What are your project delivery options for horizontal construction?
May 18, 2017
May 18, 2017
From design-build to P3, it's not always easy to select the right project delivery method. This overview should help.
Owners, particularly in the public sector, are looking for more flexible project financing options and better accountability in project delivery. Traditionally, most horizontal construction projects (e.g., transportation, pipelines) were delivered by the conventional design-bid-build (DBB) process. The owner would begin the design process through either in-house capabilities or engaging an external architect/engineer consultant. Next, the owner would bid the project to a select group of constructors in an open competition and/or award a separate contract to a general contractor for execution.
The primary advantages of the DBB process are scope certainty and control over design, pricing, and execution of the work from a completed set of design documents. The owner can craft the design to their specifications and preferences before it is delivered to the contractor. This gives the owner the project they envisioned. The significant disadvantage of this approach is the extra time it requires to deliver in this sequential manner and, more importantly, the poor record of performance against budgets. In a traditional DBB, it’s common for scopes to grow because the engineers and construction professionals are disconnected. We often see a lack of constructability-driven optimization, scope growth, and even “gold plating” projects (which can lead to significant overruns from initial estimates). In fact, a British study found that, on average, government contracts ran over on cost and time by 60 percent from original estimates on DBB projects.
In the “alternative project delivery” (APD) world, the goal is to find efficient, innovative ways to deliver projects that meet owner’s specifications, particularly as they relate to functionality and operating requirements/performance. Often, APD is used when we have long-term relationships with partners and owners and if the projects are large and complex, so we can drive efficiency and foster innovation. Some of the APD methods include the following:
DB is a project delivery method in which the owner contracts for both design and construction services as a single entity known as the design-builder or design-build contractor. This DB contractor assumes all risks associated with scope, cost, schedule, and often other performance-based risks. In this scenario, the DB entity contracts with architects and engineers to develop the design to a set of specifications provided by the owner. This gives the owner greater certainty over price and schedule compared to traditional DBB because a single entity is charged with overall project delivery. However, the owner must carefully write their request for proposal and specifications to ensure the project scope and features will meet their expectations. The DB model is most commonly used for buildings, transportation, and water projects.
Recently, we served as designer-of-record for the $700 million Permanent Canal Closures and Pumps DB project for the Coastal Protection and Restoration Authority and US Army Corps of Engineers in New Orleans, Louisiana—a very large, complex civil works infrastructure project. The DB model has proven flexible enough to accommodate client-driven scope changes and still maintain schedule for this key project. In addition, PCCP will be featured in a new series on The History Channel entitled “Project Impossible” that debuts later this summer.
Progressive Design Build
A variant of DB is Progressive Design Build. This approach enables the contractor and engineer to work to an advanced completion of design of, say, 60 to 70 percent before the guaranteed maximum price is established for the project. This approach allows the owner to have more input into shaping the project scope, working in collaboration with the contractor and the designer. The disadvantage of this approach is that price is not locked in until an advanced stage of design.
Under the DBO model, design, construction, and facility operation services are contracted by the owner to a single entity known as the Concessionaire, DBO Contractor, or Developer. The “Concession” procures two primary contracts: a DB contract to design and build the facility and a longer-term operations contract to operate and maintain the facility. The DB contractor assumes all risks associated with scope, cost, schedule, and often other performance-based risks. The DBO is terminology common to the buildings, transportation, and water sectors. As in a straight DB, designers are contracted by the DB contractor to develop the design to a set of specifications provided by the owner. The Owner’s benefits and disadvantages are similar to those described in DB above with additional certainty about life-cycle operations costs.
DBOF is a project delivery method in which the design, construction, and facility operation services and financing are contracted by the Owner to a single entity known as the Concession or Developer. As in DBO described above, the Concession procures two primary contracts: a DB contract to design and build the facility and the Operations contract to operate and maintain the facility. The Concession also procures both equity and debt financing to fund the project. The DB contractor assumes all risks associated with scope, cost, schedule, and often other performance-based risks. DBOF is terminology common to the buildings, transportation, and water sectors. Again, designers are contracted by the DB contractor and develop the design to a set of specifications provided by the owner. The owner’s benefits are as described in DB and DBO above with additional certainty about operations costs.
The addition of financing provides two specific advantages to owners. First is the addition of funding options, but second—and more importantly—the funding aspect provides an enhanced level of guarantee that the project will function within the owner’s specifications. Lenders and equity holders are not paid if performance specifications are not achieved. The inclusion of “skin in the game” with equity providers results in an enhanced level of project performance with respect to cost and schedule.
Public-Private Partnerships (P3s)
P3s are public sector procurements, usually some form of DBO or DBOF (defined above).
Engineering, Procurement, and Construction (EPC)
EPC contracts are similar to design-build but this terminology is more common to large heavy industrial projects. In an EPC contract, a firm is engaged to design, procure, and construct the project.
Construction Management at Risk (CMAR)
In a CMAR scenario, the owner still holds separate design and construction contracts, but the construction contractor is involved at the design stage to help optimize the design from cost, schedule, and constructability perspectives. The owner maintains control of the design, can direct an iconic-type design, and break out early work packages for construction. When design has developed to an appropriate level of completeness, the CMAR contractor will price the project and provide the owner with a guaranteed maximum price, providing the owner with both price and schedule certainty. We used this delivery type on the South San Joaquin Irrigation District in California—a 10.3-mile long, 78-inch diameter pipe for the western end and 6.7 miles of new 78-inch diameter pipeline for the eastern end.
Stantec is familiar with each of these project delivery approaches. Our past project experience includes working on 11,000+ DBB projects, 1,200+ DB projects, 278+ CMAR projects, and more than 250 P3 projects.
Which approach is right for your situation? Our team is knowledgeable and will discuss the various alternatives available to help you select which is most appropriate—that’s one of the benefits we can offer when engaged early-on in the project planning process.