Design & Build

Design – Build concept:

Design-Build means hiring a single entity for final design and construction, in lieu of the standard and proven practice of keeping the design process separate from construction contracting (design/bid/build). Design-Build is one of many innovative contracting methods. It’s been successful for many years in Europe on some types of transportation projects and is widely used in US and in Europe on plant and facility construction projects.

Design-Build’s attractiveness lies mainly in the promise of innovation stemming from the Designer/Builder collaboration. Traditionally, designers design the product the public wants, using their knowledge of construction methods and practices. Builders then take the plans and build accordingly. Possible design improvements during construction can become somewhat costly and time consuming since changes require change orders, new specifications, etc., and the designer's work is typically over with when construction begins. With the ideal Design-Build project, initial design takes place, designers obtain feedback from their builder partner, design proceeds further, construction begins, feedback continues, design is completed, and then construction is completed. If the process is applied to the right project with the right controls in place, the public gets a quality product in a shorter time.

The Advantages of Design - Build:

Saves money - A modified design-build approach can improve bidding process and decrease the amount of design needed.

Saves time - In projects where completion time is extremely important, and when other factors are present, Design-Build may be a viable alternative.

Provides creative solutions - Design-build approaches have enabled to use an innovative contract procurement method to obtain financing for projects.

Firm price at a very early stage - Another advantage of a design-build approach is that it provides you with a firm price for a custom-tailored program at a very early stage. This not only meets your needs, but the needs of the organization financing your facility.

Market Volume:

The demand for cost and time efficiencies has never been greater. That's why more and more public agencies, corporations, and developers are turning to design-build for infrastructure projects.

Throughout most of the 1900s, most commercial construction projects were design-bid-build. Over the past ten years, the increase in the number of design-build projects has been astounding, from 15% in 1990, to 35% in 1999, according to the Design-Build Institute of America.

The worldwide market for toll highway development is estimated at $500 billion.

On June 9, 1998 the President signed the Transportation Efficiency Act for the 21st Century.

Congress saw how design-build benefited the highway projects of California's Transportation Corridor Agency (TCA) and believed that those benefits could definitely be accrued on highway projects funded under TEA-21. Congress believed that highway legislation for the 21st Century needed to embrace new project delivery systems.

http://www.dbia.org/

Design-build is the project delivery system of choice on more than 50 percent of the non-residential construction projects in the European Community and is used on more than 70 percent of the non-residential projects in Japan, according to recent industry publications.

Design – Build explores new markets as public sector shows interest:

Design-build as a project delivery system is reaching for a new level of maturity. Markets are expanding, private sector owners are more willing to use alternative delivery systems and the public sector is opening up to design-build as never before. But, as with any successful market, competitors are racing to capitalize on the trend, causing firms to scramble to distinguish themselves from the crowd.

Nowhere is the trend toward design-build seen more clearly than among public owners. "The government is becoming more receptive to the idea of design-build, but there remains legislative restrictions," says William Melsop, CEO of The Austin Co. The U.S. Postal Service, a long-time Austin client, has been a leader in the federal use of design-build, he says. Now, the Army Corps of Engineers is beginning to take a serious look at design-build, he adds.

On the state level, Florida is pointed to as a breakthrough state for legislation. "Florida's decision to allow qualification-based design-build selection is a major change," says Preston Haskell, CEO of The Haskell Corp. He notes that most public jurisdictions that use design-build consider qualifications but pay a lot of attention to other factors. "Florida's may be the most advanced in the nation in considering qualifications."

Texas also recently enacted a qualification-based selection law. California is considering expanding its use of design-build, "but the engineers and architects have a strong lobby and they see design-build legislation as a threat," says Jeffrey Beard, executive director of the Design-Build Institute of America, Washington, D.C.

Public infrastructure projects have been one of the holdouts in the use of public sector design-build. "The water and wastewater markets have tremendous potential for design-build, but progress has been slow," says Beard. However, the use of design-build in transportation projects, led by the $1.3-billion Interstate 15 highway reconstruction project, is making significant inroads for alternative project delivery.

With a general acceptance of design-build in the private sector and the public sector moving that way, more firms are entering the market. For example, Edwards and Kelcey Inc., Morristown, N.J., and KCI Technologies Inc., Hunt Valley, Md., both engineering firms, recently established contracting divisions because of the interest in design-build from the telecommunications markets (ENR 4/20 p. 44). And in May, Gresham, Smith and Partners and D.F. Chase Construction Inc., both of Nashville, recently formed a design-build joint venture, GSC Design-Build LLC.

Worrisome

Many design-build firms worry less about the entrance of experienced firms and teams into the design-build fray than of one-time partnerships that may not be equipped to deliver on design-build's promise. "We think that design-build works best when the design is performed in house," says Melsop. "Where a contractor simply subcontracts to an architect, there are some inherent conflicts that may interfere with the process."

Says HBE Corp. CEO Fred Kummer: "If we don't design it, we don't build it." His firm specializes in healthcare, hospitality and financial institution projects. He dismisses ad-hoc partnerships in the design-build process. "These teams are building a Tower of Babel. You can't just take an architect, an engineer and a contractor, put them in a bag and shake them up and produce a design-build team," he says. "Too often, it is the participant with the loudest voice that is the one heard, and that isn't the way design-build is supposed to work."

"Firm qualifications are critical and there is no effective watchdog to police them," says McClier President Grant McCullagh. This becomes a particular problem when firms combine for a single job. "What happens six or seven days down the road when there's a problem with the facility?" he asks. "The project insurance has long since expired and these firms may not have talked since the job."

Qualification is one of the hottest topics in DBIA. "We talk about certification a lot, but there are several ways to approach certification," says Beard. "Design-build requires expertise in multiple disciplines," including architecture, engineering, contracting and management, he notes. So certification would most likely be on a firm-wide, rather than an individual basis, he says.

DBIA has not yet decided on a particular approach to certification but plans to produce a set of model design-build contracts. "We had partnered with the Associated General Contractors, but when the American Institute of Architects declined to participate, we decided to go ahead on our own," says Beard. He says DBIA was concerned that designers would feel that their interests would not be represented. Model contracts should be finalized before the end of the year, he adds.

Many firms are going beyond design-build. "The trend is for companies to provide a wider array of services," says William R. Johnson, president of The Carlson Group. "Some have taken it to the point where they have become real estate service firms rather than design-build firms." Adds Kummer: "It is the companies that continually reinvent themselves and adapt to changes in the industry that are the ones

By Gary J. Tulacz

© 1998 Engineering News-Record

http://www.designbuildmag.com/enr615b.asp

Since the early 1990s, significant interest has been directed at ways to make the federal-aid highway program more cost-effective and efficient. Both the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA) and the Transportation Equity Act for the Twenty-First Century (TEA-21) of 1997 included provisions calling for the development and application on techniques to better manage the costs, duration, and quality of transportation projects. With the current downturn in the domestic economy, state transportation agencies (STAs) are under increasing pressure to improve the performance of their transportation programs and projects, while dealing with budget cutting and downsizing efforts.

Innovative procurement techniques relating to project delivery represent an emerging area of focus for those concerned with highway project cost and schedule control. Among these techniques, one of the most promising is design-build project delivery. This is a method of project delivery in which the design and construction phases are contractually-integrated activities of the project development process. The term can also be used to encompass services in addition to design and construction, such as maintenance, operations, and finance (i.e., design build-maintain, design-build-operate-maintain, and design-build-finance). Franchise and concession agreements are included in the term if they provide for the franchisee or concessionaire to develop the project that is the subject of the agreement. In contrast, design-bid-build is the traditional project delivery method for highway projects, in which design and construction are distinct, sequential steps in the project development process, subject to separate procurement approaches and processes.

While design-build project delivery is not new to the construction community, it is relatively new to the highway construction industry. Interest in design-build by the Federal Highway Administration (FHWA) arose due to the success achieved in other infrastructure development sectors, particularly relating to vertical construction (buildings). As a result, FHWA established Special Experimental Project Number 14, entitled "Innovative Contracting." SEP-14, as it is known, allows state transportation agencies that administer federal-aid highway projects to apply the design-build project delivery approach to a selected number of projects in order to ascertain the usefulness of this alternative project delivery technique. To date, approximately half the states and a few metropolitan areas have instituted at least one design build project under the SEP-14 program. While individual STAs may have evaluated design build projects under SEP-14, there has not been a comprehensive national effort to evaluate these projects on a uniform basis.

Design - Build projects:

Utah's I-15 Design-Build Project

Utah's $1.59 billion Interstate 15 design-build project provides for the reconstruction of 26 kilometers of interstate mainline and the addition of new general purpose and high-occupancy-vehicle (HOV) lanes through the Salt Lake City metropolitan area. The project also includes the construction or reconstruction of more than 130 bridges, the reconstruction of seven urban interchanges, and the reconstruction of three major junctions with other interstate routes, including I-80 and I-215. In addition, the project provides for the construction of an extensive regionwide advanced traffic management system.

Westview Interchange, North Vancouver

To provide the required vertical separation in the interchange, the original design called for lowering Highway 1 and raising Westview Road. However, following a design-build review, only Westview Road was adjusted. Traffic disruption was minimized, costs were reduced by between $3 million to $5 million and the schedule was reduced from about 30 months to 15 months. The Westview Interchange opened to traffic in February 1997, removing the last traffic light on Highway 1 between Horseshoe Bay and Hope.

Johnson-Mariner Connector, Coquitlam

The design-build consortium that constructed the Johnson-Mariner connector not only saved money but produced a more effective structure than other designs.This major bridge-overpass is aesthetically pleasing, provides better connectivity on each side of the overpass than competing designs and reduces the construction risk resulting from poor ground conditions. Rather than use an earth embankment at the north end of the project, as proposed by other bidders, the winning proponent's design eliminated the need to use $900,000-worth of BC Transit land. The Johnson-Mariner Connector Connector opened in November 1996.

Denver Toll Beltway

In just over two years, contractors slicing nearly 30 miles of a new toll road through rolling prairie around Denver's eastern fringes have carved out the next ring of development around the booming Colorado capital. Defining their roles before the 1995 award of a $324.5-million, design-build contract took almost as long but was key to moving the job's first phase toward its scheduled June completion date.

Platte River Constructors Ltd. (PLRC), now a joint venture of Morrison Knudsen Corp.'s National Projects Inc., Boise, and Fluor Daniel Inc., Irvine, Calif., is building the second segment of E-470, a privately financed toll road fitted with state-of-the-art technology to electronically collect tolls, handle billing and monitor for violations. When complete in June 1999, the road will provide a faster connection to Denver International Airport from the sprawling suburbs, taking a projected 29,000 vehicles daily from the city's congested freeway system by 2000.

PLRC is on schedule to open the project's first two segments, a 9.4-mile northern section providing access to dia, and a 7.1-mile southern segment, by June 30. The remaining two segments total 12.2 miles and are due for completion by June 30, 1999. They will combine with a 5.2-mile section completed in 1991 (ENR 2/18/91 p. 28) A fourth 12.2-mile section, expected to cost $250 million, would link with Interstate 25 north of Denver but remains unfunded.

"There was a time we wondered if we would get to this point," says Stephen D. Hogan, executive director of E-470 Public Highway Authority. The job was unraveling when Hogan came on board in 1991. High construction costs and unrealistic revenue projections had money lenders worried. mk agreed to act as the agency's financing agent in 1992, one year after being selected the design-build contractor. To make the job financially attractive, it worked with design engineer mk Centennial Engineering Inc., Arvada, Colo., to realign the route, moving the southern portion 2.5 miles west of the original alignment. That brought the road closer to users, reduced its length and increased projected toll revenues.

Build-Operate-Transfer:

The build-transfer-operate (BTO) model was pioneered in the 1991 development franchise agreement for the SR91 Express Lanes in California (Euritt et al.. 1994, 24). Adapted from the more common build-operate-transfer model, it was designed to provide additional protection to the private sector from tort liability during the operation phase. In the litigious United States, concerns that inevitable accidents on the toll road during its 35-year franchise would expose the private sector to unacceptable risk prompted the state to assume ownership of the facility immediately after construction. Sovereign protections from liability protect governments from tort claims on public property, but do not apply to private developers (Lockwood 1995, 16). Instead of owning the facility during operations, the private sector enters into an operating lease before the facility opens to traffic.

Build-operate-transfer worldwide:

The build-operate-transfer (BOT) model is the oldest and most popular form of development franchise worldwide. Under this approach, the private sector acquires right-of-way or an existing facility prior to construction, makes improvements, operates and collects revenues under the terms of the agreement, and transfers the facility back to the public sector upon expiration of the franchise. Early infrastructure development charters evolved into the build-operate-transfer franchises used today. 

The BOT system is developing on all the continents and most countries in the world. This technique is used by governments for restructuring their economies, rationalizing the management of their economic services of general interest, financing and realizing infrastructures, get the local communities out of debt, ensure a better technical performance of the activities given in concession thanks to the assets and the know-how of the most qualified operators in the field related to wich they are called upon at the end of a negotiation or an open tender. One expects improved living conditions for the population whose needs in equipment and public utilities will therefore be better satisfied.

Financing In Place For Greece's Rion Antiron Bridge. Bank of America plays major role as adviser and joint arranger

Athens, 12 December 1997 - The signing took place in Athens today of a ECU 800 million project financing for the design and construction of the Rion-Antiron Bridge, a 3 km sea crossing which will span the western end of the Gulf of Corinth. It is the first major private project financing in Greece.

Bank of America is Adviser to the concession holder, Gefyra, a joint venture company between Groupe GTM of France and Greek contractors. Gefyra was awarded the concession by the Greek Government to design, finance, build and operate the Rion-Antiron Bridge.

Bank of America is also Joint Arranger with Bank of Tokyo Mitsubishi of a ECU 407 million Letter of Credit facility issued to cover project risk during the construction period. The banks have arranged a syndicate of banks to underwrite the Standby LC in favour of the European Investment Bank (EIB), which is unable to take construction risk. The EIB is making a ECU 370 million loan.

Construction of the toll bridge is expected to be completed by the end of 2004. The seismic nature of the region combined with sea water depth exceeding 60 metres, will require a two year detailed design phase followed by five years for the construction of the bridge and approach viaducts.

BankAmerica Corporation is the fourth largest US bank holding company with assets of $258 billion, and a leader in global project finance. The bank has a strong track record in infrastructure projects and has played a prominent role in a number of projects financed under the UK Government's Private Finance Initiative including the Dartford Bridge, the Skye Bridge and the Second Severn River Crossing. The bank's founder, A P Giannini, underwrote the bonds which financed the Golden Gate Bridge across San Francisco Bay.

U.S. Roadways DBFO and BOT projects:

Many of the first U.S. roadways were privately financed by associations, users and the automotive industry. In some countries, concessionaires are used to allow corporations with mixed capital structure or privately owned corporations to finance, design, build and operate toll roads.

Virginia DOT has entered into a $131.6 million five-year contract with VMS Inc. in a pilot project to provide turnkey maintenance services on 160 km (101 miles) of I-95 and 95 km (59 miles) of I-77. The services provided include all routine maintenance such as mowing roadsides, painting pavement markings, snow removal and operations up to and including major rehabilitation and restoration work. The agreement requires that VMS provide maintenance services that are equal to or better than the maintenance services that VDOT historically provides. VDOT estimates that this approach will save $22 million over the life of the contract. Since the 1995 Public-Private Transportation Act was passed, VDOT has received eleven conceptual proposals for various design/construction/maintenance agreements.

Agencies:

CA–Build Operate Transfer (transfer after construction)–SR-91 Express Lanes $126 million

CO–Toll Road, E-470 $341 million

MA–Operate/Maintenance–Essex County highways $3.7M

MO–Build Operate Transfer, Lake of the Ozarks Bridge, $23.6 million

NM–NM 44, NEPA, design, construction management, maintenance for 15 years ($295 million including $62 million for design, administration, and warranty)

VA–Build Operate Transfer–Dulles Greenway $325 million

VA–I-95 Operate/Maintenance $131.6 million

New Brunswick, Canada–Design-Build-Operate-Maintain, Prince Edward Island Bridge

Shadow tolls:

Shadow tolls are fees paid to a facility operator by an owner (not by the facility users) for the services provided by the operator over the life of the franchise agreement. The shadow toll amount is based upon the type of vehicle and the distance traveled. This contracting technique is both an element of the owner’s highway finance plan and a contracting mechanism where a private developer / facility operator accepts the risks of designing, building, financing and operating (DBFO) a highway facility. The concept of shadow tolls is particularly applicable to public/private partnerships and it is being used in the United Kingdom to develop a private sector of the highway industry that has the capability to perform all functions of the highway agency.

The benefits of financing and contracting under the shadow toll concept include the following:

Within the broad concept of privatization, it cultivates the development of DBFO firms

It supplements the concept of DBFO and provides an incentive for the consideration of life-cycle costs in all aspects of the program

Within limits, the risk of traffic projections can be transferred to the DBFO company

The owners monetary obligations for project development and operational costs are known in advance and guaranteed for a particular traffic level for the length of the franchise.

The DBFO company assumes the traditional owner’s responsibilities for a facility over the length of the franchise thus mandating a long-term approach to planning, design, construction, maintenance and operation of a facility. Quality must be considered in every phase of the franchise plan in order to build a cost effective facility and operate it at the lowest possible cost. The developer must plan for and design a facility which meets the expected needs of the projected traffic. The franchise agreement provisions require that the facility be operated and maintained in a manner which will minimize the impact to the road users.

The U.K. Highways Agency claims that the eight shadow toll contracts signed to date will result in a 15% savings in comparison with the costs of traditional project development, however, this savings is very sensitive to the discount rate. The purported savings is being disputed by other branches of the UK Government.

Payments do not begin until the roadway is open for traffic. This is a powerful incentive to expedite the project delivery process.

Other quality incentives include bonus payments for accident reductions and payment deductions for lane closures during maintenance.

The URS / Greiner’s March 1998 Report titled "The Selective Use of Shadow Tolls in the United States" documents the applicability and use of this concept.

Team Approach Contracting

Before beginning with the pre-construction phase of a project it may help to understand some successful models and patterns of team approach contracting. The most popular technique is design-build, which is in essence a revival of the age-old building practice of single-point responsibility. Single-point responsibility contracting has deteriorated in the twentieth century as architects, contractors, and owners have lined up in opposite corners protecting their own interests. Frustrated customers and contractors are now delighted when they experience the benefits of team-approach contracting and often later seek out only builders that include this discipline in their services. Why? Because it works! Instead of allocating risk, the team members share risk. They sit around the project table and work toward the same goals instead of grabbing at each other's piles. So why are people reluctant to take the plunge? Our "consumer beware" society perpetuates an "us against you" mentality that grates against writing a cost-plus-type contract. Another reason is it requires a level of sophistication, leadership, and effort by the project's owner. When the owner is not capable or is ignorant on how to proceed, the contractor also may not be informed enough to "lead the leader" or to take charge.

As we go through some basic principles of design-build we will follow up with some examples and models and look at patterns to follow. One striking success story of a new convert to the design-build delivery system is the state of Utah. With its recent award of a $1.5 billion design-build contract to Wasatch Constructors to reconstruct Interstate-15, Utah has thrown their hat into the design-build ring. With the upcoming Olympics in 2002, the only way possible to accomplish everyone's budget, scope, and time goals was to try something radical. Consistently, the nightly news has reported this project as being "under budget" and "ahead of schedule."

Whether a project is architect led or contractor led, the design-build method sets up a team or partnership with the same goals. It avoids the resulting finger pointing of design-bid-build methods. Design-bid-build methods can become a two-edged sword when designers do not guarantee the outcome of the project. As a general contractor, if you are going to implement the design-build system you must understand and promote it. In most cases the general contractor will take the leadership position even if it is a "shadow leadership" supporting the owner. Most owners are ill prepared or too busy to put forth the effort required to initiate a design-build project. General contractors must display knowledge and abilities in management and leadership skills in order for owners to have confidence in their abilities and to want them as part of the design-build project delivery team.