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

Source: D-B project survey: Q18, 49 responses

Exhibit V.2: Summary of Actual Design-Build Program Changes

Source: D-B program survey: Q24, 27 responses

Exhibit V.3: Summary of Proposed Design-Build Program Changes

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

CONCLUSIONS

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.

Other Considerations

• 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.

RECOMMENDATIONS

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.

CLOSING REMARKS

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)

FOOTNOTES

1. 23 CFR part 636