Sources of Changes in Design-Build Contracts for a Governmental Owner

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Sources of Changes in Design-Build Contracts for
a Governmental Owner

• Dr. Robert A. Perkins, PE
• Associate Professor, Dept. of Civil and
  Environmental Engineering, University of Alaska
  Fairbanks, 907 474 7694. ffrap_at_uaf.edu
• http//www.faculty.uaf.edu/ffrap/

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William M. Tweed
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1858

• New York county allocated 250,000 for a new
  courthouse.
• Escalated to 13 million
• Boss Tweed and his gang got a 30 Commission on
  all contracts
• Siphoned off 9 million
• (135 million in 2007 dollars.)

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Government Procurement Virtues

• Public Confidence underpinned by attributes of
  accountability, transparency, equity and fair
  dealing in relation to procurement processes
• Efficiency and effectiveness in use of pubic
  monies to achieve value for money and efficiency
  of delivery of procurement outcomes and
• Policy compliance and consistency of both the
  processes and outcomes of procurement in relation
  to public welfare objectives and expectation of
  the public sector such as environmental issues,
  training and apprenticeships, international
  obligation and especially business and regional
  employment impacts

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Government Contracting

• Orville and Wilbur Wrights contract to build the
  first military aircraft was three and half pages
  long.
• 19 different agencies surveyed 1978 and 1979
• 877 different sets of procurement regulations,
  including directive, bulletins, and instructions
• 64,600 pages of regulations, of which
• 29,900 pages of which were promulgated or revised
  annually.

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Construction

• A 1970 federal survey found government building
  projects took 59 months to design and build while
  equivalent private sector projects took 24 months
  
• 1986 through 1988, eight federal entities
  completed 268 building projects valued at more
  than 10 million each. 44 of those projects
  experienced time delays over 6 months and 23
  experienced cost increases over 10

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Contracting Strategy for Procurement of
Construction

• Project Delivery System
• Procurement Method
• QBS
• Low bidder
• Contract type
• Lump Sum
• TM

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Project Delivery Systems

• Design-Bid-Build
• Design-Build
• Construction Manager at Risk
• Job Order Contracting
• PPP, Public Private Partnerships
• BOT, Build Own Transfer
• BOOT, Build, own, operate, transfer
• DBFO, design, build, finance, operate

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DBB Traditional

• Owner hires A/E
• A/E designs and produces a bid package
• Owner advertises for sealed bids
• Opened publicly
• Lowest bid gets the job
• Must provide bond
• Qualified bondable

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Advantages of DBB

• A/E designs what owner wants
• Competition assures lowest price
• Sufficient bidders
• Transparent process
• Fair process
• No discretion no favoritism
• Bonding can force performance

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Disadvantages of DBB

• Bids may come in over budget
• Changes, Always changes
• Design errors
• Differing site conditions
• Owner changes
• Third party issues
• Access, permits
• Acts of God

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Changes

• Advantage goes to contractor
• Essentially non-performance or breach by the
  owner
• Contract clauses cover, but asymmetrical
  negotiations
• Risks, i.e., schedule
• Grey Areas

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Opportunistic Bidding

• Bid low just to get the opportunity
• Contingency
• Equipment

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Design Build

• Owner develops design criteria
• Bridging design
• Advertises for proposals
• Two envelope proposals
• Qualifications and Outline of Design
• Price

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Best Value

• Might have presentations
• Select best value for government
• Most building for money

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Criteria for a 46.6 Million Bridge

• Durability 20
• Quality of Design 17
• Maintenance of Traffic 15
• Maintainability 12
• Quality of Construction 10
• Understanding the Scope of Work 10
• Quality of Schedule 5
• Community Impacts 5
• Aesthetics 5
• Navigational Vertical Clearance 1
• Total 100

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Advantages of DB

• Can consider contractors past business practices
• Can compare actual price with outline design
• Contractor and A/E work together to assure
  constructability
• Innovation
• Faster
• Changes due to design errors reduced or
  eliminated

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Disadvantages of DB

• Design not entirely under Owners control
• Can still have changes

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Governmental DB

• Prior to 1990, DBB was the preferred project
  delivery system
• Could use DB and others, but needed special
  permission
• often required a finding that DBB was not
  practical
• Started to change rapidly in the 1990s

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• 1990, Federal Highway Administration SEP-14
• 1996. Clinger-Cohen Act, 10 USC 2304,.
• 2000 revision of the Model Procurement Code
• Today about half the states have laws that allow
  some sort of best value procurement and
  design-build delivery.
• But

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Inertia
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Select

• Quality
• Schedule
• Cost

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Quality

• Pretty Good

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Schedule
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Cost

• Terms
• Construction Phase Cost Growth
• Actual vs. planning
• Construction Contract Cost Growth
• changes
• AKA delivery contract cost growth

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• A 2002 study by the National Institute of
  Standards and Technology and CII
• Not statistically significant on construction
  phase
• DB significantly better in changes
• Not enough public projects
• A 2003 study of 67 projects, mostly domestic but
  some overseas,
• DBB had less cost growth
• DB and DBB had similar changes
• Government and non-governmental not distinguished

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• The 2005 Design-Build Effectiveness Study (USDOT
  2006)
• Paired 11 similar DB and DBB transportation-relate
  d projects and compared the cost growth and
  changes the average project size was about 50
  million.
• Contract cost growth was 6.0 for DB and 4.3 for
  DBB.
• DB projects averaged 16 change orders with a
  total average cost of 837,000 per project, while
  DBB had 22 change orders that had an average of
  588,000 per project.
• DB had fewer change orders but they cost more.
• None of the results statistically significant.

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Causes of Changes DB vs. DBB

• Controllable vs. Non-controllable
• Owner Project Managers Viewpoint
• Controllable
• Design Errors
• Should have less
• Uncontrollable
• Differing site conditions
• Same
• User Changes
• Could have more????

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Schedule vs. Contracting
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A/E works for Contractor

• In DBB, the owner/user select the A/E
• A/E has many design reviews with chances to
  sell features to the owner
• A/E is trying to please owner, happy to make
  minor changes
• In DB, the A/E works for the contractor and is
  reluctant to change
• May lead to more changes

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Causes of Changes

• Owners change vs. Design error
• 65 design review
• User notices fixture is not optimum
• Contractor says his design conforms to design
  criteria he bid on
• If owners PM was in charge of design criteria,
  he will tend to see this as a user change rather
  than a design error.

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Methods

• Corps of Engineers
• Northern and Southern Alaska Area Offices
• Military Construction Projects
• Resident Management System

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Question

• Are the causes of change different between the DB
  and DBB governmental contracts?
• Specifically, were there more owner/user
  requested changes in DB than DBB.

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No. of DB No. of DB No. of DBB
Housing 2 2 4
Barracks/Dormitory 2 2 5
Industrial 5 5 4
Utilidor 3 3 4
Other 2 2 3
Total 14 14 20
34 DB and DBB Combined 34 DB and DBB Combined 34 DB and DBB Combined
Average Cost 15.9 Million 15.9 Million
SD 11.8 Million 11.8 Million
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Method

• RMS, Resident Management System
• Has all contract changes and causes
• Type 1, Design Errors
• Type 4, User Changes
• Type 7, Differing Site Conditions
• Others value engineering, miscellaneous changes,
  administrative changes, and construction changes,
  suspension of work, government furnished equipment

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Construction Contract Cost Growth, Average No. of Changes Average Growth Cost,
DBB 6.6 25 1,069,882
DB 3.1 14 480,046
p value 1.7 1.5 4.6
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Controllable vs. Uncontrollable
Controllable Changes Controllable Changes Uncontrollable Changes Uncontrollable Changes
No./average contract /average contract No./average contract /average contract
DBB 17 739,667 7 330,215
DB 6 190,791 9 290,539
p value 0.1 3.8 30.5 40.3
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Source of Change
Type 1, Engineering Changes Type 1, Engineering Changes Type 4, User Changes Type 4, User Changes Type 7, Differing Site Conditions Type 7, Differing Site Conditions
No./avg contract /avg. contract No./avg. contract /avg. contract No./avg. contract /avg. contract
DBB 15 482,513 1 5,033 5 226,020
DB 4 195,714 5 71,514 3 221,524
p value 0.1 5.1 0.4 2.4 27.1 49
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But, from raw data

• 12 of 14 DB contracts had user changes
• Only 9 of 20 DBB had any user changes
• More user changes were work/cost reduction in DBB
• Average DB change was 48,000 while average DBB
  change was -32,000
• Absolute value of changes was similar, DB was
  53,000 and DBB was 59,000

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• There were no significant differences between the
  housing and industrial groups
• There were no type 4 changes in the first few
  months of DB contracts.

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Answers

• There is clear advantage in DB in
  construction/delivery contract cost growth
• This is primarily in reduced cost of design
  errors
• There were statistically significant increase in
  number of user changes in DB over DBB
• There were statistically significant increase in
  cost of user changes in DB over DBB, but
• Cost difference may be anomaly

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Conclusions

• Construction contact cost growth is less with DB
• Strong evidence there are more owner/user changes
  in DB
• Advantage in design error cost growth outweighs
  disadvantage in owner/user changes
• Future work should explore why there are more
  user changes (they did not occur early in the
  project).