Memorandum

City of Lawrence

 

TO:

Tom Markus, City Manager

FROM:

Melinda Harger, Utilities Engineer

DATE:

January 8, 2018

RE:

Alternative Project Delivery

CC:

Diane Stoddard, Assistant City Manager

 

Casey Toomay, Assistant City Manager

 

Brandon McGuire, Assistant to the City Manager

 

Toni Wheeler, City Attorney

 

Bryan Kidney, Finance Director

 

Dave Wagner, Utilities Director

 

Charles Soules, Public Works Director

 

Scott McCullough, Planning and Development Director

 

Gregory C. Burns Jr., Chief of Police

 

Anthony Brixius, Police Captain

 

Recommendation

Staff recommends amending the Charter Ordinance to expressly authorize the use of alternative project delivery upon a finding by the City Commission that alternative project delivery is in the public interest for a particular project.

 

Background and Clarifications

The City of Lawrence has historically used a Design-Bid-Build (DBB) approach to construct most capital improvement projects. Since the City has completed only a few projects using non-traditional delivery methods, it is possible that public opinions have been made before having all the information on alternative delivery and the accurate facts on how past City projects have been executed.

 

One of the biggest misconceptions is that the alternative delivery process is less competitive than traditional DBB and that no bids are accepted. In truth, more rigorous competition can be seen in the selection process used for alternative delivery projects. In traditional DBB, the primary factor considered in the competition is price; whereas, the alternative delivery team can be selected based on qualifications, experience, technical approach, cost, and other factors. Rather than choosing the lowest bidder to be the general contractor on a challenging project, alternative delivery would allow the City to contract with the firm most qualified and one that offers expertise to enhance the project with innovative ideas and efficiency that would result in higher quality and value. Selecting the most qualified general contractor to be involved early in the process allows the City to benefit from constructability reviews during design and more accurate cost estimates. Also, alternative delivery projects can use an “open book” competitive bid process to gather competitive bids for subcontracted work. This would provide the transparency that protects the integrity of the process and the interests of the City and the public.

 

The City has utilized alternative delivery methods on a handful of projects. The Construction Manager at Risk (CMAR) delivery method was used on the Lawrence Library Renovation, which was completed in 2014. On this CMAR project, the City solicited bids for the subcontracted work that was separated into packages by the construction manager. Three wastewater Design-Build (DB) projects were completed in 2007: Pump Station #16 rehabilitation, Yankee Tank Creek Interceptor, and Pump Station #48 and force main with project costs of $1.86 million, $1.91 million, and $12.2 million respectively. For each of these projects, DB was selected due to the speed at which the projects could be delivered.

 

The West Baldwin Creek Interceptor project was started as a DB with a guaranteed maximum price (GMP), but when the market slowed and contractors were eager to find work to keep their crews and equipment busy, the City chose to proceed with the project as a traditional DBB in 2008. The price from the low bidder was significantly lower than the GMP; however, it is unknown what the project would have cost to build under the DB delivery process. The GMP included over $500,000 in allowances that would have been returned to the City if unused, such as the $350,000 allowance for rock removal when in fact the impact of rock on the project was minimal. For these reasons, it would be incorrect to compare the $3.6 million GMP to the $2.1 million bid construction cost; nevertheless, it appears the City benefited by choosing to bid this project in the competitive market created during the recession and staff believes it is imperative for the City to include that “off-ramp” option with any alternative delivery agreement. The City also received input from bidders that the bid documents were extremely high quality and it was apparent that early coordination efforts exceeded that of the typical project, likely a result of contractor’s input during the design phase.

 

The Sports Pavilion at Rock Chalk Park was not an alternative delivery project. The building project was competitively bid in 2013 and awarded to an eager local bidder at a price below the architects’ estimates. The infrastructure at Rock Chalk Park was built under a public-private partnership agreement that capped the City’s cost for the recreation center and infrastructure at $22.5 million plus $161,654 approved through change orders. Documented project expenditures exceeded that limit, but the City was only responsible up to the maximum cost stated in the agreement. An audit confirmed that project costs were compliant with the agreement; however, the project would have been more transparent if cost and quantities had been formally tracked throughout the project.

 

Each of these projects had its challenges. Some could have been more successful if the alternative delivery process had been more transparent, understood, and implemented appropriately. However, traditional DBB has challenges as well. One of the biggest unknowns and risks with DBB is that cost estimates are developed by the design team independent from contractor input and the construction price is not known until the bid opening. This was the case when the infrastructure at VenturePark was bid in 2013. The design engineer developed a cost estimate that was much higher than all the bids received. Yet when the cost estimate is lower than the bids, the impact to a project can be much greater and that is a higher risk for the City as the market experiences an upswing with the design engineer’s cost data trailing behind. Often redesign and rebid is required when the bids received are higher than the engineer’s estimate and the project budget, as was the case with the Wakarusa WWTP project that was bid in 2015. The fact that design consultants can sometimes struggle with developing an accurate cost estimate can be mitigated with alternative delivery, because the contractor provides valuable cost estimates during various phases of design.

 

Summary on Methods and Benefits

In conclusion, staff recommends that the City Commission consider the option of using alternative delivery methods on future projects. The December 5th memo summarized the differences between various project delivery methods and the benefits of one over another for the City. Benefits of alternative delivery include enhanced collaboration during design, increased quality with reduced rework, decreased construction cost, shortened project schedules, and less owner risk. Alternative project delivery methods can be used to evaluate critical parameters before design even commences, including regulatory demands, cost sensitivities, and specific stakeholder requirements.

 

Considering alternative delivery would allow the best method to be selected for each project based on the specific project requirements and constraints. Other public entities and professionals are finding that having the option to use alternative project delivery is a “best practice” that results in more successful projects.

 

The following cities are just a few in Kansas that have chartered out of K.S.A. 13-1017 and allow alternative delivery: Wichita, Overland Park, Topeka, Olathe, Shawnee, Manhattan, Salina, and Lenexa. Some of their alternative delivery projects include water treatment plants, road reconstruction, and municipal buildings. A detailed summary was compiled by the City Attorney’s Office.

 

Also under state law, the state and counties are already permitted to use alternative project delivery processes. The Kansas Alternative Delivery Building Construction Procurement Act authorized the use of design-build on county and state construction projects with a few exceptions, and the construction management at risk project delivery method is authorized on certain research projects under the jurisdiction of the state university board of regents.