The growth (and growing pains) of design-build construction

Over the last decade, the public procurement profession has seen greater use of alternative delivery methods of construction projects, including design-build, construction manager at risk (GC/CM or CM/GC), public private partnerships (P3), and job order contracting. The traditional method of soliciting and contracting, design-bid-build, is still the most widely used method of construction contacting. It has been the mainstay of government construction contracting for well over 60 years.

Growth of Design-Build

Many states and local governments were slow to adopt the new construction contract delivery methods. For a long time, statutes continued to require that public improvements be competitively bid in the traditional way. In fact, the American Bar Association (ABA) Model Procurement Code was not revised until 2000 to add coverage for procurement of infrastructure services using integrated project delivery methods like design-build.

The alternative construction delivery methods are solicited as a request for proposal, and all are intended to save time and hopefully money. As of the writing of this article, all 50 states and Washington D.C. allow some form of alternative contracting methods, among them design-build. Moreover, in 2011-2012, at least 20 states expanded their design-build authority.

Design-build procurements award a single contract for both architectural/engineering design and construction. Design-build is well suited for highway and bridge construction. But this contracting method is particularly valuable as well for construction after disasters, such as tornadoes, floods and hurricanes. In 2012, for example, the Louisiana state senate unanimously voted to approve a senate bill that expanded design-build contracting capacity into July 2013. The Times Picayune reports that design-build had been in place since 2007 and has been used to repair damaged libraries, hospitals and other construction projects after the state suffered devastating hurricanes.

On Aug. 1, 2007, the I-35W Bridge over the Mississippi River collapsed. Thirteen months later, on September 18, 2008, the first cars rolled across the newly constructed bridge. The Minnesota Department of Transportation (MnDOT) used design-build to complete the construction. The biggest benefits were described as “speed of delivery and innovation.” The state was able to save time by overlapping design and construction activities. The state avoided an estimated $400,000 a day from lost revenue and the costs of detouring traffic caused by the downed bridge.

The MnDOT process is illustrative of design-build project delivery. The process started with a statement of qualifications. Mayor and city council approval of the design-build contracting method was expedited. The speed of contract approval was unprecedented, and the bridge was completed in one year – three months ahead of schedule.

The State of New York passed legislation to use design-build in October 2011, after the destruction caused by Hurricane Irene. Likewise, the State of Missouri and the Federal Emergency Management Agency (FEMA) used design-build to help rebuild Joplin, Mo., after the devastating tornado of May 2011. Many of these jobs need to be done rapidly because there is a 180-day window for federal reimbursement for some projects.

Johnson County, Kan., used the design-build method for an emergency communication center. The center operates 24/7 and includes a 911 call center. The structural design was based on FEMA requirements, making mission-critical areas within the building capable of withstanding an F4 tornado (or 260 mile-per-hour winds) and having redundant electrical and mechanical systems that can maintain operations for four days. The project was finished seven months earlier than scheduled.

Pros and Cons of Design-Build

Alternative methods of contracting for construction projects are not the best methods for every project. It takes acumen and the discerning experience of a professional contracting/procurement officer to know the right type of construction delivery strategy because there are some fundamental differences. In traditional design-bid-build, for example, the risk of adequacy of design is on the owner. The specifications and drawings provided by the owner to the contractor are “design specifications.” Under construction law, the owner warrants their adequacy, meaning the contractor is responsible only for building to the design and does not guarantee that any particular outcome will be achieved. This legal concept, the Spearin doctrine, is named after the 1919 United State Supreme Court case that spawned it. The Spearin doctrine protects the contractor from incomplete or impractical specifications issued by the owner or the owner’s architect/engineer (“A/E”).

In design-build, on the other hand, the statement of work typically uses more performance-based language (even though practically the specifications are often mixed between performance and design-type specifications). Because the design-build entity delivers not only construction, but also the design, that company is responsible for achieving the objectives in the statement of work. While at first blush a design-build approach seems preferable by centralizing design and construction responsibility in a single company, there are both advantages and disadvantages to use of the delivery method.

With regard to advantages, the contractor is selected based on qualifications, capabilities, experience and price, thus avoiding some of the pitfalls from contract awards solely based on low price. The design and construction are performed by a single team, under one contract. This reduces the owner’s risk from diffused responsibility for design and construction. Time can be saved because ordering of materials and site work begin before the total design is complete. There is a close, contractual relationship between the design and construction teams, resulting in fewer change orders by the owner that arise from occasional revisions in design by an owner’s A/E. Overall, design-build contracting has greater potential to save time and reduce cost.

But there are disadvantages as well. The owner may not have the security (and comfort) of having an A/E act as their agent during the project. Even if the owner has an independent A/E involved in oversight of the project, the A/E does not have as much insight into the design details. As such, with design-build, the owner will lose some control of the design process. Design often is managed through owner approval of design documents during performance. While some design elements may be specified, typically the contractor is given flexibility in design. Recent federal court decisions have illuminated the boundaries of design and construction independence as one of the sources of tension in the relationship.

Another disadvantage can be less competition. Not every company can put together an effective design-build team, and it may be more difficult to secure performance and payment bonds on this type of project. Even from the public procurement professional’s perspective, the process involves best value approaches to solicitation development, evaluation and award not always familiar to construction management personnel.

Contract management is more challenging as well. Contract administration overall requires more collaboration. The absence of effective collaboration may be where the growing pains of design-build are revealed.

Legal Decisions Highlight Growing Pains

As the Louisiana state senate learned when considering a bill to extend design-build authority, there is opposition to its use by some architects and engineers. In the State of California, in fact, groups representing the A/E community filed a lawsuit (unsuccessfully it turned out) against the San Francisco Presidio parkway project, alleging that the design-build approach did not comply with state law. [Professional Eng’rs in California Gov’t v. Dep’t of Transp., 198 Cal.App.4th 17 (2011)]

Recent court decisions illustrate some of the other friction points that can occur when any procurement system is changed in fundamental ways. The cases discussed here are published appellate court decisions, meaning significant resources were invested to resolve the issues at the heart of these cases. Public procurement professionals can learn from these cases where they can reduce risk in solicitations and contracts.

Design-Build is reframing historical procurement processes. Advanced construction delivery methods like design-build reframe the way traditional procurement concepts like responsiveness are applied. There is a resource and training implication, of course. Personnel perhaps very experienced in construction bidding have to learn new processes. The Minneapolis I-35W bridge reconstruction illustrates the growing pain very well.

A 2010 Minnesota Supreme Court decision dealt specifically with the application of responsiveness concepts to the I-35W design-build project. [Sayer v. MN Dep’t. of Transp., 790 N.W.2d 151 (Minn. 2010)] After the award of a design-build contract for reconstruction of the bridge, disappointed offerors protested. They alleged that, although the winning contractor had the highest evaluation ratings, the winner’s proposal was nonresponsive and should have been eliminated from consideration. They claimed that the winner’s proposal had deviated from the request for proposal (RFP) requirements by planning to work outside of the right-of-way reserved for construction and by using noncompliant concrete box designs.

The court ultimately sustained the award, but the reasoning is particularly instructive. The court of appeals (the appellate court below the Minnesota supreme court) had held that the common law definition of “responsiveness” does not apply to design-build. Yet, the majority on the Supreme Court proceeded to analyze the issue as one of responsiveness, undertaking detailed analysis of the RFP specifications and concluding that the winning contractor’s technical proposal did not deviate from the requirements. The chief justice of the court voted to sustain the procurement decisions, but in a concurring opinion he used different reasoning. He thought the case was squarely focused on the application of responsiveness law to design-build procurement. In the chief justice’s view, the determination of responsiveness had been committed by statute to the technical review committee and was a function of the committee’s aggregated technical score, not a microscopic examination of technical compliance with individual RFP requirements. Thus, in these kinds of procurements the construction industry is facing the same kinds of questions arising out of other complex service procurements. [See “Responsive or not?” Government Procurement (Feb./March 2011)]

The use of competitive range determinations or “short listing” also highlights growing pains. Last year, two state courts looked at their statutes governing construction and concluded that short listing was not permitted as part of the competitive negotiation process in design-build procurements. [Brayman Constr. Corp. v. Commonwealth, 30 A.3d 560 (Pa. Cmwlth. 2011); O’Shea v. New Jersey Schools Dev. Auth., A-3943-08T1 (N.J. Sup. Court, April 7, 2010)] These results discourage use of a time-tested procurement process that permits exchange of communications before award. A government has neither the time nor resources to engage in communication exchanges with every responding offeror not reasonably in line for an award.

Subcontractors may see a different relationship with the government. Historically in fixed price construction, the government owner had little formal relationship with subcontractors and suppliers. While states’ statutes commonly require payment bonds, or retainage statutes may grant a right to subcontractors or suppliers to file administrative claims against final payment to the prime contractor (and delay final settlement with the prime construction contractor until the dispute is settled), governments otherwise stay out of the prime-subcontractor relationship. In some advanced delivery contracts, however, the relationship with and expectations of the subcontractor may be different. A San Diego subcontractor was permitted to file a protest against the general contractor and city on a design-build contract. The subcontractor alleged that it should have been awarded a subcontract by the general contractor. The court permitted the law suit, characterizing the general contractor as a “consultant to the city.” [J.T. Wimsatt Contracting Co., Inc. v. City of San Diego, D059276 (Cal. App, March 20, 2012). In traditional construction contracts, subcontractors generally do not have standing to bring this kind of action against the owner challenging actions of the general contractor. The owner and subcontractor are not in “privity” of contract.

These cases highlight the importance of using sound selection processes to clarify the expectations among the parties.

A Different Kind of Collaboration

It takes an experienced public procurement professional to be able to help draft the statement of work, develop the solicitation and then negotiate an equitable contract that achieves overall good for the taxpaying public. For many leading edge projects — communication facilities, modern wastewater facilities, hospitals, schools and universities, public event facilities, and even information technology projects — choosing the most qualified contractors, with the best capabilities, makes logical sense.

Before selecting any alternative contract delivery method for public construction, consider your state or agency laws, expected outcomes of the project, competition, budgets, and timelines. For emergencies and disasters, in particular, these kinds of alternative delivery methods may provide more efficiently the infrastructure improvements the public desperately needs.

Edward J. Pabor, CPPO, CDT, C.P.M. is currently the stores supervisor/buyer for City of Eugene, Ore., Public Works Department, and NIGP Master Instructor. Richard Pennington, CPPO, C.P.M., J.D., LL.M. is an NIGP Individual Member and NIGP Instructor. He served as an assistant attorney general (procurement and contract law and litigation) and State Purchasing Director for the State of Colorado. He retired from the practice of public procurement law in 2010.

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