Alternative Methods of Procurement A presentation by John

Alternative Methods of Procurement A presentation by John G. Davies To The Canadian Forum on Public Procurement October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Three basic forms of delivery of design and construction: n n n Traditional Management Design-Build October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Traditional Delivery: (Design-Bid-Build) n n n Familiar delivery process Unlimited access to designers Unlimited access to contractors Established procurement procedures Owner controls both design and construction Refine designs before committing to bidding and contract October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Traditional Delivery: (Design-Bid-Build) n n n Full documentation suits multiple needs Established law and precedents Established risk management mechanisms Established book-matched standard forms of contract for both design and construction as well as sub-consultants and subcontractors Consolidated ADR provisions allow prompt resolutions to disputes October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Some Considerations: n n Roles Expectations Risk Control October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Fast-track delivery: Two major methods of fast-track delivery: n Construction Management n Design-Build October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Construction Management: n n n Variant or the design-bid-build method Compressed delivery Owner retains control October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Construction Management: n n n Sequential design and construction Each Trade Contractor employed by Owner Construction Manager coordinates trade work and provides in-house infrastructure and intra-trade work October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Construction Management: Two forms of Construction Management: n C M as agent n C M at risk – C M at risk Guaranteed Maximum Price (GMP) – Cost-Plus Guaranteed Maximum Price (GMP) October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Construction Manager as Agent: Benefits: n n n Effective budget control and management Effective schedule control and management Constructability input during design and construction phases Administrative burden relief Construction expertise availability Quality management and maintenance October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Construction Manager as Agent: Benefits: n n n Value enhancement Time compression Flexible early planning Prescriptive/proprietary based terminology Maintainability and life-cycle concerns Traditional risk management October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Construction Manager as Agent: Concerns: n n n Multi-source responsibility No early confirmation of price Complex documentation Limited law and precedent Potential for intra-trade contractor disputes October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Construction Management: n n Exercise care when selecting a CM Usually selected by ‘two-envelope’ method Pre-qualify (RFQ) Solicit proposals (RFP) or negotiate October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Design-Build: n n n Contracts with a single entity (one-stop-shopping) Design-Builder provides both design AND construction Not a panacea – always weigh the various benefits and concerns of each delivery system against the needs of each individual project October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Design-Build: Benefits: n n n Single source responsibility Multiple choice of designs Early confirmation of price Quality Value enhancement Time compression October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Design-Build: Benefits: n n Reduced administration Consolidated risk Simpler documentation Potential for ‘Add-on’ contractual features October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Design-Build: Concerns: n n Complex early planning Excessive reliance on performance based terminology Non-seamless risk exposure Lack of universal standard of administrative skill October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Design-Build: Concerns: n n Limited Law and precedent Maintainability and life-cycle concerns October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement In Summary: Three fundamental choices: n n n Traditional and familiar, - but slow Managed and complex, - but fast Surrender control, trust the Design-Builder and go with both fast, consolidated risk, and one-stopshopping. October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement EACH method has benefits and concerns to consider… before you select the MOST APPROPRIATE vehicle… for each INDIVIDUAL project. October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Design-Build Variants: Evaluation Process Alternatives: n n n Qualifications of both design and construction teams Suitability and appropriateness of design Economy of price within a defined delivery schedule October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Design-Build Variants: Evaluation Process Alternatives: n n n Weighted criteria method Adjusted low bid method Equivalent design/low bid method Fixed price/best design method Meets criteria/low bid (also known as draw-build) Qualifications based selection method October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Design-Build Variants: Weighted Criteria Method: A 1. 5 B* 1. 4 C 1. 3 Price Score (30 max) 26. 9 27. 9 30. 0 Qualitative Score (70 max) 40. 0 60. 0 50. 0 Total Score (100 max) 66. 9 87. 9 80. 0 Proponent Price Proposal ($M) (*Award to highest total points. ) October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Design-Build Variants: Adjusted Low Bid Method: Proponent A* B C Qualitative Score 0. 8 0. 7 0. 6 Price ($M) 1. 5 1. 4 1. 3 Adjusted Low Bid ($M) 1. 88* 2. 00 2. 17 (A* is the successful proponent for a contract price of $1. 5 M) October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Design-Build Variants: Equivalent Design/Low Bid Method: n n n Technical part of each proposal evaluated Private critique given to each proponent Deadline for revised submissions with add/deduct price amendments All critiqued proposals deemed equivalent Original price envelopes opened, add/deduct prices applied to each bid Award to low bidder October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Design-Build Variants: Fixed Price/Best Design Method: n n Owner sets fixed price Fixed price, design criteria, evaluation criteria and scoring methods included in RFP Evaluate and score each proposal Award to highest score for fixed price October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Design-Build Variants: Meets Criteria/Low Bid Method: (Draw-Build) n n Fully developed preliminary designs, plans, elevations, system designs and detailed RFPs Describe key components and built form Competitive bids to complete design and build project Award to low bidder on basis of price alone October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Design-Build Variants: Qualifications-based Selection Method: n n n RFQ response determines best-qualified proponent Price negotiated Award based on best-qualified proponent and negotiated price October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Design-Build Variants: Common Design-Build Supplements: The most common add-on features are: n The provision of land n The provision of project financing n The operation and maintenance of the facility once completed n Own/lease-back/transfer n Combinations of the above October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Design-Build Variants: Common Design-Build Supplements: Land: Traditionally Owner provides land, obtains planning permission, surveys and services the land n D-B provides land as part of the package The Owner then evaluates: n Best design/cost…but in addition: n Most suitable location, adjacent facilities n Accessibility, transportation, economy of operation in location and enhancement of operations in locum n October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Design-Build Variants Common Design-Build Supplements: Finance: n n n Owner uses capital to run business Development costs are financially draining D-B forms strategic alliances with designers and trades/financiers Finance land acquisition, servicing, design and construction and thereafter for short or long term Security held as mortgage or lease-back Buy-out provisions at end of specified term October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Design-Build Variants: Common Design-Build Supplements: O&M: n n n Lack of redress in traditional procurement D-B team motivated to build into design life expectancy of 10 -15 years Include maintenance costs in contract price competitively bid October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Design-Build Variants Common Design-Build Supplements: Own/Transfer: n n n Occupied buildings are a sound investment When D-B finances may also continue through part or all of life-cycle Steady income Transfer ownership at end of warranty period or period of years “as-is” or totally rehabilitated October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Design-Build Variants: Common Design-Build Supplements: Combinations include: n Design-Build/Finance (D-B/F) n Design-Build/Own and Operate (D-B/O) n Design-Build/Own, Operate & Transfer (D-B/OOT or D’Boot) n Design-Build/Maintain (D-B/M) n Triple ‘P’ (Public/Private Partnerships) October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement P 3 (Public/Private Partnerships): “Simply put, a P 3 is a partnership between the public and private sectors where there is a sharing of risk, responsibility and reward, and where there is a net benefit to the public. ” British Columbia Ministry of Science, Competition and Enterprise. October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement n n n P 3 (Public/Private Partnerships) Clear boundaries Measurable capital output performance Scope for innovation Substantial operating content Surplus assets included Appropriate risk transfer October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement n n n n P 3 (Public/Private Partnerships) Benefits: Closes infrastructure gap Replaces public funding Faster project delivery Partnering special skills Less adversarial Performance based delivery Appropriate risk allocation and transfer October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement n n n n P 3 (Public/Private Partnerships) Benefits: Value based delivery Discounted costs/net present value delivery Single point sourcing/responsibility “off the books” accounting Economy of scale Mixed/commercial use Innovation October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement n n n P 3 (Public/Private Partnerships) Concerns: Not panacea Lower standards of architecture and construction Life-cycle costs often higher Union incompatibility Public disconnect “off book accounting” distorts true costs October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement n n n P 3 (Public/Private Partnerships) Concerns: High preparation costs Misallocation of risk Inability to consolidate major funding Capital borrowing less for government Long term relationships difficult to predict Front-end documentation complex October 19, 2005 Alternative Methods of Procurement

Alternative Methods of Procurement Thank you all for your attention October 19, 2005 Alternative Methods of Procurement