Design-Build Case Study: Drew County Hospital Authority

Sunday, March 18, 2012 21:42

In the Drew County case, a public hospital authority in Arkansas incurred more than $100,000 in design fees from the design-builder before realizing its design-build contract was prohibited by Arkansas competitive bidding statutes.  Id. at 5-6.  The hospital refused to pay the design-builder, arguing that it was neither a licensed contractor nor a licensed design professional.  Id

The court concluded the design-builder did not need a contractor’s license because it had yet to bid on construction work and its preliminary design work was not within the scope of the licensing statute.  Id. at 7-10.  The Court did note, however, that the design-builder was practicing architecture and engineering without a license.  The design-builder was nevertheless allowed to recover its fees because the licensing laws did not prohibit recovery of fees for services performed without a license. 

The lesson from this case is that public agencies should not act without knowing the scope of their statutory authority.  Most states and local governments have been relying on competitive bidding for decades.  This requires separating design and construction services and awarding consturction contracts to the lowest bidder.  Design-build competitions, which allow agencies to consider factors other than price, are not allowed under traditional competitive bidding laws.

Case Cite:  Drew County v. Joh Pas Murray Company, 2011 WL 1533434 (E.D. Ark. 2011).

Saturday, March 3, 2012 12:32

The Public Building Commission of Chicago issued an alert Friday of its intent to issue a Request for Proposals for design-build services.  http://www.pbcchicago.com/content/working/alert_detail.asp?aID=485 

According to the alert, “[t]he Project is a new Fieldhouse at Ping Tom Memorial Park to be designed and constructed in general accordance with the Chicago Park District Standard Prototype Fieldhouse Design and will include a swimming pool and support spaces.”

The project budget is $13,000,000, and the PBC expects to issue the RFP on or about March 16, 2012.  The procurement will be a standard two-phase competition in accordance with the Illinois statutes controlling public building commission projects.

The alert also offers a bit of insight on the project goals:  “Project goals are to provide environments that are safe, stimulating and maintainable with appropriate architectural design and standards. The PBC and the Chicago Park District will require quality construction that is durable, cost effective, beautiful and environmentally sustainable. The design shall be sensitive to the surrounding neighborhood contexts and will be reviewed under Chicago Park District Building Standards. The building shall achieve minimum USGBC LEED Silver rating for building and site development.”

This provides another small glimmer of hope for design-builders in the Chicago metropolitan area that the percentage of local projects will begin to catch the national trend.

Design-Build Case Study: Pennsylvania Supreme Court Bars PennDOT From Conducting Design-Build Competitions

Sunday, February 12, 2012 18:25

The Supreme Court of Pennsylvania recently rejected the Pennsylvania Department of Transportation’s Innovative Bidding Tool-kit, including its best-value design-build process for failing to comply with competitive bidding laws.  

Nearly four years ago, and not long after the I-35 bridge collapse in Minneapolis, PennDOT determined it needed to rebuild two stretches of bridges along I-90 in Erie County.  PennDOT had what it called an Innovative Bidding Tool-kit authorizing best-value design-build procurement, but it created the Tool-kit without statutory authority. 

PennDOT requested “statements of interest” from potential design-builders to evaluate the teams’ qualifications and create a short-list of three teams to submit proposals for the contract.  Brayman Construction Corporation responded but failed to make the short-list.  It then filed a lawsuit seeking a ruling that the Toolkit violated Pennsylvania public bidding laws. 

The trial court agreed with Brayman, and in 2011, the Supreme Court of Pennsylvania issued a decision upholding the trial court’s ruling.  The Court stated that “the general rule for procurement under the [Pennsylvania] Code is that, ‘[u]nless otherwise authorized by law, all Commonwealth agency contracts shall be awarded by competitive sealed bidding under section 512[.]‘”  The Tool-kit and design-build process, the Court reasoned, failed to comply with this section because PennDOT was allowed to consider factors other than price. 

The I-90 project was allowed to proceed due to fear of a failure if PennDOT was forced to start over.  Nevertheless, PennDOT was barred from soliciting additional design-build proposals without statutory authority.

Case Citation:  Brayman Construction Corporation v. Commonwealth of Pennsylvanis, Department of Transportation, 608 Pa. 584, 588, 13 A.3d 925, 927 (Penn. 2011).

Congressional Budget Office Releases Highway Study on Public Private Partnerships and Design-Build

Sunday, January 29, 2012 13:38

Earlier this month, the Congressional Budget Office published a study entitled Using Public Private Partnerships to Carry Out Highway Projects.  http://www.cbo.gov/doc.cfm?index=12647  The study addresses two issues:  1) can design-build and PPP models provide additional funding for highway projects? and 2) does design-build provide a faster and more cost effective model for delivering highway projects?  See Preface.   

A post on the CBO Director’s blog summarizes the study’s findings:

Does private financing increase the resources available to build, operate, and maintain roads?

Private financing will increase the availability of funds for highway construction only in cases in which states or localities have chosen to restrict their spending by imposing legal constraints or budgetary limits on themselves. The sources of revenues available to pay for the cost of a highway project—whether it is financed by a government or a public-private partnership—are the same: specifically, tolls paid by users or taxes collected by either the federal government or by state and local governments. Therefore, absent restrictions on governments’ ability to borrow, there is no difference between the amount those governments could raise themselves and the sums that public-private partnerships could raise because the same resources are available to remunerate investors in either case. Private financing can provide the necessary capital, but it comes with the expectation of a future return, the ultimate source of which is either taxes or tolls.

The total cost of the capital for a highway project, whether that capital is obtained through a government or through a public-private partnership, tends to be similar once all relevant costs are taken into account—including the cost of the risk of losses associated with the project. A construction project is never without such risk, even when a government guarantees repayment of any debts incurred to finance construction. Someone always bears that risk: That is, some form of explicit or implicit equity investment is necessary to absorb potential cost overruns or revenue shortfalls. For highways that are financed by public debt, taxpayers play the role of equity investors, bearing the risk that revenues might be less than the payments that have been promised on the debt. A comprehensive measure of financing costs takes into account the cost of such equity financing, even when it is provided indirectly by taxpayers. That cost is equivalent to the return that a private investor would require to finance such a project.

Do such partnerships build roads more quickly or at a lower cost?

Evidence from a small number of studies indicates that public-private partnerships have built highways slightly less expensively and slightly more quickly, compared with the traditional public-sector approach. Those results, however, are highly uncertain.

Only a few studies have focused on the private provision of a highway project—that is, on design and construction as well as on operations and maintenance. The studies typically estimated that the cost of building roads through design-build partnerships was a few percentage points lower than it would have been for comparable roads provided in the traditional way. Moreover, private provision was relatively more effective in reducing cost and the time required to complete the road for larger projects than for smaller projects.

In some cases, the time required to design and build the road declined—in part because the public-private partnership bundled the design and construction contracts and so eliminated a second, separate bidding process for the additional tasks. Information about using public-private partnerships to operate and maintain roads is more limited; there is some evidence of reductions in operations and maintenance costs under private control.”  http://cboblog.cbo.gov/?p=3120

New York Creates First Ever $1B Infrastructure Fund Emphasizing Design-Build

Tuesday, December 20, 2011 22:49

On December 6, 2011, New York Governor Andrew Cuomo announced an agreement among state legislators to enact the New York Infrastructure Fund Act, a $1 Billion jobs program aimed in part at New York’s ailing roads and bridges.  http://www.governor.ny.gov/press/1262011GrowTheEconomy%20  DBIA’s press release notes that under the new Infrastructure Act, “the Department of Transportation, Thruway Authority, Office of Parks, Recreation and Historic Preservation, Department of Environmental Conservation, and the Bridge Authority will use design-build project delivery for the first time.”  This is major victory for public design-build project delivery, which has been historically disfavored in New York.

The Governor’s office touted the benefits of design-build, noting that “legislative leaders agreed on proposing legislation that will permit the New York Works Infrastructure Fund to bid the design and construction of infrastructure projects as a single contract, reducing costs and improving construction time. Passage of ‘Design-Build’ legislation would shave 9 – 12 months from the construction time of major infrastructure projects. The Fund would also streamline permitting and regulatory approvals for infrastructure projects and procurements and consolidate activities across agencies and authorities.”  http://www.governor.ny.gov/press/1262011GrowTheEconomy%20