Cascade Policy Institute

This proposal is one of ten winning reports from the 1994 Oregon Better Government Competition. The 1994 and 1996 Competitions were organized by the Portland-based Cascade Policy Institute. Opinions expressed are those of the author(s) and not necessarily those of Cascade staff or advisors, nor should they be construed as an attempt by Cascade Policy Institute to influence any election or legislation.

by Timothy D. Hovet

Eugene, OR

Executive Summary

In the last century Design/Bid/Build has become the traditional project delivery method for construction projects. With this method the project owner contracts with an Architect/Engineer (A/E) to design the project and also contracts with a general contractor to construct the project in accordance with the documents produced by the A/E.

The Design/Bid/Build project delivery method is a result of economic specialization. An unfortunate consequence of this specialization is that the art of design has become separated from the science of construction, and the practitioners of one have little opportunity to positively influence the other. In addition, as this paper will show, this project delivery method removes incentives for cooperation between the design and construction professions. This in turn causes the participants to focus on short-term costs of construction and largely ignores the long-term consequences, and costs, of design and construction decisions. Though certain projects lend themselves to the Design/Bid/Build process, it is the premise of this paper that public agencies, like owners in the private sector, must have a range of tools available to them in order to maximize scarce resources, i.e. taxpayer dollars.

A better alternative for many public projects is the Design/Build method. While not allowed under current state statute, it is widely used in the private sector and is gaining increasing acceptance in federal government construction projects. The Design/Build method would allow one entity to handle all aspects of design and construction. This method recognizes that improvement projects exist through time, and that long-term cost-effectiveness, rather than lowest cost construction alone, creates the best value for an owner (public agency) and leads to lower total costs. Design/Build draws upon the strengths of all the participants in a construction project to insure the highest value for every public dollar spent. It should be allowed under Oregon law and encouraged for projects where it is appropriate.

About the author

Timothy D. Hovet is Director of Real Estate Development with Sycan B Corporation in Springfield, Oregon. Mr. Hovet has used both Design/Bid/Build and Design/Build in construction projects.

THE DESIGN/BID/BUILD METHOD

Oregon Revised Statute (ORS) 279.015 states "(a)ll public contracts shall be based upon competitive bids...". In the procurement of public construction contracts, this article and the Oregon Administrative Rules (OAR) and Oregon Attorney General's Model Public Contract Rules Manual (AG's Manual) which implement it, has been interpreted to necessitate the use of the Design/Bid/Build project delivery method and prohibit Design/Build.

The Design/Bid/Build process begins with the owner - in this case the public agency recognizing the need, developing the concept, and determining a preliminary budget for a construction project. Once these items have been identified the public agency, using the Request for Proposals (RFP) process, selects a firm for design services. Using the qualification-based selection (QBS) process, the public agency chooses the A/E on criteria other than price, i.e. past experience, ability to meet time line, and so forth.

Working from the concept formulated by the public agency, the A/E develops detailed plans and specifications for the construction project. Theoretically, these plans and specifications fully describe the requirements for construction of the complete project. Once the plans and specifications have been finalized, the project is put out to competitive bid in a manner prescribed by the AG's Manual. Assuming the bid procedures are followed as outlined and the bid is within the projected budget, the construction contract is awarded to the "lowest responsible bidder."

In many cases the Design/Bid/Build method is well suited to the task of delivering cost-effective projects for a public agency. Improvement projects that do not demand advanced knowledge of construction practices, projects in which the time frame is not of great importance, and projects that require the involvement of only one or a few building trades are particularly well adapted to Design/Bid/Build.

The cost to build should not be the determining factor in whether or not Design/Bid/Build is the appropriate delivery method to use. Rather, the complexity of the project, the amount of initiative and knowledge required of the A/E and builder, and the complexity of the competing goals of the public agency should determine if the traditional method is suited for the project.

Once a public agency has made the decision to undertake an improvement project, a complicated examination of the agency's goals is necessary in order to maximize scarce public resources in the construction project. In prioritizing these goals, a number of complex and often conflicting factors must be taken into account. Among these competing factors are the desire to construct at the lowest initial cost, minimizing operating, on-going maintenance and lifecycle costs, aesthetic design, and user functionality and friendliness.

Many times, one of these factors must be weighed against several other factors and a judgement made as to which is more important. A simple, but common, lifecycle costing example is whether to save on initial construction costs by using a material that has a shorter life span than a more expensive alternative with a longer life. The decisionmaker must weigh the present value of money saved now versus money saved or expended in the future. This decision leads to yet other questions and to the need for more decisions: Should money saved now be redirected to another of the myriad parts that go into a construction project in order to enhance design, decrease life cycle cost or improve functionality, or is it better to forego spending the funds and realize a savings?

As well-suited as the traditional method is for some improvement projects there are a number of factors which cause Design/Bid/Build to be ill-suited for more complex projects. In more complicated construction projects the competitive bid format exacerbates a major problem of Design/Bid/Build: the traditional method vests budget-setting responsibility first in the public agency, then in the design services provider. The cumulative experience and skills of an experienced general contractor, its ability to draw upon the knowledge of many subcontractors and suppliers, and its feel for current and projected market conditions are not utilized.

Additionally, the lowest initial cost required for the contractor to be selected is not necessarily the most cost-effective alternative. Lowest initial cost ignores the lowest on-going maintenance, operating, and lifecycle costs. It is assumed that the A/E, in the process of completing the plans and specifications, has designed the project with all of these factors in mind and has arrived at a balance of the factors in keeping with the desires of the owner. More accurately, the design services provider, in the process of completing the plans and specifications, has designed the project with all of these factors in mind but without taking advantage of all available information. An experienced general contractor with cumulative experience has been excluded; indeed, by the traditional Design/Bid/Build method, the experienced general contractor must be excluded from sharing knowledge.

Wide swings in the estimated costs of a project, caused by inexperience on the part of the estimator, by not utilizing all available resources to arrive at the estimate, or by a combination of both, can only adversely affect a project. Because the decisionmaker must continually balance the initial cost to construct, operating costs, on-going maintenance costs, lifecycle costs, aesthetic design, and user functionality and friendliness, uncertainty about a project's cost may cause a decisionmaker to choose options which do not give the greatest return. A high estimate may convince a decisionmaker to eliminate an item that is initially relatively costly, but which would decrease future operating costs. For example, a less expensive, and less efficient, heating system might be chosen in order to remain within budget parameters.

Using Design/Bid/Build no one actually knows the final project price until the project is completed. Using change orders to amend a decision is a time-consuming and expensive undertaking (for example, reintroducing the more expensive, and more efficient, heating system). The design services provider must amend the drawings and specifications, and draft the change order. The contractor must gather supplier and subcontractor information, put the system out to bid and issue its own change orders. Since change orders occur in a competition-free environment, that is, the contractor has already been selected, there is no incentive to make the change at the least possible cost. 1

The Design/Bid/Build method requires the public agency to undertake two separate selection processes one to select the A/E and one to select the construction contractor. The necessity of undertaking two different selection processes is time consuming and expensive.

Typically, the selection of the A/E is a multi-tiered process. The initial round consists of the public agency soliciting statements of qualifi-cations from interested parties. The public agency, after review of the submittals, will then interview perhaps as many as five firms. The field is narrowed to the two or three strongest competitors. A second interview will decide the preferred firm. The public agency enters into price negotiations with that firm. If a price cannot be agreed upon, and the second firm is a viable alternative, the public agency will enter into negotiations with that entity.

After the selected A/E has completed the design, the project is put out to bid. The AG's manual states that the advertisement for bid must be published in at least one paper of general circulation in the area where the work is to take place. If the estimated cost of the project exceeds $50,000 the advertisement for bids must also run in at least one trade newspaper of general state- wide circulation. The date and time for bids to be received shall not be less than 5 days after publication of the last advertisement for bid. Typically, the last date to receive bids is two weeks to four weeks after the last advertisement.

Given the A/E selection process, the amount of time necessary to develop plans, specifications, and bid documents, and the required time to bid a project, many months may be consumed from initiation of a project to the beginning of construction. Each step of these different phases must be monitored by employees of the public agency.

The process also eliminates incentives for a contractor, either before or after bid opening, to value engineer the project. Value engineering is a systematic evaluation of a project design to obtain the most value for every dollar of cost.2 Assume that a bidding contractor knows of a substitute for a specified item that is equally as good as that specified but substantially less expensive. If a bidding contractor wishes to encourage the change in specifications from the specified item to the less expensive alternative in order to reduce the project cost then "...the time for vendors to seek changes in the specifications...is prior to bid opening" .3 However, by seeking the change prior to bid opening, all bidding contractors, by the AG's Manual guidelines, would need to be informed of the change. The contractor that identified the cost -saving change would not realize a competitive advantage from identifying it.4

Further, a contractor cannot bid the less expensive, but equal or better, alternative in the hope of winning the contract and later having the change formalized. A bidder who makes its bid or proposal contingent on the public agency's acceptance of materially differing terms or specifications must be rejected. The contractor also has no incentive to identify the cost-effective alternative after winning the bid. Since the selection is based upon competitive bidding with the sole criteria for selection being the lowest bid, the contractor has no incentive to suggest cost-saving alternatives on the current project to gain future work with the public agency.

With Design/Bid/Build the contractor is obligated to do two things: construct the project in accordance with the plans and specifications and complete the project within the specified time frame. The contractor has no incentive under the traditional project delivery method to suggest cost-saving alternatives. However, even if an incentive did exist, the contractor has no right or legal standing to suggest the cost-saving alternative.

In the absence of financial incentives or legal standing to add value to a project, the bidding contractor's motivation is simply being awarded the bid and making a profit. This situation often leads a contractor to "hard" bid a project to subcontractors and accept the lowest of the proffered bids, regardless of whether or not the contractor believes the bid realistically reflects the work to be performed. Although it is not the public agency's concern if a subcontractor makes money on a project, often a subcontractor will harm project quality or schedule once it realizes that it is losing money.

Initially, areas of responsibility, accountability, and liability in Design/Bid/Build are quite clear. The A/E is responsible for design, the constructor for construction. However, for problems arising after construction is complete, it is extremely difficult and expensive to ascertain liability. These types of problems for example, material failures or structural flaws may occur several years after completion.

Assume a structural element fails several years after a project is completed. Was the failure caused by improper design or specification? If so, the liability rests with the A/E. Was the failure due to workmanship or construction practices? If so, the liability rests with the constructor. Did the failure arise out of misuse after construction? If so, the owner is liable. Typically, the question of ascertaining liability, and the cost of pursuing a solution, is so difficult and expensive that the owner may as well bear the cost of fixing the problem rather than pursuing damages.

Design/Bid/Build eliminates the incentive to value engineer a project, does not draw upon all available knowledge in the design of the project, muddles questions of accountability, and focuses on short term costs rather than lifecycle costs. For these reasons, when the public improvement project involves many different trades, is industry standard or greater in complexity, or the public agency must sort through and prioritize a number of competing goals, the Design/ Bid/Build project delivery method is not the optimum choice for securing the highest quality and most cost-effective result.

OAR 125 defines the law enacted in ORS 279. In May, 1992 OAR 125-310-026 "Request for Proposal - Construction Manager/General Contractor" was adopted in order to address certain problems inherent in the traditional project delivery method. OAR 125-300- 001 defines "Construction Manager/General Contractor" as: "a method of public works contracting that centers on utilization of a Construction Manager, who coordinates and manages the building process, provides general contractor expertise, performs value engineering, and is a member of the construction team with the owner, architect/ engineers and other consultants as the project may require."

This recent change in the administrative rules attempts to introduce the knowledge of an experienced constructor earlier in a project than is the case in Design/Bid/Build. The OAR is open to interpretation in regards to the entire scope of duties of the "Construction Manager/General Contractor". The definition cited above does not mention that the role entails actual construction of the project, that is, acting as the project general contractor. However, OAR 125-310-026 states "...the selection of construction manager/general contractor firms (CM/GC) who will be required to establish guaranteed maximum prices for constructing public improvements...". The implication being that the CM/GC will construct the project as well as provide input into the development of the plans and specifications.

Somewhat contradictorily, OAR 125-310-026 states "...the contract shall describe completely the methods by which the CM/GC...may compete to perform the work of the improvement; such methods shall include... public opening of sealed bids...". That is, the CM/GC, having assisted the public agency and its consultants in the form-ulation of the project, is then required to bid against other contractors to build the project.

This apparent ambivalence toward the implemen-tation of the construction manager/general contractor element in the public construction process is largely due to political, not technical, reasons which will be examined later. The fact that the element has been introduced is important. The CM/GC provision was introduced because it was recognized that the traditional project delivery method used by public agencies does not maximize the return on scarce resources in all cases.5

The addition of the CM/GC to the owner/design services provider/constructor triad found in the Design/Bid/Build process may enhance a project. The early introduction of the construction manager's knowledge, combined with the skills and talents of the designservices provider and owner, can allow for a more comprehensive exploration of owner goals, a deeper examination of possible building materials and methods, and a greater understanding of project scheduling and budgeting.

If the CM/GC is not used as the project contractor, the public agency must undertake a third selection process in addition to selecting the design services provider and the general contractor. Regardless of whether two or three selection processes are necessary, the CM/GC addition to the Design/Bid/Build method does not reduce, and may add to, the time required to produce the plans and specifications for the improvement. The importance of time line in the construction project is yet another factor that must be weighed by the decisionmaker.

As discussed, accountability for project integrity after completion is dispersed when using the Design/Bid/Build delivery method. The introduction of the CM/GC, who "is a member of the construction team with the owner, architect/engineers...", further disperses accountability. As this dispersion of accountability occurs, the owner is left more vulnerable if failure of an element of the improvement project occurs after the construction is completed.

Use of the CM/GC in conjunction with the traditional Design/Bid/Build project delivery method employed by public agencies presents decisionmakers with needed flexibility. The realization that public improvements have differing degrees of complexity, and that different methods must be employed to respond tothose complexities, is a welcome addition to the public construction process. The CM/GC option addresses some of the problems found with Design/Bid/Build, while ignoring or exacerbating others.

THE DESIGN/BUILD METHOD

Design/Build is defined as a team-based system organized to provide efficient design and construction processes, where the owner contracts with a single entity to provide the whole service.6 Design/Build is team-based. Of the distinctions between Design/Bid/Build and Design/Build this is among the most important.

The public agency, the A/E, and the general contractor are teamed shortly after the need for the project is identified. The A/E and the contractor are contracted with each other to form one entity, which then contracts with the public agency. The participants then work together to balance the competing priorities of initial cost to construct, on-going maintenance costs, operating costs, life cycle costs, aesthetic design, and user functionality and friendliness, and to design and construct a project to meet those priorities.

Assume that a municipality establishes a need exists for a new library. Inherent in this recognition of the need is a concept of how to meet that need - how many volumes the facility must house, how many meeting rooms are needed, how many employees the facility will house, what the projected average use at peak hours will be, the architectural design of existing buildings in the vicinity of the proposed project, and so forth.

Opinion differs about how much information is needed before soliciting proposals from prospective Design/Build teams. The American Consulting Engineers Council maintains that the public agency should also have a consultant design approximately 35% of the project.7 A report by the American Society of Civil Engineers states that it is necessary for the public agency to supply detailed space and equipment require-ments, site surveys, soil borings, outline specifications, budget parameters and scheduling requirements.8 Other research asserts that the public agency must have a strong concept of space, operation, quality, and function needs.9 This disparity in opinion about what information is required from the public agency before assembling the team is due to unfamiliarity with the Design/Build delivery method. However, Design/Build has been used at the federal level and in the private sector enough that this problem could be easily overcome.

The information requirements overlook one very important fact: each and every construction project, regardless of commonalities, have specific circumstances unto themselves, both technical and political. In addition, there are vast differences in the resources technical and human available to public agencies. It is therefore difficult to strictly delineate the information needed before seeking proposals from the Design/Build providers. Certainly, the public agency should supply all information at its disposal. In the example of the library, the number of volumes, the number of employees, the peak average usage, the neighborhood aesthetics and so forth is information readily available to the public agency.

Certain technical information should also be available from the public agency. Among these are site surveys, information on traffic patterns in the area, local land use codes, and soils reports for the site. It is also incumbent upon the public agency to supply maximum budget parameters and the desired time line for project completion.

Regardless of how much information the public agency can provide, the public agency must also establish a selection board and an objective system for judging proposals. Delineation of the system for judging proposals should be based on well-defined performance specifications.

The industry refers to the specifications used in the traditional project delivery method as prescriptive, that is, set down as a direction. In the Design/Build system the specifications should be what are referred to as performance specifications, that is, they describe the desired performance of an element of the construction. In the library example, among the performance specifications could be something as complicated as "the design of the facility must encourage the use of alternate forms of transportation," and as simple as "the facility must comply with all existing local, state and federal laws and ordinances."

The public agency, being inexperienced relative to the design services provider and the contractor, should initially only be concerned with the ultimate performance of the completed project. That is, the project must perform by meeting the public agency's established priorities of initial cost to construct, life cycle costs and so forth. Once the Design/Build team has been assembled, it is possible to couple those priorities with the cumulative knowledge, skills, and resources of the team members to translate the performance specifications into prescriptive specifications for construction of a project that meets the public agency's priorities.

In Design/Build, accountability and liability for the project, from construction through life cycle, is clear. Design/Build mandates that the design services provider and the contractor are engaged under one contract with the public agency. The relationship between the design services provider and the contractor who is the prime contractor and who is subcontractor to the other - is unimportant. What is important is being able to assign sole responsibility for design and construction to whomever has the project construction contract.

This sole source of accountability greatly reduces the possibility of litigation arising from problems that develop with the project. In addition, this sole source of accountability reduces the need for project change orders. Because the design services provider and the contractor have developed the design together, that joint entity is undeniably responsible for any omissions found during the course of construction just as it is responsible for failures after construction.

The Request for Proposals selection process allows the public agency to base its decision on criteria in addition to lowest initial cost to construct. These criteria can include such things as past experience, reference checks, ability to stay on schedule, among others. The RFP selection process, by focusing on all the factors that make up a successful project, not just initial cost to construct, rewards the A/E and contractor for value engineering a project.

Value engineering is a systematic evaluation of a project design to obtain the most value for every dollar of cost. Value engineering is not simply seeking to lower initial cost at the expense of function or future costs. An intrinsic component of Design/Build, value engineering mandates that the entire life cycle of an improvement be subjected to cost effectiveness criteria. Public improvement projects are generally constructed to have a life span in excess of one-hundred years. The initial cost to construct is only the first of many expenditures associated with an improvement project. By systematically examining the design to obtain the most value for every dollar of cost, the Design/Build team must consider all of the future costs associated with an improvement project.

The Design/Build project delivery method recognizes that improvement projects exist through time, and that cost-effectiveness through time, rather than cost at only a specific point in time, creates the best value for an owner and leads to lower total costs. Design/Build draws upon the strengths of all the participants in a construction project to insure the highest value for every public dollar spent.

CONCERNS WITH USING DESIGN/BUILD IN THE PUBLIC SECTOR

1. Removing a project from the requirements of competitive bidding will inevitably lead to higher cost projects.

This concern shows a lack of understanding of the Design/Build process. The selection of the Design /Build team is competitive. The contestants are required to give a very close estimate of the project's cost in their presentations. However, the public agency is also shown conceptual designs, which allows it to select a team that best understands the agency's concept; is given the qualifications and experience not only of the design services provider but also of the constructor; is given the chance to question all of the team members; and can require any other information believed necessary for an informed selection. In other words, the Design/Build selection process is competitive not only on price but on all criteria that are important to a successful project.

The selected Design/Build team is required to give a guaranteed maximum price for the project before formalization of the selection. From that point, the entire team - owner, A/E, constructor - work to balance the initial cost to construct with all other costs as well as aesthetic and functional factors. Design/Build is an acknowledgement that a public improvement project exists and incurs costs through time. A narrow focus on competitive bidding to determine initial cost to construct, as is the case with the Design/Bid /Build process, shows a shallow and short term outlook.

2. The public agency will always choose the same Design/Build team for construction projects.

It must be remembered that the pre-eminent goal of the public construction process should be to deliver the most cost-effective project for the public. It should not be the intent of the public construction process to establish or direct social policy. In the context of this paper, that means that the public agency should not care, nor be concerned with, whether all contractors or design service providers share equally in the public construction market. It is the responsibility of the individual contractors and design service providers to be competitive enough to compete for the projects. It is only important that the selection process is based on clearly identified criteria.

This concern is valid in regard to the objectivity of the selection process. To state the concern crassly: The brother- in-law of the decisionmaker will be selected all the time. The implication is that the brother-in-law will be selected not on merit, but on the basis of relationship. For this reason, the selection criteria must be clearly stated, the importance of each criterion relative to the others strictly delineated, the process completely open to public scrutiny, and an appeals mechanism be in place. If the selection process includes these items, it is unimportant to the goal of constructing the most cost-effective improvements whether one contractor or many different contractors end up with the work.

3. The public agency loses the independent professional Architect/Engineer to monitor the project.

Use of the Design/Build project delivery method does not imply that the owner no longer must maintain diligence to insure the project is soundly constructed. Because the design services provider and the contractor are contracted to each other in some manner, a conflict of interest exists in the design services provider certifying the integrity of the construction practices to the public agency.

The goal of Design/Build is to produce the most cost effective projects for the public agency. Value is not enhanced by cutting costs that are necessary to insure project integrity. This is nowhere more true than with inspections and testing. There are a number of professional testing services, independent consulting architects, and engineers that specialize in third party construction services - everything from concrete testing to certifying payment draw requests. Proper prudence would dictate that the public agency contract with one or more of these firms. Many of these services can be acquired far less expensively than would be the case with having the design services provider perform the inspections. 10

4. Responding to Request for Proposals for Design/Build services is so expensive few teams will choose to compete.

It is often necessary for the competitors to complete a good deal of conceptual and schematic design in order to arrive at accurate cost estimates and address aesthetic and functional selection criteria, before responding to a Design/Build RFP. This process is costly and time consuming for the competitors. Indeed, one advantage of Design /Build is that it transfers these initial costs from the public agency to willing private sector parties. However, if the costs are too onerous free entry into the competition will be lost.

This concern can be alleviated in several ways. Again, it is important to have clearly delineated selection criteria established before bids are requested. In this way, only those entities that truly believe themselves to be qualified will expend the time needed to compete. The public agency should hold a pre-proposal meeting to explain the selection criteria. If the selection process is multi-tiered, the public agency may offer a stipend to competitors after the first cut in order to partially offset the up-front costs. While the offer of a stipend may increase costs, this expenditure should be more than offset by the increased entry into the competition.

5. Because technical decisions are made in the political arena, the public agency may fear that its project will become a political issue if initial costs seem high.

Initial cost to construct is an easy target at which to focus political anger, while projected savings over the life of an improvement are more difficult to grasp. A public agency may be adverse to employing Design/Build because it may raise the initial cost to construct even if value engineering has shown that the project is more cost effective over time than one with a lower cost to construct.

It must be realized that a public improvement project will continue to cost money for many years. In this context, the initial cost to construct is but a fraction of an improvement's total cost to the taxpayers. Value engineering in the Design/Build project delivery method forces a public agency to look at the long-term best interests of the taxpayer and avoid short term, albeit politically expedient, solutions.

IMPLEMENTING DESIGN/BUILD IN THE PUBLIC SECTOR

There is no provision in the administrative rules or the AG's Manual that allows a public agency to use the Design/Build project delivery method. Design/Build is increasingly used by a number of federal government agencies, in particular the General Services Administration, the Army Corps of Engineers, and the Postal Service. Design/ Build has been the delivery method of choice of the Postal Service since 1989.11

The experience gained by these agencies, coupled with private sector experience with Design/Build, would enable Oregon to easily formulate rules and guidelines for the implementation of Design/Build without a lengthy trial and error period. Unfortunately, opposition to Design /Build, both before and after implementation, can be expected from several different groups. In some cases this opposition is based on carefully reasoned concerns with the delivery method. In other cases it is based on unfamiliarity with the system, or a desire to protect special interests. Whatever the reason for opposition, implemen-tation of Design/Build in the procurement of public construction contracts will not be an easy matter.

Qualifications-based selection (QBS) has been a corner stone policy of interest groups representing design services providers. The American Institute of Architects (AIA) and the American Consulting Engineers Council (ACEC), among others, have maintained that to have sound, cost-effective improvement designs, A/E's must be selected on criteria other than price. On the federal level, this concept was institutionalized by passage of the Brooks Architect-Engineering Act of 1972. These same groups have been active at the state and local level to promote passage of similar laws.

These organizations hold that the importance of the public agency having an independent, licensed design professional supercedes issues of cost. In Design/Build the design services provider and the constructor have a contractual relationship with each other and in combination to the public agency. As previously discussed, with the A/E and the contractor in a contractual relationship, the A/E cannot owe primary loyalty to the public agency. In addition, in Design/Build price can be one of the criteria of selection. With quality-based selection, price is negotiated after the A/E has been chosen.

These organizations further maintain that most public agencies are ill equipped due to financial constraints, small size, inadequate professional staff experience to properly monitor construction projects without an independent A/E.

In the last year, the AIA changed its position on Design/Build; it now says that this project delivery method can be appropriate based on the business decisions of architects and the needs and desires of owners.12 The ACEC remains opposed to the implementation of Design/Build, but is examining the issue further.

The concerns of the AIA and ACEC may have had validity at one point. However, the market place has reacted to these concerns and provided solutions. As stated earlier, a good number of independent, certified testing agencies and third party architects, engineers, and construction managers can monitor critical construction elements.

The introduction of value engineering, first in the private sector and increasingly in the public sector, came about to address the concern that initial cost to construct would overshadow quality, i.e. value, in the construction process. Value engineering, by focusing on maximizing the value of every dollar of cost, forces the participants to consider each cost factor against all other cost factors in the construction process. In this context, the idea that the initial cost of the A/E's services would necessarily outweigh the value contributed by that A/E's qualification and experience is contrary to the premise of Design/Build.

Opposite the desire of the organizations representing design professionals to be chosen base on qualifications, the Associated General Contractors (AGC) has advocated the selection of constructors based on lump sum, competitive bid. It is this interest group opposition that accounts for the ambivalence toward the CM/GC addition to the traditional Design/Bid/Build delivery method. The AGC remains opposed to the implementation of Design/Build or any other delivery method variations that it believes would cause selection of constructors to be based on criteria other than lowest cost to construct.

For the most part, the AGC, particularly at the state level, is controlled by small general contractors who fear that they will not be able to compete in a Design/Build environment that emphasizes selection criteria, such as experience and knowledge of advanced or unusual construction practices in addition to lowest initial cost. This view is short-sighted and denigrates the ability of the participants in the construction industry to compete in a free market.

Design/Build will not, and should not, replace Design/Bid/Build. Each project delivery method has circumstances where one method is superior to the other. The implementation of Design/Build would simply give public agencies one more tool to maximize the return on scarce resources. As shown, this occurs on projects that are complex. It should be asked how many of the constituents of the AGC are really competitive on these types of projects anyway. For those contractors who are not, the implementation of Design/Build will have little consequence.

For contractors who are competitive on these complex projects, the AGC should view the implementation of Design/Build as an opportunity for those contractors to use their knowledge and skills to improve the delivery of public construction projects. As contractors now specialize by type of construction, project size, and so on, there would be the opportunity for some contractors to specialize in the traditional project delivery method and for others to specialize in Design/Build.

Allowing Design/Build in the public sector in itself will not insure that the method is used. For the most part, public employees make a good faith effort to be conscientious and diligent in their use of public funds. Design/Build allows those agencies tasked with providing public improvements a process to maximize the return on public dollars. Because most public agencies recognize the advantages of doing so, it is in their self interest to use Design/Build when it is appropriate.

This is most important: The public agency should use Design/Build when it is appropriate. Appropriate means that the project lends itself to using this delivery method, that the public agency has the resources human and financial to use Design/Build, and that the market in a given area is able to respond to the solicitation for Design/Build proposals. Just as it is self-defeating to use a tool that is not meant for a given job, so it is counterproductive to use an inappropriate project delivery method. Design/Build must be used in conjunction with other methods in order to give decision-makers the flexibility needed to achieve complex and conflicting goals.

Implementation

What is needed to implement Design/Build in the public sector? The simplest step is to change the administrative rules to recognize Design/Build as another alternative to the traditional competitive bid method, such as was done with the CM/GC method. In itself, however, changing the administrative rules is meaningless unless public agencies and private interest groups recognize the benefits that can be realized from utilizing Design/Build. Fortunately, experience gained by some contractors, public employees, and A/E's in the private sector and at the federal level is available to help educate others in the industry about the advantages of utilizing Design/Build in some circumstances. As these benefits become known, and with the administrative rules in place to allow it, public agencies will begin to use Design/Build in order to maximize increasingly scarce resources.

In implementing Design/Build, the most difficult factor to overcome is the belief that lowest initial cost to construct is always the best deal for the public. All improvements exist through time. Public improvements generally are designed and built to last at least a century. If public agencies are to maximize the return on taxpayer dollars, with the goal of minimizing the need for those taxpayer dollars, then both the public agency and the taxpayers must begin to understand the true costs of an improvement. When compared to a century of operating, maintenance and lifecycle costs, one can see that the lowest initial cost to construct, while not insignificant, is only one element in total cost. With this realization, one can begin to understand the long-term benefits to be realized from using Design/Build.

CONCLUSION

By allowing the Design/Build project delivery method for the procurement of public construction contracts, the State would gain an invaluable tool in its efforts to maximize the return on public funds. For improvement projects which are complicated, either for design and construction reasons or due to the complexity of the public agencies goals, Design/Build offers decision makers a delivery method that examines all the costs inherent in a project from preliminary design through the life of the improvement.

This examination of costs would compel decision-makers to look to the long term best interest of the taxpayer rather than to short term solutions. In doing so, Design/Build maximizes value and reduces the need for the State to seek ever greater levels of income. Design/Build is a proven project delivery method which, if utilized in the public sector, would benefit both public agencies and the owners of the projects taxpayers themselves.

Endnotes

1. There are two types of change orders: those that amend the project scope and those used to amend errors in the drawings or specifications. The author proposes that both types of change orders can be reduced, but of course not eliminated, using the Design/Build delivery method. All projects of any complexity will have change orders during the course of construction. It is the author's contention that in Design/Bid/Build those change orders overall tend to increase the contract price while not maximizing value for the project while with Design/Build the change orders that are additive to the contract price are often offset by those that are deductive.

The author attempted to locate published studies on the scope and effect of change orders in the different delivery methods. The author was unable to find any as of August, 1994. The above stated contention is based on anecdotal evidence.

2. Edward R. Fisk, Construction Project Administration, (John Wiley & Sons 1982).

3. Oregon Attorney General's Model Public Contract Rules Manual, August 1990.

4. Several knowledgeable A/E's made statements to the author to the effect that allowing contractors to suggest their own alternates to specified items was placing much too much trust in untrained hands. Unfortunately, these kinds of statements are indicative of the adversarial relationship that helped to give rise to Design/Bid/Build and largely keeps the method in wide spread use. To be fair, the author has talked to a good many constructors who have utter contempt for design services providers and who contribute greatly to the adversarial situation.

It is the author's belief that until this adversarial environment is overcome, massive resources, in both the public and private sectors, will continue to be wasted through inefficiency.

5. For an interesting and informative article on the use of the CM/GC by the State of Oregon see Snake River Correctional Institute: A Team Approach to Public Work by Bill Hirsch.

6. Kevin J. Potter and Victor Sanvido, "Design/Build Prequalification System",

Journal of Management in Engineering, (March/April 1994), Vol 10 No 2, pp 48-56.

7. RobMcManamy, et al, "Design-build goes back to the future", ENR, (June 6, 1994), pp 26-28.

8. "Design-Build in the Federal Sector",

American Society of Civil Engineers, Report of the Task Committee on Design-Build, (1992).

9. John G. Fish, "Cost Control in Design/Build", Cost Engineering, (October 1991),

Vol 33 No 10, pp 7-10.

10. The argument has been made to the author that the professional obligations that come with licensing insure that the A/E's would remain independent even if they were contractually bound to another entity, i.e. the contractor. The author does not doubt the professional integrity of either the design services providers or of those in the building trades. the use of independent testing agencies and third party A/E services is simply a necessity to insure that public trust in the process is maintained.

11. Op, cit., McManamy et al, pp. 26-28. For summaries of 27 large projects at the federal level that used Design/Build see Experiences of Federal Agencies with the Design-Build Approach to Construction. The projects discussed range from industry standard housing developments to highly specialized research complexes.

12. Ibid., McManamy et al, pp. 26-28.

The author was unable to find published studies on projects at the state level which utilized Design/Build.

The author encourages and appreciates comments on any and all aspects of this paper. Please feel free to send comments to the author at 3794 Peppertree, Eugene, OR 97402.

BIBLIOGRAPHY

Clough, Richard H. and Sears, Glenn A., Construction Project Management 2nd Ed., 1979, John Wiley & Sons

Oregon Revised Statute 279

Oregon Administrative Rules Chapter 125, Division 300 & 310

Mielke, William and Beumer, Richard E.,

"Design-Build Threatens A/E Position in Public Sector", American Consulting Engineer, September 1993, pp 19-25

"Design/build group organizes, opens Washington office", Building Design & Construction, November 1993, pg 8

Ndekugri, Issaka and Turner, Adrian, "Building Procurement by Design and Build Approach", Journal of Construction Engineering and Management, June 1994, Vol 120 No 2, pp 243-256

Lunch, Milton F., "Design/build gets boost from the Corps of Engineers", Building Design & Construction, May 1994, pg 29