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Innovative Contracting

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Presentation on theme: "Innovative Contracting"— Presentation transcript:

1 Innovative Contracting
UDOT Director of Construction and Materials Kris Peterson Innovation is a thing of beauty

2 Innovative Contracting Works to Improve the Process
Reduce impact to public Reduce overall project time Limits Schedule Growth Reduce overall project cost Limits Cost Growth Our goals are to: Reduce impact to the public Reduce project time Reduce project cost

3 Types of Innovative Contracting
Contract Manager / General Contractor (CMGC or Design-Build A + B Bidding Lane Rental Warranties Incentives Performance-based When we think of innovative contracting we generally consider the latest approach which in this case is CMGC; however, there are many innovative techniques and they can be combined. For example we could combine Lane Rental with Design Build or CMGC.

4 Timeline Comparison Design Bid Build Design Build CMGC/DB CMGC
Select Advertise NTP Open Bid Negotiate B1 Bn B2 Traditional In the Traditional Design Bid Build contracting process we complete the design, acquire the Right of Way, Advertise our solution, Select a contractor based on low bid, and proceed with construction. We attempt to optimize the design process and the contractor attempts to optimize the construction process. This is not an optimization of the full process which includes design and construction. Design Build Design Build improved this process by combining the design and construction process under one contract. This facilities the exchange of information between the designer and the contractor. The designer does not have to consider design alternatives but can proceed with a design that the contractor can execute more efficiently. Design and construction times are reduced. Any savings generated stays with the contractor as a just compensation for the risk he assumes. The contractor takes on more risk, but because he has more decision control over the process he is able to control delivery of a quality product. Right of Way acquisition is a risk the contractor assumes. The contractor must clear segments of project for which the design is complete before construction can begin. In this process the owner can suggest design preferences but cannot implement them without the contractors consent because the contractor owns the design. This process requires more up front preparation to include about 10% design to prepare an RFP of about 500 pages. The bidding contractors also must perform additional work to include about 30% of the design to be selected as the contractor. This costs the project a stipend for competing contractors and all design material must be evaluated with additional effort on the part of the owner. CMGC Contract Manager/ General Contractor CMGC is a contracting method in which the owner maintains control of the design. By involving the contractor much earlier in the design process we speed design, reduce errors, and improve constructability. Some projects have experienced a 40% reduction in design effort. The expectation is that we will reduce our cost and increase the contractors profit by reducing risk to them and us. Because the owner controls the design they can apply innovation the contractor is not familiar with. This occurred on the accelerated bridge replacement on I-215 at the 4500 South exit. Because the contractor was involved early in the design process they learned what needed to be done to implement new construction methods. Because the owner controls the design they control the success or failure of the project. CMGC can be executed in a DBB format or a DB format. If a Design Build execution style is desired then the project must be decomposed into independent severable phases. These phases need to be independent enough so that they could be subcontract them out. Then once the contractor is selected, the owner, designer, contractor teams puts together a cost model based on the defined independent phases. This sets a budget for the project and during design the budget is compared to the cost of construction. If at any time the cost exceeds the budget (ie Cost Model) and the cost assumptions are still valid, then the team can redesign, re-scope, get a new CMGC contractor, or go Bid Build. If Design Build execution style is selected for a CMGC project the owner assumes the Right of Way risk. Right of Way must be clearance before a construction phase can proceed. The owner should consider contract language to make provisions for Right of Way clearance prior to construction so that delay claims can be avoided. If the project cannot be decomposed into independent severable phases then construction cannot begin until design is complete and Right of Way is acquired. The traditional Design Bid Build execution must be followed. Design Phase Construct Phase

5 CMGC Roles Plan Design Build Bid Design Consult Contractor Negotiate
Why Innovative Contracting CMGC Roles UDOT Plan Build Design Consult Design Contractor Bid Negotiate UDOT controls the planning process for all projects regardless of the contract delivery method. However, when we begin the design process the owner control will change depending on the contracting method. In the CMGC process UDOT holds the contract for both the Designer and the Contractor. Concurrently UDOT controls the design and the innovation. The intent of engaging the contractor during design is to reduce errors, identify and reduce risk, and improve constructability. Design time is shortened because the designers can design to the capabilities of the contractor and not as much detail is needed in the design documents. Once design is complete we enter into a negotiation process with the contractor to set a price for construction. If negotiations fail we use the design to go out to a traditional bid build process.

6 CMGC Benefits UDOT Controls Design UDOT Selects Innovation
Lessons Learned CMGC Benefits UDOT Controls Design UDOT Selects Innovation No contractor would have proposed this solution in a traditional process. The added cost would have left them out of the competition. CMGC enabled us to control the design and specify the innovation. We benefited from the contractors involvement in design through their help in identifying risk and gaining understanding. The contractor gained an understand of the construction methods for a new process during design so that when construction began they were prepared.

7 Other CMGC Benefits / Risks
Why Innovative Contracting Other CMGC Benefits / Risks Benefits Reduces design time and design errors Improves constructability Identifies and reduces risk Early procurement Lower cost Risks Sole source contract Bid price needs to be 10% of EE or below Negotiation skills In CMGC UDOT controls the design and innovation and expects a reduction in design errors and an improvement in constructability. The reduction in risk should bring down cost and improve contractor profit. Project time can also be shortened by early procurement of long lead items. We are experiencing difficulties in the negotiation process because it is something we have never done before. There is also the concern that a CMGC contractor is like a sole source contractor for the construction process. Sole source contracts can be awarded on traditional projects if there is only one bidder and the bid is less than 110% of the engineers estimate. We have adopted this bid restriction for CMGC contracts. We will not award a construction contract unless the Bid price is below the Commission Approved Amount and is below 110% of the Engineers Estimate and the Independent Cost Estimate.

8 Reduce Risk to Reduce Cost & Increase Profit
Contractor Risk Owner Risk Risk In Traditional projects UDOT owns most of the risk. If we make an error in design we pay for it in change orders and delay payments. The contractors focus on our design errors as a means of increasing their profit. Their bids are structured to optimize our payments to them on items they feel certain will be over run in the construction process. Their creative energy is focused on finding our mistakes to improve their bottom line. In Design Build the Contractor assumes most of the risk to include design errors. We anticipate a higher cost for Design Build because the contractor assumes more risk, but because of competition we are not seeing a significant price increase for Design Build projects. CMGC is our approach to reducing risk and sharing the benefit. We expect to see a lower cost, shorter construction time, and less impact on the public. CMGC would like to focus the contractors creative energy on reducing errors in design instead of benefiting from them in construction. We seek a Win Win Win solution. A win for them a win for us and a win for the public. DBB DB CMGC

9 Selection Strategy Select complex projects
Why Innovative Contracting Selection Strategy Select complex projects That benefit from contractor input With third-party risk That need innovation Need early procurement Select projects with a budget emphasis Take time for design CMGC project appear to be ones that require some design effort. It should not be used on routine projects. There should be an emphasis on staying within the Commission Approved Amount. We need to take time to think through the design so that we may get the anticipated benefits during construction

10 CMGC Requires Approval
Experimental Process - SEP 14 12 Federal Projects per year 12 State Projects per year Justification required Project Development approves FHWA must also approve federal projects Because CMGC is an experimental process projects must go through an approval process. If Federal funding is involved the FHWA administration must also approve the project.

11 Contracting Process Develop RPF Advertise Selection team
Selection Criteria Price components Advertise Selection team Complex participants Region participants AGC and ACEC representatives Select & Award The RFP includes selection Criteria for 70% of the score and Price as 30% of the score The Selection team seeks transparency and balance by including industry, the region and the complex.

12 Processing Time It takes time to select a contactor. During this time the design is progressing and we loose the benefit of the contractors knowledge and experience. In the future we are seeking ways to hire the designer and the contractor at the same time.

13 Price Benefits Brings cost accountability to the table
Brings cost competition to the table Brings cost innovation to the table Provides validation of good price for public trust When CMGC began we did not include price in the selection process. Contractors complained that we were running a beauty contest. Price is not a component of in the vertical world, but when we explored the use of in Phoenix we discovered that a Contract Manager in the Vertical world functions much differently than a contractor in the horizontal world. Our contractors are required to self perform at least 30% of the work while a Contract Manager in the vertical world subcontracts everything out to specialty groups such as Plumbing, Electrical, Framing, etc. So the cost of a Contract Manager is minimal compared to the total project cost while a contractor in the horizontal world is the bulk of the cost. We will therefore will continue to use price in the selection process.

14 Price in CMGC RFP Price Approach to Price
Where are we going? Price in CMGC RFP Price Continue to use the average target Most realist cost Approach to Price Emphasize during pre-proposal Change the format We ask contractors to bid on about 30% of the items to be consistent with the 30 points we give price in the selection process. However, the points for price are split between the hard number value and the approach to prices. If we get a low price that is not explained then we only award ½ the price points. For the hard number value we give the maximum score to the contractor near the average because we consider the average to be a more realistic cost and one that should generate fewer change orders

15 For negotiations the contractor creates a bid, the designer produces an Engineers Estimate (EE) and the Third Party with experience in contractor cost models creates an Independent Cost Estimate (ICE). The EE must go through an independent Red Flag analysis. Time should be taken to create the estimates at the end of design. If time is not taken for estimates then the negotiation process becomes difficult as we talk through the errors. The bid and estimates are all submitted into the electronic vault. For the contract to be awarded the contractors bid must be below the Commission Approved Amount and below 110% of the EE and the ICE

16 Utah CMGC Projects (State)
Where are we going? Utah CMGC Projects (State) We ask contractors to bid on about 30% of the items to be consistent with the 30 points we give price in the selection process. However, the points for price are split between the hard number value and the approach to prices. If we get a low price that is not explained then we only award ½ the price points. For the hard number value we give the maximum score to the contractor near the average because we consider the average to be a more realistic cost and one that should generate fewer change orders

17 Utah CMGC Projects (Federal)
Where are we going? Utah CMGC Projects (Federal) We ask contractors to bid on about 30% of the items to be consistent with the 30 points we give price in the selection process. However, the points for price are split between the hard number value and the approach to prices. If we get a low price that is not explained then we only award ½ the price points. For the hard number value we give the maximum score to the contractor near the average because we consider the average to be a more realistic cost and one that should generate fewer change orders

18 Design Build Plan Design Build Phase 1 Build Phase 2 Build Phase n
UDOT Design Design Consultant UDOT plans the project and hires a contractor to design and build The designer works for the contractor and construction can occur in parallel to the design effort Contractor Build Phase 1 Build Phase 2 Build Phase n

19 Design-build Benefits Risks: Faster Design/Construction
Smaller cost growth Smaller schedule growth Innovation (Contractor controlled) Risks: Design-build is built for speed Contractor owns the design UDOT was a leader in developing the Design Build process. It was used on I-15 in preparation for the Olympics. It is an effective process in reducing delivery time. Each region has developed their own Design Build process model and Innovative Contracting (Contact Robert Stewart) is in the process of making a more uniform process that takes the best value from each of the regions. He is developing standard templates for Requests for Letter of Interest, Requests For Qualifications, and Request For Proposals.

20 Design Build Advertising Process
Letter of Intent (Interest) LOI RFQ RFP Low-Bid Best-Value In Design Build we pay a stipend because it is costly for the contractor to deliver 30% of the design to meet the RFP requirements. We pay a stipend for their effort and in order to control that cost and the time it takes to review the RFP designs we attempt to limit the number of proposals though an RFQ selection. We choose the best proposer at the RFQ to prepare for the RFP. Prior to that we do an letter of intent so that contractors know who is interested and they know who to talk to to assemble their design build teams. RFP selection can be by Best Value or Low-Bid. In a Low-Bid Selection we look at capabilities as pass fail and selection is by low bidder. We recommend this approach for projects valued a $10 million or less.

21 Checklists Located on the 2008 Standards / Checklists website
UDOT/Project Development/Standards and Specifications /2008 Standards/2008 Project Checklists To award a contract all projects must follow the instructions in the checklist which can be found on the UDOT web page.

22 Selection Committee Design Build projects are reviewed by a technical Evaluation Board and Price Evaluation Team. Their evaluation is passed on to the Proposal evaluation board who give their recommendation to the Selection official if the project is above 100 million.

23 Reduce Time on Project A+B Bidding Lane-Rental
Contractors bid the time to complete the project and a dollar amount for work items Award to lowest combinations of time and cost Lane-Rental Minimize the time lanes are closed Contractors are charged a fee for closing lanes and shoulders Focus on time the public is affected

24 A + B Bidding Benefits: Drawbacks :
Improved coordination between prime and sub-contractors Reduced construction time minimizes impacts to users Contractors are required to put together a well conceived schedule Drawbacks : Contract changes are magnified; too many changes nullify the advantages of A+B Acceleration techniques may require more resources for contract administration More hours and over-time budget required from Region staff Negotiations for additional work are more intense since time is a bigger issue

25 A+B Candidates Good: Bad: Interstate Projects Mill and Overlays
Projects with Detours Bridge Painting Intersection upgrades New Construction/Reconstruction Bad: Third-party delays Rehabilitations A+B bidding should focus on projects with significant impacts to motorists, businesses, emergency services, or other groups that will be directly impacted by the project

26 Lane Rental Benefits: Drawbacks:
Better coordination of prime and sub-contractors Minimized impact to traveling public Better public perception due to fewer un-utilized lane closures Drawbacks: Extra effort by staff to monitor lane rental Negotiating lane rental adjustments can be difficult with contract changes Potential added costs to the project

27 Lane Rental Candidates
Good: Mill and Overlay (2-lane roads with flagging ops. or intersection impacts) Safety projects (guardrail/signing/striping/bridge painting) Bad: New construction Long-term projects Look for projects or portions of projects that have definable, short-duration lane impacts.

28 Warranties Guarantee all or portions of a construction project
Free of defects in material Workmanship Time Period Correct deficiencies during warranty period

29 Warranty Pros and Cons Benefits Drawbacks
Quality and durability guaranteed Longer acceptance time Less inspection needed Drawbacks Owner must ensure warranty Warranty may not be collectable Staffing to monitor warranty

30 Incentives - Disincentives
Paid for early completions Penalized for late completions

31 I & D Pros and Cons Benefits Drawbacks Reduced construction time
May lower contract admin costs PI benefits Control of project acceleration Drawbacks May require additional funding Contract changes may lead to disputes

32 Pay-for-Performance Pay is dependent upon final outcome
Measured against performance criteria Set by contract Pay withheld for poor performance Corrective action required

33 PFP Pros and Cons Benefits Drawbacks Eliminates blame
Shifts risk to contractor Higher quality Drawbacks Time to measure performance Long project close-out Monitoring is time- consuming Contractor may have to finance a portion

34 Innovative Web Site Dec 2005

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