Megaproject procurement: breaking from tradition; Looking beyond design-bid-build to find another project delivery method that's right for the megaproject

Public Roads, July-August, 2004 by Gerald Yakowenko

Many factors determine the success of a major project. But one factor that is increasingly important is the selection of the best and most appropriate project delivery method or combination of methods--the system that sets the contractual arrangements for project design, construction, and in some cases, operations and maintenance. It is vital that megaproject managers establish an acquisition strategy early in project development because of the direct bearing on both the management's organization of roles and responsibilities and risk ownership allocation between the public and private sectors.

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Although contracting agencies historically have required the use of the traditional project delivery method known as "design-bid-build," the tide is shifting. More innovative project delivery methods are finding their way into transportation construction projects and changing how major projects are carried out.

Under the traditional design-bid-build approach, the contracting agency, or its designated engineering consultant, designs the project and prepares the construction contract documents. The construction contract then is bid publicly and awarded to the lowest responsive bidder. Over time, some in the industry have raised concerns about the efficiency of this contracting method in terms of project cost, schedule, and productivity.

In response, the Federal Highway Administration (FHWA) initiated an experimental program in 1990, called the Special Experimental Project No. 14 (SEP-14) Innovative Contracting Practices. This experimental program enables States to evaluate nontraditional contracting methods that are not in full compliance with FHWA's contracting policies but provide an open, competitive procurement. Under SEP-14, project owners seeking Federal aid may apply for approval to use nontraditional construction contracting techniques--methods of award other than the lowest responsive bid--to implement value-oriented procurement processes.

Project Delivery Methods

Several public agencies have applied nontraditional project delivery methods to major projects in the United States by using this new flexibility in contracting practices. Two such methods are "design-build" and "construction manager-at-risk." Each of these delivery methods offers certain advantages and disadvantages in comparison with the traditional design-bid-build method. However, the appropriate use of a particular method will depend on many factors, including the project budget, schedule, risk allocation, the contracting agency's level of expertise, and the ability of the owner to define the scope of work clearly. No single project delivery strategy is appropriate for all major projects, and contracting agencies should consider the merits of each method in relation to their project needs. (See "Key Considerations in Selecting Project Delivery Methods" at top right.)

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Although many owners have some experience in using design-build, this is a relatively new delivery system for most transportation agencies. Design-build uses a single contract for both the design and construction of a project. From the owner's perspective, the concept of having one firm responsible for both design and construction is appealing. On the other hand, the construction manager-at-risk method provides the contracting agency with the services of a construction management firm that will typically provide recommendations for the project schedule, budget, and constructability during the design phase. In addition, the contracting agency and the construction manager typically agree on a guaranteed maximum price for the construction of the project and then the construction manager becomes responsible for issuing subcontracts and managing all construction, just as a prime contractor would under the traditional design-bid-build method. Both alternatives allow construction to start as the design proceeds and can reduce project cost and duration.

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Sticking to Tradition

The traditional design-bid-build method is the most popular project delivery system. It is intended to minimize risk to the contractor by defining all of the construction requirements in the plans, specifications, and contract documents. In this method, the project owner may contract with a consulting engineering firm to design the complete facility and prepare the contract documents. The contracting agency then solicits bids and awards a construction contract to the lowest responsive bidder. Because of its wide use and acceptance, the traditional design-bid-build system is well understood with well-established and clearly defined roles for the contracting agency and the contracting industry.

The design-bid-build method was used in the Nation's first megaproject, Boston's Central Artery/Tunnel (CA/T or the "Big Dig") Project. Managed by the Massachusetts Turnpike Authority, the project now totals $14.6 billion and is in its 13th year of construction. The Big Dig's major components include: