Transcript City of Cincinnati

Procurement and Construction Management
and Oversight
What Board Members Need to Know
Jerry Smiley, AICP
24 July 2013
Major Capital Projects
Alternative Contracting Approaches
Pre-Planning
and
Acquisition
Finance
RTD Union Station
Design
Construction
Operations
Maintenance
DART Orange Line
2
Major Capital Projects
Alternative Contracting Approaches – Risk Allocation
Contractor’s Risk /
Contractor’s Control
Owner’s Risk /
Owner’s Control
Design-BidBuild/CMGC
(DBB/CMGC)
Design-Build
(DB)
Design-BuildOperateMaintain
(DBOM)
Public Private
Partnerships
(DBOM+F/BOT/
BOO)
3
Design-Bid-Build
Project Structure and Approach
Owner
General
Contractor
Architect/
Engineer
Subcontractors and Suppliers
PD&E
$
PE
$
Final Design
$
Procurement
$
Construction
Contractor Selected
4
Design-Bid-Build
Overview
Pros
• Standard contracting approach
• Transparent procurement process
• Public acceptance
• Fairest to bidders, level playing field
Cons
• Slowest method
• Cost not established until bids received
• Design change impacts
• In some cases, fosters adversarial relationships and
increases probability of disputes
Owner retains greatest control,
but assumes greatest risk
5
Design-Build
Project Structure and Approach
Owner
Design-Builder
Architect/Engineer
Subcontractors and Suppliers
PD&E
$
PE
$
Procurement
$
Final Design
Contractor Selected Construction
6
Design-Build
Summary
Pros
• Project costs are determined earlier
• Constructability and value engineering benefits accrue to Owner
• Single point responsibility
• Reduced claims exposure
• Tends to be the fastest method
Cons
• More complex contracting approach
• Competition may be limited
• Requires earlier project definition
• Reduces design input by Owner
• Changes are more costly
Substantial risk is shifted to the contractor,
contractor assumes more control
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Construction Manager/General Contractor
Project Structure and Approach
Owner
General
Contractor
Consultants
Subcontractors and Suppliers
PD&E
$
Procurement
$
PE
Contractor Selected
$
Final Design
Construction
8
CMGC
Overview
Pros
• CMGC participates in developing design, budget and schedule
• Design assistance reduces E&O
• Allows for fast-track (non-linear) construction
• Reduces uncertainties (change orders)
• Owner knows costs upfront
Cons
• No significant input by Owner in design
• Complex process requiring qualified staff
• CMGC’s role changes from CM to GC once construction starts
• Owner does not transfer E&O risk
• In some areas, relatively few true construction managers
Owner retains significant control,
owner retains significant risk
9
Public Private Partnerships
Project Structure and Approach
Owner
Concessionaire
Design-Builder
O&M
Contractors
Architect/Engineer
Subcontractors and Suppliers
PD&E
$
Procurement
$
Partner Selected
Design
Construction
and Testing
Revenue
Operations
Maintenance
10
PPP
Overview
Pros
• Advance infrastructure projects years in advance
• Value for money through optimal risk transfer and risk management
• Accountability through performance incentives
• Operational and project execution risk is transferred to the private
sector
Cons
• Contracts are much more complicated
• Difficult to anticipate all possible contingencies that could arise in
long-term contract
• Re-negotiation of contracts can be high
• Performance enforcement
Owner only controls what is negotiated,
risk depends on skill of negotiators
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What Questions Should You Be
Asking?
Capacity
Capability
Risk
12
Risk Allocation Principles
• Risks are unavoidable
• Risk should be allocated to maximize probability of success
• Assessing who is best able to manage risk
• Optimum risk shifting should be the goal – not maximum risk
shifting
• Shifting unreasonable risk to the contractor
o Reduces competition
o Increases contingencies
o Increases project disputes
13
What Questions Should You Be
Asking?
• Why are we choosing the selected
procurement model?
• Would the project be able to move forward
using another model?
• Is this model in the agency’s best longterm financial interest?
• Do we have the staff to properly execute
this model?
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