Session 37 Pekka Pakkala

Innovative Contracting Practices for Capital Projects

Pekka Pakkala - Aalto University, School of EngineeringDepartment of Civil & Environmental Engineering

January 13, 2011

Overview

• CAPITAL INVESTMENT MODELS• FAST TRACKING & DESIGN-BUILD• INTERNATIONAL EXAMPLES• CONCLUSIONS

January 13, 20102

Traditional Project Delivery Methods: Design-Bid-Build (DBB) Construction Management At-Fee Construction Management At-Risk (Usually Rest Areas

& Building structures) Innovative Project Delivery Methods:

Design-Build (D-B) Design-Build Operate Maintain (DBOM) Design-Build Finance Operate (DBFO) ECI (Early Contractor Involvement) Alliance Model – (Australia & New Zealand)!

Capital Project Delivery Methods

Source: Pekka Pakkala - Finnra

January 13, 20103

FEASIBILITY STUDIES

PRE-PLANNING& ENGINEERING

ACQUISITION& COSTING

FINAL DESIGN

CONSTRUC-TION

UPKEEP &IMPROVEMENTS

MAINTENANCE

DESIGN-BUILD PLUS

DESIGN-BUILD-FINANCE-OPERATE (DBFO & DBOM)

FULL DELIVERY or PROGRAM MANAGEMENT

FUNDING

DESIGN- BUILDREPLANNING/ACQUISTION

PREPLANNING/ENGINEERING/ACQUISTION D-B-BFEASIBILITY

ALLIANCE MODEL ALLIANCE MODEL&


Capital Project Delivery Methods

January 13, 20104

January 13, 2010

Design-BuildIntegratedDesign &Construction(Public Funding)

Traditional Design-Bid-Build

Procurement Progression – Towards LCC

Life Cycle Consideration Life Cycle Responsibility

Design-BuildPlus Long-Term Maintenance &Upkeep

Plus Financing

???

B

DB

DBOM

DBFO

Source: Pekka Pakkala & Finnra

5

Design-Build Concept

TRADITIONAL

DESIGN-BUILD

Construction

Bid

ROW

Design

Bid

Construction

Initial Design & EIS

Initial Design & EIS

Construction Starts at 30%Design & Environmental Clearances Completed

Design

ROW

SAVINGSTIME

SAVINGSCOST

Source:

January 13, 20106

Design-Build

CLIENT

Evaluate Best Solution/Innovation?

Solution #1 Solution #2 Solution #3 Solution #4


ConstructionSingle Design/Eng.

Solution

Traditional Design-Bid-Build DESIGN IS NOT CHALLENGED

Design-Build Concept

January 13, 20107

Conceptual Design Only - Maximum of about 25-30% Design Use Design-Build For the Correct Reason

TIME PREVENT COST GROWTH INNOVATION POTENTIAL (Not just to Transfer Risks)

Should Not Be Low Bid Client Needs To Make Fast Decisions in “Design” Approval Two Step Process for Medium/Large Projects – RFQ/RFP Small Projects - One Step Less Contract Administration According To Clients’ Potential to Make Mistakes in Fast Tracking

Design-Build Research Results


January 13, 20108

Designer & Contractor Learning Integrated Competence:

Teamwork (Co-Located) Using Each Others Strength Streamlined approach - only designing needed tasks Understanding the Real Costs of Design & Construction Constructability optimized Visibility - High Profile projects Using the "A" Team

Testing Innovation or Proprietary Technology Downside:

Design Taken Too Far (Inhibits Innovative Solutions & Efficiency) Partnering or Teamwork Needs to be Developed & Rewarded People Process (Does not Fit All Cultures - individual work) Lack of Know-how Throughout Client Organization

Competence & Learning


January 13, 20109

Small Huge

Con

stra

ints

Leew

ay

DBM

CM

DB

DBB

Point of Comparison

Project size

Pro

ject

C

ondi

tions

All project delivery systems, including the best ones, are

not, however, appropriate in all different cases

Source: VTT - Pertti Lahdenperä

Applicability of Methods

January 13, 201010

D-B-B DB CM DBOM DBFO ALLIANCE BOT MODEL CONTRACTTYPE

CONTRACTORSELECTION

CRITERIA

Alberta,Canada

X X DBBDBFO

Unit PriceLump Sum

100% PriceLowest NPV

BC, Canada

X X DBBDBFO

Unit PriceLump Sum


Ontario, Canada

X 407TollETR- Auction

DBBBOT

Unit PriceLump Sum

100% Price

Estonia X Unit Price 100% Price

Norway X X DBBDBFO

Unit PriceLump Sum


Sweden X Lump Sum& Unit

Price

75% Price25% Other

Finland X X Rare X X DBBDB&DBOM

DBFO

Most AllLump Sum

75% Price25% Other

Lowest NPV

International Examples


January 13, 201011

D-B-B DB CM DBOM DBFO ALLIANCE& ECI

BOT MODEL CONTRACTTYPE

CONTRACTORSELECTION

CRITERIA

Holland X X X DBBDB/DBFO

Unit PriceLump Sum

100% Price Lowest NPV

Victoria Australia

X X X X DBBDB

Alliance

Unit PriceLump SumTarget Price

100% PriceLowest NPV 100% Quality

WesternAustralia

X X X DBBDB

Alliance


100% PriceLowest NPV100% Quality

England X X (ECI) DBDBFO

ECI

Lump SumLump SumTarget Price

50% PriceLowest NPV100% Quality

New Zealand

X X X DBBDB

Alliance


PQM SimplePQM Special100% Quality

USA(MNDOT)

X X DBBDB

Unit PriceLump Sum

100% Price50% Price

USA(NCDOT)

X X DBBDB

Unit PriceLump Sum

100% Price 50% Price

USA(VDOT)

X X X DBBDB

BOT

Unit PriceLump SumLump Sum

100% Price50% Price

USA(MDDOT)

X X DBBDB

Unit PriceLump Sum

100% Price100% Price

USA(FDOT)

X X Rare DBBDB

Unit PriceLump Sum

100% Price50% Price

International Examples


January 13, 201012

All models work Traditional Contracting Still Rules in most Countries (DBB) Getting Design-Build model correctly implemented (Takes Time) Teamwork Between Contractors & Designers Proper Risk Analysis, Allocation & Putting into Contracts Changes the Market (Integration & Bundling of Services) Usually have Good Results & Experiences PPP is not a solution Another Potential Alternative – if done right! Letting Go of Design Control – Increases Benefits Low Bid & Unit Prices are being replaced by Best Value & Lump Sum QC by Contractors is normal for Europe but difficult in USA & Down Under Performance Specifications very slowly developing (Performance

Specifications goes hand in hand with innovative contracting practices Clients are not able to accept Alternative Solutions (innovations) easily Essential to Develop Partnering & Trust Infrastructure Sector (Public Sector) is slow to change

Conclusion


January 13, 201013

Value Engineering


January 13, 201014

New Productivity Studies

• Benchmarking Seven Countries• Roads & Rail• Mainly Capital, But Also Including Maintenance

• Challenges:• Different Approaches to Measuring Productivity• How Can Clients Influence Productivity• Are Lean Construction Practices Being Used• Any Indices for Measuring Productivity

• Benefits:• Determine Better Practices• Improving Productivity & Efficiency

January 13, 201015

Questions?

For More Information; Contact:

Pekka Pakkala – Aalto Univ.- [email protected]

Reports Available:

“Innovative Project Delivery Methods For Infrastructure - An International Perspective".

&

International Overview of Innovative Contracting

Practices for Roads

January 13, 201016

Business

Session 37 Pekka Pakkala