wickwire gavin, p.c. minnesota department of transportation november 29, 2000 michael c. loulakis,...

Wickwire Gavin, P.C.Wickwire Gavin, P.C.

Minnesota Department of TransportationNovember 29, 2000

Michael C. Loulakis, Esq.

Minnesota Department of TransportationNovember 29, 2000

Michael C. Loulakis, Esq.

Design-Build: Understanding the Basics


Presentation OverviewPresentation Overview

What makes design-build different?What makes design-build different? How are design-builders selected?How are design-builders selected? How are design-builders organized?How are design-builders organized? What are the key design-build What are the key design-build

contract and risk issues?contract and risk issues?


What Makes Design-Build Different?

What Makes Design-Build Different?

Approach is structurally different Approach is structurally different from other delivery systemsfrom other delivery systems

Single point of responsibilitySingle point of responsibility Procurement optionsProcurement options Performance specificationsPerformance specifications Role of design professionalRole of design professional


Owner

Contractor

Architect/Engineer

TradeSubcontractors Suppliers

Design-Bid-Build


System StrengthsSystem Strengths

Lowest initial construction costLowest initial construction cost Full design developed before money spent Full design developed before money spent

on constructionon construction A/E hired by Owner directly to act in A/E hired by Owner directly to act in

Owner’s best interestOwner’s best interest Owner can be actively involved in design Owner can be actively involved in design

processprocess Completed plans and specifications as Completed plans and specifications as

benchmark for performancebenchmark for performance Predictable rights & responsibilitiesPredictable rights & responsibilities


System WeaknessesSystem Weaknesses

Linear nature of processLinear nature of process Actual construction cost determined Actual construction cost determined

after design completedafter design completed– little chance to influence design without little chance to influence design without

project delayproject delay– no contractor involvement in design or no contractor involvement in design or

conceptual pricingconceptual pricing


PERFORM BUSINESS PLANNING

PERFORM PRE-PROJECT PLANNING

EXECUTE PROJECT OPERATE

FACILITY

I N F L U E N C E

E X P E N D I T U R E S

RAPIDLY DECREASING

INFLUENCE LOW

INFLUENCE MAJOR INFLUENCE

EXPENDITURES INFLUENCE

High

Low Small

Large

Cost Influence CurveCost Influence Curve


System Weaknesses (cont’d)System Weaknesses (cont’d)

Challenges in obtaining high quality Challenges in obtaining high quality productproduct

Owner warrants sufficiency of plans Owner warrants sufficiency of plans & specifications to Contractor& specifications to Contractor

High potential for adversarial High potential for adversarial relationshipsrelationships

Unrealistic Owner expectationsUnrealistic Owner expectations


Standard of Care Not Exact Science: Moundsview v. Walijarvi

Standard of Care Not Exact Science: Moundsview v. Walijarvi

“Architects, doctors, engineers, attorneys and others deal in somewhat inexact sciences and are continually called upon to exercise their skilled judgment in order to anticipate and provide for random factors which are incapable of precise measurement. The indeterminate nature of these factors makes it impossible for professional service people to gauge them with complete accuracy in every instance * * * an architect cannot be certain that a structural design will interact with natural forces as anticipated * * * The law has traditionally required, not perfect results, but rather the exercise of that skill and judgment which can reasonably be expected from similarly situated professionals.”


Owner

Design/Builder

ProfessionalSubcontractors

Trade Subcontractors Suppliers

Design Criteria

Consultant

Design-Build


ProfessionalSubcontractors

Trade Subcontractors

Suppliers

Design/Builder

OwnerDesign Criteria

Consultant

Maintenance & Operation

Finance

SiteAcquisition

Design-Build “Plus”



Single point of responsibilitySingle point of responsibility Facilitates project financingFacilitates project financing Shorter time to develop projectShorter time to develop project Total cost can be determined very Total cost can be determined very

earlyearly


Team Integration:Scheduling

Team Integration:Scheduling

Construction team brought on after design, with open bidding:

ProgDev

PrelimDrwgs

FinalDrawings Bid Construction

Award

Construction team brought on early, facilitating fast-tracking:

ProgDev

PrelimDrwgs

FinalDrawings

Procurement& Construction

Cost Established



Single point of responsibilitySingle point of responsibility Facilitates project financingFacilitates project financing Shorter time to develop projectShorter time to develop project Total cost can be determined very Total cost can be determined very

earlyearly


System Strengths (cont’d)System Strengths (cont’d)

Design innovation more readily Design innovation more readily achievedachieved

High level of accountability can High level of accountability can result in higher qualityresult in higher quality

Potential construction cost savingsPotential construction cost savings Reduced conflictReduced conflict


CII Quality Study

0

1

2

3

4

5

6

7

8

9

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CM@R

DB

DBB


System WeaknessesSystem Weaknesses

Time & cost of implementing Time & cost of implementing competitive processcompetitive process

Overly involved Owner may impact Overly involved Owner may impact Design-BuilderDesign-Builder

Price provided before design Price provided before design documents completeddocuments completed

A/E doesn’t work directly for OwnerA/E doesn’t work directly for Owner


System Weaknesses (cont’d)System Weaknesses (cont’d)

Constraints with public procurement Constraints with public procurement lawslaws

Antiquity of licensing lawsAntiquity of licensing laws Unrealistic Owner expectationsUnrealistic Owner expectations Lack of substantial judicial precedentLack of substantial judicial precedent


How Are Design-Builders Selected?

How Are Design-Builders Selected?

Direct design-buildDirect design-build Competitive negotiationCompetitive negotiation Best value proposalsBest value proposals Low price proposalsLow price proposals


Negotiated Design-Build Procurement

Negotiated Design-Build Procurement

Short-listShort-list InterviewsInterviews Selection based upon:Selection based upon:

– team’s experienceteam’s experience– financial capabilityfinancial capability– key peoplekey people– current & projected workloadscurrent & projected workloads– similar projectssimilar projects– pricing: fee & general conditionspricing: fee & general conditions


Competitive Design-Build Procurement

Competitive Design-Build Procurement

Short-listShort-list Selection based upon:Selection based upon:

– weighted criteriaweighted criteria– adjusted low-bidadjusted low-bid– equivalent design/low-bidequivalent design/low-bid– fixed budget/best designfixed budget/best design– meets criteria/low-bidmeets criteria/low-bid


Weighted Criteria ExampleWeighted Criteria Example

ProposerQualitative

Score(60 max.)

Price Proposal

Price Score (40 max.)

Total Score (100 max.)

Firm "A" 51 1,629,000 37 88

Firm "B" 53 1,546,000 39 92*

Firm "C" 44 1,510,000 40 84

* award to proposer with highest total score


Adjusted Low-Bid ExampleAdjusted Low-Bid Example

ProposerQualitative

ScorePrice Proposal

Adjusted Price

Firm "A" 0.85 1,000,000 1,176,471

Firm "B" 0.95 1,300,000 1,368,421

Firm "C" 0.5 800,000 1,600,000

Note: The adjustment of the bid is for selection only. The firm’s priceproposal is the actual contract amount.


Procurement ChallengesProcurement Challenges

Remembering “the design-build Remembering “the design-build difference”difference”

Using consultantsUsing consultants Bridging/detailed designBridging/detailed design Establishing qualitative criteriaEstablishing qualitative criteria Objectively analyzing criteriaObjectively analyzing criteria


Procurement Challenges (cont’d)Procurement Challenges (cont’d)

StipendsStipends Using information of unsuccessful Using information of unsuccessful

proposersproposers Keeping A/E involved throughout Keeping A/E involved throughout

projectproject Integrating procurement laws into Integrating procurement laws into

solicitationsolicitation


Balancing the Structural Framework of the ProjectBalancing the Structural Framework of the Project

Project delivery systemsProject delivery systems Procurement methodologyProcurement methodology

– NegotiatedNegotiated– CompetitiveCompetitive

Contracting approachesContracting approaches– Lump sumLump sum– Cost plus (GMP)Cost plus (GMP)– Unit PriceUnit Price


How Are Design-Builders Organized?

How Are Design-Builders Organized?

Integrated Design-Build FirmIntegrated Design-Build Firm Contractor as leadContractor as lead A/E as leadA/E as lead Joint VentureJoint Venture Developer as leadDeveloper as lead


What Organizational Structure Works Best?

What Organizational Structure Works Best?

Owner’s needs & comfort level are Owner’s needs & comfort level are key driverskey drivers

Nature of projectNature of project Licensing requirementsLicensing requirements Relationship among team membersRelationship among team members


Owner

Design-Builder(Integrated)

Suppliers

Integrated Design-BuildIntegrated Design-Build

TradeSubcontractors

Consulting Engineers


Owner

Design-Builder(General Contractor)

SuppliersDesignerTrade

Subcontractors

Contractor-Led Design-Build


Owner

Design-Builder(Designer)

General Contractor


Designer-Led Design-Build

Suppliers



Owner

Joint Venture(General Contractor

& Designer)

GeneralContractor


Joint Venture/LLC Design-Build

Suppliers

Designer



Design-Build(Developer Model)

Architect/Engineer

At-Risk CM


Suppliers

Developer

OwnerDesign Criteria

Consultant


What are the Key Design-Build Contracting Issues?


Standard form contractsStandard form contracts Identifying scope of workIdentifying scope of work Ownership of documents Ownership of documents Owner's rights to review designOwner's rights to review design Changes of lawChanges of law Establishing the GMPEstablishing the GMP


Current U.S. Standard Form Design-Build Contracts

Current U.S. Standard Form Design-Build Contracts

AGC (1999)AGC (1999) DBIA (1998)DBIA (1998) AIA (1997)AIA (1997) EJCDC (1995)EJCDC (1995)




Standard form contractsStandard form contracts Identifying scope of workIdentifying scope of work Ownership of documents Ownership of documents Owner's rights to review designOwner's rights to review design Establishing the priceEstablishing the price


Key Contracting Issues (cont'd)Key Contracting Issues (cont'd)

Changes of law Changes of law Permits Permits Site conditionsSite conditions Time extension issuesTime extension issues ChangesChanges


Key Contracting Issues (cont'd)Key Contracting Issues (cont'd)

Limitations of liabilityLimitations of liability Performance guaranteesPerformance guarantees Acceptance criteria Acceptance criteria Warranty and design liabilityWarranty and design liability


Unique Contract Issues: Design-Builder and Designer

Unique Contract Issues: Design-Builder and Designer

Designing to budgetDesigning to budget Role of contractor during designRole of contractor during design Duties during construction Duties during construction

administrationadministration Financial considerationsFinancial considerations

– Contingencies Contingencies – Bonus/penaltyBonus/penalty– E&O coveragesE&O coverages


Unique Contract Issues:Design-Builder/Subcontractor

Unique Contract Issues:Design-Builder/Subcontractor

Design-build vs. trade Design-build vs. trade subcontractorssubcontractors

Bidding on incomplete plans & specsBidding on incomplete plans & specs Determining when subcontractor Determining when subcontractor

becomes involvedbecomes involved



Major Design-Build Risk AreasMajor Design-Build Risk Areas

Single point of responsibilitySingle point of responsibility Design liability Design liability Fair business dealingsFair business dealings Ownership of documents Ownership of documents Contract formationContract formation LicensingLicensing



A/E vs. D/BClaims Frequency Per 100 Firms

A/E vs. D/BClaims Frequency Per 100 Firms

0

5

10

15

20

25

30

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

# o

f C

laim

s

A/E Firms Design-Build Firms

Source: Victor O. Schinnerer Company


Why Does History Show a Reduction of Liability Exposure?

Why Does History Show a Reduction of Liability Exposure?

Merger of design & construction Merger of design & construction promotes cooperationpromotes cooperation

Professional attitudesProfessional attitudes Quality playersQuality players Owner fear of processOwner fear of process Partnering approachPartnering approach



Where is Design-BuildLiability Heading?

Where is Design-BuildLiability Heading?

Owner's role with design Owner's role with design development & reviewdevelopment & review

Business deal & scope of workBusiness deal & scope of work Procurement disputesProcurement disputes



Where is Design-BuildLiability Heading? (cont’d)

Where is Design-BuildLiability Heading? (cont’d)

Subcontractor - prime disputesSubcontractor - prime disputes Contingent liability for performance Contingent liability for performance

breachesbreaches Magnitude of dollars when Magnitude of dollars when

something goes wrongsomething goes wrong

wickwire gavin, p.c. minnesota department of transportation november 29, 2000 michael c. loulakis,...

Documents

wickwire gavin

owner slide

design process

key design

design documents

design innovation

structural design

bridgingdetailed design