FACULTY OF ENGINEERINGDEPARTMENT OF CIVIL ENGINEERING

2015-2016 SPRING SEMESTER

ASSOC.PROF.DR. İBRAHİM YİTMEN

CIVL 493 CONSTRUCTION MANAGEMENT

PROJECT DELIVERY SYSTEMSPART II

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DESIGN-BUILD CONTRACT (CONT’D)

• More use by private owner vs. public owners

• DBIA estimates Design-build firms share 27% of non-residential market

• Total non-residential market is $320B

• Design-build market share - $86.4B

• 10 years ago, Design-build was less than 5% of non-residential market

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DESIGN-BUILD CONTRACT (CONT’D)

• Reasons for increased popularity

• Owners are asking for it

TIME IS MONEY

• Enabling legislation/change of registration

• Information technology

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ADVANTAGES OF DESIGN-BUILD CONTRACTFROM THE DESIGN-BUILD INSTITUTE • Time savings from 15% to 30%

• Cost savings from 3% to 15%.

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PROJECT DELIVERY SYSTEMS

CostInfluence

Cost ofChange

+ +

Time

SD B* Fixed Price

Traditional

SDCD B

ConstructionManagement(PhasedConstruction)

* Fixed Price

CD

ConstructionCD B Construction

CD B ConstructionCD B Construction

SDSD DDDD

CDCDDesign/Build

ConstructionConstruction

* Fixed Price

DD

DD Construction

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Departmentof Defense(non-appropriatedfunds)

GeneralServicesAdmini-stration

NavalFacilitiesEngineeringCommand

Departmentof VeteransAffairs

TimeSavings

18% NA 15% 28%

CostSavings

14% 3% 12% 0%*

*Costs are variable for all projects within department

TIME AND COST SAVINGS FOR SOME FEDERAL PROJECTS

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DESIGN-BUILD ADVANTAGES (CONT'D)

• Fewer claims

• Design-build process averages 35% less than all-systems average

• Design-build process averages less than half the claims that Design-Bid-Build does

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ADVANTAGES OF A DESIGN-BUILD CONTRACT (CONT'D)

• Single source responsibility

• Blended incentives

• Designer and constructor focused on same goals

• Owner doesn't have two separate contracts to coordinate

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ADVANTAGES OF A DESIGN-BUILD CONTRACT (CONT'D)• Using performance criteria/specs is the only system

that rewards innovation

• Improved risk management: risk assigned to party best able to manage that risk

• Early knowledge of firm costs

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DISADVANTAGES OF DESIGN-BUILD

• Fragile delivery system

• Complexity of process

• Unfamiliarity with process

• Lack of availability of insurance and bonds

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DESIGN-BUILD DISADVANTAGES (CONT'D)

• Difficult to write performance-based specifications

• Case law is less extensive

• Designers and contractors must be experienced and qualified

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ENGINEER/PROCURE/CONSTRUCT (EPC)

• Technology and process dependent

• Used in industrial construction

• Requires a significant amount of engineering

• Mechanical/electrical intensive (piping, instrumentation)

• Typically involves large pieces of engineered equipment (e.g. paper machines, vessels)

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INDEFINITE DELIVERY/INDEFINITE QUANTITY

• Contracts signed for undetermined amount of work for limited time.

• Work executed through “task orders.”

• Task orders have dollar cap (relatively small).

• Task orders may be competitively bid or assigned.

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COMMERCIAL CONTRACT TERMS

• Stipulated Sum Contract (Lump Sum Agreement)

• Contractor assumes risk, owner implicitly pays more

• Separate designer and contract entities in general

• Provides owner advance knowledge of construction costs

• Costs can only be changed with owner approval

• Competitive bid process usually used

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COST-PLUS-FEE AGREEMENTS

• Separate designer and contract entities in general

• Shifts risk from contractor to owner

• Contractor is reimbursed for actual project cost plus an amount for profit and overhead

• The contract must clearly define what is reimbursable and what is included as overhead and profit

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UNIT PRICE AGREEMENT• Separate designer and contract entities in general

• Often used for public works projects

• Material quantities are distributed to potential bidders for purposes of estimating unit cost

• Bidders base estimates on listed quantities and bid a unit price for each item

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UNIT PRICE AGREEMENT (CONT'D)

• Payment based on the number of units installed

• Neither the owner nor the contractor know what the project cost will be

• Approach allows estimator to spend more time focusing on the most economical approach to the construction process

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DELIVERY SYSTEMS & COMMERCIAL TERMS

• Project delivery systems and commercial terms can be cross-matched

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DELIVERY METHODS, COMMERCIAL TERMS, & BASIS OF AWARD MATRIX

h

Delivery Methods(1)

Commercial Terms(2)

Basis of Award(3)

(a) Base Contract

Design-Bid-Build Stipulated LS Negotiated

Design-Bid-Build-Warranty

Unit Price Competitively Bid

Design-Build Cost Reimbursable Negotiated

Design-Build Stipulated LS Best Value

EPC Cost Reimbursable Negotiated

D-B-O-T Stipulated LS Competitively Bid

(b) Changes to Base Contract

Change Orders Time & Material Negotiated

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ALTERNATE METHODS FOR CONTRACT AWARD

• A+B (Time + Cost, Multiparameter)

• Best Value (Price + Quality)

• Bid Averaging Method

• Optionally Combined Bidding

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WHAT IS A+B BIDDING?

• Basic Formula

(A + B x RUC with I/D) or

(A + B x RUC with LD)

• Bid value = A + B x RUC

where, A= the contract amount

B = total number of days (working or calendar) proposed by the bidder

RUC = Road User Cost

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WHAT IS A+B BIDDING? (CONT’D)

• Incentive

= (B - actual time charged) x $ RUC/day

• Disincentive

= (Actual time charged - B) x $ RUC/day

• Liquidated Damage - may be combined with or used instead of I/D

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PROPOSED OTHER PARAMETERS

• Basic Formula

(A + B x RUC with I/D) or (A + B x RUC with LD)

• Other Biddable Parameters

• Warranty Credit -- Maryland DOT

• Safety -- Utah DOT

• Past Performance -- Ontario MOT, Canada

• Warranty with Performance Payments -- Alabama & Michigan DOTs

• Lane Rental -- Arkansas, Maine, and Virginia DOTs

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PROPOSED OTHER PARAMETERS (CONT’D)

• Other Non-Biddable Parameters

• Warranty -- Indiana DOT

• Quality -- Consultant input

• Performance -- Construction Industry Institute (CII)

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OTHER BIDDABLE PARAMETERS• Warranty Credit

• Bid is adjusted downward on a pro rata basis if the contractor provided more than the minimum required years of warranty

• Safety

• Contractor bids traffic management-related items separately on a lump sum basis

• Performance-related specifications are provided for traffic control

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OTHER BIDDABLE PARAMETERS (CONT’D)• Past Performance

• Contractor’s bid is adjusted downward or upward based on past performance

• Example performance parameters

• Quality

• Schedule

• Cost

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OTHER BIDDABLE PARAMETERS (CONT’D)

• Warranty with Performance Payments

• Warranted portion is bid lump sum

• Two methods

• Retainage system

• Bonus system

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OTHER BIDDABLE PARAMETERS (CONT’D)

• Lane Rental

• Contractor bids on the total amount of time in days or hours that a lane, a shoulder, or a combination of lanes and shoulders are planned to be taken out of service

• A daily or hourly rental fee is assessed by the agency

• No Bonding required

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OTHER BIDDABLE PARAMETERS (CONT’D)

• Warranty

• Contractor provides extended warranties on satisfactory performance of certain parts of or the whole project

• Quality

• Percent Within Limits (PWL) Concept

• Performance-Related Specifications (PRS)

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OTHER BIDDABLE PARAMETERS (CONT’D)

• Performance

• Contractor is awarded incentives or assessed disincentives based on project performance

• Example performance parameters

• Quality

• Cost

• Schedule

• Safety

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BEST VALUE (PRICE + QUALITY)

• Bidders submit price and technical/management proposal.

• Proposals are scored and parameters weighted.

• Bidders may be called for discussion, and submit best and final offer (BAFO).

• Contract awarded to most advantageous plan (best quality/price).

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BID AVERAGING METHOD

• Contract awarded to bidder closest to average of all submitted bids.

• Reduces risk of awarding project to “bad” low bid, or contractor compromising quality to win or stay within bid.

• Contractor more likely to absorb changes/ less likely to file claims.

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OPTIONALLY COMBINED BIDDING

• Projects divided into biddable packages, or grouped together to form larger package.

• Contractors allowed to bid on divided projects and combined project, or any combinations.

• Used to open competition among bidders and reduce contract costs to agency.

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ProjectDeliverySystem

Example Unique Features

Design-bid-build

Manitowoc RiverBridge ProjectRoosevelt Bridge

-fosters competitive bidding-takes time for complete design-method-based specifications

Design/CM-bid-build(fast track)

World Wide Plazafrom Skyscraper

-time is money-design is just ahead of construction

EXAMPLES

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ProjectDeliverySystem

Example Unique Features

Design-bid-build-warranty

WisDOT asphaltprojects (3 –1995, 4–1996, 2-1997)

-from method to performancespecifications- transferring quality assurance(QA) to contractor for a price

Engineer/procure/construct(industrialconstruction)

St. James Styreneplant

-time to market is important-mobilize to field (construction)when >50% design complete

EXAMPLES (CONT'D)

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ProjectDeliverySystem

Example Unique Features

Design-build

I-15 SaltLakeCity,Utah

-designer and contractor can be separateentities or same organization-facilitates integration of design andconstruction

EXAMPLES (CONT'D)

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FINANCING- OWNER/CONTRACTOR CONTRACT • Self-funded- small residential projects

• Banks- short term construction loans or long-term mortgage

• Taxes- used to pay for schools, roads and bridges (TEA-21), and other pubic works

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FINANCING (CONT'D)• Bond issue- used when taxes do not cover expenses-

stadiums, large projects; must be approved by voters

• Bartering (in regions where money is scarce); e.g., services provided in the former Soviet Union for oil rights

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EMERGENCY PROJECTS

• Tampa, FL... tanker exploded and destroyed a bridge- rebuilt in 17 days

• California - an earthquake destroyed a major bridge

• Caused ~$1M per day in economic damage to the region

• Contractor earned $14M in early completion incentives

• South Carolina - a large textile plant was destroyed and completely rebuilt in 181days

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PRACTICAL RECOMMENDATIONS

• A successful project does not just happen!

• There are numerous factors, general and project-specific, that can influence the outcome of a project

• Project-dependent factors: certain types of projects have different signs of success