A major capital improvements program involves important decisions regarding the method by which the projects will be designed and constructed - the project delivery method. This decision has become more complex as a variety of alternative delivery methods have been developed to address weaknesses in the "traditional" design-bid-build process. Methods that have gained in popularity include fast-track construction, multiple prime contracting, design-build, and Lease-Leaseback .
1) Traditional (Design / Bid / Build)
This delivery method offers the advantage of being widely applicable, well understood, with well-established and clearly defined roles for the parties involved. It offers the Owner a significant amount of control over the end product, as the facility's features are determined and specified prior to selection of the contractor. However, many owners have experienced a variety of frustrations using this system, leading to the development of other methods.
Once completed, the design package is issued to interested general contractors, who prepare bids for the work and execute contracts with subcontractors. The contractor submitting the lowest responsive bid is selected to perform the construction. This contractor is then responsible for constructing the facility in accordance with the design. The Architect typically maintains limited oversight of the work and responds to questions about the design on behalf of the Owner.
- Competitive bidding process
- Easy to manage, universally understood
- Defined project prior to bid
- Contractors take advantage of "competitive process"
- Design suffers from a lack of input from contractors and subcontractors
- Changes orders are common
- Owner has full exposure to change orders
- Delay claims and disputes are common
2) Multiple Prime
This system, which many state agencies use, has gained favor in part as another method of "fast-tracking" construction. Work in each construction discipline is bid separately.
For a given project, there may be numerous bid packages depending on the size, complexity and economic breakdown of the project. These "trade contracts" can be bid as unit-pricing contracts for use on a variety of projects. This fast-track approach appears to be a highly desirable feature of this method of procurement in cases where time of performance is a critical element. The Construction Manager (CM) creates multiple bid packages from the basic design documents created by the design team. The CM administers the construction through individual trade contractors contracted directly with the Owner.
CM Multiple Prime Pros:
- Economy of scale
- Time for project delivery is reduced
- Defined requirements and cost containment
CM Multiple Prime Cons:
- Not suitable for complex or custom projects
- Multiple contracts can make for administrative difficulty
- Owner liability in the event one prime trade contractor damages another
- Lack of a single, guaranteed, bonded price for the total project
- Changes in project scope will generate change orders
3) Design / Build
In 2002, San Mateo County Community College District realized that using additional construction delivery methods, such as design-build, would enhance its ability to implement projects efficiently and effectively – to the benefit of its students, faculty, community and taxpayers. SMCCCD asked then-assembly member Joe Simitian to sponsor legislation that would allow community colleges to utilize design-build, a delivery method used successfully in the private sector. AB1000 passed and eventually became Education Code §81700, naming San Mateo County Community College District, San Jose-Evergreen CCD and LACCCD as three districts who could use design-build in a pilot program to ascertain if this delivery method could be successful in community college construction.
SMCCCD has successfully delivered or is in the process of completing 5 projects under the EC81700 code authorization (along with 1 project under Government Code 4217 and another project under Government Code 5956):
- Energy Efficiency Projects, Districtwide (GC4217)
- Athletic Facilities Upgrades, Districtwide (EC81700)
- Science Building, College of San Mateo (ECB1700)
- Student Union and Science Annex, Skyline College (EC81700)
- Faculty and Staff Housing, College of San Mateo (GC5956)
Possibly the greatest advantage offered by the Design/Build process to many Owners is that at some point early in the design process, the Owner negotiates a guaranteed maximum price for the finished project.
A significant advantage of Design/Build over the "traditional" design-bid-build delivery method is that the Owner has a single contract and point of contact for the design and construction of the project. The contract is fully inclusive of all services and products to be delivered by the team. The Owner typically does not have to resolve or even become involved with the difficulties and disagreements between the team members that can complicate the low-bid delivery method. With the contractor and designer working collaboratively through the design process, the contractor gains a thorough and detailed knowledge of the design intent and the architect can design in the details and systems that the contractor can provide most efficiently.
Another significant advantage of Design/Build is the compressed time schedule that is possible through phased permitting approvals. SMCCCD’s projects delivered using Design/Build have resulted in facilities being turned over to the Owner more than a year sooner than if those projects had been designed, bid and then built.
- Single point of responsibility for both design and construction Project delivery time is reduced
- Design/build contractors add construction practicality to design imagination
- Owners get an enforceable price for construction early in the project
- The contractor can negotiate subcontracts so the owner can benefit from reliable subcontractors
- Unless the scope is well-defined, Owner is at risk for quality and Owner has less control over design.
- Without clear direction, Owner-initiated changes will cause change orders
- The Architect works for the Contractor, not the Owner
4) Lease-Leaseback (LLB)
The District has successfully delivered over $900 million in capital improvement projects over the first two phases of the Capital Improvement Program (CIP). The District has served as a leader in successfully implementing Design Build, an alternative project delivery method to the traditional Design-Bid-Build delivery method. Lease-Leaseback (LLB) is another alternative delivery method that provides many of the advantages of the Design Build delivery method, and offers some additional benefits to the Owner. Staff has worked with Counsel and several sister Community College Districts who have successfully implemented LLB, and has compiled this informational report for the Board’s consideration.
LLB is an authorized project delivery method for California Community Colleges pursuant Education Code Section 81335 et. seq. The statutory scheme for LLB provides the District with some flexibility in the Contractor selection process, which can be tailored to maximize the opportunity for a successful outcome. Implementation of the LLB delivery method involves direct engagement of the Design Team by the Owner, early engagement of a Contractor selected by the Owner for input during the design phase, and finally, engagement of the Contractor to construct the facility once the design is sufficiently complete to allow reliable pricing. The Owner’s direct engagement of the Design Team enhances Owner control of the design throughout the process. Early engagement of the Contractor improves the design process by incorporating a builder’s perspective early on, minimizing constructability challenges in the field and resultant change orders. Both design phase cost estimates and final Guaranteed Maximum Price (GMP) — the total cost to construct the facility — are intended to be more reliable thanks to a regular reconciliation process between the independent cost estimator and the Pre-Construction Services Contractor. In the event that the Owner and Contractor cannot agree upon a GMP upon completion of the design, the Owner retains the option to seek competitive bids. The LLB delivery method has been successfully implemented by K-12 districts around the state for a number of years, and several local community college districts have had success with LLB in recent years.
The LLB process involves several steps. Typically, the Owner first engages an architectural firm to develop the plans and specifications for the project. It is ideal for the Owner to select a Contractor early in the design phase to perform preconstruction services throughout the design process. This preconstruction input allows the Contractor to perform constructability reviews to identify any potential conflicts in the plans and / or challenges in constructing the project, and value engineering analysis to better manage the project budget. As the design nears completion, and based upon the joint involvement with the project and the Owner’s objectives and budget, the Owner and the Pre-Construction Services Contractor negotiate a GMP to contract for construction. Best Practices include corroborating the proposed GMP pricing by an independent cost-estimator. Once the GMP is corroborated and accepted by the Owner, agreements are executed with the Contractor.
LLB allows for a qualified Contractor selection process based upon published criteria. Clear criteria provide a strong basis for an equitable Contractor selection process, which appeals to reputable Contractors.
The Owner may pre-qualify sub-Contractors in addition to the prime Contractor, and all trades must pay prevailing wage. The Owner can stipulate an open-book sub-Contractor bidding process, which allows the Owner to review actual sub-contract bids. If bids exceed estimates, the Owner has the latitude to require that individual sub-contracts be re-bid. The published Contractor selection criteria together with this open-book sub-Contractor selection create a transparent process.
LLB involves several contractual agreements not utilized in other delivery methods. These include:
- Preconstruction Services Agreement: Owner engages the Contractor to provide design phase input relative to constructability, value engineering and sub-contractor trade bid-packaging. Contractor selection is based upon Best Value criteria (including qualification and pricing criteria) developed by the Owner.
- Construction Services Agreement: Owner engages the Contractor to construct the project, and includes general conditions which define Owner requirements such as project completion schedule, work-hours, logistics, and the like.
- Site Lease: Owner leases the property to the Contractor for the construction phase.
- Facilities Lease: Contractor leases the facility back to the Owner. Contractor is paid for the construction through Facility Lease payments which equal the GMP. The Facility Lease duration can vary based upon the project financing arrangements. (Note: staff do not anticipate utilizing LLB as a financing mechanism, the Site and Facility Leases would terminate at or shortly following construction completion and the Owner would take possession of the site and facility).
Although these agreements are not currently in use by our District, staff have compiled templates from various local Community College Districts, met with them and gathered their feedback as to lessons learned, reviewed these with Counsel, and are prepared to incorporate the most successful language for our use. The project management activities based upon these agreements, are substantially similar to those staff have implemented over the first two phases of the CIP. Therefore, staff feel comfortable considering implementation of the LLB delivery method. Based on this due diligence and subsequent comfort level, staff intends to utilize Design Build and LLB as the primary project delivery methods for CIP3.
The San Francisco Bay Area Peninsula is currently considered one the most active construction markets in the country. In this highly competitive market, reputable Contractors are being very selective about which projects they choose to pursue. LLB, as a selection process that fosters collaboration between Owner, Contractor and Architect is very appealing to reputable Contractors. For these reasons, and because LLB incorporates private sector Best Practices and affords greater Owner control of the project, staff believes that the LLB delivery method bears consideration for delivery of key projects for the third phase of the CIP.