Past its growing pains, design-build is now capable of moving the industry forward
It’s fair to say now that transportation design-build has graduated from its evolutionary phase. During the last 10 years, the growing pains and changes in the process have had a profound effect on all involved. This article focuses on these changes and how the design community has adapted to them.
To begin, why the attraction to design-build? While owners who have used the process continue to debate whether it’s cheaper than traditional project delivery, nearly all of them concur it is better from a quality and risk standpoint—and certainly faster. Of these attributes, speed proves to be the greatest lure. Expedited projects commit capital funds quicker and give owners more success in meeting public safety, congestion management and program objectives. The number of design-build projects has steadily grown in all regions across the nation. In January 2003, the Federal Highway Administration (FHWA) issued its final rule permitting the use of design-build procurement for qualified projects in excess of $50 million. Projects below this threshold also are being advanced using FHWA’s special experimental project, SEP-14. Through 2002, over 300 design-build contracts have been approved using SEP-14; approximately 50% of them were less than $10 million. Further opportunities avail themselves under FHWA special experimental project SEP-15. Initiated in October 2004, SEP-15 is aimed at fostering innovative approaches to the overall project development process including alternative project financing such as funding through public-private partnerships. These “P3 contracts” prove to be good models for design-build delivery.
Moving into the mainstream
Changes have occurred in several areas. The statistics prove that additional players are entering the game from all backgrounds. Every year, new owners are enticed to experiment with how design-build can supplement their current program. Once-shy contractors are getting bolder by realizing that design-build is no longer a fad and keeping up is a matter of financial necessity. The greatest infiltration has come from design consultants in response to diminishing traditional workload due to a slowdown in DOT spending.
More consultants also are using design-build opportunities to explore and expand into new geographical areas and take on high-profile projects to increase marketing exposure and boost recruiting.
Project types are changing as well. With some notable exceptions, design-build was traditionally reserved for well-defined, small- to medium-sized new jobs typically where an accelerated schedule was the driving force. Now, alternative-delivery projects have few restrictions and are even being used successfully for rehabilitations where project scope is a moving target. Variations such as CM-at-risk, design build operate maintain (DBOM) and public-private partnerships (P3s) also are gaining popularity.
With the influx of additional projects and participants, pursuit and competition to win design-build assignments has intensified. It was not long ago that consultants seriously chasing design-build work were in a select group. Bad experiences, up-front costs and risk were keeping many of the prominent designers away. Today, the field is no longer limited and simply putting in the most effort on costing the work does not guarantee success. Fate is now tied to technical scores, proposal quality and scheduling along with the old standby—price. Pursuit strategies have become more organized. The teaming “frenzy” triggered by issuance of a request for proposal (RFP) has been replaced with calculated arrangements that lock in contractors and engineers well in advance of the project advertisement.
While the projects and people have changed, so has the selection process. Hard bid (low-cost) selection is giving way to a two-step method short-listing three to five teams to prepare both price and technical proposals along with an oral interview. Institution of stipends has allowed owners to retain rights to ideas and recommendations presented in each proposal. An even greater benefit to consultants, these monies defray proposal costs and control overhead. Selection committee makeup has gone from contract management personnel to diverse panels consisting of technical experts, project managers and executive leadership.
With a recent string of court challenges on design-build project short listing and selections, these panels are relying on more objective, defensible evaluation criteria using scoring formulas with weighted variables for price, technical quality, road-user costs and time. Increased emphasis also is being placed on warranties and scheduling. To further strengthen judging fairness, winning teams are being held accountable for all points in their proposals, taking them literally as a “book of promises.”
Parallel to these alterations in selection, the design process also has been revised to meet greater demands on accelerated schedules, especially for structures. Bridge design no longer follows a logical top-down approach. Instead, critical path items are designed first, out of sequence, to accommodate long lead times in fabrication and delivery. This “component” design method can greatly complicate the project engineering especially when using sophisticated design codes like the AASHTO Load and Resistance Factor Design Specifications which is intensely iterative and requires equations that are codependent among multiple parts of a structure.
Contractors also are requesting that plans provide information on erection sequencing and other details relating to means and methods that can be beyond the expertise areas of many engineering consultants. On pace with the rest of the industry, design-build also has become burdened with legal precautions (mainly centered on assignment of risk) and detailed insurance requirements that include high limits on project-specific liability policies. Owner-controlled insurance programs and contractor-controlled insurance programs are being tested to reduce coverage costs.
Riding this wave of changes is the designer whose role continues to be redefined. Most noticeable is an elevation in status. Early projects saw engineers being used to simply perform the design, prepare the drawings and get out—“a necessary evil.” Today, the engineer is treated as a professional and equal partner who acts more as a consultant involved with the job from the conceptual stage right through completion of construction. With demonstrated capabilities in proposal preparation, fostering client relationships and intelligence gathering the consultant has become a key instrument to success. Consultant relationships with owners have become double-sided. Once the only game in town, the big DOTs and transportation agencies are now seeing designers struggling to develop new bonds with successful design-build contractors without compromising the connection to their traditional client base. At times, the consultant is caught in the middle of a very delicate balance.
Rewriting the playbook
What are designers doing to adapt to all these changes? Responses range from innovative to common sense. On the business side, consultants are stepping up efforts in marketing design-build services. Heightened presence in organizations such as the Design Build Institute of America is one indicator. With a good membership mix of owners, contractors and consultants these organizations offer a forum to network and stay current on relevant federal and state legislation.
Another example is expanding the client base to include “megacontractors” with sizeable bonding capacities and a wide geographical reach. Some engineers and contractors are forming exclusive alliances saving time in the contractual phase and scoring high with owners who look for teams having a history working together. Maintaining a suite of these relationships with general contractors specializing in different areas allows the engineer to match opportunities with the right partner in order to be more competitive.
Consultants are becoming more savvy about project selection. It is not unusual to see experienced designers stepping away from choice RFPs because demands in either staff or overhead outweighed current available resources.
Contractor interest is another variable. Engineers and their construction partners view projects from different perspectives. A good opportunity for one may not be so for the other. Teams also are becoming more cautious when it comes to high-risk emergency jobs which favor design-build delivery methods to expedite construction. Although high profile, these projects typically require extremely compressed schedules and carry heavy liquidated damages.
For protection, many consultants have instituted formalized “go/no go” evaluations for all design-build RFPs which require budgets for up-front work, estimates of fee potential and risk assessments. Others must secure written approval from executive management or the firm’s board of directors before engaging in pursuit. Responses to RFPs are getting more detailed and smarter. Increased effort is spent uncovering all of the project “hot buttons” and tailoring proposals, specifically, around them.
Where permitted, some designers are electing to accept subordinate roles and play the field on multiple teams trading revenue potential for improved odds of winning. Successful teams have learned to manage the creative process so that ideas remain confidential and unique. Some teams no longer use the formal Q&A process to test acceptance of innovative ideas, opting instead to run “silent and deep.”
At times, strategic risks are taken that stretch the limits of the owner’s standard requirements. Concepts deemed too much of a gamble at pre-bid emerge later as value-engineering proposals after award. Through experience, engineers have learned to produce highly optimized designs tailored specifically to their contractor’s strengths in a manner that is efficient, cost effective and code compliant. Full-scale testing and laboratory analyses are now used alongside design computations to validate new ideas, means and methods and materials.
Project execution for design-build is being approached differently than traditional backlog. Immediately apparent is the deployment of technical staff. Because design-builds have become so demanding and with zero tolerance for a learning curve, design firms are exposing more personnel to these projects on a rotation basis to offset burnout and increase their average experience level. Taking a lesson from the contractors, engineers are applying critical path methods to organize their design tasks so they can be integrated into the overall project schedule. Extreme detail is being applied to the work breakdown structures used to define the design component of the project. For example, it is no longer unusual to see one, multi-span bridge described by over 200 design and drafting activities. Out of necessity in meeting ultra-accelerated schedules, engineers strive for paperless operations by routinely using dedicated project websites and electronic submittals to contractors, fabricators and reviewers.
Standardized QA/QC procedures have become even more important. Sacrificing quality-control checks and the necessary quality assurance process can be tempting in the fast-paced (sometimes chaotic) environment of design-build; however, better firms have learned that this is a dangerous shortcut. In fact, many engineers have strengthened their quality requirements through the use of project execution plans, independent QC oversight and adoption of ISO 9000 procedures.
Many of these changes stem from new management strategies geared, specifically, to alternative-project delivery. Some consultants have adopted a practice approach governed by a market leadership team comprising experienced senior managers that guide all of their firm’s design-build operations. These groups function as “red teams” that move among various projects providing oversight and consultation. Other engineering firms follow a regional model that pushes responsibilities for gathering intel and cultivating teaming relationships down to the local manager level in a particular area. In some cases it is a mix of both.
Legal counsel is active in developing standard teaming agreements and contract language along with advising on clauses dealing with warranties and standard of care. On larger jobs teams are weighing the merits of forming joint ventures or limited liability corporations. Managers are being trained in negotiating contractual incentives, success fees and compensation for up-front effort. Firms committed to growing design-build into a sizeable percentage of their core business also are consulting with financial advisors on the mechanics behind P3s and alternative coverage packages for professional liability insurance.
Transportation design-build has clearly earned its legitimacy, in part, by the evolutionary changes in the process. Wise owners and contractors are choosing engineering consultants that are adapting to these changes and innovating new ways to ensure success in the future of alternative-project delivery.