Home | Get In, Get Out, Stay Out—Accelerating Design and Construction (Continued)

Get In, Get Out, Stay Out—Accelerating Design and Construction (Continued)

FHWA has begun to address these issues by encouraging flexibility on an experimental basis under SEP-15, including flexibility in the environmental review process.

There have been numerous initiatives among the United States and state DOTs to develop, test, and implement proven innovations in contracting and in enhancing the role of the private sector in project delivery. These include:

Contract incentives under the traditional design–bid–build delivery, such as:
- Bonuses for early completion and penalties for delays;
- Time-plus-cost bidding (known as A + B), in which projects are awarded on the basis of low cost and time to complete;
- Lane rentals, in which the time required for travel lanes taken out of service are charged a fee; and
- “No-excuse” contracts, which do not allow contractors extra time for poor weather.
Design-Build, which provides for design and construction to be performed under one contract, thus allowing construction to begin before all design details are finalized. Because both design and construction are performed under the same contract, claims for design errors or construction delays due to design errors are not allowed and the potential for other types of claims is greatly reduced.

Over half the states have used design-build contracting, either on pilot projects or as an accepted practice on selected projects. However, even among the most active states that have used design-build—Arizona, Colorado, Florida, Utah—design-bid-build remains the more commonly used form of contracting. In a number of states, design-build for highways is not permitted under current procurement laws and regulations. In many of these states, small contractors and transportation agencies that are less inclined to cede control of the project to private-sector design-build teams (most often led by large construction contractors) have remained unconvinced of the potential benefits

Pennsylvania Stages Design-Build Comeback for 27 Bridges

In late June 2006, a severe flood event with up to 15 inches of rainfall in Northeast Pennsylvania resulted in extensive damage to 27 bridges. The Federal Highway Administration approved PennDOT’s request to utilize a modified Design-Build Modified Turnkey process to expedite design and construction of the bridges. Waivers were granted by FHWA as follows:

Allow preliminary design consultants to be “assigned” projects rather than through the conventional selection process. This allowed commencement of preliminary design within 11 days after the flood event.
Allow full acquisition of right-of-way clearance to be performed by contractors during final design.
Allow full utility clearance to be performed by contractors during final design.
Allow environmental and waterway permitting to be completed by contractors during final design. Hydrologic and hydraulic analyses were completed during preliminary design, and conditional approval was obtained from the permitting agencies.

As a result of this modified design process, all 27 bridges totaling approximately $47 million in construction contracts were awarded to nine contractors within two months following the flood event. Six of the replacement bridges were opened to the traveling public, in part or full, by the end of November, just 5 months following the flood event. All other bridges are on various schedules to meet replacement commitments.

Best Value Selection. Best value selection is common to many alternative delivery systems and is strongly promoted by many advocates of design-build. Many states have awarded construction contracts based on a combination of price and “other factors,” which can include a wide variety of factors such as time to complete the job, effectiveness of the detailed design in meeting specified requirements, traffic management phases, and approaches to collaboration. These contracts often use a weighted scoring system that accounts for both the price and the technical qualifications of the proposals to determine the “best value” for the public.
Public–Private Partnerships (PPPs). PPPs are contractual agreements between a public agency and private-sector entity that allow for greater private-sector participation in the delivery of transportation projects. The private sector may serve in varying roles as financier, program manager, long-term lessee, toll revenue collector, and facility operations and maintenance manager.

Traditionally, private-sector participation has been limited to separate planning, design, or construction contracts on a “fee-for-service” basis, based on the public agency’s specifications. Expanding the private-sector role allows public agencies to tap into private-sector technical, management, and financial resources in new ways to achieve public agency objectives such as greater cost and schedule certainty, supplementing in-house staff, innovative technology applications, specialized expertise, or access to private capital. In return, the private partner can expand its business opportunities for assuming the new or expanded responsibilities and risks.

PPPs tend to accelerate project delivery in two ways: first, by enlarging the overall pool of funds being invested in transportation, thereby getting projects done sooner than they otherwise would; and second, by employing innovative contracting techniques to compress the time to ribbon cutting (as well as the time to initiating toll collections). PPPs in which existing roads are leased for a long-term period (anywhere from 40 to 75 years) in exchange for a large, up-front, lump-sum payment, can serve to accelerate projects into construction if the proceeds are re-invested into transportation programs.

Over 20 states and one territory have enacted statutes that enable the use of various PPP approaches for the development of transportation infrastructure. With the continued solvency of traditional transportation funding sources currently in question, new partnerships must be sought out to ensure that the investment in our infrastructure continues to provide the benefits needed to drive the U.S. economy.

Emergency Construction and Lessons Learned. Periodically, a natural or man-made disaster will close down a vitally important transportation artery. Recent examples of these disasters include earthquakes and tanker trucks in California, hurricanes in Mississippi and Louisiana, and bridge spans hit by ships and trains in Florida and Oklahoma. It is extraordinary how fast procurement, permitting, prefabrication, and placement of construction elements and material can occur under a bona fide emergency. There are valuable lessons to be learned from these emergency responses that may well be applicable to accelerating schedules on more routine projects.

Escambia Bay Bridge Replacement a Streamlining Success

Innovative project management allowed for the streamlining of two distinct processes. All of the requirements and integrity of the NEPA process were employed and maintained while the RFP was under development. Since the success of the project timeline depended on the expeditious settlement of the NEPA process, team members gave great attention to early and often coordination with all agencies (resource and regulatory). Information gathered through the NEPA process was immediately included in the RFP, to the satisfaction of all parties. Concurrent activities allowed for the timely delivery of both the NEPA documents and the contract documents. The project was advertised while in the midst of the NEPA process. Prospective design-build firms were not only allowed, but greatly encouraged to attend all NEPA coordination and public meetings.

Hurricane Ivan Made Landfall                                      09/16/2004
NEPA Process Begins                                                 10/05/2004
Project Advertised for Letters of Interest                     12/21/2004
Shortlist of Design-Build Firms                                     01/10/2005
Public Information Workshop                                       02/03/2005
VE Study Completed                                                    02/10/2005
NEPA Completed                                                         02/11/2005
RFP Approved by FHWA and Issued                           02/16/2005
Design-Build Contract Executed                                  04/20/2005

Innovative Delivery
SEP-15 was investigated to provide means for FDOT to explore alternative and innovative approaches to the overall project development process. Given the magnitude and urgency of the project, the SEP-15 concept was developed around an innovative approach to minimize the timeline required to develop the environmental documents, obtain the necessary approvals, and to award a design-build contract upon completion of the NEPA process and ultimately replace the I-10 Escambia Bay Bridges.

Expedited Environmental Process/Permitting
The Efficient Transportation Decision Making (ETDM) process was employed from the outset and greatly assisted in maintaining the rigid project schedule. Not only were all resource and regulatory agencies involved every step of the way, but the prospective design-build team members were allowed to be involved. A multi-agency coordination meeting was held early in the RFP development process (12/17/2004) (concurrent with fulfillment of NEPA requirements). All affected/interested regulatory and resource agencies attended and provided specific input related to their respective interests. Permitting requirements and environmental commitments were specifically stated in the RFP. However, specific permitting requirements contingent upon the design-build firm’s approach to the project were required of the design-build firm.

Overlap of Phases That Are Traditionally Sequential
RFP development began immediately upon FHWA’s determination to replace the damaged bridge structures. Concurrently, logical project termini were established, and environmental surveys of essential fish habitat, seagrass beds, and contamination were conducted in close coordination with regulatory and resource agencies. As soon as commitments were made, they were incorporated into the RFP. The project was advertised for letters of interest (LOI) (12/21/2004) and three design-build firms were shortlisted (01/10/2005) prior to completion of the NEPA process (02/11/2005). In addition, the required value engineering study was conducted and completed by FDOT the week of 02/7/2005–02/10/2005. Upon completion of the NEPA process and location design concept acceptance provided by FHWA, the RFP was issued to the three shortlisted design-build firms (02/16/2005). In one month, FDOT held the pre-proposal meeting, solicited and responded to technical questions, reviewed and scored technical proposals, facilitated project presentations and Q&A sessions, received price proposals and awarded the design-build contract.

Types of Funding Utilized to Expedite Project Delivery
A mix of Federal and state funds were utilized to expedite project delivery. For example, sampling and testing of potentially contaminated materials (lead-based paint, asbestos-containing bridge elements, and existing contamination of the bottom of Escambia Bay) were acquired through an existing state contract. The results of said sampling and testing were quickly obtained and special requirements incorporated into the final RFP.

Proposed Regulation Hampers Design-Build Contracting

Although design-build has not spread as quickly among the states as some predicted, over half of the states have authority to use it and have, in fact, applied it. The use of design-build continues to grow for large and complex projects as its ability to share risks, foster innovation, and deliver projects on a fast track becomes more accepted.

SAFETEA-LU required FHWA to revise its regulations in order to allow a design-build contract to be awarded and “preliminary design” to occur prior to completion of the NEPA process. The previous regulations required NEPA and design-build contracting to occur sequentially. The changes proposed by FHWA in mid-2006 allowed design-build contracts awarded prior to completing NEPA, but defined the concept of “preliminary design” so narrowly that it actually would have severely reduced the flexibility that currently exists in the NEPA process. Rather the expediting project delivery, the proposed regulations would have created new barriers that slow it down. AASHTO, joined by more than 20 individual state DOTs, filed comments urging FHWA to adopt a more inclusive definition of “preliminary engineering.” This issue warrants close attention from the Commission. If the needed changes are not made, this issue may again become a subject for legislation.

Contracting Innovations Beyond Design-Build

While design-build is likely to remain the preferred alternative to design-bid-build, the inherent limitations of design-build are spawning interest in further innovations. While there are numerous variations, they have more in common than not. Without exception, they foster collaboration between designer and contractor—some, such as design-build, result in the contractor having the lead role, while in other cases the designer may have the lead role early and that lead may shift even as the composition of the team remains generally the same from one phase to the next. These approaches involve varying degrees of collaboration and sharing of risks with the owner, finding ways to assign risks to those in the best position to manage or mitigate them. They may also offer financial incentives in the form of bonuses or better margins when time and costs are controlled, and engineering and construction are more efficient, which stimulates innovation.

The examples below include newer contracting approaches and contracting provisions that could be considered as possibilities for further consideration and experimentation in the United States:

Alliance Contracting. Used in Australia in the mining and transportation industries, Alliance Contracting involves intensive collaboration among the owner, designer, and contractor who agree to form a relationship in which they function as a partnership. Built on a “trust but verify” mentality, the designer and contractor who are teamed disclose all of their costs and margins using “open book accounting.” The financial, management, and technical ground rules are agreed to up front, and a joint board of senior executives remains actively engaged in oversight. Savings as well as overruns are shared among all parties, who generally view themselves as sitting on the same side of the table. This approach is particularly useful where a project is very large and complex, and where risks and uncertainties will remain significant, even during construction.
Early Contractor Involvement (ECI) and Target Pricing. Developed and being applied by the Highways Agency in the United Kingdom, Early Contractor Involvement brings the contractor/designer team into a project in its conceptual stages, serving in a consultant role, and working with the owner and stakeholders to develop an agreed upon solution at a target price. The target scope, price, and schedule are independently reviewed and verified by the owner and become the basis for the second phase in which the team’s role shifts to one of implementation of the project at a guaranteed price. The team accepts the risk of overruns and gains the benefit of savings.
Construction Manager at Risk or Construction Manager/General Contractor (CM/GC). Similar to ECI, Construction Manager at Risk, or Construction Manager/General Contractor migrated from the vertical construction industry. This approach is being tried by a few DOTs such as Arizona, Florida, Michigan, and Oregon. A design/construction management team is selected to provide construction expertise and contract management, including a target cost for construction and an estimated ceiling price. The team, in a consultant role, also provides preconstruction advice to the owner concerning constructability, pricing, scheduling, staging, value engineering, and other areas related to the construction of the project. Some owners favor this contracting technique as it gives them greater control of the design process, yet it still provides for innovation and constructability recommendations in the design phase. Assuming the price is agreeable and working relationships were satisfactory in the early concept stage, the project shifts to the next stage in which the project team serves as general contractor with a contractual responsibility and associated risks to deliver the project within the guaranteed price.

In general, innovative contracting remains the exception to the rule, but it is likely to grow. The benefits of accelerating schedules, promoting innovation, and sharing risks have spawned interest among the transportation agencies in a growing array of delivery systems. Many innovative contracting techniques have been in use for some time in vertical construction, while others have been adapted from overseas contracting methods. These contracting approaches vary in terms of the degree of collaboration and risk sharing among owner, contractor, and designer, and also in terms of how early in the overall process they are initiated—particularly in terms of planning and environmental assessments and mitigation. However, it is expected that these variations from design-build will grow as DOTs continue to seek more and better tools to share and manage risk in terms of quality, scope, costs, and schedule.

Overall, the seemingly perennial need to deliver more with less, and to do it faster continues to sustain interest in Innovative Contracting and Public–Private Partnerships. Very recent events within states such as Texas and Pennsylvania, as well as questions raised about the national public interest by members of Congress, demonstrate that PPPs are likely to remain a subject of debate. What is not often debated is the track record of accelerated project delivery that is a key benefit of PPPs. PPPs always employ a collaborative form of innovative contracting, most often design-build, which as a minimum integrate detailed design and construction, and in virtually all instances demonstrate an ability to achieve significant schedule acceleration.

Recommendations: Innovative Contracting Techniques

Innovative contracting techniques should be encouraged to assist in the timely procurement and management of transportation projects. “Mainstreaming” these contracting techniques and lifting restrictions on their use—such as allowing expanded use of warranties on projects, which are currently limited in scope by Federal regulation—will allow for increased experimentation and evaluation regarding how they work in differing circumstances.
Regulatory changes recently proposed by FHWA regarding the concept of “preliminary design” in the design-build process, are defined so narrowly that they would severely reduce the flexibility that currently exists in the NEPA process. Rather the expediting project delivery, the proposed regulations would create new barriers that slow it down. The proposed regulations should be revised.
The use of SEP-15 should be encouraged to expand opportunities for private-sector participation in project development, while at the same time establishing clear boundaries to ensure that public agencies remain accountable to the public for transportation decisions.