1. Procurement and Construction Management and Oversight What Board Members Need to Know Jerry Smiley, AICP 24 July 2013

2. Major Capital Projects Alternative Contracting Approaches Pre-Planning and Acquisition Finance Design Construction Operations Maintenance RTD Union Station DART Orange Line

3. Major Capital ProjectsAlternative Contracting Approaches – Risk Allocation Contractor’s Risk / Contractor’sControl Owner’s Risk / Owner’s Control

4. Design-Bid-BuildProject Structure and Approach Owner General Contractor Architect/ Engineer Subcontractors and Suppliers $ $ $ $ PD&E PE Final Design Procurement Construction ESTIMATE BUDGET BUDGET BID Contractor Selected

5. Design-Bid-BuildOverview Pros • Standard contracting approach • Transparent procurement process • Public acceptance • Fairest to bidders, level playing field Cons • Slowest method • Cost not established until bids received • Design change impacts • In some cases, fosters adversarial relationships and increases probability of disputes Owner retains greatest control, but assumes greatest risk

6. Design-BuildProject Structure and Approach Owner Design-Builder Architect/Engineer Subcontractors and Suppliers $ $ $ PD&E PE Procurement Final Design BUDGET ESTIMATE BID Construction Contractor Selected

7. Design-BuildSummary Pros • Project costs are determined earlier • Constructability and value engineering benefits accrue to Owner • Single point responsibility • Reduced claims exposure • Tends to be the fastest method Cons • More complex contracting approach • Competition may be limited • Requires earlier project definition • Reduces design input by Owner • Changes are more costly Substantial risk is shifted to the contractor, contractor assumes more control

8. Construction Manager/General ContractorProject Structure and Approach Owner General Contractor Consultants Subcontractors and Suppliers $ $ $ PD&E Procurement Final Design PE BUDGET BUDGET GMP Construction Contractor Selected 8

9. CMGC Overview Pros • CMGC participates in developing design, budget and schedule • Design assistance reduces E&O • Allows for fast-track (non-linear) construction • Reduces uncertainties (change orders) • Owner knows costs upfront Cons • No significant input by Owner in design • Complex process requiring qualified staff • CMGC’s role changes from CM to GC once construction starts • Owner does not transfer E&O risk • In some areas, relatively few true construction managers Owner retains significant control, owner retains significant risk 9

10. Public Private PartnershipsProject Structure and Approach Owner Concessionaire O&M Contractors Design-Builder Architect/Engineer Subcontractors and Suppliers $ $ PD&E Procurement Design Construction and Testing Revenue Operations BUDGET BUDGET Maintenance Partner Selected 10

11. PPP Overview Pros • Advance infrastructure projects years in advance • Value for money through optimal risk transfer and risk management • Accountability through performance incentives • Operational and project execution risk is transferred to the private sector Cons • Contracts are much more complicated • Difficult to anticipate all possible contingencies that could arise in long-term contract • Re-negotiation of contracts can be high • Performance enforcement Owner only controls what is negotiated, risk depends on skill of negotiators 11

12. What Questions Should You Be Asking?

13. Risk Allocation Principles • Risks are unavoidable • Risk should be allocated to maximize probability of success • Assessing who is best able to manage risk • Optimum risk shifting should be the goal – not maximum risk shifting • Shifting unreasonable risk to the contractor • Reduces competition • Increases contingencies • Increases project disputes

14. What Questions Should You Be Asking? • Why are we choosing the selected procurement model? • Would the project be able to move forward using another model? • Is this model in the agency’s best long-term financial interest? • Do we have the staff to properly execute this model?