CMGC White Paper Topic No. 4:
Business Case and Project Selection for CMGC
- Introduction to Alternative Delivery Methods
The Minnesota Department of Transportation (MnDOT) has a variety of project delivery methods available to deliver its increasinglylarger array ofdesign andconstruction projects. The use of alternative delivery methods is essential to meet the growing demand for faster, safer, more efficient project delivery. Design-build (DB) and construction manager/general contractor (CMGC) are the two most commonly used alternative delivery methods. The Federal Highway Administration’s (FHWA) 2002 DB Rulemaking (Title 23 C.F.R. Part 636)[1] moved DB project delivery from experimental to approved status for Federally-funded projects. MnDOT has used the DB delivery method since 1996 and awarded over $1 billionin DB projects.[2] Similarly in 2012, MAP-21, the Moving Ahead for Progress in the 21st Century Act (P.L. 112-141),[3] moved CMGC project delivery from experimental to approved for Federally-funded projects. Approval for MnDOT to deliver projects through CMGC was written into state legislation in May of 2012.[4] Both DB and CMGC are being strongly encouraged by the FHWA’s Every Day Counts II (EDC II) initiative and, in fact, have monetary incentives for use in MAP-21.[5] However, MnDOT has yet to take full advantage of CMGC project delivery.
- Description of Delivery Methods
2.1.Design-Bid-Build: Design-bid-build (DBB) is the traditional three-phase project delivery method. The process begins with a state DOT creating a design (either completed in-house or by a consulting engineer), followed by a bidding process (most commonly through a low-bid selection) and is completed with project construction via the lowest responsible or best value bidding contractor. The DBB process, according to the EDC II initiative, often leads to extensive delays stemming from the process’ sequential order and lack of communication between the designer and contractor.
2.2.Design-Build: In the DB process, a state DOT identifies the scope of work through performance criteria and communicates these requirements to design and construction firms through a request for proposal (RFP). The DOT reviews the qualifications and proposals to select a DB entity to perform both design and construction. The DB firm accepts risks and responsibility for project design and construction, including any design errors and omissions proposal and final construction drawings. The DB process shortens overall project time by adding contractor input to the design process to minimize design errors and improve the constructability of the design. Awarding only one contract also shortens the project delivery. According to the EDCII, DB can frequently reduce the overall project delivery scheduleof a project by at least one year.
2.3.CMGC: The CMGC delivery method is a two-phase contractual process that allows contractor feedback during design to improve construction efficiency and reduce project duration. The first phase of the CMGC contract is the design phase. The contractor who is contracted to the owner usually under a pre-construction (professional services) contract provides input to the designer on the subjects of constructability, innovation, and cost/time saving approaches. When the project design is nearing completion, the owner and contractor begin to negotiate a construction cost for the project (EDC II); this is typically a Guaranteed Maximum Price (GMP). The GMP, as stated in the Association of General Contractors Project Delivery Systems for Construction (2011),[6] is a contractual agreement between the owner and general contractor that sets a limit on how much the owner will pay for a project and transfers the potential risk of exceeding the project budget to the general contractor. Projects delivered through CMGC typically experience the benefits of design innovation, mitigating project risks, improved design quality and cost control, and optimizing project schedule (EDC II). As of December 2012, 14 states have legislature in place to allow their respective DOT to use the CMGC project delivery method, see Figure 1 below. However, only five state DOTs have actually completed highway projects through CMGC – Arizona, Colorado, Florida, Oregon, and Utah as of January 2013.
3. Project Delivery Method Selection Criteria
According to the National Cooperative of Highway Research Program (NCHRP) Synthesis 402,[7] if state law permits the use of CMGC, owners should consider their own capabilities as well as project characteristics to decide a project delivery method. The Synthesis continues by stating that “a documented procedure for project delivery selection may also prove helpful.” The Colorado DOT (CDOT) utilizes a project delivery selection matrix that was developed through the FHWA Pooled Fund Project that accomplishes both of these essentials.[8] The project delivery selection matrix considers eight factors as either opportunities or obstacles to determinean appropriate project delivery. These eight factors are being considered by MnDOT as the selection factors for choosing a project for CMGC delivery.
3.1.Delivery Schedule: Delivery schedule is the overall project schedule from scoping through design, construction, and opening to the public. This factor assesses time considerations in getting the project started or funding obligated.The CMGC method has the opportunity to accelerate the delivery schedule when compared to DBB because the contractor is on board before the entire design is complete and can assist in phasing construction to meet schedule constraints. The CMGC method also provides ashorter procurement schedule than DB. The risk of not reaching a GMP, however, can lead to delays in the project as the project would need to be publically bid if a GMP cannot be reached.
3.2.Project Complexity and Innovation:Project complexity and innovation is the potential applicability of new designs or processes to resolve complex technical issues. While CMGC can be utilized on projects of all levels of complexity, incorporation of highly innovative processes is made more achievable with CMGC through increased early collaboration of the designer, contractor, and owner. The process of adding innovation depends heavily on the relationship between contractor and designer, as well as, the facilitation of the process by the owner.
3.3.Level of Design:Level of design is the percentage of design completion at the time of the project delivery procurement. With the CMGC method, not only does the state DOT control the design, the design can later be used for DBB in the event of an unsuccessful price negotiation. The constructability of design is also optimized as the contractor can provide input when incorporated early in the design phase. CMGC is most opportunistic if the design has not advanced too far (e.g., >25%) and the three-party collaboration process can begin early in the project.
3.4.Cost:Project cost relates to meeting budget restrictions, early and precise cost estimation, and control of project costs. Lowest project costs can be achieved through the owner, designer, and contractor collaborating early to begin the risk management process. Innovative designs and processes developed by the designer and contractor can also provide cost efficient strategies to project delivery by CMGC. The cost in a CMGC project will typically be known earlier than DBB as well.
3.5.Initial Risk Assessment:Risk is an uncertain event or condition that, if it occurs, has a negative effect on a project’s objectives (e.g. schedule, budget). Risk allocation is the assignment of unknown events or conditions to the party that can best manage them. An initial assessment of project risks is important to ensure the selection of the delivery method that can properly address them. An approach that focuses on equitableallocation of risk will be most successful. Input from owner, designer, and contractor to the risk management process begins early in the CMGC method and this provides the opportunity to allocate risks earlier and recognize unknowns in the design. Issues, such as those relating to right-of-way and third party risks, are addressed by input from the entire project team and can be mitigated or reduced more efficiently. CMGC can also present innovative methods of risk pricingand risk allocation (e.g., schedule, means and methods, phasing).
3.6.Staff Experience/Availability (Owner):Owner staff experience and availability impacts the choice of a project delivery method.The DOT can improve efficiencies of a project when using CMGC by having knowledgeableproject managers on staff. Being that CMGC is a new delivery method to most DOTs, a limited available staff with experience may be an obstacle when utilizing CMGC on a project. The existing staff may also require additional training to adjust to their traditional roles.
3.7.Level of Oversight and Control:Level of oversight involves the amount of agency staff required (or desired) to monitor the design or construction. It also relates to the preference of agency control inthe delivery process. Preconstruction services involving a contractor increase the oversight of a CMGC project because the owner is provided with an integrated design/construction process. The DOT does require a staff experienced with CMGC projects to appropriately oversee a project. However, getting additional input on enhancing innovations of the process by the contractor can assist the owner.
3.8.Competition and Contractor Experience:The level of competition, experience and availability in the marketplace and its capacity is a consideration in project delivery selection. The level of contractor experience is determined through the qualifications predetermined by the owner when selecting a contractor in the CMGC method. The competition of the contractors may be limited though, as there is not currently a large pool of contractors with extensive CMGC experience.
4. Major Risks and CMGC
An advantage of the CMGC method is that it provides a forum to communicate and discuss construction risk in the design phase. These risks can then be allocated to the party most able to control them to optimize project cost. A report on critical risk factors in selection of project delivery methods found the major risks to potentially affect a project are unexpected utility encounter, third-party delays during construction, geotechnical investigations, issues involving right-of-way, and delays in reviewing and obtaining environmental approvals. CMGC can identify construction issues related to utilities earlier and better generate design resolutions in response to issues involving encountering utilities. The opportunity for phased construction can also provide a means of solving utility issues without delaying construction progress. The team collaboration put in place by early implementation of the contractor allows for quicker resolution of delays in construction when delivering a project with CMGC. Contractor input to the risk management process begins earlier in the CMGC method than in DBB or DB and also presents innovative means for handling, allocating, and pricing the identified project risks. This earlier identification and allocation of risks allows CMGC to more efficiently manage risks associated with third-parties and environmental delays. Input from the contractor to the designer early in the design phase can also deal with geotechnical issues that the project may face.
▼▼Prepared for MnDOT by CU Boulder & Parsons Brinkerhoff, Page 1
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[6]AGC of America, 2011, Michael Kenig, ISBN Number: 978-1-936006-28-1
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