October 19, 2005 Alternative Methods of Procurement A presentation by John G. Davies To The Canadian...

October 19, 2005October 19, 2005 Alternative Methods of ProcurementAlternative Methods of Procurement

Alternative Methods Alternative Methods of Procurementof Procurement

A presentation by John G. DaviesA presentation by John G. Davies

ToTo

The Canadian Forum on Public The Canadian Forum on Public ProcurementProcurement


Alternative Methods of Alternative Methods of ProcurementProcurement

Three basic forms of delivery of design and Three basic forms of delivery of design and construction:construction:

TraditionalTraditional ManagementManagement Design-BuildDesign-Build



Traditional Delivery: Traditional Delivery: (Design-Bid-Build)(Design-Bid-Build)

Familiar delivery processFamiliar delivery process Unlimited access to designersUnlimited access to designers Unlimited access to contractorsUnlimited access to contractors Established procurement proceduresEstablished procurement procedures Owner controls both design and constructionOwner controls both design and construction Refine designs before committing to bidding Refine designs before committing to bidding

and contractand contract



Traditional Delivery: Traditional Delivery: (Design-Bid-Build)(Design-Bid-Build)

Full documentation suits multiple needsFull documentation suits multiple needs Established law and precedentsEstablished law and precedents Established risk management mechanismsEstablished risk management mechanisms Established book-matched standard forms of contract Established book-matched standard forms of contract

for both design and construction as well as sub-for both design and construction as well as sub-consultants and sub-contractorsconsultants and sub-contractors

Consolidated ADR provisions allow prompt resolutions Consolidated ADR provisions allow prompt resolutions to disputes to disputes



Some Considerations:Some Considerations:

RolesRoles ExpectationsExpectations RiskRisk ControlControl



Fast-track delivery:Fast-track delivery:

Two major methods of fast-track delivery:Two major methods of fast-track delivery: Construction ManagementConstruction Management Design-BuildDesign-Build


Alternative Methods of Alternative Methods of ProcurementProcurementConstruction Management:Construction Management:

Variant or the design-bid-build methodVariant or the design-bid-build method Compressed deliveryCompressed delivery Owner retains control Owner retains control



Sequential design and constructionSequential design and construction Each Trade Contractor employed by OwnerEach Trade Contractor employed by Owner Construction Manager coordinates trade work Construction Manager coordinates trade work

and provides in-house infrastructure and and provides in-house infrastructure and intra-trade workintra-trade work



Two forms of Construction Management:Two forms of Construction Management: C M as agent C M as agent C M at riskC M at risk

– C M at risk Guaranteed Maximum Price (GMP)C M at risk Guaranteed Maximum Price (GMP)– Cost-Plus Guaranteed Maximum Price (GMP)Cost-Plus Guaranteed Maximum Price (GMP)



Construction Manager as Agent: Benefits:Construction Manager as Agent: Benefits:

Effective budget control and managementEffective budget control and management Effective schedule control and managementEffective schedule control and management Constructability input during design and Constructability input during design and

construction phasesconstruction phases Administrative burden reliefAdministrative burden relief Construction expertise availabilityConstruction expertise availability Quality management and maintenanceQuality management and maintenance



Construction Manager as Agent: Benefits:Construction Manager as Agent: Benefits:

Value enhancementValue enhancement Time compressionTime compression Flexible early planningFlexible early planning Prescriptive/proprietary based terminologyPrescriptive/proprietary based terminology Maintainability and life-cycle concernsMaintainability and life-cycle concerns Traditional risk managementTraditional risk management



Construction Manager as Agent: Concerns:Construction Manager as Agent: Concerns:

Multi-source responsibilityMulti-source responsibility No early confirmation of priceNo early confirmation of price Complex documentationComplex documentation Limited law and precedentLimited law and precedent Potential for intra-trade contractor disputesPotential for intra-trade contractor disputes



Exercise care when selecting a CMExercise care when selecting a CM Usually selected by ‘two-envelope’ methodUsually selected by ‘two-envelope’ method Pre-qualify (RFQ)Pre-qualify (RFQ) Solicit proposals (RFP) or negotiateSolicit proposals (RFP) or negotiate



Design-Build:Design-Build:

Contracts with a single entity Contracts with a single entity

(one-stop-shopping)(one-stop-shopping) Design-Builder provides both design AND constructionDesign-Builder provides both design AND construction Not a panacea – always weigh the various benefits Not a panacea – always weigh the various benefits

and concerns of each delivery system against the and concerns of each delivery system against the needs of each individual projectneeds of each individual project



Design-Build: Benefits:Design-Build: Benefits:

Single source responsibility Single source responsibility Multiple choice of designsMultiple choice of designs Early confirmation of priceEarly confirmation of price QualityQuality Value enhancementValue enhancement Time compressionTime compression



Design-Build: Benefits:Design-Build: Benefits:

Reduced administrationReduced administration Consolidated riskConsolidated risk Simpler documentationSimpler documentation Potential for ‘Add-on’ contractual featuresPotential for ‘Add-on’ contractual features



Design-Build: Concerns:Design-Build: Concerns:

Complex early planningComplex early planning Excessive reliance on performance based Excessive reliance on performance based

terminologyterminology Non-seamless risk exposureNon-seamless risk exposure Lack of universal standard of administrative Lack of universal standard of administrative

skillskill



Design-Build: Concerns:Design-Build: Concerns:

Limited Law and precedentLimited Law and precedent Maintainability and life-cycle concernsMaintainability and life-cycle concerns



In Summary:In Summary:

Three fundamental choices:Three fundamental choices:

Traditional and familiar, - but slowTraditional and familiar, - but slow Managed and complex, - but fastManaged and complex, - but fast Surrender control, trust the Design-Builder Surrender control, trust the Design-Builder

and go with both fast, consolidated risk, and and go with both fast, consolidated risk, and one-stop-shopping.one-stop-shopping.



EACHEACH method has benefits and method has benefits and concerns to consider… concerns to consider…

before you select the before you select the MOSTMOST APPROPRIATEAPPROPRIATE vehicle… vehicle…

for each for each INDIVIDUALINDIVIDUAL project. project.



Design-Build Variants:Design-Build Variants:Evaluation Process Alternatives:Evaluation Process Alternatives:

Qualifications of both design and Qualifications of both design and construction teamsconstruction teams

Suitability and appropriateness of designSuitability and appropriateness of design Economy of price within a defined delivery Economy of price within a defined delivery

scheduleschedule



Design-Build Variants:Design-Build Variants:Evaluation Process Alternatives:Evaluation Process Alternatives:

Weighted criteria methodWeighted criteria method Adjusted low bid methodAdjusted low bid method Equivalent design/low bid methodEquivalent design/low bid method Fixed price/best design methodFixed price/best design method Meets criteria/low bid (also known as draw-build)Meets criteria/low bid (also known as draw-build) Qualifications based selection methodQualifications based selection method



Design-Build Variants: Weighted Criteria Method:Design-Build Variants: Weighted Criteria Method:

(*Award to highest total points.)(*Award to highest total points.)

ProponentProponent AA B*B* CCPrice ProposalPrice Proposal

($M)($M)1.51.5 1.41.4 1.31.3

Price ScorePrice Score

(30 max)(30 max)26.926.9 27.927.9 30.030.0

Qualitative ScoreQualitative Score

(70 max)(70 max)40.040.0 60.060.0 50.050.0

Total ScoreTotal Score

(100 max)(100 max)66.966.9 87.987.9 80.080.0



Design-Build Variants: Adjusted Low Bid Method:Design-Build Variants: Adjusted Low Bid Method:

(A* is the successful proponent for a contract price of $1.5M)(A* is the successful proponent for a contract price of $1.5M)

ProponentProponent A*A* BB CC

Qualitative ScoreQualitative Score 0.80.8 0.70.7 0.60.6Price ($M)Price ($M) 1.51.5 1.41.4 1.31.3

Adjusted Low Bid ($M)Adjusted Low Bid ($M) 1.88*1.88* 2.002.00 2.172.17



Design-Build Variants: Design-Build Variants: Equivalent Design/Low Bid Method:Equivalent Design/Low Bid Method:

Technical part of each proposal evaluatedTechnical part of each proposal evaluated Private critique given to each proponentPrivate critique given to each proponent Deadline for revised submissions with add/deduct price Deadline for revised submissions with add/deduct price

amendmentsamendments All critiqued proposals deemed equivalentAll critiqued proposals deemed equivalent Original price envelopes opened, add/deduct prices applied Original price envelopes opened, add/deduct prices applied

to each bidto each bid Award to low bidderAward to low bidder



Design-Build Variants:Design-Build Variants:Fixed Price/Best Design Method:Fixed Price/Best Design Method:

Owner sets fixed priceOwner sets fixed price Fixed price, design criteria, evaluation Fixed price, design criteria, evaluation

criteria and scoring methods included in RFPcriteria and scoring methods included in RFP Evaluate and score each proposalEvaluate and score each proposal Award to highest score for fixed priceAward to highest score for fixed price



Design-Build Variants:Design-Build Variants:Meets Criteria/Low Bid Method:Meets Criteria/Low Bid Method: (Draw-Build)(Draw-Build)

Fully developed preliminary designs, plans, Fully developed preliminary designs, plans, elevations, system designs and detailed RFPselevations, system designs and detailed RFPs

Describe key components and built formDescribe key components and built form Competitive bids to complete design and Competitive bids to complete design and

build projectbuild project Award to low bidder on basis of price aloneAward to low bidder on basis of price alone



Design-Build Variants:Design-Build Variants:Qualifications-based Selection Method:Qualifications-based Selection Method:

RFQ response determines best-qualified RFQ response determines best-qualified proponentproponent

Price negotiated Price negotiated Award based on best-qualified proponent and Award based on best-qualified proponent and

negotiated pricenegotiated price



Design-Build Variants:Design-Build Variants:Common Design-Build Supplements:Common Design-Build Supplements:

The most common add-on features are:The most common add-on features are: The provision of landThe provision of land The provision of project financingThe provision of project financing The operation and maintenance of the facility The operation and maintenance of the facility

once completedonce completed Own/lease-back/transferOwn/lease-back/transfer Combinations of the aboveCombinations of the above



Design-Build Variants:Design-Build Variants:Common Design-Build Supplements: Common Design-Build Supplements:

Land:Land:

Traditionally Owner provides land, obtains planning Traditionally Owner provides land, obtains planning permission, surveys and services the landpermission, surveys and services the land

D-B provides land as part of the packageD-B provides land as part of the packageThe Owner then evaluates:The Owner then evaluates: Best design/cost…but in addition:Best design/cost…but in addition: Most suitable location, adjacent facilitiesMost suitable location, adjacent facilities Accessibility, transportation, economy of operation in Accessibility, transportation, economy of operation in

location and enhancement of operations in locumlocation and enhancement of operations in locum



Design-Build VariantsDesign-Build VariantsCommon Design-Build Supplements: Common Design-Build Supplements:

Finance:Finance:

Owner uses capital to run businessOwner uses capital to run business Development costs are financially drainingDevelopment costs are financially draining D-B forms strategic alliances with designers and D-B forms strategic alliances with designers and

trades/financiers trades/financiers Finance land acquisition, servicing, design and Finance land acquisition, servicing, design and

construction and thereafter for short or long termconstruction and thereafter for short or long term Security held as mortgage or lease-backSecurity held as mortgage or lease-back Buy-out provisions at end of specified termBuy-out provisions at end of specified term




O&M:O&M:

Lack of redress in traditional procurementLack of redress in traditional procurement D-B team motivated to build into design life D-B team motivated to build into design life

expectancy of 10-15 yearsexpectancy of 10-15 years Include maintenance costs in contract price Include maintenance costs in contract price

competitively bidcompetitively bid



Design-Build VariantsDesign-Build VariantsCommon Design-Build Supplements: Common Design-Build Supplements:

Own/Transfer:Own/Transfer:

Occupied buildings are a sound investmentOccupied buildings are a sound investment When D-B finances may also continue When D-B finances may also continue

through part or all of life-cyclethrough part or all of life-cycle Steady incomeSteady income Transfer ownership at end of warranty period Transfer ownership at end of warranty period

or period of yearsor period of years ““as-is” or totally rehabilitatedas-is” or totally rehabilitated




CombinationsCombinations::

Combinations include:Combinations include: Design-Build/Finance (D-B/F)Design-Build/Finance (D-B/F) Design-Build/Own and Operate (D-B/O)Design-Build/Own and Operate (D-B/O) Design-Build/Own, Operate & Transfer (D-B/OOT or Design-Build/Own, Operate & Transfer (D-B/OOT or

D’Boot)D’Boot) Design-Build/Maintain (D-B/M)Design-Build/Maintain (D-B/M) Triple ‘P’ (Public/Private Partnerships)Triple ‘P’ (Public/Private Partnerships)



P3 (Public/Private Partnerships):P3 (Public/Private Partnerships):

““Simply put, a P3 is a partnership Simply put, a P3 is a partnership between the public and private between the public and private sectors where there is a sharing of sectors where there is a sharing of risk, responsibility and reward, and risk, responsibility and reward, and where there is a net benefit to the where there is a net benefit to the public.”public.”

British Columbia Ministry of Science, Competition and Enterprise.British Columbia Ministry of Science, Competition and Enterprise.



P3 (Public/Private Partnerships)P3 (Public/Private Partnerships) Clear boundariesClear boundaries Measurable capital output Measurable capital output

performanceperformance Scope for innovationScope for innovation Substantial operating content Substantial operating content Surplus assets includedSurplus assets included Appropriate risk transferAppropriate risk transfer



P3 (Public/Private Partnerships) Benefits:P3 (Public/Private Partnerships) Benefits: Closes infrastructure gapCloses infrastructure gap Replaces public fundingReplaces public funding Faster project deliveryFaster project delivery Partnering special skillsPartnering special skills Less adversarialLess adversarial Performance based deliveryPerformance based delivery Appropriate risk allocation and transferAppropriate risk allocation and transfer



P3 (Public/Private Partnerships) Benefits:P3 (Public/Private Partnerships) Benefits: Value based deliveryValue based delivery Discounted costs/net present value Discounted costs/net present value

deliverydelivery Single point sourcing/responsibilitySingle point sourcing/responsibility ““off the books” accountingoff the books” accounting Economy of scaleEconomy of scale Mixed/commercial useMixed/commercial use InnovationInnovation



P3 (Public/Private Partnerships) Concerns:P3 (Public/Private Partnerships) Concerns: Not panaceaNot panacea Lower standards of architecture and Lower standards of architecture and

constructionconstruction Life-cycle costs often higherLife-cycle costs often higher Union incompatibilityUnion incompatibility Public disconnectPublic disconnect ““off book accounting” distorts true costsoff book accounting” distorts true costs



P3 (Public/Private Partnerships) Concerns:P3 (Public/Private Partnerships) Concerns: High preparation costsHigh preparation costs Misallocation of riskMisallocation of risk Inability to consolidate major fundingInability to consolidate major funding Capital borrowing less for governmentCapital borrowing less for government Long term relationships difficult to Long term relationships difficult to

predictpredict Front-end documentation complexFront-end documentation complex



Thank you all for your attentionThank you all for your attention

October 19, 2005 Alternative Methods of Procurement A presentation by John G. Davies To The Canadian...

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