Get the Grade
- By Douglas D. Westmorl
- May 1st, 2008
In the quest for a successful K-12 construction project, many school owners have found increasing challenges with the traditional Design-Bid-Build (DBB) approach.
That's because at times, having to accept the low bidder is not always advantageous. It can make for challenging relationships among contractor, design team, and owner. Low bids potentially pressure general and subcontractors to seek ways to recoup costs and improve their own profit margins. As a result, quality may be diminished; a low-bid contractor may aggressively pursue change-orders, which not only drive up the owner's cost but also cause delays. This is a real challenge because K-12 projects are time-sensitive; if low-bid subcontractors do not perform adequately, they will not get the job done by every administrator's deadline — when school opens. Finally, insiders in the K-12 construction business often comment that the low bidder can frequently be the contractor who left the most out of the bid.
A New Approach
While many schools will continue to use the traditional approach to construction, many others may find D-B worth exploring as a viable option. D-B is a return to the time-honored "master builder" approach, where a single source has total accountability for both design and construction. Called a "best value procurement," the job goes to the most qualified contractor/architectural team at a fair price.
The federal government has recognized that the D-B delivery method has the potential to produce excellent results. Recent national legislation, therefore, has expanded the availability of D-B project delivery for government agencies at federal, state, and local levels, according to the manual Design-Build for the Public Sector (available from the Design-Build Institute of America (DBIA); see www.dbia.org/pubs/dbfund.html#public). The publication is a manual of practice for owners; it focuses on recently revised D-B regulations and statutes throughout the U.S., and documents government D-B projects such as correctional facilities, wastewater treatment plants, stadiums, military housing, and postal structures.
The DBIA reports that integrated D-B firms expect 80 percent of their revenues to come from D-B projects in 10 years. Construction firms are somewhat more conservative, estimating their own D-B revenues at 50 percent, according to Zweig White's 2004 "Design/Build Survey of Design & Construction Firms." In addition, 70 percent of surveyed firms predict an increase in the use of the D-B approach during the next five years.
D-B through Public-Private Partnerships (P3)
New state legislation that permits educational entities to enter into Public-Private Partnerships (P3) gives school owners access to the D-B delivery method. In Virginia, for example, the Public-Private Education Act of 2002 (PPEA) spurred an increase in D-B projects since being enacted four years ago. The number of Virginia K-12 D-B projects has climbed to 11.8 percent of total projects (13 of 110), according to the Virginia Department of Education Department of Facilities www.doe.viriginia.gov/VDOE/Finance/Facilities.
Under the legislation, Virginia school owners can choose between two approaches to P3 proposals: solicited and unsolicited. Each has potential benefits. A solicited proposal opens up competition among development teams, providing a variety of creative concepts to choose from. An unsolicited proposal, on the other hand, can be accepted by a school division to meet capital needs, eliminating the division's need to submit a formal RFP. While additional contractors may respond and compete after the unsolicited proposal is presented, an unsolicited proposal typically reduces competition and allows an owner to select a preferred D-B team.
P3 agreements also often tie the project to a financing method to provide funding for the project. In Virginia, the Virginia Public School Authority (VPSA) provides very attractive state-backed low-interest bonds to all school districts regardless of financial standing. The development team can also provide alternative creative financing through this delivery process. State laws vary, so owners need to ascertain one's own state and local statutes regarding P3s.
Fredericksburg City Public Schools was among the first school districts in Virginia to use the D-B delivery method for a PPEA project, selecting the experienced school construction-design team of FirstChoice Public Private Partners, LLC, a partnership between English Construction Company and Moseley Architects for a complex project involving construction of two new schools on existing school sites. The new 800-student Lafayette Upper Elementary School (grades 3-5) was constructed on the site of the Walker-Grant Middle School. The new 1,000-student replacement of James Monroe High School was constructed while the existing high school was in operation, and once completed, the existing high school was demolished to make way for construction of a new sports complex and entrance to the new high school. Both projects were completed on time, Lafayette opening in September 2005 and James Monroe HS in September 2006, within 26 months, for a Guaranteed Maximum Price (GMP). Moreover, both have received design awards from Virginia school organizations.
Alexandria City Public Schools chose to use a form of the D-B delivery method for a similar PPEA project involving construction of the new T.C. Williams High School on the site of the existing high school, which remained in operation throughout construction. In this case Moseley Architects had completed 85 percent of the construction documents under a traditional D-B approach when the school district decided to use the PPEA methodology for a qualifications-based procurement of a general contractor. The school district hired Hensel Phelps and assigned Moseley's remaining contract to the GC. The transition went smoothly; Hensel Phelps has successfully completed and opened the new school and is currently in its second phase of construction, the demolition of the old school and the construction of the new parking deck.
Perceived Disadvantages of Design-Build
Although the D-B approach can produce superior results, potential drawbacks should also be considered. In particular, a D-B project may initially cost three to five percent more because the owner selects the contractor based on qualifications. These costs may be mitigated by an accelerated construction schedule and the reduction of change orders.
D-B may also limit choice in architectural firms — only larger firms generally have the financial capability to participate in this delivery process.
While traditional construction RFPs may seek bids on the same design proposal by five different contractors, D-B may seek bids from five different contractors on five different designs. This can increase constructability value, but can also create difficulty in evaluating
proposals: owners end up comparing "apples to oranges" to determine the best value.
Moreover, the Design-Build team selection is made prior to completed design drawings, which leaves options open for meaningful value engineering. As a result, the relationship between the D-B team and the owner is inevitably based on trust. Although school governing authorities are generally close-knit communities, so it is not usually difficult to ascertain firsthand experience, judging a potential team's past performance and references is paramount to success. Thus careful scrutiny is incumbent on the superintendent and school governing board.
Governing boards are often concerned that D-B is a closed selection process which limits competition, because firms submit only proprietary information. This, however, is not necessarily true. Later, the GC bids all subcontracts on the open market; this is where competition is realized.
Perceived drawbacks can often be overcome, however, if the school district utilizes appropriate decision-making methodology and consultants as needed. For example, the Northumberland Public School District overcame the "apples to oranges" issue by hiring a construction manager and an attorney to help it evaluate three different proposals, each with a different design, construction approach, and associated price, for a new 850-student combined middle school/high school. As part of the selection process, they issued follow-up questions to each of the D-B teams to gather the information they needed to make a selection.
Advantages of Design-Build
D-B is not the solution for every project, but it offers an alternative that is an excellent fit in some cases. By entering public-private partnerships, public entities are not subject to strict state procurement laws such as Virginia's Public Procurement Act. This gives the contractor additional flexibility when selecting high-value subcontractors; in other words, a sub who may cost slightly more may deliver better quality faster. For example, the D-B teams for the Fredericksburg and Alexandria projects had the flexibility to select a team of major subcontractors with whom they had worked before on school projects, including a project for Chesterfield County Public Schools: the new 1,750-student Cosby High School, just south of Richmond.
While D-B may initially require slightly higher capital outlay, it may actually cost less in several ways. First, it takes architectural and engineering errors and omissions off the table. This results in fewer or no change-orders, because the developer rather than the school district absorbs these costs. D-B also provides greater confidence that subs will meet the school's timeframe. In the case of the Fredericksburg project, for example, there were only three change-orders. One was an unforeseen soil condition, but the other two were owner-selected project upgrades: in one, the city gained buying power and saved money by packaging the demolition of the old high school together with demolition of a water plant elsewhere in Fredericksburg.
The owner may also be invited to participate in value decisions. Rather than make a decision only on first costs at the expense of long-term operating costs, the owner can base a decision on an analysis of lifecycle costing. For example, returns for an additional one in. of insulation typically come within four to seven years. The owner can decide whether the ROI is worth the up-front expenditure. For example, Fredericksburg implemented a second change order to upgrade its flooring to terrazzo when a lifecycle costing analysis demonstrated that it was a cost-effective choice of material.
D-B may also offer advantages in an escalating construction market. For example, Chesterfield County Public Schools saved a tremendous amount of money because the Design-Builder was able to pre-buy steel about six to eight months early, before steel prices escalated. The team also purchased polyisocyanurate roofing material early in a market in which the price was rising at about seven percent per month.
A Design-Builder can also set up contingencies to hedge its bids in an inflation market, resulting in a final cost that's less than the GMP. Moreover, including a shared savings clause provides an incentive on both sides to get the best value. It also allows the owner to recoup a portion of the savings, which may be split as high as 75 percent.
The high number of variables in school construction statistics makes accurate cost analysis difficult. D-B contracts may provide more than they appear to, simply because they allow numbers comparison. It is important to note that PPEA agreements typically involve turnkey projects that include full technology, furniture, and other equipment not normally provided in a GC's contract. For example, the D-B team provided both furniture and technology as part of its contract with Fredericksburg City Schools.
P3s are a government mechanism that facilitates school owners' newly-acquired access to the Design-Build construction delivery method. D-B is not a panacea for every school construction project. Nonetheless, it is a dependable alternative that regularly gets high grades for value and performance.
Douglas D. Westmoreland, AIA, REFP, LEED AP, is vice-president of Moseley Architects as a Managing Principal of K-12 work in the Richmond, VA office. Active in the Council of Educational Facilities Planners International, he has presented on educational planning at state, regional, and international conferences and was recently honored as the Southeast region Educational Planner of the Year. He can be reached at 804/794-7555 or email@example.com.