| Key Considerations |
| Minimizing Risks in Design/Build Projects:
An Owner’s Engineer’s View |
| By Darius S. Irani, Orange, California 1-714-564-2702,
irani@pbworld.com |
| Risk management is a critical element of design/build
projects. This concise review of steps to take to minimize risk is
based on two transportation projects that highlighted the benefits
of the design/build approach and lessons learned. |
|
The design/build project delivery system has been gaining momentum
in the U.S. transportation arena over the past decade. Several major
highway and transit projects have used the design/build procurement
process with a great deal of success. Some of the potential advantages
of this single source responsibility include:
- Avoidance of adversarial interface between
separate entities, including conflicts and claims
- Contractor involvement in design
- Savings of time and cost
- Early knowledge of firm project costs
- Improved risk management for the owner.
- Less management and coordination by owner
- Quality.
Figure 1: Project Delivery/Contractor Selection Flow Chart |
The design/build delivery system can enhance the successful implementation
of a project if the project is selected carefully and the associated
risks are evaluated properly. Design/build is not for all projects,
however. It should be used primarily when:
- There is insufficient revenue to fund a
traditional design/ bid/build process without the sale of expensive
and speculative pre-construction bonds.
- Project scope is defined.
- Funding sources are identified.
- Design and quality are industry standard.
- Time is critical.
- Overall project risk is low to medium.
- The project is complex. (Clients who do
not have the in-house resources to manage more complex projects
often hand the responsibility over to the design/build contractors.)
Figure 1 provides a synopsis of factors involved in the decision to
go design/build and the project delivery and contractor selection
options for project implementation.
Allocation
of Risks
When embarking on a design/build project, it is essential to review
the potential risks, address them and reduce them to the extent possible.
Risks that cannot be avoided entirely must be allocated contractually,
usually by determining which party (owner or contractor) is best able
to manage the risks and the associated costs. Managing, allocating,
and balancing risks appropriately are critical to completing the project
within budget and time constraints.
Risk Reduction. Measures that should be taken prior
to the bid or proposal due date include:
- Obtaining all major permits and clearances
- Obtaining final geotechnical and foundations
report
- Acquiring right of way
- Negotiating with utility companies, railroads
and DOTs
- Establishing quality control and quality
assurance programs
- Providing incentives to manage risks.
Risk Allocation. Measures that must be addressed
at the same time include:
- Force majeure events—allowing for
time extensions and cost increases
- Utilities and railroad companies
- Differing site conditions
- Hazardous material
- Injunction
Figure 2: Procurement/Selection Spectrum |
Some
Lessons Learned in Design/Build
Risk
Management
• Evaluate the reputation of the
design/build contractor regarding both quality and claims avoidance.
• Develop balanced allocation of risk between the owner
and the design/build teams.
• Be willing to allow
the contractor to proceed “at risk.”
Overall Management
• Accept innovation and
allow for creative ideas.
• Establish and maintain
open communication channels.
• Establish a true partnering
process—partnering works!.
• Establish a Disputes
Resolution Board made up of reputable and experienced individuals
and let this board be the single entity for design reviews.
• Allow fast-track submittal review to accommodate early
construction of
key elements.
• Develop and maintain a win-win attitude.
Design and Construction
•
Develop well defined contracts.
• Develop good performance
criteria.
• Define “key” roles and responsibilities.
(Who is the engineer?)
• Allow the quality control
manager to be as independent as possible.
• Define
decision-making authority on safety and quality issues.
(Who can stop the work?)
• Allow for and encourage
value engineering.
• Implement environmental mitigation
requirements.
Figure 3 |
Design/Build Procurement Options
The level of risk associated with a design/ build contract depends
a great deal on the level of project definition at the time of the
procurement process. The higher the level of design completion, the
fewer risks involved and the more the procurement option will gravitate
towards a low bid, fixed price type of contract. A design/ build,
procurement/selection spectrum is outlined in Figure 2.
In the case of both the San Joaquin Hills and the Eastern Transportation
Corridors in Orange County, California, the decision to go low bid
was based on the fact that the reference documents provided to the
contractor were approximately 35 percent complete. This gave the contractor
adequate design details to effectively develop a bid price for the
projects.
On the other hand, the procurement process for the I-15 Reconstruction
Project in Salt lake City, Utah, and the Foothill Transportation Corridor
- South in Orange County, California, took the route of “best
value” options. The fact that the levels of project definition
in both cases were less than 15 percent complete resulted in too many
unknowns for the contractor to be able to develop a hard low bid number
without adding on a significant cost for risk contingency.
Selection Criteria for a Design/Build Team
Careful evaluation of the prospective bidders during the pre-qualification
process is key to minimizing owner’s risks. The potential design/build
teams must be thoroughly reviewed with regard to:
- Design and construction experience, including references on
similar types of projects
- Performance records on previous projects,
including budget, schedule and quality
- Industry reputation concerning managing
claims
- Effective partnering based on a win-win
record
- Financial strength and stability
- Organization and management plan
- Qualification of key personnel
- Resources available and committed to the
project
- Optional features offered, including design and construction
options, financing options, terms of payments and accelerated
schedule.
In the case of a low bid procurement option, it is even more critical
to check the industry reputation thoroughly of all contractor teams
proposing to bid on the project, especially in the areas of partnering,
claims avoidance and committing resources. Conducting a thorough evaluation
of the bid proposal makes it possible to ferret out contractor teams
that may be “low-balling” the bid with the intent of making
up lost revenue through change orders and claims.
Lessons
Learned Lead to More Successes
With the implementation of each major design/build project, we discover
more and more about what could have been done differently. We learn
from those experiences, which are highlighted in Figure 3, and should
take them into consideration the next time around.
The decision to use the design/build delivery system should be based
on:
- Careful evaluation of the project to determine
whether the size, type and nature of the project will truly benefit
from this approach
- The project delivery due date, which is
often a major factor in the selection of this type of project
delivery system
- The owner’s ability to manage the design/build process.
The design/build approach is most successful when the project team
has identified project risk factors adequately at the onset of the
project and allocated risk to those parties who are best able to evaluate,
control and bear the associated costs. The result will be a project
that has fewer disputes and conflicts. |
|
Darius Irani has served as program manager
on several successful, very large design/build projects in California
and Utah.
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