Design-Build E ffectiveness Study
As Required by TEA-21 Section 1307(f)
USDOT - Federal Highway Administration
V. CONCLUSIONS AND RECOMMENDATIONS
This chapter summarizes the lessons learned by survey respondents and changes planned for their agencies' design-build programs. The chapter also presents the conclusions of the research team regarding the prospective use of design-build project delivery and the team's recommendations for improving the use of design-build contracting in the nation's highway development program.
AGENCY SUGGESTIONS FOR IMPROVING DESIGN-BUILD PROGRAMS
In responding to the study surveys, the design-build project managers shared their thoughts regarding lessons learned during the SEP-14 program. The research team also received numerous comments and suggestions regarding changes the surveyed agencies have made in their design-build programs and suggestions to further improve these programs, based in part on these lessons learned. This section summarizes the comments and suggestions for improvement.
Design-Build Program Lessons Learned Based on Project Surveys
The project managers who completed design-build project surveys noted many lessons learned from these projects. Key lessons included:
- Carefully choosing projects appropriate for design-build
- Adequately preparing to procure and manage a design-build project;
- Properly phasing the project by timing permitting, environmental clearance, and right-of-way acquisition prior to award of design-build contract;
- Leaving design guidelines "loose," with performance criteria designed to drive the creativity of the design-build team; and
- Maintaining communications between the contracting agency and design-build team.
The full digest of "lessons learned" comments is provided in Exhibit V.1.
Design-Build Program Improvements Based on Program Surveys
Design-build project managers responding to the surveys reported having undertaken or proposed several major changes to improve the effectiveness of their agencies' design-build programs. Changes included amending quality assurance and quality control, better defining program guidelines, and working more closely with design and construction contractors to craft a better program. Several agencies reported that their design-build program was reassessed on an ongoing basis as projects moved through the process. Florida DOT's response was typical:
- "Design-build is a continually evolving concept in which we incorporate changes and make improvements with the completion of every job."
Actual changes that have already been undertaken as reported in the program surveys are summarized in Exhibit V.2, and those that are proposed are summarized in Exhibit V.3.
Exhibit V.1: Summary of Lessons Learned from Design-Build Projects
|Guidelines||Cooperation with Industry|
- Performance criteria in lieu of prescribed specifications is key to efficiency of the designbuild process
- Project criteria should state project goals
- Process works best with experienced contractors and designers
- Contracting community requires education on conceptual estimating practices, especially the subcontracting community
|Project Selection||Project Phasing|
- It is relatively simple to use design-build to replace existing similar construction
- May not be well-suited for small projects such as small bridges
- May be better suited for roadway construction rather than ITS projects
- Ideal method for road widening under traffic
- Right-of-way acquisition required prior to letting design-build contract
- Permitting and geotechnical borings prior to letting place contractors at ease and facilitate process
|Project Management||Preliminary Engineering|
- Co-locating project team for the entire duration of project facilitates coordination
- Establish and maintain open communications channels, including regular progress meetings
- Establish expectations of all parties prior to beginning work
- Facilitate cooperative working relationship between contracting agency and design-build team
- Recognize criticality of schedule
- Provide efficient management structure
- Establish meaningful incentives and penalties
- Development of original documents may have stifled contractor creativity and innovation
- Carefully consider the appropriate level of design to complete prior to letting contract
- Over-prescribing design details or construction techniques may stifle potential innovation
- Focus technical scoring of proposals on areas that the agency values
- Effort and time to tie down third party (railroads, utilities, local agencies) commitments prior to project award is essential
- There is major effort required of the project contracting agency, so design-build should be used only when it provides the most effective delivery means
- Successful management of designbuild may require a new approach to project administration by the contracting agency
|Contract Language and Definitions||Change Orders|
- To ensure the contracting agency receives the expected product within budget, clear and concise performance specifications are essential to the success of a design-build contract
- Establish funding responsibility for any unforeseen changes required in project design and construction
- Allocate risks where they are best managed
- Design-build is not well suited to lowbid selection method
Source: D-B project survey: Q18, 49 responses
Exhibit V.2: Summary of Actual Design-Build Program Changes
|Quality Assurance/Quality Control||Cooperation with Industry|
- Better define quality control and who provides it. Third-party contracting of quality assurance
- Change in QA/QC responsibility, with contracting agency responsible for quality assurance and contractor responsible for quality control, in lieu of previous arrangement in which contractor had responsibility for QA and QC and contracting agency had discretionary sampling and testing privileges
- Agency periodically conducts design-build workshops with industry partners, contractors and designers to refine delivery processes. Recent successes include continuity of agency selection team, debriefing process, agreement to include alternate technical concept, and one-on-one communication process during RFP stage.
|Project Selection||Procurement Regulations|
- Streamlining selection process
- Changed state statutes to permit bestvalue approach
- Achieved regulatory authority to implement design-build
- Reduce level of preliminary engineering and transfer this work to design-build contractors
- Use of stipends to offset cost of preliminary design for unsuccessful proposers
- Placement of environmental monitors (agents of the state) on environmentally sensitive projects to ensure compliance with permit requirements of the contractor
- Incorporation of utilities design and construction into contract documents, making it a requirement of the designbuild team
|Contract Language and Definitions||Baseline Information|
- Standardized contract language for design-build procurement, including general and project-specific requirements
- Refinements of project scope definitions and standard specifications
- Providing upfront information such as soils, geotechnical, permit, and right-of-way information
- Standardization of plan package content based on 30 percent plan details, including line, grade, and typical section for roadway and/or type, size, and location for structures
|Risk Allocation|| |
- DOT works closely with AGC and ACEC to develop more focused risk allocation, used by agency to develop initial plans as well as proposal
Source: D-B program survey: Q24, 27 responses
Exhibit V.3: Summary of Proposed Design-Build Program Changes
|Quality Assurance/Quality Control||Cooperation with Industry|
- Continued refinement of QA/QC plan
- Re-establishing partnership efforts with DOT, FHWA, contractors, and consulting engineers
|Project Selection||Procurement Regulations|
- Improved guidance for when to utilize innovative contracting methods
- Incorporate more structures into program, and evaluate use of designbuild on mega-projects, smaller projects, and bridge and ITS projects
- Considering deleting the Federal statutory definition of a "qualified project" so that SEP-14 will no longer be necessary for design-build projects that comply with FHWA's regulation.
- Bring construction engineering management in-house
- Development of a formal process for stipend determination
|Contract Language and Definitions||Risk Allocation|
- Clarifying third-party and quality assurance requirements
- Refinement of contract language based on feedback from the contracting industry, consultants, FHWA, and DOT personnel
- Revise program documents to make easier to use
- Continued refinement of contract template
- Move all responsibility for project decisions, quality control, engineering, and inspection to the contractor, who would hold a comprehensive warranty to cover workmanship repairs and defects. Contractor would be held accountable for the entire project (i.e. no shared responsibilities). Difficult to accomplish within the culture of the transportation and insurance industries
Source: D-B program survey: Q25, 25 responses
Among project survey respondents, 33 percent reported that their projects could have been more successful with what they know now about the design-build process. Suggestions for further improving the design-build process included:
- More careful selection of projects appropriate for design-build
- Better definition of the contracting agencies' and contractors' project scopes
- Creation of more accurate bidding documents
- Selection of design-build consortium on a best-value rather than low-bid basis
- Modification of the quality control procedures
- Development of a procedure to review project design and manage construction issues
Based upon the results of this study, the following conclusions are offered regarding the future disposition of design-build as an alternative method for delivering highway projects, relative to the areas of interest defined by Section 1307 (f) of TEA-21, which mandated this study:
Impacts on Project Timeliness
- The greatest motivation and realized benefit to a contracting agency of using design-build instead of design-bid-build contracting is the ability to reduce the overall duration of the project development process by eliminating a second procurement process for the construction contract, reducing the potential for design errors and omissions, and allowing for more concurrent processing of design and constructing activities for different portions of the same project. Procurement efforts increase with design-build due to the extra effort put into crafting more clearly-defined contract documents, terms, and oversight requirements and responsibilities. In contrast, contracting agency contract administration and field inspection requirements decrease when the design-builder assumes more responsibility for quality control and there was greater reliance on performance-based progress billing.
Impacts on Project Cost
- The impact of project delivery approach on project cost is more difficult to establish and the range of both cost increases and decreases was quite wide. Project costs are much more likely to be impacted by the following factors that are beyond the control of the design-builder:
- Nature and complexity of the project;
- Third-party requests for changes to the plans and the project; and
- Quantity contingencies (typically +/- 10-percent) included in unit price-based design-bid-build contracts that apply to change orders and quantity overrun items but which are not present in lump sum-based design-build contracts.
This last factor provides greater opportunity for a design-bid-build contractor to pass on added project costs before having to negotiate a new unit price contract.
- Greater cost efficiencies are most likely to occur for design-build projects as a result of enabling the design-builder to propose more cost-effective ways to realize the performance objectives of the project. This can be achieved by:
- Encouraging the design-builder to use the latest innovative technologies and methodologies to more fully leverage available public resources;
- Integrating the design and construction activities to reduce the potential for design errors and discontinuities between the design plans and construction efforts that can result in fewer change orders and extra work orders; and
- Shifting to greater use of performance-based specifications that promote design-builder creativity and decrease change orders.
Reducing the potential for cost growth through design-build contracting enables contracting agencies to budget more of their capital program funds for projects instead of reserves to cover cost increase contingencies. This provides for more efficient use of available funds, putting more of taxpayer money to work and delivering more projects.
- Significantly lower cost and number of claims for design-build projects reflect a fundamental shift in the adversarial nature of transportation construction contracting and bodes well for the future implementation of this procurement method, particularly for high visibility projects where cooperation between contracting agencies and their design and construction contractors is essential to project success.
Impacts on Project Quality
- Design-build does not appear to be a threat to the quality of highway projects. Indeed contracting agencies expressed equal satisfaction with the results of design-build and design-bid-build projects, suggesting that the choice of project delivery approach is neither a determinant of nor a threat to project quality. Overall contracting agency satisfaction was highest when design-build was used for large projects, when lower levels of preliminary design were performed prior to the design-build contract, and when contract selection was based on best value.
Level of Design Completed Prior to Design-Build Contract
- The use of design-build contracting provides an effective way for contracting agencies to gain access to specialized staff resources able to perform highly technical design work, with earlier value engineering and constructability reviews as part of the process. The level of preliminary design that should be completed before a design-build contract is procured depends on the size and complexity of the project, the ability of the design-builder to develop a more cost-effective and constructible project design in a timely and competent manner, and the degree to which performance specifications are used for the project. The survey results indicate higher contracting agency satisfaction with design-build projects that have lower levels of preliminary design performed before the involvement of the design-build team.
Impacts on Small Business
- The level of competition for design-build projects is somewhat smaller than for design-bid-build projects, most likely due to the newness and perceived risk associated with this particular project delivery approach to the Federal-aid highway program and the traditional design and construction firms that have served this program. This should increase as more design and construction firms participate on design-build project teams.
- Stipends or payments to unsuccessful proposers for design-build projects are frequently used to increase the number of capable proposers and thereby enhance competition for these types of procurements. Half of the projects surveyed offered stipends averaging $50,000.
- Design-build projects provide opportunities for smaller subcontractors to perform substantial portions of design-build projects. According to survey responses, small business contractors are playing comparable roles on completed design-build projects as for design-bid-build projects, with greater opportunities for subcontracting of the design work to smaller firms.
Subjectivity of Design-Build Contracting
- Cost remains the primary factor for awarding design-build contracts, even when other factors such as duration, team reputation, and quality are included in the deliberations. While low bid continues to be used as the basis for contract award decisions for many design-build projects, best-value approaches using multiple criteria including cost are gaining momentum. Best value selection provides for the consideration of both cost and other more subjective factors such project management, quality control, and team reputation and is gaining popularity among contracting agencies of design-build projects due to its ability to consider all relevant factors that affect the desirability of a design-build proposal.
- While the use of design-build is not a panacea for delivering highway projects, there are clearly project features and circumstances that encourage its consideration if not use.
- Medium to large projects that are more complex in nature and can benefit from the application of innovative concepts in project design and development earlier in the project conceptualization process are well suited to design-build project delivery.
- New/widening, rehabilitation/reconstruction, and bridge/tunnel projects have the size and complexity to enable the private sector to apply more cost-effective ways to develop the project using design-build. These potential efficiencies permit design-builders to take on the higher project/contract risks associated with design-build contracting.
- Projects that have a high sense of urgency (due to natural disasters or facility failures) or involve some kind of direct user fee-based financing are more likely to benefit from design-build contracting due to its ability to expedite project completion and/or facilitate the start of user fee-based revenue collection.
- Projects with a dedicated revenue stream associated with completion (such as toll roads) provide added incentive for the public sector to complete a project on time and within budget.
- Trained and capable contracting agency staff responsible for administering design-build projects must be designated for this method of project delivery, including procurement and contract administration processes.
- The presence of a number of competent design and construction firms interested and willing to compete for work under the design-build contracting approach helps to ensure cost-competitive bids/proposals.
- Public demands for accountability regarding project schedule and quality can be more readily met through the terms and conditions inherent in a design-build contract, where qualified design-builders take on more project risk associated with meeting the contract schedule and performance criteria because of their ability to apply innovative techniques that lower the costs of project delivery while achieving desired performance results.
- A large number of agencies have now undertaken one or more design-build projects under the auspices of SEP-14 and tested different ways to apply design-build to many different types and sizes of projects. The knowledge gained from developing these programs and testing design-build provides a rich source of legislative, regulatory, procedural, and institutional documentation and insights to help institutionalize this process as an option for contracting agencies to consider as they develop their highway improvement programs and projects.
- While some states have cut back their design-build programs (such as Michigan, Ohio, and New Jersey), having completed the urgent projects that first prompted their interest in design-build, other states (such as Florida and Pennsylvania) are building on their growing knowledge base and success to propose increasing numbers of projects for design-build. This is becoming a self-fulfilling process as local design and construction firms participate in these projects and gain familiarity and confidence in their ability to delivery projects using design-build contracts and to make a reasonable rate of return for their efforts and risks.
- Nationally there is an extensive array of reports, books, periodicals, research studies, practice guides, and project evaluation reports to inform prospective and current practitioners in the use of design-build contracting for highway projects. There is also ample experience gained by various states in the use of design-build for a whole variety of projects to enable any first-time user to obtain useful insights and documentation on rules, regulations, policies, and procedures to set up and apply design-build with greater confidence that those early experimenters who first applied design-build during the early years of SEP-14. Among the states with well established design-build programs and significant documentation on their programs and projects are Florida, Pennsylvania, Michigan, and Ohio. Emerging major users of design-build include the states of Maryland, New Jersey, North Carolina, Indiana, Utah, Texas, and Virginia who have continuing and expanding design-build programs.
- The Design-Build Contracting Regulations1 provide wide latitude to transportation agencies in the use of design-build contracting if they choose to apply this project development approach provided there are reasonable controls in place to:
- Protect the public interest in obtaining a cost-effective project that meets or exceeds stated performance standards over time;
- Minimize the opportunity for waste, fraud, and abuse due to favoritism in the selection process; and
- Promote competition, particularly among competent local and national firms of all sizes and capabilities that can participate on design-build project teams.
Minimum levels of participation by the prime contractor of a design-build team are no longer required under these regulations. This will encourage even greater use of local and small subcontractors to support the design-build teams, thereby ensuring their open and competitive access to design-build highway projects.
Based upon the results of this study, the following recommendations are offered to improve the use of design-build for delivering highway projects.
- The FHWA should continue to work with AASHTO and industry representatives to develop suggested guidelines and illustrative documents for use by contracting agencies interested in evaluating the design-build project delivery method. The FHWA recognizes this need and continues to support the activities of the AASHTO Design-Build Task Force and the design-build related research performed under the National Cooperative Highway Research Program (NCHRP). Two current research studies will be effective in accomplishing these goals: (NCHRP Project 25-25(12) - "Design-Build Environmental Compliance Process and Level of Detail Required" and NCHRP Project 20-07, Task 172, "Recommended AASHTO Design-Build Procurement Guide").
- To the extent practical, contracting agencies should provide for flexibility in the design criteria by using performance criteria to encourage creativity by the design-build proposing teams while providing a basis to hold the team accountable for project results.
- Preliminary designs that are incorporated in the RFP should be no more than 30 percent complete, dropping to lower levels as the size and complexity of the project increases and the contracting agency gains greater experience with this project delivery approach and the use of performance-based specifications.
- Raising the expertise and experience among transportation agency managers is a key challenge. Transportation agencies should invest in design-build training before attempting to execute their first design-build project. That training should include not only contracting agency personnel but also consulting engineers and construction contractors that will compete for these projects. On-going design-build training sessions could be used to institutionalize lessons learned for completed or active design-build projects.
The changing nature of the nation's highway infrastructure development program and resources, at the federal, state, and local levels, is placing increasing burdens on the public sector's ability to meet the growing needs for renewed and expanded system capacity. Innovative techniques like design-build have been shown to offer significant potential to help transportation agencies better serve these needs by doing things faster and more cost-effectively. While many of the conditions that spawned the promulgation of highly restrictive contracting laws and procedures early in the twentieth century are no longer in evidence, care must be taken to prevent a repeat of these conditions. This is why the use of techniques like design-build contracting must be viewed and entered into with the understanding that the public and private participants in the process have a shared interest and liability for the results of the process, and are each held accountable for the results.
Design-build contracting represents a collaborative effort that integrates the various resources involved in the development of a highway project and provides incentives for a high level of technical performance and consistency with contractual budget and schedule terms. It has the potential to produce a more cost-effective project in less time than a process that contractually insulates the project participants while leaving the contracting agency with most of the project risk. The following quotes reflect the views of many of the respondents to the design-build surveys:
- "We are sold on design-build. We feel that it offers the department an excellent option for procuring work faster and potentially more effectively that the traditional design-bid-build method." (a representative from the Construction Division ,Utah Department of Transportation)
- "The design-build technique for transportation [project] delivery has provided the department with another tool to meet the needs of our customers, the traveling public. This technique allows us to move from concept to concrete at an accelerated pace which has helped us to meet the needs of local municipalities quickly. We could not have met the President's and Governor's economic stimulus initiatives had we not had the design-build option. This program has been extremely beneficial." (a representative from the Florida DOT)
- "We utilized the design-build contracting method to [respond] to a significant increase in the bridge construction budget with little time to implement [the project]. Design-build effectively brought the program to construction." (a project manager from the Michigan DOT)
- "This project would not have been possible without design-build project delivery." (a representative from the Alameda Corridor Transportation Authority)
- 23 CFR part 636