency is too great to The Hartsfield-Jackson Atlanta International Airport uses a QBS delivery method called Managing General Contractor Services. The airport stipulates a percentage as the contractor’s fee for managing self-performed and subcontracted work and reimburses direct costs on a time and materials basis.

6 Value, Benefits, and Limitations of Qualifications-Based Selection for Airport Project Delivery permit the owner to use a routine design–bid–build (DBB) procurement with an unlimited competition. Synthesis Objective The final scope of work for this synthesis states the objectives of the report as follows: The objective of this synthesis is to understand which airports are using QBS, when and why, and describe the benefits and limitations of QBS in construction, in addition to professional services. The intended audience for this report includes airport administrators and decision makers. Compiling this information provides additional resources to assist in decision making when choosing the most advantageous procurement approach. As such, the synthesis documents current practices for QBS of construction services for airport projects. It focuses on ACMs where the construction contract cost is either negotiated or reimbursed on a cost-plus basis. Specifically, the synthesis seeks to benchmark which, when, and why airports are using QBS. It describes the perceived benefits and limitations of QBS in construction. Benchmarking the state of the practice permits the reader to identify and assess potential resources to assist in the procurement method selection and decision-making process. Lastly, the synthesis documents lessons learned and effective practices for implementing QBS on the range of typical ACM projects. Definitions of Key Terms The semantics of construction contracts and alternative project delivery are not standard, and experience has shown that new terms are continuously being developed by public agencies, privately owned companies, professional societies, and other stakeholders in the planning, design, construction, operations, and maintenance process surrounding delivery of airport projects. As a result, it is important that the key terms used in this report be clearly defined. Procurement Method Terms The following are definitions for the three common procurement methods used to make a contract award: • Qualifications-Based Selection (QBS): An award method that focuses on qualitative criteria such as expertise, experience, and past performance as the bases for selection. Price is not considered as a part of the selection process (AASHTO 2008, Kenig 2011, National Institute of Government Purchasing 2012, FAA 2014). • Low Bid (LB): An award method where the contractor with the lowest bid price is selected. • Best Value (BV): An award method that utilizes cost and other management and/or technical factors to select the winning bidders (e.g., cost-plus-time bidding, qualifications, design approach) to minimize impacts and enhance the long-term performance and value of construction (Scott et al. 2006, Kenig 2011). BV awards are made in two ways: – Best Value–Total Cost: Both total construction cost and other factors are criteria for selecting the contractor. – Best Value–Fees: Both fees and qualifications are considered in the final selection. Project Delivery Method Terms The following are definitions for common terms regarding project delivery methods that will be referenced in this report: • Alternative Contracting Method (ACM): ACMs are mainstreamed as viable delivery options for airport construction projects to accelerate project delivery, encourage the deployment

Introduction to Qualifications-Based Selection 7 of innovation, and minimize unforeseen delays and cost overruns. These options include design–build (DB), construction manager-at-risk (CMR), public–private partnership (PPP), and IDIQ (Tran et al. 2017). • Design–Bid–Build (DBB): The traditional project delivery method where the owner retains a design professional or uses internal design assets to produce a set of construction documents, which are then advertised for bids and typically awarded to the lowest responsive, responsible contractor. • Design–Bid–Build Best Value (DBB-BV): A project delivery method where the owner retains a design professional or uses internal design assets to produce a set of construction documents. The contract is awarded using some combination of bid price and other factors such as qualifications or schedule. • Construction Manager-at-Risk (CMR): A project delivery method in which a construction manager is selected to provide input during project design and then becomes at risk for the final cost and time of construction. Also commonly known as construction manager/general contractor (CMGC) as well as a number of other terms that are specific to a given agency (Gransberg and Shane 2010, Kenig 2011, FAA 2014). • Design–Build (DB): A project delivery method that combines the design and construction phases of project delivery under a single contract (AASHTO 2008, Kenig 2011, FAA 2014). – Design–Build Best Value Total Cost (DB-BV-TC): A variation of DB where the contract award is made based on a BV decision where pricing is for the total cost of design and construction (Kenig 2011). – Design–Build Best Value Fees (DB-BV-F): A variation of DB where the contract award is made based on a BV decision where pricing consists only of the design–builder’s fees (Kenig 2011). – Progressive Design–Build (PDB): A variation of DB where the design–builder is selected using QBS and the costs of the project are negotiated after final selection (Loulakis 2013, State of Washington 2017). • Public–Private Partnership (PPP): A public–private partnership is a contractual agreement formed between public- and private-sector organizations, which allows private-sector partici- pation in heretofore public endeavors. The agreements usually involve a government agency contracting with a private company to finance, renovate, construct, operate, maintain, and/or manage a facility or system (U.S. DOT 2004, Kenig 2011). • Integrated Project Delivery (IPD): A project delivery method that integrates people, systems, business structures, and practices into a process that emphasizes collaboration and integra- tion via multiparty, relational contracts based on jointly defined project objectives. (Airports Council International–North America et al. 2012; American Institute of Architects 2014). • Indefinite Delivery/Indefinite Quantity (IDIQ) Contract: A contract that provides for an indefinite quantity of supplies and/or services whose performance and delivery schedule is determined by placing work orders with one or more contractors during a fixed period (GSA 2013, Gransberg et al. 2018). As previously stated, each of the above terms has several other names that are commonly used in the industry. To provide clarity, Table 1 is offered as a tool to cross-reference common terms with the definitions used in this synthesis. The table contains all of the different terms known to the authors; however, it should not be considered inclusive. Additionally, the reader will notice that in several cases, such as “turnkey,” the common name is used to describe more than one key term. Qualifications-Based Selection Working Definition Since QBS is the topic of this report, it is essential to not only have a technical definition but also to extend that to a working definition. The rationale for the working definition is

8 Value, Benefits, and Limitations of Qualifications-Based Selection for Airport Project Delivery based on the foundational principle that QBS does not include cost/price factors in the selec- tion decision. Therefore, the operating principle is a selection process that does not include pricing factors when the QBS contract is awarded and does not exclude procurement processes with sealed pricing information might be submitted at the same time as the statement of qualifications, as long as the award decision is made without reference to the submitted pricing information. Working Definition Examples Examples of typical contracts that fall into the above are as follows: • A CMR contract where the contractors’ preconstruction fees are submitted but contain no weight in the evaluation plan. • A PDB contract where competing design–builders are asked to submit a conceptual technical approach, as well as preconstruction and construction management fees, but the fees are given no weight in the evaluation plan. • An IDIQ contract where task order pricing will be based on a standard price book; competing contractors are asked to submit a multiplier on the unit prices in the price book, and the multiplier is not given weight in the evaluation plan. • A PPP contract where the commercial terms and conditions are negotiated after the developer/ concessionaire is selected. To put the QBS working definition differently, if proposed pricing elements are consid- ered in any way during the contractor selection process, then the procurement process is a BV award, not a QBS award. In an ideal situation, a QBS solicitation would not request any pricing information, and if it did, the selection authority would not see the pricing informa- tion until after the contract was awarded. This report takes a more pragmatic approach and uses the evaluation plan as the litmus test between QBS and BV. If the pricing information carries weight in the contractor selection process, then for purposes of this report, that project is not a QBS. Key Term Other Common Names and Acronyms QBS Negotiated contract; prequalification LB Hard bid, lowest tender offer, competitive bidding; sealed bid BV-Total Cost Technically acceptable/low bid; stipulated sum/best proposal; weighted criteria; cost-technical trade-off; competitive proposal BV-Fees Negotiated BV; open books BV ACM Innovative contracting methods; project delivery methods; project delivery systems DBB Traditional contract DBB-BV A+B contracting; A+C contracting; technically acceptable/low bid; two-envelope bidding CMR Construction manager-at-risk (CMR, CMAR, CM@R), construction manager/general contractor (CMGC, CM/GC); general contractor-construction manager (GCCM); construction manager as constructor (CMc); early contractor involvement (ECI); owner-facilitated design–build; design– assist; engineering–procurement–construction management (EPCM) DB Design–build; draw–build; bridging; early contractor involvement (ECI); turnkey; engineering– procurement–construction (EPC) PDB Negotiated DB; DB-QBS; DB-open books PPP Concession agreement; development agreement; design–build–finance (DBF); design–build– finance–operate–maintain (DBFOM); design–build–operate-own; lease-back; turnkey IPD Relational contracting; alliance contracting; strategic partnership; design–assist; industrial IPD (I2PD); integrated practice IDIQ Contract Delivery order contract; framework contract; job order contract (JOC); managing general contractor service (MGCS) contract; continuing contract; master contract; multiple award task order contract (MATOC); on-call contract; push-button contract; task order contract; term agreement Table 1. Variants on the above key definitions with common acronyms.

Introduction to Qualifications-Based Selection 9 Methodological Approach Information used for the elaboration of this report was gathered using the following instruments: • Literature review • Survey of airports • Survey directed to members of the Airport Consultants Council (ACC) • Structured interviews with airports known to have QBS contracting programs • Content analysis of QBS-related ACM solicitation documents Literature Review The synthesis team conducted a comprehensive literature review supplemented by a content analysis of QBS procurement documents, policy and procedure manuals, and other sources of written information about QBS practices implemented by different airports using the protocol proposed by Neuendorf (2002). QBS-related solicitation documents were collected from 31 airport projects, as well as documents from 10 heavy civil infrastructure projects, 35 highway projects, and 5 rail transit projects to provide a basis of comparison between the different modes as well as to look for promising effective practices outside the aviation industry. In the mix, 16 federal agency projects were sampled to document the state of the practice of this contracting approach at different levels and sectors to permit another comparison with airport policies as well as to identify constraints imposed by federally funded airport projects. Surveys and Interviews Using information collected from the literature review and applying the protocol prescribed by Oppenheim (2000), the authors developed questionnaires aimed broadly at airport officials and industry representatives (ACC members). A total of 26 survey responses were received. Additionally, several airports were contacted to collect agency case examples of QBS contract usage out of which seven airports consented to participate in this effort. Both face-to-face and structured telephonic interviews were conducted following procedures used by the U.S. General Accounting Office (1991). The interviews allowed an in-depth discussion of some key aspects of QBS contracting and the collection of more detailed information about their risk perception regarding the contracting approach. Cogent information gathered by the authors while developing ACRP Report 21: A Guidebook for Selecting Airport Capital Project Delivery Methods (Touran et al. 2009a) is also presented in this synthesis report. This information played an important role in benchmarking the state of the practice of ACM contracting at airports and identifying effective procurement techniques among airport authorities. This information was used to identify potential airports with which to conduct structured interviews. Ultimately, interviews were conducted with officials at the following airports: • Austin–Bergstrom International Airport (AUS) • Boston Logan International Airport (BOS) • Dallas/Fort Worth International Airport (DFW) • Gerald R. Ford International Airport (GRR) • Memphis International Airport (MEM) • Phoenix Sky Harbor International Airport (PHX) • Seattle–Tacoma International Airport (SEA)

10 Value, Benefits, and Limitations of Qualifications-Based Selection for Airport Project Delivery The cases were collected using Yin’s (2008) methodology for case study data collection. Figure 1 shows the geographic distribution of the airports that responded to the surveys as well as those interviewed for case examples. It also shows the degree of ACM usage in each of the states where airports provided responses. Solicitation Document Content Analysis A content analysis was conducted using the protocol proposed by Neuendorf (2002) on 81 procurement documents from federal, state, and local agencies, including documents from 31 airport projects in 18 states. The solicitation documents analyzed included requests for letter of interest (LOI), invitations for bids (IFBs), requests for qualifications (RFQs), and requests for proposal (RFPs). Solicitation documents were collected for airport, civil/port, highway, and transit/rail projects, and included DBB-BV, CMR, DB (including PDB), PPP, and IDIQ contracts. Table 2 shows the distribution by transportation mode and ACM for the documents included in the content analysis. Findings from the content analysis will be discussed in Chapter 2. Figure 1. Airports surveyed and interviewed. ACM Mode DBB-BV CMR DB PPP IDIQ Airport 2 8 14 3 4 Civil/Port 2 1 7 0 0 Highway 2 0 32 1 0 Transit/Rail 0 0 4 1 0 Table 2. Details of the content analysis.

Introduction to Qualifications-Based Selection 11 Protocols to Develop Conclusions and Identify Gaps in the Body of Knowledge for Future Study Information collected through each survey instrument was individually analyzed, and inter- sections of trends found in two or more of these tools were used as the major factor to develop conclusions. Concurrent trends observed in more than one data set were significantly impor- tant to identify effective QBS practices when the observations came from different contract participants. When a promising trend was identified by only one instrument, this was considered indicative of a gap in the body of knowledge and a potential area for future research. These data points were synthesized and provided the suggestions for future research discussed in Chapter 5. Organization of the Report The remainder of the report is organized as follows: Chapter 2: Overview of Qualifications-Based Selection Chapter 3: Current Qualifications-Based Selection Practices in Airport Project Delivery Chapter 4: Case Examples of Qualifications-Based Selection Projects Chapter 5: Conclusions and Gaps in the Body of Knowledge Glossary Abbreviations and Acronyms Appendix A: Project Delivery Method Primer Appendix B: Overview of Airport Funding Appendix C: Survey Questionnaire and Results Appendix D: Examples of QBS Documents