TYPICAL PROJECTS & DELIVERY SYSTEMS
written by Ernest Brown
Summary:
This Chapter provides an overview of the California market, as well as the broad range of available project delivery systems. The customary duties of the Construction Manager, A/E Firm, General Contractor and other professional firms and business entities are explored, as well as their typical interrelationships and ingrained sources of aggravation. Partnering and team building are discussed along with the possible pitfalls from those methodologies.
§ 1.1 THE CALIFORNIA CONSTRUCTION INDUSTRY
As the largest and most urban U.S. state, California ranks #1 in both public and private construction. This is not surprising as the City of Los Angeles (originally El Pueblo de Nuestra Senora la Renia de los Angeles de Rio de Porciuncula) and the San Francisco Bay Area are the second and fourth largest US metropolitan areas.
The economy of California would constitute the fifth largest world economy, rivaling that of France. Greater Los Angeles accommodates a greater population than the rest of the ten U.S. Western States combined. So, there are a vast number of public and private projects ongoing within the State.
The State of California, including Caltrans, the Department of Water Resources, Department of Corrections and other agencies, regularly spend billions on significant statewide public projects. Public works expenditures are a large portion of the annual budgets of many local public agencies, particularly water districts, sanitary districts, bridge and highway districts, schools, cities, and counties.
As a large example, the California Department of Transportation has more than 23,000 employees with an annual budget of about $10 billion. Headquartered in Sacramento, the Department also has 12 district offices situated in Eureka, Redding, Marysville, Oakland, San Luis Obispo, Fresno, Los Angeles, Bishop, Stockton, San Bernardino, Orange County and San Diego.
California is exceptional in that the population resides where fresh water is not plentiful. The major population centers rest "… astride one of the most violent and dangerous earthquake zones in the world," as stated by author Marc Reisner. As such, the earthquake risk plays a significant role in the design and construction of major facilities.
Despite the State of California's recent budget crisis, and the US Federal Government's ongoing, substantial deficits, the public construction budgets for 2006-2007 are substantially higher than prior years. Furthermore, homebuilding remains strong. California construction is largely fueled by a rapidly escalating state population.
Despite these strong indicators, local governments remain financially strapped due to cutbacks in State funding and increasing non-funded state mandates. As a result, public works financing is expected to become more and more innovative. Public and private partnerships are expected to flourish during these turbulent and difficult times.
Furthermore, project disputes are expected to increase, as owners and contractors experience decreases in funding sources and settlement flexibility. Also, California public agencies appear more willing to use the false claims statute, discussed at length in Chapter 10, against contractors, and others, where they feel the contractor has violated the public trust. Such claims are being made even after project contracts have been closed out and all parties have signed final project change orders.
Nevertheless, in view of the overall national economy, the aftermath of 9/11/01 and the War in Iraq, the California public and private construction market remains remarkably strong. The thirst of Californians for new homes, schools and supporting infrastructure remains very robust. Numbers of home sales are at record levels, as are new school enrollments. Substantial opportunities for growth and profit exist for those design, project management and construction firms that can flexibly adapt to public client demands. Public owners can benefit from lower interest rates and depressed prices for labor and materials, offering a prime opportunity to accomplish long-term infrastructure projects that take years to plan and accomplish.
Many California Agencies have specific Mission Statements that guide their design and construction endeavors. A very good example is the Caltrans Mission Statement. In many senses, it is a good reflection of the goals of this book:
THE CALTRANS MISSION: ONE VISION/ONE MISSION
"Caltrans Improves Mobility Across California
The California Department of Transportation strives to be the highest performing transportation agency in the country. In pursuit of our mission, we continue to build a talented and diverse team and to strengthen ties with our partners. To keep California moving, we commit ourselves to these goals and values.
Goals:
- SAFETY -
Achieve the best safety record in the nation
- RELIABILITY -
Reduce traveler delays due to roadwork and incidents
-PERFORMANCE -
Deliver record levels of transportation system improvements
-FLEXIBILITY-
Make transit a more practical travel option
- PRODUCTIVITY -
Improve the efficiency of the transportation system
Values:
INTEGRITY * PARTNERSHIP * CUSTOMER-FOCUS * COMMUNICATION
EMPOWERMENT * COMMITMENT * TEAMWORK * INNOVATION * STEWARDSHIP"
§ 1.2 PROJECT DELIVERY APPROACHES
Caltrans and other California agencies use a wide variety of “Project Delivery.” This refers to the manner in which a construction project is accomplished through conception, design, construction and start-up. This section presents the common project delivery systems used for public works projects.
§ 1.2.1 What is the Project?
What will the project accomplish? A simple question, perhaps, but one rarely carefully asked at the beginning of a project. For a sports arena, the goal might be to allow a member of the public to see a professional game for under $25. Such a simple, verifiable objective will help focus the project stakeholders who otherwise have a variety of obessions. The public owner expresses political sensitivity and budget consciousness, the architect envisions the “look and feel,” the engineer dwells in safety and efficiency, the contractor frets over buildability and profitability, and the users worry about meeting daily needs, operational ease and long term maintenance. If the project is thought of as a rainbow, each project participant tends to see only their favorite stripes. The senior decision makers must comprehend the entire spectrum. They must never lose sight of the service objective.
During the early planning stages, the key goals and objectives must be identified and prioritized. The conflicting goals of speed in delivery, ease of operation, dramatic design elements, innovation, national expertise, local content, proven technology, and cost efficiency can rarely be reached simultaneously. Choices must be made at the highest levels of the client organization. Often, the key decisions can be memorialized on a single sheet of paper. Such a focused effort can greatly increase the odds of success.
Who will organize and manage the project? Most owner organizations do not have sufficient depth of design and construction expertise to self-manage their own projects. So that expertise must be acquired by a thoughtful and fair selection process.
What is the risk profile of the project? A one-of-a-kind or once-in-a-generation facility is especially prone to large overruns and design problems. Airports, jails, sewage treatment facilities, transit systems, power plants, communications and administrative centers, and sports and performing arts venues are especially susceptible to these problems. Agency inexperience with major projects is often a major cause. These management risks should drive the owner's major project strategy.
On the other hand, repetitive projects regularly accomplished by experienced and well-financed public owners, such as K-12 schools, roadways, typical bridges, sewer and water pipeline extensions are typical examples of projects that should, generally, go right. But these also have inherent, although less obvious, risks.
The most serious project risks are: 1) delays, 2) cost overruns and 3) serious accidents. The loss of life or serious injury, while insurable to a degree, involve human losses that can never be compensated by money. As such, a successful project focuses on mitigating those three risks.
§ 1.2.2 Project Organization Options
The major options that owners may choose for project organization include: a) Design-Bid-Build; b) Project Management (PM); c) Design-Build; and d) Multiple Prime.
In addition, the execution of the project may be accomplished by: e) Fast Track; f) Turnkey Projects; g) Performance-Based Contracting; h) Design-Build-Own-Transfer (DBOT); and the use of i) Partnering and Team Building.
§ 1.2.2(a) Design-Bid-Construct
The traditional project approach for years has been to engage a design firm (A/E) and then, much later, engage in competitive bidding of the project resulting in the award of the project to a general contractor (prime contract). In this well-proven approach, the independent architect or engineer consults from soup to nuts, from concept, through program, and into schematic and final design, preparing "Construction Documents." The owner then advertises for interested general contractors and supplies them with a fixed set of plans and specifications. The owner then solicits multiple bids. The low bid is then selected, and the successful general contractor is awarded the work and construction begins.1
§ 1.2.2(b) Project Management (PM)
Since most owners do not have sufficient staff or expertise for the peak period of project design and construction, they generally will retain a Project Management (PM) firm (or Construction Manager (CM)). This is typical for projects of more than $50 million regardless of the type of contracting method utilized by the owner.
Project managers are administratively-oriented, often serving as an extension of the owner’s staff. Their key expertise is management, not design or field construction. In fact, in public construction, the independent CM or PM is asked to refrain from direct design or construction duties. Instead, the CM develops the selection process for designers, cost estimators and testing firms, performs extensive reviews of their expertise, develops and administers their contracts, provides expertise on constructability, manages relationships with funding and oversight agencies, and provides a system of communications, public information, emergency response, and policy advice for the owner.
An example is major airport work, where CM/PM firms manage infrastructure from conceptual studies of aviation alternatives through the design and construction process, start-up and warranty work, and overlap into the next cycle of conceptual design, at all times working to keep the public entity and elected representatives informed and able to make key decisions from a comprehensive array of reasoned alternatives.
§ 1.2.2(c) The Design-Build Process
The Design-Build method of construction involves the selection of a single entity for design and construction services, so a single firm is responsible for all aspects of a project. Typically, a public entity will hire a design firm to conduct early studies and develop a conceptual or schematic level of design for the project. Then, a design-build-oriented general contractor is selected to provide both the detailed design services and construction of the project.
In certain instances, an architectural firm may act as lead, providing the design services and retaining a contractor for the construction phase. A/E firms are not typically the lead firm as they generally have difficulty supplying the required bonding. Where the architectural is lead, it will be held responsible for all aspects of the project.2
Typically, a general contractor is the single entity and employs architects or engineers (directly, or on a consulting basis) for the design phase. The construction company then performs the construction phase of the project. The design-build methodology provides savings in cost and time because the entire project is managed and constructed by a single entity, thereby eliminating the difficulties of dealing with multiple entities on one project.
The design-build approach is an emerging tool for general law public agencies that rarely used it in the past due to the restrictions of competitive bidding requirements. Charter public agencies may utilize this approach if their charters so provide. Other public entities have specialized legislation, discussed later, that enables design build projects. In addition, the design build approach is often available in California when a public project is privately financed, at least in part.
§ 1.2.2(d) Multiple Prime Contracting
In this method of contracting, the public owner assumes the obligation of managing multiple prime contractors on the jobsite. The public agency thus assumes a traditional and critical role typically undertaken by a general contractor. Unfortunately, this means the public agency does not have a single contractor to assume the ultimate cost and schedule responsibility. The CM/PM hired to perform such a multiple prime project will often argue that he should have no financial responsibility for overall budget or schedule of the project. This leaves the public owner in the position of absorbing the majority of the risk for conflicts between the contractors or any resulting cost and schedule impacts.
§ 1.2.2(e) Fast Track Projects
In fast-track, or phased design and construction, schedule advantages are achieved in time critical projects by allowing separate aspects of construction to begin before the final drawings are completed for a project as a whole. This technique is typically used where "time is of the essence” to the owner. The project is built using drawings and specifications that can be released early, such as grading and foundations, while the designer pursues completion of the overall project plans and specifications. Certain later plans may be modified as necessary with or without price increases.3
Unfortunately, this means there is no fixed price or firm schedule for the overall project at the outset. As the design of the project is being put into concrete before the design is complete, there are few opportunities to fine-tune the design to maximize cost savings. Civil excavations, pier work, and caissons may be undersized or oversized, since the final structural design may not be complete. Often, a degree of that preliminary work will need to be modified or torn out. This method promotes significant savings in schedule, but at the substantial risk of significant cost overruns.
§ 1.2.2(f) Turnkey Projects
The turnkey concept stems from an owner contracting to buy a completed project from a contractor who is essentially the developer of the property on which the project is constructed.4 The owner gives up large amounts of control over the day-to-day aspects of the project. The courts state that a turnkey project is “a project in which all the owner need do is `turn the key’ in the lock to open the building, with nothing remaining to be done and all risks to be assumed by the contractor."
§ 1.2.2(g) Performance-Based Contracting
In this approach, the owner sets criteria, such as the number of square feet of warehouse space, or the output of an electrical or steam co-generation plant, and leaves the details of the design and construction of the facility in the hands of the design build contractor or industrial vendor. Again, the looser the criteria provided in the plans and specifications, the greater the chance of dispute between the owner’s and contractor’s vision of an acceptable project design and construction quality.
Can you guess whose vision will cost more money?
§ 1.2.2(h) Design-Build-Operate-Transfer
With the long delivery times associated with public projects, there is a trend toward the public entities entering into long-term leases of "public facilities," including in certain instances, the right to purchase the facility at the end of the lease term. Furthermore, these leases can extend to the actual operation of the facilities by private parties. Aspects of this approach are generically referred to as "privatization."
Private firms engaged in wastewater treatment that have design, construction management, and plant operations expertise have actively pursued this. By applying industry expertise, worldwide buying power (from computer systems to chemicals), access to capital (certain engineering firm’s creditworthiness exceeds many public entities) and the diversity and quality of the staffs of these large enterprises, the public entity can achieve large cost savings and avoid large capital expenditures. This is extremely useful to local public entities that are either strapped for cash or bonding capacity, or where the public does not wish to approve outright funding for key facilities.
Many local agencies and labor unions see such DBOT arrangements as passing too much management authority and decision-making responsibility to a private entity in contravention to the public trust. Further, they see public jobs converted to private enterprise without comparable public sector retirement or fringe benefits. However, the economies of scale make DBOT a popular approach for smaller public agencies that are able to finance their services within their communities.
§ 1.2.2(i) Partnering and Team Building
Partnering and team building is an established management practice on large projects. At the outset of a project, a partnering facilitator conducts a project-wide management retreat, seeking to build understanding and trust among the owner, designer and construction staff. The cornerstone is that knowing your counterparts better is a good thing. While knowing more about one’s counterparts in the public agency or contractor may not prevent a major conflict later, it can build sufficient trust that will lay a foundation for resolving major problems and will often make many of the smaller problems on jobs easier to resolve.
Team building can be taken too far. It is probably fine to have a project-wide barbecue to celebrate an accident-free quarter of work. But it is obviously unprofessional and probably illegal for the contractor and public officials to get too chummy. It is probably a jailable offense for the contractor to invite the project inspector to take an expensive fishing trip, especially if you are the contractor, and you just bought the inspector a new boat!
In recent years, there has been a limited backlash against partnering. There are certain, very vocal parties that claim they were burned in the partnering process. In one case, the contractor explained in a court pleading that the owner should share his losses since they were “partnering” under the agreement. (The Uniform Partnership Act defines “partners” as two or more persons or entities doing business for profit.) Also, true “partners" have fiduciary duties of disclosure and good faith. As such, wary owners, contractors and their lawyers, who understand that the word “partnering” can be a legally loaded concept in the courtroom, often use the word “team building.”
§ 1.3 PROJECT PARTIES AND RELATIONSHIPS
There are a wide variety of parties that participate in large construction projects. Since human beings run projects, their personal and legal relationships influence the success of the project. The fine points of these legal relationships are the lifeblood of construction law.
§ 1.3.1 Project Parties
It is important to recognize the legal relationships among the parties. For the design of a project, the owner generally contracts with independent design professionals for the construction of a specific project or contracts to buy a completed project from a contractor/developer.
An architect is defined as one who is licensed to practice architecture in the State of California.5 Anyone who offers or performs “professional services which require the skills of an architect in the planning of sites, and the design, in whole or in part, of buildings, or groups of buildings and structures” is engaging in the practice of architecture.6 The architect serves as an independent contractor preparing the plans and specifications for the project and often as the agent of the owner in construction-phase services.
An engineer is one who possesses education, training, and experience in engineering services and has special knowledge in various areas, including design of public or private utilities.7 The three primary areas of specialty within the engineering sciences are civil engineering,8 electrical engineering, and mechanical engineering.9 An engineer is usually retained by the architect as an independent contractor and is responsible for detailed calculations, drawings, and specification preparation.
A general contractor is an entity (individual, corporation, partnership, etc.) that constructs, alters, repairs, improves, moves, or demolishes any building, highway, or other structure.10 This definition applies to both subcontractors and specialty contractors.11
A construction manager12 is typically described as one who acts as a construction overseer, managing the day-to-day on-site activities of the entire project. The construction manager generally does not perform actual construction services or provide any work with his or her own forces. The construction manager acts in the capacity of an agent of the owner and receives fees as his or her sole compensation. He or she negotiates contracts with the various contractors, schedules and coordinates their work so it will be in accordance with the project plans and specifications, and oversees cost management. In California, there is no strict requirement for a construction manager13 to be licensed as a general contractor, architect or engineer.
§ 1.3.2 Organizational Relationships
§ 1.3.2(a) The Design Relationship (Architect or Engineer)
The relationship between the owner and the design professional is established by contract, statute and case law. The principal relationships that will occur during the course of the project among the architect, engineer, owner and contractor are established in the initial design agreement.
By far, the most widely utilized and accepted standard contract between an owner and the design professional is the American Institute of Architects, (AIA) document B141. This standard form was specifically designed to address the owner-architect relationship. It contains many provisions that specify the duties and responsibilities of the design professional and the owner, and forms the basis of almost all contracts between owners and architects for residential and commercial building projects, as well as establishes the guidelines for the architect’s consultant agreements with its engineering and other associated firms.
However, the parties may choose to execute a contract that does not utilize the AIA B141 standard form. In either situation, the contract governs the rights, duties, and responsibilities of the parties. Thus, it is important that the owner determine exactly what those responsibilities will be when drafting the contract in order to avoid future disputes.
The services a design professional performs are varied and are determined by the contract executed with the owner. Services range from designing the structure itself and estimating the total project cost to assisting in the overall bidding process, inspecting construction, issuing change orders, and giving final approval for all progress and final payments made to contractors by the public entity.
The design professional’s primary responsibility is to prepare and provide plans and specifications that the contractor can use to build the project; however, responsibility does not end once the plans and specifications are complete. It continues throughout the project with the design professional interpreting and revising the plans and specifications in order to address actual construction conditions the contractor encounters in the field. The AIA B-141 outlines the primary services that the architect will perform, generally for a fixed fee, and also lists other services, which are generally compensated on an hourly basis. It is important to budget the necessary construction-phase services, as well as other soft costs, such as appearances before planning commissions and related architectural support services.
The owner also has responsibilities to the design professional.14 The most important obligation of an owner is to provide complete and accurate information regarding the design objectives of the project. This information should include budget restraints, site conditions, and easement, zoning, and land-use restrictions. In addition, the owner is obligated to pay the design professional for his or her services.
§ 1.3.2(b) General Contractor
On traditional projects, once the plans and specifications have been prepared by the design professional, the owner can solicit bids from general contractors through advertising.15 The public entity owner then awards the contract to the lowest responsible bidder.16
Once the requirements of bidding and awarding the public works contract have been satisfied, the successful general contractor begins construction. Because all subcontractors are required to be listed in the general contractor’s bid package submitted to the public entity, the general contractor will have already negotiated subcontracts with its subcontractors. The responsibilities of the general contractor encompass the construction phase of the project. A general conditions form, widely utilized by public entities contracting with general contractors, is AIA Document A201. This standard form, or the particular language included in the contract itself, governs the responsibilities of both parties. It must be specially modified for use in California. As with most industry standard contracts, it is grossly inadequate for California public works without substantial modification and the addition of extensive statutory language.
Generally, the contractor is obligated to build the project in conformity with the plans and specifications, which means not only strictly adhering to the project design, as set forth in the plans and specifications, but also guaranteeing the materials and providing quality workmanship. In addition, the general contractor must bring to the attention of the design professional any errors or omissions in the plans and specifications, coordinate all phases of construction with its various subcontractors, and arrange for all inspections.
The public entity owner is obligated to provide complete and accurate information to the general contractor, which is the same as its responsibility to the design professional. In addition, the public agency owner is typically required to obtain all necessary permits and approvals. Payment provisions are usually based on the observed progress of construction. Time periods for performance and other scheduling requirements are also defined in the contract documents.
§ 1.3.2(c) Construction Manager
A public agency owner may decide to employ a construction manager whose role is to act as agent for the public agency. Competitive bidding requirements do not apply to the retention of a construction manager; however, some agencies take the position that the contract must still be awarded to the lowest responsible bidder and adhere to all other competitive bidding requirements,18 despite the fact that the construction manager is acting as the owner’s agent.
The construction manager has several responsibilities. These include design management, cost and schedule reporting, construction scheduling, design review, constructability, bid packaging, and, of course, day-to-day project management.
During the design phase of a public works project, the construction manager reviews conceptual designs and provides advice on construction feasibility and the selection of materials and equipment.
In addition, he develops and updates the construction schedules, prepares the project budget and construction cost estimates, and prepares a bid analysis and award recommendations after the bidding process.
Once construction begins, the construction manager conducts on-site meetings with the various parties involved, updates the project schedule, implements the change order system, and reviews proposed change order requests. Most importantly, he inspects the ongoing construction of the project, establishes and implements procedures for expediting the processing and approval of shop drawings, provides progress reports to the owner, and observes the progress of work performed by the various subcontractors involved in the project.
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For Owners
For A/E's & CM's