Why project delivery methods are limited for public projects
Two of the biggest priorities for construction contractors in the public and private sectors is getting a project done on time or ahead of schedule and keeping costs at or under budget. That’s why many contractors have embraced collaborative project delivery methods like design-build and integrated project delivery (IPD). With more upfront planning and communication between job team members, the risk of errors and the need for costly workarounds can be reduced, which translates into a more successful construction experience for everyone involved.
However, there is still some resistance to using these methods because of state and local regulations, as well as a hesitancy on the part of some owners. When it comes to performing construction work on a publicly funded project, rules abound, and there are limits to just how collaborative a project can get.
It makes sense to have parties to a construction contract talking with one another rather than “treating each other like combatants,” said Brian Perlberg, senior counsel of construction law and contracts at the Associated General Contracts of America, but there are restrictions on those collaborative efforts.
For example, Perlberg said, some regulations restrict communication between the owner and contractor prior to the final award. In addition, from the perspective of the public agency, there needs to be an even playing field, and substantive contact with contractors or subcontractors before the award could harm the objectivity of the bid process, he said.
Integrated delivery issues
There are also difficulties particular to IPD. “IPD is hard to do in the public sector [because of] the typical public procurement process,” Perlberg said. An IPD team, he said, is usually assembled based on qualifications rather than price, so that delivery method would not normally work in a process that required the winning contractor to have the lowest bid.
Contractor licensing laws, he said, also can dictate what kind of work a construction company can legally perform. If the contractor’s scope of work, for example, veers into design, that can present some challenges.
In New York, said John-Patrick Curran, a partner at Sive Paget & Riesel, the state Department of Education maintains that design-build contracts are against the law because such an arrangement constitutes the unlicensed practice of design services. However, he said, in a 1988 New York State Court of Appeals decision, the court ruled, in essence, that design-build contracts are valid as long as the contract identifies a licensed design professional who will perform all the design services for the project.
California, said Lisa Dal Gallo, a partner at Hanson Bridgett, prevented the use of design-build on publicly funded projects, but a state law passed in 2014 allows cities, counties, special districts and transit districts to start using that method of project delivery. The first transportation project awarded under the new regulation was for the $1.2 billion expansion of Interstate 405 in Orange County.
However, Dal Gallo said that IPD contracts are another matter in California and elsewhere. “Most state public entities in the U.S. currently lack legislative authority to use IPD,” she said. “This is primarily because IPD requires negotiated contracts that include the waiver of certain claims, and there is not an outside guarantee on the contract price.” Colorado, she said, is a notable exception.
The Design-Build Institute of America tracks the various federal state and local agencies that permit design-build to be used, as well as the applicable laws (here, here and here), and Lisa Washington, executive director and CEO of the institute, said that it’s design-build's single-point of responsibility for both construction and design services that is the sticking point with some state agencies, like in California and New York.
One reason state or local governments might not be willing to make the regulatory changes necessary to allow a delivery method like design-build, Washington said, could come down to a misunderstanding of how design-build works. For example, some lawmakers might think that design-build projects mean bigger companies from out of state will move in and take jobs away from local contractors. But the owner is in control of what's in the contract, she said.
“The owner could say, ‘I need local contractors to be involved to make sure jobs don’t go out of the state,’ ” Washington said. “Even an outside contractor will need local expertise.”
There is often also a misunderstanding on the part of the owner that the “trusted adviser” relationship with the architect will go away if the architect is part of a design-build team. “In reality,” Washington said, "the designer is right there with all the other key players.”
According to Dal Gallo, owners also might not be prepared for the level of involvement of collaborative project delivery methods. "Both IPD and design-build require a lot more leadership from the owner and an increased time commitment," she said, "and not all owners have the capacity or desire to be that engaged."
IPD projects are harder to administrate, Dal Gallo said, and require some level of project savvy. In addition, sorting out the insurance for IPD projects is more complex, and the owner takes on risk for direct costs on overruns. IPD and design-build projects require more upfront outlays for legal costs, too, even though Dal Gallo said those can eventually be recaptured because of the value and efficiencies of collaboration.
So what will it take to persuade owners to give collaboration a try?
Changes usually come about in the public sector, Perlberg said, after the private sector has demonstrated a successful track record that public agencies can then model. If the government tries one of these collaborative methods and sees good results, he said, then that could prod them into being more proactive as far as project delivery. However, there is also a risk of retrenchment on the part of those agencies if they have a bad experience.
So small steps, Perlberg said, are sometimes the interim answer. For example, no matter what method of project delivery an owner uses, the major players can co-locate at the job site. “That one step alone,” he said, “is one of the most powerful things you can do on any project.”
Owners, Washington said, are key in driving change. Also, agencies like state DOTs listen to other state DOTs about their experiences with more collaborative project delivery methods and are more likely to give them a try if they hear about a success story.
"I think more and more public agencies are looking for better ways to deliver projects and that there is and will continue to be an uptick in more collaborative delivery methods," Dal Gallo said. " Claims are no fun, and there are many case studies now that demonstrate that collaborative delivery methods reduce waste, increase creativity, add value, and reduce claims. And best value is in the public's best interest."
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