The delivery method is gaining market share in both the public and private sectors, but design-bid-build will remain.
Design-bid-build. It now seems almost quaint, the idea of hiring one firm to design a project, going out for bid, and then hiring another firm to build it. An enduring business model used to deliver much of what we see nationwide, design-bid-build, entrenched in state procurement laws — and for many projects, simply the right fit — is by no means going away.
But as public-private partnerships (P3s) increase, and as owners look for more efficient ways to deliver their roads, bridges, water treatment facilities, and retail and residential structures, a refined delivery method — design-build awarded on a best-value or low-bid basis — is increasingly gaining market share.
A response to the demands of speed-to-market, and in part driven by the effort to manage or transfer risk, design-build is lauded for its ability to cut through the clutter of getting a project out of the blueprints and into the ground. One team, design-as-you-go, best value, and perhaps most importantly, less finger-pointing between concerned parties when things go wrong, has design-build poised for big things as the public sector confronts its ailing infrastructure, and as the private sector develops real estate for various uses.
An important player in the design-build industry is Kansas City, Mo.-based Burns & McDonnell, a 5,700-employee-strong power firm with more than 50 offices across the globe. Fresh off the completion of a 310,000-square-foot, $75 million world headquarters expansion, and in the middle of a three-tower construction project for VanTrust Real Estate in Kansas City, Burns & McDonnell is all about, and will continue to be all about, the design-build delivery model.
“We typically don’t build what we don’t design, but we will design things that we won’t build,” said Ken Schaefer, the Burns & McDonnell project manager for the headquarters expansion, in summing up the firm’s approach to the industry. “We’re an engineering firm at heart.”
An old firm with a long and impressive list of projects to its credit, Burns & McDonnell is charting new territory for itself with the delivery of cutting-edge office buildings. The headquarters expansion, packed with amenities, delivered in 2016, and under construction when the design phase was still in its infancy, is the perfect calling card.
The company gives building tours to a broad range of clients and potential clients that span each of the firm’s business divisions. Visitors include dozens of Fortune 500 companies, developers, members of the Design-Build Institute of America (DBIA), the Kansas City AIA, community and civic groups, company alumni, building product manufacturers, and even high school and college students.
That’s a new chapter for a company historically associated with the construction of power plants and refineries. Indeed, the headquarters expansion helped land the job for Overland One, a 14.3-acre, south Kansas City development that will build-out to three mid-rise, Class-A towers totaling 350,000 square feet. One tower has already been completed and sold to Creative Planning, a wealth management firm; a second tower is under construction and a third has yet to be started.
Burns & McDonnell also recently won an important contract for a global company, the details of which could not be disclosed as of press time. But, according to Burns & McDonnell, they went into the RFP process as underdogs and walked out as winners.
“We kind of threw them for a loop when we proposed,” Schaefer said.
Architect Clint Blew, RA, the lead designer for the Burns & McDonnell headquarters expansion, has the same assessment of the win. “I’d like to think we weren’t the favorites going in,” Blew said.
Blew, who has 20 years of experience on the design-bid-build side of the industry, said that through design-build, not as many problems reach the owner’s desk. Among the design-build team, there’s still plenty of hair-pulling, he said, but not as much as what happens between the design firm and the building firm under the traditional delivery method.
“I’ve seen the gamut,” Blew said. “I can see the value in [design-build] because I did something else for 20 years. The other side is not all bad, but I wouldn’t go back to it if I didn’t have to.”
As Burns & McDonnell continues to make its way in the design-build space — and as it eyes another major expansion at its world headquarters that would see an additional 142,000 square feet to accommodate as many as 800 employees — anecdotal evidence and industry research show that design-build, in general, is on a dramatic upswing.
From a Shake Shack in Dallas to the San Francisco International Airport, from a High Tech High School in New Jersey to student housing at the University of California, Irvine, and from highway widening in Chesapeake, Va., to a residential subdivision in Bethlehem, Pa., design-build seems to be everywhere.
While traditional design-bid-build still has the largest chunk of market share, a 2016 survey by the DBIA, the organization’s latest available, confirms the tilt toward design-build as the preferred method for delivery. From 2002 to 2016, according to the survey of 35 departments of transportation, completed design-build projects have increased by a hefty 800 percent, from 140 to more than 1,300. Among respondents, 87 percent indicated they would use design-build in the future.
The survey also shows that 95 percent of surveyed DOTs use design-build on highways, 65 percent on bridges, and 9 percent on rail. In addition to standard construction and maintenance, design-build is useful in post-disaster scenarios, and was instrumental in recovery efforts in the wake of 9/11, as well as hurricanes Katrina, Sandy, and most recently, Harvey.
As design-build gains in popularity, it’s only natural that more and more firms will enter the fray. With that being the case, firms testing the waters for the first time must take pains to protect themselves, said Dan Knise, president and CEO of Ames & Gough, an insurance brokerage that writes policies for about 1,200 AE firms.
“It creates another avenue for someone to make a claim against an architect or engineer,” he said. “Now you’re in contractual privity.”
Also, Knise said, designers leading design-build projects are responsible for delivering a product with a warranty, which is an extra liability. Saddled with the responsibility of delivering on time and on budget, design-builders have to carry a surety bond, something usually reserved for the contractor.
“You’ve opened up the pathway to liability,” he said. “There’s risk here, but there’s potential for rewards. [Firms] need to go into it with their eyes wide open.”
In addition to writing policies, Ames & Gough also serves as the insurance advisor for the states of Texas, Virginia, and Pennsylvania — states that authorize design-build programs.
From his vantage point, Knise has a bird’s eye view of what’s happening in the industry. Design-build and P3s go hand-in-hand, and more often than not, P3s are also design-build, with construction firms typically leading the joint venture. Larger projects, Knise said, will increasingly be the purview of design-build.
From a historical perspective, Knise sees the irony of design-build emerging as a “modern” form of project delivery. The model is actually a rediscovery of something much older — the “master builder” model prevalent in the Middle Ages. As a case in point, James of St. George led the design-build teams for King Edward I’s fortification program in Wales, work that included the castles of Harlech, Conwy, and the colossal Carnarvon, among others.
“In many ways, we’re turning the clock back to the way they used to do it,” Knise said.
As with P3s, design-build in the public sector is regulated at the state level, creating a patchwork of legislation across the country. Based on a 2017 State Statute Report by DBIA, state authorizations are widely varied.
In Ohio, for example, all state, local, and educational institutions are authorized to use design-build, and the Ohio Department of Transportation is authorized to use the delivery model on projects totaling $1 billion annually, according to the DBIA report.
In Iowa, the Board of Regents, which oversees the University of Iowa, Iowa State University, and the University of Northern Iowa, has design-build authority; while in Wisconsin, legislation to authorize design-build died in committee last year.
In Texas, meanwhile, the DOT is authorized to use design-build on up to three $150 million-plus projects annually, but local governments with a population less than 100,000 are not authorized to use design-build. In an area devastated by Harvey, that’s a problem.
The DBIA brought the issue to Texas Governor Greg Abbott’s attention in a September letter written by Lisa Washington, the organization’s executive director and CEO.
“Given the enormity of the reconstruction challenges facing Texas, the state needs the ability to innovate, building stronger and smarter, while also maximizing project dollars and delivery times on vital post-Harvey projects,” Washington said. “The need is immense and the response must be equal to that challenge. As governor, you have the emergency authority to ensure design-build can deliver in Texas just as it has in so many other communities rebuilt after a disaster.”
According to the DBIA, Abbott did not expand design-build authorization for Harvey recovery.
The common criticism of design-build is that it weakens competition, is only good for large projects, encourages favoritism, and that it paves the way for large out-of-state construction companies to come in and take work from local firms.
The DBIA, of course, dismisses those criticisms, pointing to the fact that design-build projects take place across the spectrum, from projects like the $3 million Shake Shack in Dallas, to the $1.4 billion Northeast Water Purification Plant in Houston, currently the largest design-build project in the country. (see page 18)
The Federal Highway Administration is quantifying the role design-build is having on highway construction. While its report concluded that design-bid-build will be in use for many years, preliminary results of the study are illuminating for design-build.
According to the survey of 291 projects completed between 2004 and 2015, alternative contracting methods — which include design-build-low bid, and design-build-best value — are employed across all project sizes, save time, accelerate cost certainty, and increase project intensity.
The study found that design-build-best value projects have the highest levels of agency-directed change orders among alternative forms of delivery. However, the study also found that more than half of the change orders were implemented when the project award was lower than the engineer’s estimate, meaning the change order could have brought increased value to a given project.
That’s essentially what happened in Boston, where the Massachusetts Bay Transportation Authority is building the 4.7-mile extension of the Green Line to the suburbs of Somerville and Medford. Having previously fizzled — the original joint venture, White-Skanska-Kiewit, was booted from the project for various reasons in 2015 — the transit program was reignited late last year when GLX Constructors, a Flour-led consortium that includes Middlesex Corp., Herzog, Balfour Beatty Infrastructure Inc., and STV, won the bid with a $1.08 billion proposal. Coming in well below the cost ceiling of $1.3 billion, GLX was able to re-include Green Line features such as station canopies, public art, and a portion of walking and cycling trails along the tracks, according to accounts published in The Boston Globe.
That Flour and Balfour Beatty, two of the top design-build firms in the nation, would be spearheading a marquee project in a marquee market should come as no surprise. Likewise, CH2M and CDM Smith are part of the joint venture on the Northeast Water Purification Plant in Houston, and Kiewet Corp. subsidiary Kiewit Infrastructure West Co., led the joint venture on the $583 million Carlsbad Desalination Plant in California. In Burns & McDonnell’s own back yard sits Black & Veatch, a super-firm in its own right. But that’s the playing field for design-build, and Burns & McDonnell is comfortable with the competition and the stakes.
“We compete against those guys all the time,” Schaefer said. “You win some and you lose some. It’s all about relationships. You have to understand the people who are going to be in the room [when you propose] and know what their wants and needs are.”
Schaefer concedes that there are plenty of owners out there who just don’t want to give design-build a try. But there are plenty who do, and when they take the plunge, the results are increasingly predictable.
“Once they do it once, they want to do it again,” Schaefer said.
The Burns & McDonnell headquarters expansion is crammed with amenities and, according to Brittney Swartz, a landscape architect for the expansion project, the design-build delivery model made it possible to put the bells and whistles into the final product: A 20,000-square-foot child care center, crucial as the firm looks to recruit more women, a coffee shop, a 250-seat auditorium, a 2,500-square-foot rooftop event space, and a full-service pharmacy are the headliners.
How does all this get coordinated during an aggressive construction schedule that came in under two years? Constant communication and education among the various business units involved, Swartz said.
The building also has 60 conference rooms, reclaimed white marble from the abandoned Beth Shalom temple formerly on the site, hackberry wood veneers and ceiling panels, 100-percent LED lighting, 300 tons of recycled steel and metal, a fully automated blind system, and electric vehicle charging stations. The facility was designed to accommodate the Phase Two expansion, and both buildings can be converted for another tenant should Burns & McDonnell ever move.
In the end, Burns & McDonnell got everything it wanted out of the building.
“There are opportunities that come up through the process, and because we’re a [design-build] team, it’s easier to work it in,” said Swartz.
Design-build contracting is a method of project delivery in which the design and construction phases of a project are combined into one contract, usually awarded on either a low-bid or best-value basis.
This can provide significant time savings compared with the more traditional design-bid-build approach in which the design and construction services must be undertaken in sequence.
- Cost savings
- Schedule reduction
- Reduced litigation
- Risks associated with design errors and omissions are transferred from owner to the design-build team
Source: U.S. Department of Transportation
Of the states using design build:
- 95 percent use design-build for highways
- 65 percent use design-build for bridges
- 9 percent use design-build for rail
Completed transportation design-build projects:
- 800 percent increase from 2002 through 2016
- 34 percent faster delivery
- 11 percent less schedule growth
- 93 percent of projects on-time or ahead of schedule
Value range for design-build projects:
- From $25 million and less to more than $200 million
Notable design build projects:
- U.S. 90 Bridge, Bay St. Louis, Miss. ($283 million)
- State Route 42, Greene County, N.Y. ($14.1 million)
- Long Island Railroad & Metro North MTA, New York ($634 million)
- Chevron Headquarters, Covington, La. ($79.8 million)
- I-35W Bridge, Minneapolis ($265 million)
- Pentagon Reconstruction, Arlington, Va. ($501 million)
- Carlsbad Desalination Plant, Carlsbad, Calif. ($583 million)
- Union Station, Denver ($374.8 million)
- Mesa Towers, Irvine, Calif. ($96.7 million)
- Uses a qualifications-based or best-value selection, followed by a process whereby the owner then “progresses” toward a design and contract price with the team.
Potential obstacles to progressive design-build:
- Restrictive procurement regulations
- Awarding without full completion on the overall design-build contract price
- Owners may be uncomfortable in exercising the “off ramp” in the event parties cannot reach commercial agreement on the design-builder’s proposal
- Subcontractor procurement challenges
- Lack of interest in changing approaches
Source: Design-Build Institute of America
The City of Houston’s Northeast Water Purification Plant in Humble, Texas, is the nation’s largest design-build project. The $1.4 billion project led by Houston Waterworks Team, a design-build joint venture between CDM Smith and CH2M, will increase treatment capacity from 80 million gallons per day (mgd) to 400 mgd by 2024. The project comprises pumping and conveyance of water from Lake Houston; an intake pump station; twin, 108-inch transmission mains; pre- and post-treatment chemical addition; ozone treatment; filtration; finished water storage tanks; and a high-service pumping station.
Source: City of Houston