Procurement and Construction Management and Oversight What Board Members Need to Know

1. Procurement and Construction Management and Oversight What Board Members Need to Know Jerry Smiley, AICP 24 July 2013

2. Major Capital Projects Alternative Contracting Approaches Pre-Planning and Acquisition Finance Design Construction Operations Maintenance RTD Union Station DART Orange Line

3. Major Capital ProjectsAlternative Contracting Approaches – Risk Allocation Contractor’s Risk / Contractor’sControl Owner’s Risk / Owner’s Control

4. Design-Bid-BuildProject Structure and Approach Owner General Contractor Architect/ Engineer Subcontractors and Suppliers $ $ $ $ PD&E PE Final Design Procurement Construction ESTIMATE BUDGET BUDGET BID Contractor Selected

5. Design-Bid-BuildOverview Pros • Standard contracting approach • Transparent procurement process • Public acceptance • Fairest to bidders, level playing field Cons • Slowest method • Cost not established until bids received • Design change impacts • In some cases, fosters adversarial relationships and increases probability of disputes Owner retains greatest control, but assumes greatest risk

6. Design-BuildProject Structure and Approach Owner Design-Builder Architect/Engineer Subcontractors and Suppliers $ $ $ PD&E PE Procurement Final Design BUDGET ESTIMATE BID Construction Contractor Selected

7. Design-BuildSummary Pros • Project costs are determined earlier • Constructability and value engineering benefits accrue to Owner • Single point responsibility • Reduced claims exposure • Tends to be the fastest method Cons • More complex contracting approach • Competition may be limited • Requires earlier project definition • Reduces design input by Owner • Changes are more costly Substantial risk is shifted to the contractor, contractor assumes more control

8. Construction Manager/General ContractorProject Structure and Approach Owner General Contractor Consultants Subcontractors and Suppliers $ $ $ PD&E Procurement Final Design PE BUDGET BUDGET GMP Construction Contractor Selected 8

9. CMGC Overview Pros • CMGC participates in developing design, budget and schedule • Design assistance reduces E&O • Allows for fast-track (non-linear) construction • Reduces uncertainties (change orders) • Owner knows costs upfront Cons • No significant input by Owner in design • Complex process requiring qualified staff • CMGC’s role changes from CM to GC once construction starts • Owner does not transfer E&O risk • In some areas, relatively few true construction managers Owner retains significant control, owner retains significant risk 9

10. Public Private PartnershipsProject Structure and Approach Owner Concessionaire O&M Contractors Design-Builder Architect/Engineer Subcontractors and Suppliers $ $ PD&E Procurement Design Construction and Testing Revenue Operations BUDGET BUDGET Maintenance Partner Selected 10

11. PPP Overview Pros • Advance infrastructure projects years in advance • Value for money through optimal risk transfer and risk management • Accountability through performance incentives • Operational and project execution risk is transferred to the private sector Cons • Contracts are much more complicated • Difficult to anticipate all possible contingencies that could arise in long-term contract • Re-negotiation of contracts can be high • Performance enforcement Owner only controls what is negotiated, risk depends on skill of negotiators 11

12. What Questions Should You Be Asking?

13. Risk Allocation Principles • Risks are unavoidable • Risk should be allocated to maximize probability of success • Assessing who is best able to manage risk • Optimum risk shifting should be the goal – not maximum risk shifting • Shifting unreasonable risk to the contractor • Reduces competition • Increases contingencies • Increases project disputes

14. What Questions Should You Be Asking? • Why are we choosing the selected procurement model? • Would the project be able to move forward using another model? • Is this model in the agency’s best long-term financial interest? • Do we have the staff to properly execute this model?