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Construction Management-at-Risk
The Good, the Bad and the Ugly
John W. Hays Jackson Kelly PLLC
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CMAR
Construction management-at-risk (“CMAR”) is a popular method for the delivery of construction services in public and private projects.
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CMAR Defined
Construction Management-at-Risk – a project owner (“Owner”) hires a construction manager (“CM”) to assist with the design and construction of a project.
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CMAR Defined
The CM is “at risk,” because the CM agrees to build the project for the Owner for an agreed amount within an agreed time.
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CMAR – KRS 45A.030 “Construction management-at-risk” means a
project delivery method in which the purchasing officer enters into a single contract with an offeror that assumes the risk for construction at a contracted guaranteed maximum price as a general contractor, and provides consultation and collaboration regarding the construction during and after design of a capital project. The contract shall be subject to the bonding requirements of KRS 45A.190.
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CMAR Scope
On projects governed by the Model Procurement Code, the CM may not self-perform some of the construction work, unless a subcontractor fails to perform and the owner agrees that the CM may perform the work.
KRS 45A.183
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CMAR – AOC Construction Management at-Risk means a
project delivery method in which the Project Development Board awards a single contract to an offeror that assumes the risk for construction at a contracted maximum price as a constructor and that provides consultation and collaboration regarding the construction during and after the design of the Project.
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CMAR Scope
On projects governed by the Administrative Procedures for the AOC, the CM may self-perform some of the construction work if the CM competitively bids the work and the PDB approves.
AP Part X, Section 8-4
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The Good Selection Process for Public Projects
Design Assistance Scheduling and Coordination
Insurance Coverage
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Selection Process
Negotiations vs. Competitive Bid Relationship
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Design Assistance
Constructability – Difficulty – Time
Value Engineering
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Scheduling and Coordination
Time is Money
Realistic Scheduling and Coordination
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Insurance
Professional Negligence Coverage
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The Bad
Hybrid Relationship – During design/bidding acting as the Owner’s
agent – During construction must protect own
interests Selecting Trade Contractors
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TThhee UUggllyy Unrealistic Expectations
– GMP – Time – Design responsibility
Poor Communications
– Surprise
Questions?
John W. Hays Jackson Kelly PLLC
P3: Public-Private Partnerships
Roger Peterman Dinsmore & Shohl LLP November 21, 2014
Dinsmore & Shohl LLP | P3: Public-Private Partnerships
Understand P3 in 3 Easy Steps
Dinsmore & Shohl LLP | P3: Public-Private Partnerships
Recognize not every P3 is the same P3 1Understand the Definition of P3 2
Recognize once you’ve seen one P3, you’ve seen one P3. 3
Step #1: Recognize not every P3 is the same P3
The world according to Public-Private Partnerships
Dinsmore & Shohl LLP | P3: Public-Private Partnerships
ECONOMIC DEVELOPMENT Public Investment + Private Investment Commercial Infrastructure
(Private Enterprise + Targeted Infrastructure) CREATION OF JOBS
STRONG, SUSTAINABLE COMMUNITIES
PUBLIC INFRASTRUCTURE Public Investment + Private Investment Economic Infrastructure FACILITATION OF COMMERCE
Public Investment + Private Investment Social Infrastructure PROMOTION OF HEALTH & WELFARE
Step #2: Understand the Definition of P3
» Not traditional design-bid-build contract
» Sliding Scale of P3
Traditional Procurement (Public) Triple Net Leasing
Service Contract Management Contract Design-‐Build Design-‐Build-‐Maintain Design-‐Build-‐Operate Design-‐Build-‐Operate-‐Maintain Design-‐Build-‐Finance-‐Operate-‐Maintain DBFOM-‐Transfer
Privatization
Dinsmore & Shohl LLP | P3: Public-Private Partnerships
Infrastructure P3 Contracting and Financing Structure
Dinsmore & Shohl LLP | P3: Public-Private Partnerships
User Fees and Availability Payments
» Sources of funding are generally user fees + public sector subsidies (often identified in transportation as “Availability Payments”)
» Availability Payments are payment for performance (irrespective of demand)
» Prospective concessionaires bid the maximum Availability Payment they would earn for providing availability in a given year – often very long term contracts
Dinsmore & Shohl LLP | P3: Public-Private Partnerships
Procurement Method
» Whole-Life Pricing with focus on Value for Money
» Risk Allocation » Development, Design & Construction
(bundling of project responsibilities) » Financing » Operational Costs » Maintenance and Replacement Costs » Termination Value » Value for Money Study
Dinsmore & Shohl LLP | P3: Public-Private Partnerships
Why Infrastructure P3?
» Take advantage of private sector efficiencies in design, construction, or operations and maintenance
» Capital access for large projects
» Overcome budget restraints/debt limits
» Limit public sector cost/risk: risks allocated to party best able to manage or to absorb them.
Dinsmore & Shohl LLP | P3: Public-Private Partnerships
Why Infrastructure P3?
» Overcome political limits (public perception of private v. government efficiencies, anti-debt environment, etc.)
» Budgetary certainty
» Value for money over life cycle
Dinsmore & Shohl LLP | P3: Public-Private Partnerships
Why Not Infrastructure P3?
» Higher cost of capital
» Loss of public control
» Impropriety of private sector profit off public good
» Distorted decision-making (non-competition clauses, contractual liabilities, regulation to benefit P3 over other options & balkanization)
» Lack of accountability
Dinsmore & Shohl LLP | P3: Public-Private Partnerships
Louisville/Southern Indiana Bridges Project
Dinsmore & Shohl LLP | P3: Public-Private Partnerships
Step #3: Recognize once you’ve seen one P3, you’ve seen one P3.
Louisville/Southern Indiana Bridges Project
Kentucky » Design-Build - vendor
» Ownership - KYTC
» Bridge operation - KYTC
» Tolling operation - vendor
» Maintenance/replacement –KYTC
» Source of debt repayment – tolls
» Bonds rated BBB-
» TIFIA eligible
Dinsmore & Shohl LLP | P3: Public-Private Partnerships
Indiana » Design-Build - vendor
» Ownership – vendor/state
» Bridge operation - vendor
» Tolling operation - vendor
» Maintenance/replacement –vendor
» Source of debt repayment/ equity return – availability payments
» Bonds rated BBB
Roger Peterman Dinsmore & Shohl LLP roger.peterman@dinsmore.com
Dinsmore & Shohl LLP | 8 steps to Starting Your Business in Ohio
Design/Build
The Good, The Badand The Very Ugly
Stephen E. Smith Goldberg Simpson, LLC
“. . . And so began something that had not quite begun and would not soon end, with many people in many places moving off in directions and on missions which they all
mistakenly thought they understood. That was just as well. The future was too fearful for contemplation, and beyond the expected,
illusory finish lines were things fated by the decisions made this morning – and, once
decided, best unseen.” Tom Clancy
Clear and Present Danger
The Mission
Project Performance Drivers
Attributes of a well performing project1 – Adequate to excellent ability of owner to
make decisions – Adequate to excellent – Excellent team – contractor pool – High ability to restrain the contractor pool
through
Project Delivery Methods
Constant Assessment and Management of Risks Costs should be Borne by Party Best Able to Control Risk Risks Shift Between Parties During Course of Project Risk Assessment Begins with Selection of Delivery Method
Stephen E. Smith Goldberg & Simpson, PSC
The Construction Paradox
Which Format To Choose To help us meet or exceed our clients expectations: – Cost – Scope – Schedule
Project delivery Project execution
Stephen E. Smith Goldberg Simpson, LLC
Design-Build Contract
Historically, all projects were design-build. – Legal climate sent designers into retreat
Both the design of the project and construction of the contract rest in the hands of same “Contractor”
Single point of responsibility to the Owner
Stephen E. Smith Goldberg Simpson, LLC
OWNER
GENERAL CONTRACTOR
A/E
FAMILIAR RELATIONSHIPS
SUBCONTRACTOR SUBCONTRACTOR SUBCONTRACTOR
SUBCONTRACTOR SUPPLIER
OWNER
GENERAL CONTRACTOR
A/E
SUBCONTRACTOR SUBCONTRACTOR
SUBCONTRACTOR SUPPLIER
MATERIAL SUPPLIER
SURETY
SURETY
OWNER INSTALLED
WORK
DESIGN-BID-BUILD PROJECT
OWNER
Subcontractor
SUPPLIER
DESIGN-BUILDER
Architect/Engineer Subcontractor
Specialty Sub Sub Sub Sub
DESIGN BUILD CONSTRUCTION
SUPPLIER Sub-Specialty
The Construction Paradox
What Is D/B
D/B is an alternate project delivery system – Another tool in our tool box – D/B is not a cure all for our project delivery
challenges
Design-Build Contracts
– Single point responsibility for design and
construction –
designer – Should produce faster delivery
Lower overall costs Earlier access to facility
Goldberg & Simpson, PSC
Design-Build Construction
Risks – To properly assign performance responsibility
between parties – Contract must be clear in assigning full
responsibility to the contractor
Goldberg & Simpson, PSC
What Is D/B D/B contracts are procured using a Request For Proposal, (RFP) The award of the D/B contract is based on best value - not just price – This means we may or may not award to the
lowest cost proposal
ADVANTAGES/ DISADVANTAGES
WHAT’S GOOD, WHAT’S BAD
Stephen E. Smith Goldberg Simpson, LLC
Why Use D/B (Cost)
Cost – Potential for reduced design cost – (Government) Potential reduced planning and
design funds expenditure – Potential for reduced construction cost – Potential for reduced construction cost growth
Goldberg & Simpson, PSC
Why Use D/B (Cost)
Reduced design cost – The design only needs enough detail to allow
the contractor to build it – Once the D/B contract is awarded the D/B
contractor can sole source – Roof system design – HVAC design
Stephen E. Smith Goldberg & Simpson, PSC
Why Use D/B (Cost)
For our Government Owners – Reduced planning and design funds
expenditures – Once the D/B contract is awarded the design
can be funded with construction funds – Planning and Design funds can be reduced
From 9% to 2-4% for a typical $5-$10 million project
Goldberg & Simpson, PSC
Why Use D/B (Cost)
Reduced construction cost – The designer and the contractor work together
to select the most cost effective construction methods
–
Goldberg & Simpson, PSC
Why Use D/B (Cost)
Reduced cost growth – The number of changes are reduced
In D-B-B a design error or omission will likely result in cost growth In D/B a design error or omission will likely not result in cost growth
Stephen E. Smith Goldberg Simpson, LLC
Why Use D/B (Scope)
Industry expertise – The owner may not have the expertise to
100%
Stephen E. Smith Goldberg Simpson, LLC
Why Use D/B (Schedule)
Reduced project delivery time – Fast tracking (start construction while the
design is still being developed) –
Expedite construction contract award – That is important in governmental areas
Stephen E. Smith Goldberg Simpson, LLC
Strengths of Design-BuildThe Good
Single Source Accountability Enhances Project Partnering Faster Project Delivery Lower Cost
– 2.2% Cost Growth vs. 4.8% Design-Bid-Build
Continuity of Teams
Stephen E. Smith Goldberg & Simpson, PSC
Weakness of Design-Build
Competing – Higher Bids
Ambiguity/Risk to Construction Teams Prime Contractor Not Communicating with Subcontractors
Stephen E. Smith Goldberg & Simpson, PSC
Design-BuildWhat it Really Is
WHEN IS PRICE FIXED TO OWNER How does Builder involve subcontractors:
– in Schedule – In Bidding
If all subs not involved early, how does DB Contractor guarantee price to Owner.
Stephen E. Smith Goldberg & Simpson, PSC
Design-BuildThe Bad
What is true contractual relationship between Architect/Engineer and Builder
– Is A/E a subcontractor vs. partner
Stephen E. Smith Goldberg & Simpson, PSC
Design-BuildThe Really Ugly
How do disputes between partners impact the project – How are design failures addressed (insurance) – Design failures vs. damages to work
Stephen E. Smith Goldberg Simpson, LLC
Why Use D/B Comparison of U.S. Project delivery systems,
by CII, Konchar and Sanvido of Penn State University –
design-build was superior to traditional design-bid-build because:
Stephen E. Smith Goldberg & Simpson, PSC
Why Use D/B Results
– Unit costs were at least 6.1 percent less – Construction speed was at least 12 percent
faster – Overall project delivery speed was at least
33.5 percent faster
The complete results are available at - http://www.dbia.org/whitpap.html
Stephen E. Smith Goldberg & Simpson, PSC
Why Use D/B Results
– Cost growth was at least 5.2 percent less – Schedule growth was at least 11.4 percent
less – Quality was equal or better
The complete results are available at - http://www.dbia.org/whitpap.html
Stephen E. Smith Goldberg & Simpson, PSC
The Learning Curve D/B request for proposals
– Cost more than a traditional D-B-B invitation for bid between issuance and contract award
– Takes longer between issuance of invitation and contract award
– Requires a higher owner involvement during design/construction
Stephen E. Smith Goldberg & Simpson, PSC
Coordination between the designers and the builders is critical. – You can not design something that the builder
can not afford to build.
The Learning Curve
Stephen E. Smith Goldberg & Simpson, PSC
Why Use D/B D/B, as any tool, can enhance our project execution when properly applied
Stephen E. Smith Goldberg & Simpson, PSC
“There is no intelligence where there is no change or need for change”. H.G. Wells “ the time machine.”
Stephen E. Smith Goldberg & Simpson, PSC
Questions
INTEGRATED PROJECT DELIVERY
November 19, 2014
Cassidy Rosenthal
Traditional Project
Owner
Designer
Owner
Contractor
CONSTRUCTION MANAGER
(CONSTRUCTOR)
ARCHITECT
OWNER
Integrated Project Delivery
What is Integrated Project Delivery (IPD)?
n Collaborative process – Owner – Designers – Contractors – Major subcontractors and suppliers
n Promotes risk sharing, claims suppression and incentives for collaboration and disincentives for claims
Background of IPD n Used for years in Australia and New Zealand n Based in principles of Lean Construction
www.leanconstruction.org n Goal is to eliminate “waste” – scheduling
bottlenecks, out of sequence work, changes, repeatedly stopping and starting, rework, lack of accountability, lack of answers to questions, waiting and conflicting motivations
n Success stories of significant cost savings & finishing early
Five big ideas of Lean Project Delivery
n True collaboration among all project participants throughout design, planning and construction;
n Strengthening and aligning the relationships and interests of the parties to the project;
n Viewing the Project as a network of commitments by participants to work and schedule that can be relied upon by others, and which drive out waste in the form of RFIs, changes and rework;
n Focusing on what is best for the project as a whole and not just certain component parts;
n Seeking constant improvement through continous assessment and implementation of “lessons learned”.
IPD Contract Forms / Multi-Party Agreements: n AIA A295 “Transitional” IPD form n AIA C195 True collaborative form n ConsensusDOCS 300 Tri-Party
Agreement n Integrated Form of Agreement (Sutter
Health)
AIA A295 IPD Contract Form n Built on the platform of AIA’s
Construction Management agreement n Provides for a GMP, similar to other
AIA docs n Touted as a “transitional” document n Still has separate owner/architect and
owner/contractor agreements & GCs.
AIA C195 Single Purpose Entity IPD Agreement n Touted as a true collaborative
contract, with target cost, risk sharing, claims suppression and incentives encouraging collaboration
n Contemplates formation of a project LLC with project participants as members
ConsensusDOCS 300: The Tri-Party Agreement for Collaborative Project Delivery n Incentives and Risk Sharing
– Shared savings – Actual cost > Target Cost Estimate – share
the cost or the Owner can agree to bear the cost
– Parties can elect to allocate project risk and release each other from damages resulting from collaboratively made decisions
Specifics of ConsensusDOCS 300 n Parties perform as a “Collaborative
Project Delivery (CPD)” Team to facilitate design, construction and commissioning
n Risk allocation of CPD is limited to acts of the parties’ fault or control, with a limit
n Mutual waiver of consequential damages n Safe Harbor Decisions: parties agree to
release each other from liability for Mgmt Group decisions
Specifics of ConsensusDOCS 300 n Management Group: comprised of the
owner, contractor & designer n Mgmt Group can invite other members n Decision making body for delivery of the
project n Decisions by consensus, in the best interest
of the project w/out consideration of self-interests
n Owner is the tie-breaker
Specifics of ConsensusDOCS 300
n Mgmt Group meets regularly with CPD Team for overall project planning and scheduling
n Mgmt Group establishes a communications protocol
n Collaborative design and preconstruction services may include BIM
n Designer still responsible for design and Contractor responsible for construction
Specifics of ConsensusDOCS 300 n Dispute Resolution includes
– Direct discussions – Mitigation with project neutral or DRB – Mediation – Arbitration or Litigation
What are the benefits of IPD? n Lower cost of performance through
collaborative design and construction ideas n Lower cost of performance due to reduction
in claims and finger pointing n Collaborative/team approach allows for
immediate problem solving n Better design and construction as a result of
collaboration of all design and construction disciplines during the design phase
QUESTIONS???
Cassidy Ruschell Rosenthal (crosenthal@stites.com)
Cassidy Ruschell Rosenthal
n Stites & Harbison, PLLC, Member
n Construction Law
Stites & Harbison, PLLC 250 W. Main St., Suite 2300 Lexington, KY 40507 Office: (859) 226-2253 Fax: (859) 425-7939 crosenthal@stites.com
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