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Current Design-Build Practices for Transportation Projects
3. Procurement Process
Many contracting agencies use a two-phase selection process (i.e. short listing based on qualifications submitted in response to an RFQ and then a second phase consisting of the submission of price and technical proposals in response to an RFP). However, some contracting agencies have elected to use a single phase selection process when using the modified design-build process. The FHWA's regulations provide guidance for determining when two-phase or a single-phase procedures are appropriate (See 23 CFR 636.202 )The FHWA's design-build regulations require contracting agencies to evaluate price in every design-build procurement where construction is a significant component of the scope of work. However, where the contracting agency elects to release the final RFP document and award the design-build contract before the conclusion of the NEPA process, then the award may be based on non-price factors. Subsequent Federal-aid projects under that procurement may require a price reasonableness determination . (See 23 CFR 636.109 and 636.302).
3.1. Two-Phase Selection
Responses to the 2002 original survey indicate that the majority of the responding agencies use a two-phase selection process for procurement of design-build contracts. The first step involves pre-qualification of firms (short-listing where permitted by legislation) based on their responses to a request for statements of qualifications or equivalent documentation. Short-listing serves to reduce industry costs in responding to requests for design-build proposals, to encourage the most qualified design-builders to participate by increasing their chances of success, and to reduce the cost to the agency of reviewing the proposals. While there is no standard practice, many contracting agencies typically short list three to five teams, however, some agencies have reduced the short list to two firms on large projects to minimize impacts to the industry while maintaining a minimum level of competition.
The second step is issuance of a request for proposals (or invitation for bids in some cases) and evaluation of technical and price proposals from the pre-qualified/short-listed teams. The second step may include the opportunity for the design-build teams to obtain pre-approval of alternative technical concepts, and may include discussions/negotiations followed by subsequent proposals (best and final offers).
The two-step process often involves one-on-one communications with proposers during the post-RFP/pre-proposal period. This allows proposers to speak freely regarding technical concepts that they do not want their competitors to know about. However, an agency using this process should establish procedures to ensure that any information disclosed to one proposer is disclosed to all of them, and otherwise take precautions to avoid protest situations. A two-phase, best value process may also include post-proposal discussions, allowing the agency to advise the proposer regarding areas of its proposal that require improvement.
In the 2002 survey, most of the agencies using the two-phase selection process awarded their contracts based on a best value determination made following evaluation of initial or final proposals. Federal law requires federal agencies that contract directly for services to follow such a process for design-build projects. Legislation in a number of states (including Arizona, Colorado, Utah and Washington) allows transportation agencies to use such a process. Several agencies ( NJ DOT, TCA) have awarded design-build contracts on a low-bid basis, setting a high responsibility standard for the proposing teams, including minimum requirements for the design firms participating in the process. On the Alameda Corridor project, ACTA selected its design-build contractor based on a lowest ultimate cost determination (taking into account the agency's future costs based on the proposal submitted), and preceded by limited negotiations prior to award, based on procurement authority contained in a city charter. The TCA selected a design-builder based on preliminary pricing, with the final price to be established upon the design-builder's completion of the preliminary design. (It did not have specific legislative authorization to use such a process, but its procurement authority was held valid by a Superior Court decision.) Greenville County selected its design-builder based only on the quality evaluation of qualifications/ technical proposals (including factors for scope and time), within a fixed, stipulated sum price, followed by negotiation of fees for management and design, and target prices for individual projects based on a price breakdown submitted following selection.
The FHWA's policy recommends a two-phase selection process; however, the FHWA recognizes that there may be situations where a single-phase selection process may be appropriate. See 23 CFR 636.201 and 636.202.
LADOTD (May 2009)
LADOTD uses a two-phase selection process similar to what is described above. The agency's request for proposals is known as a Scope of Services Package (SOSP). Due to the emergency nature of the I-10 Twin Span project, however, the LADOTD conducted the procurement using a single-step process that did not include a shortlisting phase.
Depending on the project, the LADOTD communicated with proposers through face-to-face meetings, responses to written comments or both. In each case, the rules for contact with the agency are clearly defined in the RFQ and SOSP documents in order to promote a fair, unbiased legally defensible procurement process.
3.2. Variations on "Best Value"
There is no single generally accepted approach to determining best value. Many agencies adopt formulas, while some advocate use of an adjectival (descriptive) comparison.
NAVFAC (Jan 2002)
NAVFAC has tried both approaches, and provided the following thoughts on the subject:
About 7 years ago NAVFAC abandoned a point scoring system based on equating dollars to quality points because it was difficult to administer and defend (very difficult to explain the very small point differentials to proposers). An adjectival grading system was adopted to evaluate technical factors and is currently used. Technical proposals are generally evaluated in terms of being exceptional/outstanding, acceptable/satisfactory, marginal/deficient but correctable, or unacceptable. Price is usually evaluated inclusive of options. The RFP always specifies the relationship between technical factors and price and it varies by project. Price and technical factors are equal for the majority of our design-build procurements. Occasionally, technical factors are considered significantly more important than price. Even less often is price considered significantly more important than technical factors.
Best value is determined by evaluating whether the price increase of one acceptable proposal compared to the next lower priced acceptable proposal is commensurate with an increase in the ranked technical quality of the higher-priced proposal. When the next higher price is not matched by a commensurate increase in technical quality, the previously observed proposal is the "best value" and the contract may be awarded to that proposer.
Agencies that have used best value formulas include AZ DOT, FDOT, UT DOT (one project), UTA (a modified adjectival rating on one project), and WSDOT. Regardless of whether a formula or adjectival approach is used, the criteria that are the basis for the evaluation will differ depending on the type of project, the agency's project goals, and other factors.
LADOTD (May 2009)
LADOTD has a legislatively created formula for determining the selected Design-Build Proposal based upon the sum of the proposer's price proposal and its score for its proposed schedule, which sum is then divided by the proposer's technical score. Both the price proposal and the technical score are required elements of the evaluation criteria. However, the Department has the discretion to include the consideration of schedule in the Technical Score as a weighted evaluation factor or to include it in the adjusted score formula,
NC DOT (Jan 2003)
NC DOT uses the best value process for project award. The value credit for the technical proposals has ranged from 15% to 25% depending upon the type of work and cost of the project. Each team's bid is adjusted according to the credit awarded. Adjusted bids are then compared and the project is awarded to the adjusted low bidder.
Design-build team members are required to be listed on the Department's prequalified list of design firms and the prequalified bidder's list (for contractors). After advertisement and upon receipt of statements of interest, the Department typically shortlists three teams per project. After the initial development of the RFP, individual meetings are held with the short-listed teams. Consideration to adjusting or revising the RFP is given based upon these meetings. Questions may be asked for clarity on innovative approaches that each team may want to keep confidential. Changes that occur as a result of these meetings are usually related to scope clarification or risk minimization.
MDSHA has used "Best Value" on a limited basis. Both the statements of qualifications and the technical proposal are evaluated based upon an adjectival rating system. The "best value" is determined by a combination of the adjectival rating for the technical proposal and the price. No formulas or equations are used as part of the evaluation process. Selection is based upon the relative importance of the technical proposal to the price proposal.
VDOT (April 2009)
VDOT may use best-value, low-bid, or fixed-price processes for project award. Under the best-value approach, VDOT typically values the technical proposals at 30% and the value of the price proposal at 70% depending upon the scope of the project. Design-build contractors are required to prequalified and professional services firms must meet applicable state requirements. After advertisement and upon receipt of statements of qualification, the Department typically shortlists three teams per project. After the initial development of the RFP, individual proprietary meetings are held with the short-listed teams. These meetings focus on clarifying innovative approaches that Offerors have as well seeking scope clarifications. Consideration to adjusting or revising the RFP is given based upon these meetings.
NCHRP Report 561 titled: Best-Value Procurement Methods for Highway Construction Projects" provides detailed information on the procedures and algorithms used by various contracting agencies to determine best-value.
3.3. Industry Review Process
Regardless of the procurement methodology used, most agencies recommend one-on-one meetings with the short-listed firms prior to issuance of the RFP to obtain the benefit of their thoughts on the draft documents. Industry review meetings can be particularly productive if the industry review package includes a term sheet showing the major contractual terms and conditions, as well as information regarding the approach to risk allocation, in addition to providing technical information for industry review.
The FHWA encourages contracting agencies to meet with potential proposers to assist with appropriate risk allocation during the development of the RFP document. See 23 CFR 636.115.
ACTA (Jan 2002)
Without an industry review we believe we would have received fewer proposals. We delivered a contract summary plus select concept schematics to the short-listed teams. The industry review resulted in some changes to risk allocation for differing site conditions, utilities, etc. -- no technical changes."
FDOT (Jan 2002)
Florida DOT uses an industry review process to get the benefit of the proposer's ideas and questions to help clarify the criteria.
Greenville County, SC (Jan 2002)
Greenville County stated that an industry review process results in better "buy in" by the construction community.
LADOTD (May 2009)
Depending on the project, the LADOTD has conducted the industry review process utilizing either face-to-face meetings, written comments or both. The Department feels that confidentiality is important for effective communications since, in its experience, many proposers are less likely to comment or ask pertinent questions in a public forum. Most of the proposer input has been in the areas of insurance, bonding and licensing requirements. While the Department has provided proposers the opportunity to comment on technical aspects as well, it has not seen any significant innovations incorporated into project approach or design. Beginning discussion in the industry review phase does allow for contractor input and issue resolution earlier in the project's development than under the traditional design-bid-build approach.
MDSHA (August 2008)
MDSHA has done a pre-advertisement where we provide a draft RFP to the industry for their information and comment; however, MDSHA did receive any significant feedback as a result.
Michigan DOT (May 2009)
Michigan DOT currently has pre-advertisement informational meetings and pre-bid meetings in order to inform industry of the specifics of a design-build project. During advertisement, a design-build team can meet with Michigan DOT in one-on-one meetings.
NAVFAC (Jan 2002)
"We have used industry reviews of draft RFPs very successfully. These forums have resulted in better RFPs and better industry understanding of our requirements."
WSDOT (Jan 2002)
Washington State DOT used the process and commented: "The industry review process is vital to a successful project for WSDOT. The sharing of ideas in a public forum is a cause of concern to design-builders seeking a competitive edge."
TCA (Jan 2002)
"The industry review was necessary in order to retain bidder interest in the projects. For the San Joaquin project, the initial approach taken in the contract was to shift virtually all risk to the contractors. When it became apparent that industry was not willing to accept that much risk, TCA conducted one-on-one meetings with the proposers, and modified the contract documents to retain greater risk. These meetings also served to give the proposers comfort that the project would proceed - San Joaquin was the first start-up, revenue-financed toll road to go to the markets. For the Eastern and Foothill-South projects, the industry review process resulted in fewer changes to the documents, but was otherwise comparable to the San Joaquin process."
UT DOT (Jan 2002)
For the I-15 Project, UT DOT found out through industry reviews (continuing review of the draft RFP by the short-listed firms) that the 20-year maintenance term included in its draft RFP was not acceptable to the short-listed firms, and ultimately reduced the term to a 5-year option with renewals for up to another five years. The industry review is one of the techniques often credited with removing uncertainty (and contingency) in the minds of the proposers that led to only a 3.5% spread on the price proposals.
3.4. Protests Relating to Design Build Procurements
Responses to the original survey indicated that, although several agencies have dealt with protests relating to processing of design-build projects, there were no reports of protests to the concept of design-build, except in Greenville, SC (see Section 2.1). A protest regarding failure to pre-qualify was denied for the Atlantic City/Brigantine Connector. TCA received a protest on its Foothill-South project, which was resolved without litigation. UTA denied a protest filed regarding its project from a contractor that did not submit a proposal. NAVFAC did not disclose how many protests it has received over the course of its design-build program, but did state that fewer protests were filed after the agency stopped trying to reduce the best value selection process to a formula.
3.5. Pre-Proposal Meetings/Discussions/Negotiations
According to the original survey, a number of agencies hold confidential one-on-one pre-proposal meetings with the proposers during the proposal preparation period after issuance of the RFP. In some cases, these communications are limited to discussion of the acceptability (as opposed to evaluation) of technical concepts proposed by the short-listed firms for inclusion in their proposals. In others the communications extend to general issues. Agencies that have used a technical concepts review include ACTA, CDOT, Greenville County, and UT DOT. For the Utah I-15 project, this was another technique that was credited with leading to better pricing.
The procurement process used by many agencies offers the opportunity for one-on-one discussions with the proposers after receipt of proposals for the purpose of advising the proposer of any deficiencies (errors, omissions, weaknesses) in its proposal. Upon conclusion of these discussions, the agency requests best and final offers (BAFOs), and bases the award on a review of the BAFOs. NAVFAC describes the process as follows: "Negotiations [discussions] strengthen the Government's ability to obtain best value. During negotiations [discussions], the Government identifies aspects of an offeror's proposal that it considers weak or deficient. Offerors revise their proposals based on that feedback. Negotiations [discussions] result in revised proposals with fewer, if any, weaknesses or deficiencies."
The FHWA's policy for Federal-aid design-build projects encourages contracting agencies to have meaningful discussions with proposers during the procurement process. However, the design-build regulation places limitations on such discussions to ensure a fair, unbiased procurement process (See 23 CFR 636 Subparts D and E).
Three of the agencies surveyed in the original 2002 survey incorporated pre-award negotiations into the procurement process. Since these negotiations occurred after selection, they involved discussions of price as well as technical issues. UTA's negotiations with the sole proposer resulted in a price reduction of approximately 20%. For ACTA, the negotiation process allowed ACTA to obtain clarifications regarding the selected contractor's technical proposal, enabled ACTA to revise the scope of work to account for agreements with third parties that were signed after the proposal due date, and also resulted in a reduction in the contract price. The negotiation process for Greenville County's projects is a critical part of the process since the breakdown of the stipulated price is not part of the initial selection.
LADOTD (May 2009)
LADOTD has also used confidential communications through face-to-face meetings and/or written comments to discuss the acceptability of technical concepts. The Department has the right to use concepts submitted by any proposer but keeps all communications confidential until proposal evaluations are complete.
Stipends have been used by a number of agencies and are a means of reducing the cost to industry of participation in design-build procurement, as well as providing proposers partial compensation for agency ownership of concepts, that may be incorporated into the project or used elsewhere by the agency. The use of stipends also tended to increase competition by allowing more firms to participate due to lower proposal preparation costs. Even if the proposals do not produce useful ideas, the stipend encourages proposers to "stay in the game", thereby enhancing the price competition. Nevertheless, in many jurisdictions stipends are politically controversial.
The FHWA's policies provide for Federal-aid participation in stipends with certain stipulations. See 23 CFR 636.112 and 636.113.
Reference - stipend special provisions: Also see the NCHRP Project No. 20-7 / Task 172, Recommended AASHTO Design-Build Procurement Guide (or the January 2008 AASHTO Guide for Design-Build Procurement) , sample special provision Number 036-STP-01 Stipend Minnesota DOT 2001 and 037-STP-02 Stipend Maine DOT 1997.
There is no fixed formula for determining the appropriate amount of stipends, but some examples include the following:
- AZ DOT: 0.2% of bid amount
- CDOT: $1,000,000 ($1.186 billion project)
- FDOT: Varies - for each project, every losing firm with responsive proposal receives a stipend. For example, a recent $82 million project had a stipend of $100,000. LADOTD (May 2009) LADOTD considers the offering of stipends on a project by project basis, and generally does not offer a stipend on projects that are straight forward or otherwise are not overly complex. For the John James Audubon Bridge ($348 million project), the Department did pay a $300,000 stipend to the short-listed proposers that were not awarded the contract but that did submit a responsive proposal.
- MassHighways (May 2009) - Generally not (except for Route 3 North Project)
- MDSHA (August 2008) approximately 0.02% of the contract value.
- Montana DOT (May 2009): Case by case basis, have ranged from $24,000 to $120,000
- NC DOT (Jan 2003): Set on a case-by-case basis, have ranged from $0 to $100,000.
- UT DOT I-15: $950,000 ($1.36 billion project)
- UT DOT Legacy Parkway: $500,000 ($300 million project)
- UTA: $300,000 (based on original RFP for $300M project)
- VDOT: Set on a case-by-case basis and have ranged from $10,000 to $100,000. Stipends are provided to responsive offerors that submit a proposal payment form allowing the Department to utilize information contained in the offerors proposal. Stipends are not paid to the successful offeror.
- WSDOT: $50,000 ($22 million project).
Most agencies pay a stipend to short listed, but unsuccessful firms in exchange for the right to use their proposal concepts. Some agencies have provided for compensation to be paid to proposers only if their ideas are used. ACTA and the TCA provided for a share of any value engineering cost savings to be passed back through to the proposer who provided the original idea.
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