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FHWA > Programs > Office of Policy > Office of International Programs  > Construction Management Practices In Canada and Europe > Chapter Two

Chapter Two

Project Delivery

All of the international agencies involved in this scan strive to use a balanced approach to project delivery. The scan team witnessed the entire spectrum of traditional and alternative methods, including design-bid-build, design-build, design-build-operate, and a variety of public-private partnerships. The team also observed a number of new methods that allocate more risk to the private sector and/or create more motivation for total life cycle maintenance and operation solutions from the private sector.

The purpose of this section is to describe the international project delivery methods found on this scan, specifically as they impact construction management methods. A brief discussion of delivery methods for each country is provided. One particularly interesting delivery method, the Highways Agency's Early Contractor Involvement method, is described in more detail because the scan team believes it is an innovation in project delivery that could promote better construction management practices. The project delivery methods are discussed in order, beginning with those that most resemble the traditional U.S. delivery method, including design-bid-build delivery with agency design and inspection, low-bid procurement, and unit-price contracts, as depicted in figure 4. For a more detailed description of project delivery methods in Europe, see Contract Administration: Technology and Practice in Europe (FHWA-PL-02-016).

Figure 4. Continuum of project delivery methods from traditional to alternative.
Germany Canada The Netherlands Finland Scotland England
Design Bid Build DeliveryDesign Bid and PPP Delivery
Agency Design & InspectionConsultant Design & Inspection
Low-Bid ProcurementBest-Value & Quality-Based Procurement
Unit-Price ContractsLump-Sum & Incentive Contracts

Germany

German project delivery methods are the most similar to those found in the United States. Germany primarily uses a traditional design-bid-build system with a low-bid procurement, but it has a system to allow for alternate designs/proposals to be submitted at the same time as contract bid submissions (discussed later in this chapter). Design-build using source selection is used on a very limited basis for unique and special circumstances or in emergency situations. Germany generally maintains its facilities with public sector employees.

Germany plans to use two PPP systems-termed "Model A" and "Model F" on federal roads within the next few years. Model A, expected to be implemented by 2006, will be used for improving existing facilities. Under this scenario, the contractor/grantee will be selected on a price, quality, and time basis, and will be responsible for design/detail, construction, financing, maintenance, and warranty. The owner/grantor will collect tolls and establish toll rates for heavy goods vehicles. The toll actually paid in the section the contractor is responsible for will be transferred to the contractor. However, the owner will not guarantee a specific traffic volume, so the contractor will carry the toll risk. In addition and in compensation for the missing car toll, the owner will provide a start-up fee. The contractor in Bavaria has an option to get maintenance work done by the owner (via the existing motorway (interstate) maintenance depots) on a time- and materials-calculated basis.

The first projects of Model F have been implemented. This method will be used for new routes in charging all kinds of vehicles. Model F is essentially the same as Model A, but the contractor will have more risk by being fully responsible for facility operation, maintenance, and toll collection for about 30 years. The PPP models will be used as pilot projects to fill in gaps in transportation networks and financing. The contractor will design, build, finance, and operate the project, and the owner will “pay” for the work by granting a concession.

For state roads in Bavaria, another PPP system will be implemented within the next few years. This model will be used on smaller but extensive projects to fill in gaps in the state road network more quickly than could be done by funding with regular budgetary means. The contractor will build and finance the project, but the owner will pay for the work over a 20-to-25-year term out of regular transportation funds because tolls or similar fees would not be practical. In this model, the owner will maintain the facility after completion, but the contractor will be responsible for repairs for 20 to 25 years. The idea is to minimize costs of construction and repair by joint responsibility.

Canada

The Ontario Ministry of Transportation project delivery methods closely resemble those used in the United States, except that much more of the design and management is outsourced, as described in the previous section. The primary delivery method is design-bid-build. The Ministry of Transportation has experimented with design-build delivery, but it found that design-build contracts for projects under $20 million are too labor intensive for the owner at the request-for-proposal (RFP) stage, given its lean staffing. Although the development of complete construction documents before procurement is a longer process, the agency believes it better fits its organizational structure. It recently completed outsourcing 100 percent of its maintenance functions. Also, Ontario has entered the embarked-upon project delivery through public-private partnerships (PPP), most notably on the $1 billion, 69-kilometer 407 ETR Highway. This has many unique features unlike any other PPP highway project in the world, and the PPP formed for this project set a new precedent in risk sharing in the building and operation of highway infrastructure in Ontario. The agency did not discuss the project with the scan team because it is not considered a significant delivery method for future projects.

An outlook for the Bavarian distribution of project delivery methods is provided in table 4. The design-bid-build method will continue to predominate for the next few years, with a slight increase in the use of concessions. The use of design-build and performance-based maintenance project delivery is not anticipated.

Table 4. Distribution of Bavarian project delivery methods.
Delivery Type Bavaria 2004 Bavaria 2007
Design-bid-build 95-98% 92-95%
Design-build 0% 0%
Performance-based maintenance contracts 0% 0%
Concessions 0% 3%
PPP/DBFM 2-5% 2-5%

The Netherlands

The traditional project delivery method in the Netherlands is a design-bid-build system. Design is developed by a governmental engineering department, and construction is completed by contractors under the supervision of an engineering department. This system was standardized and functioned for about 25 years. The Netherlands, however, is making a major shift toward design-build in the next 4 years, as shown in table 5. The primary reason for this shift is a philosophy of risk shifting to the private sector. The government is also downsizing Dutch public sector engineering staff in an effort to be more efficient. The Dutch have used design-build-finance-maintain and other forms of PPPs for two completed projects, but they have experienced high costs in construction, while maintenance and management of maintenance with traffic management may have become too fragmented. They plan to outsource their maintenance functions completely through performance contracts, as table 5 shows.

Table 5. Distribution of Dutch project delivery methods.
Delivery Type 2004 2007
Design-bid-build 67% 2%
Design-build 5% 90%
Performance-based maintenance contracts 25% 100%
Concessions 0% 0%
PPP/DBFM 3% >3%

Finland

The Finnish Road Administration uses various forms of project delivery in the procurement of capital investments. The most common form of project delivery has been the traditional design-bid-build method, which accounted for about 75 percent of all projects by quantity and about 35 percent based on the total expenditure in 2002. Contract development has advanced toward more integrated methods, such as use of the design-build project delivery method, which accounted for about 25 percent of all projects by quantity and about 65 percent of the total expenditure in 2002. Similar to the United States, construction management at-fee and at-risk project delivery methods are seldom used.

In the future, new Finnish procurement methods will include more inclusive agreements with longer service periods and broader and more inclusive content, as shown in figure 5. Quality standards will be subjected to end product specifications (functional or performance requirements), and will also include more outcome-based criteria. The agreements will make contractors or service providers responsible for quality control. This, in effect, will compel service providers to be responsible for production, monitoring, reporting, and overall quality requirements.

Figure 5. Illustration showing capital investment procurement development phases. They include improvements to procurement models (DBB, DB, and CM) and design/engineering consultant agreements in 2002; development, testing, and implementation of new overall inclusive procurement models in 2005; and diverse portfolio of capital procurement methods (design/engineering consultants for all phases, DBB, DB, CM at risk, DBFO, and DBOM) in operation in 2007.

Figure 5. Future Finnish project delivery methods.

Scotland

All Scottish transportation projects are delivered with lump-sum contracts using design-bid-build, design-build, design-build-finance-operate, and public-private partnerships (e.g., toll road companies). About 70 percent of the program is delivered using the design-build method, which began in 1990. In some cases, the local authorities perform design and procurement functions for coordination purposes if competent staff is available. For projects under €5 million, Scotland primarily uses the design-bid-build process, with a lump-sum bid, and provides 100 percent plans to the prospective bidders for lump-sum project delivery. For projects over €5 million, Scotland uses several design-build processes and provides specimen/conceptual plans supported by statutory consents to prospective bidders developed by private consultants working for the Scottish Executive.

Since 1990, Scotland has shifted from traditional unit price design-bid-build to design-build. The owner’s primary objective for changing project delivery methods was to transfer risk and responsibility to the contractor because of poor results of past contracts resulting in 30 percent price creep, compared with 9.5 percent for lump-sum bid contracts and 4 percent for design-build projects. Scotland is very satisfied with this shift to lump-sum and design-build delivery.

England

The Highways Agency’s (HA) project delivery philosophy is the most different from the U.S. philosophy. It has made drastic changes from the traditional design-bid-build method of project delivery, which was its primary delivery mechanism until the early 1990s. The agency delivers the overwhelming majority of its services through third parties, in particular through contractors, maintaining agents, and consultants. It now uses longer-term agreements in project delivery that create partnership and life cycle-based solutions for its customers.

The Highways Agency strategically applies a variety of project delivery methods that create partnership and life cycle-based solutions for its customers. Each of the basic delivery methods can vary because of funding sources, time of contract award, and other procurement or contract issues. The following are the five basic project delivery methods in use:

  • Design-build (DB) contracts on current major improvement projects
  • Early design-build and Early Contractor Involvement (ECI) as extensions of design-build on the most recent major improvement projects
  • Design-build-finance-operate (DBFO) projects with payment mechanisms linked to the level of service to road users for selected contracts
  • Framework contracts introduced for regional works projects and design services
  • Managing agent contractor (MAC) contracts for maintenance contracts implemented, including the first single point supply

The Highways Agency explains the impetus for this change in its publication Delivering Best Value Solutions and Services—Highways Agency Procurement Strategy (Highways Agency, 2001a):

A succession of major studies during the 1990s highlighted the inefficiencies of traditional methods of procuring and managing major projects, in particular the problems created by awarding contracts solely on the basis of lowest price. Experience has shown that this does not provide value for money in either the final cost of construction or the through life and operational costs. Relations over this period between the construction industry and government departments were also often typically characterized by conflict and distrust, which contributed to poor performance particularly in the control of costs.

It is clear that change needs to be led by owners and they must demand better value and improved performance from suppliers. In return, owners must demonstrate that they will act as good employers and will procure work in a way that allows best value to be delivered and provides fair rewards for good performance. The Clients' (or owners') Charter plan operated by the Confederation of Construction Clients will be an important tool for owners to demonstrate their commitment to best practice.

A discussion of the implications for each of the Highways Agency’s project delivery methods is not practical in this report, but many of the details are covered in Contract Administration: Technology and Practice in Europe (FHWA-PL-02-016), a report on the 2001 contract administration scan. However, the scan team found the Highways Agency's Early Contractor Involvement (ECI) project delivery method of particular interest. The details of this method are not covered in the contract administration scan report because ECI was not yet developed in 2001.

The premise of the ECI delivery method is that traditional methods create the team much too late in the project development. Even in design-build delivery, the Highways Agency estimates that the design is at least 80 percent constrained and there is little scope for innovation and consideration of constructibility, including health and safety planning. In the ECI delivery system, design and construction professionals are selected early in the project development process through a qualifications-based selection process. They then develop an open book target pricing system in conjunction with the Highways Agency. A graphical depiction of the traditional versus the ECI delivery process is provided in figures 6 and 7.

Figure 6. Illustration showing the Highways Agency's traditional project delivery approach. Phase 0 is identification of the problem, phase 1 is preliminary study and recommendation, phase 2 is feasibility and public involvement, phase 3 is planning or statutory orders or Transport Act application, and phase 4 is outline design and contract preparation, all done by the client. Phase 5 is tender and phase 6 is construction, done by the contractor. Phase 7 is operation and maintenance by the client or contractor.

Figure 6. The Highways Agency’s traditional project delivery approach.

Figure 7. Illustration showing the Highways Agency's ECI project delivery approach as applied to the A500 Stoke Pathfinder project. Phase 0 is identification of the problem, phase 1 is preliminary study and recommendation, and phase 2 is feasibility, public involvement and public announcement, contract preparation and tender, done by the client. Phase 3 is planning or statutory orders or Transport Act application, phase 4 is outline design, and phase 6 is construction, involving the contractor. Phase 7 is operation and maintenance by the client or contractor.

Figure 7. The Highways Agency's ECI project delivery approach as applied to the A500 Stoke Pathfinder project.

The scan team visited the pilot for the ECI contract, the A500 Stoke Pathfinder project. It was named the Pathfinder project because it was a pilot project to test the early design-build process. A description of the ECI delivery, which has evolved from the early design-build process, is provided in the Highways Agency Procurement Strategy (Highways Agency, 2001a) and reprinted below:

Design and Build—Early D&B

The HA has delivered most major projects since the mid-1990s using design and build (D&B) contracts with most risks transferred to achieve greater cost certainty. The scope for contractor innovation has been limited because they have not been appointed until after the statutory planning stages that establish many constraints. In addition, improved price certainty has been sought by transferring risks, without giving full recognition to a contractor's ability to assess and manage the risks. This approach does not always support partnership working if commercial pressures come to the fore. Improved value for money can be achieved by allocating risks appropriately, and price certainty delivered by managing the risks in partnership, supported by incentives.

The earlier selection of a contractor offers considerable scope for better value, but it is important to get the right timing. The earlier it is, the more scope there is for the contractor to contribute expertise and innovation, but the time period to construction should not be too long. There would be a risk that if a contractor were appointed too early they would not be motivated to contribute their best staff. The long period before construction could also make it difficult to maintain enthusiasm and to retain key staff.

The use of project partnering arrangements on the HA's major projects in recent years has been beneficial in achieving mutual objectives for the particular projects. However, the procurement of major projects on an individual project basis means that the partnerships and the invested knowledge and experience of team members, can be lost to the client if there is no continuity of work. The lack of continuity also makes it difficult for suppliers to plan their resources and does not encourage the training and development of the workforce. This could be resolved by applying long-term relationships to the delivery of major projects.

Actions on Design and Build:

  • For publicly funded major projects, the HA will normally use a new form of D&B contract, known as "early D&B," where the contractor is involved much earlier in the planning process. The contractor will be appointed as soon as possible after identification of the preferred route and well before the statutory stages which normally involve a public inquiry.
  • The contractor selection process will be based largely on quality, with the HA seeking to identify a supplier that has all of the right skills and who is considered most capable of working in partnership, to identify the optimal solution and to deliver it as efficiently and safely as possible.
  • Suppliers will need to demonstrate good supply chain management practices as set out in this document. In particular, the relationship between the contractor and their designer will be very important and the HA will require designers to be adequately incentivized to deliver optimal solutions.
  • The burden of tendering will be kept to a minimum by avoiding the need, as far as possible, for detailed design work during the tender stage.
  • Pricing will be based on key cost components and a process to establish a target cost when the design is finalized. Target costs will be incentivized in a way that encourages continual improvement throughout the development of the project.
  • Risk schedules will be developed with offerors as part of the quality assessment process and also to identify a fair allocation of risks to the parties best able to manage them.
  • The HA will develop ways of entering into longer-term relationships with contractors on the delivery of major projects to achieve the benefits which are being achieved on new maintenance contracts and framework arrangements. Options that will be examined will include frameworks and the packaging of projects into long-term programs.

The scan team found that the early design-build delivery method used in the Pathfinder project and the ECI process described above have substantially evolved from 2001 when the Pathfinder project started and the procurement strategy was published. The primary evolutions stem from a new procurement method called the Capability Assessment Toolkit (CAT), which is described in the next section, and the application of target pricing instead of lump-sum pricing.

  • Early Contractor Involvement (ECI) project delivery involves choosing a design-builder by best-value selection at the earliest stages of the project and pricing of the project through a target pricing mechanism rather than a lump sum.

In the new ECI target pricing contract, HA tenders the project with only feasibility plans and selects a contractor/consultant though a purely qualifications-based procurement process to complete the delivery team. When the contractor/consultant is hired, the project has an approved budget price. Through additional planning and design, the delivery team establishes a work estimate that becomes the contract target price. The target price is then fixed as the baseline price for the project from that point forward. Various mechanisms throughout the design and construction project allow the contractor/consultant to share in savings from this target price and participate in losses if an overrun is realized, thereby creating a pain/gain relationship. This policy is designed to motivate the contractor to assist with the most economical delivery option for the advance works not included in the contract target price.

U.S. Parallel - Strategic Use of Alternative Delivery Methods

The Federal Highway Administration's National Highway Institute is developing a course on Alternative Contracting (Course No. 134058). Below is a short description of the course. More information is available at FHWA.

Course Objective

The estimated 2-day training course will teach participants how to select the appropriate projects for alternative project delivery strategies, choose the correct alternative contract provisions, and recognize the legal and programmatic implications associated with these techniques. The course design will be flexible, allowing the requesting agency to customize the presentation for increased emphasis on topics of interest to the agency.

The target audience will include FHWA, State, and local highway agency employees, consulting engineers, and design and construction engineers who work in project development, contract administration, and the management of highway construction.

The course is expected to cover some or all of the following topics:

Module I - Introduction

  • Traditional contracting concepts
  • Drivers for use of alternative methods
  • Risk allocation, legal, and administrative issues
  • Implementation

Module II - Project Delivery Systems

  • Construction management (CM) at risk and agency-CM
  • Design-build (and variations—operate-maintain, -warranty)
  • Indefinite quantity/indefinite delivery
  • Design sequencing
  • Public-private partnerships (PPP)

Module III - Procurement Systems

  • Cost+time bidding (A+B)
  • Multiparameter bidding (A+B+C)
  • One-/two-step best value (BV)
  • Alternate designs
  • Alternate bids
  • Additive alternates
  • Lump-sum bidding
  • Negotiated or qualifications-based selection (for construction)
  • Bid averaging
  • Reverse auction bidding

The framework contract is an arrangement that allows a purchaser to package its procurement requirements and select one or several suppliers to meet specific task(s) or order(s) over a period of time.

In a managing agent contract, the managing agent is responsible for carrying out all design work, asset inspections, network maintenance management, and supervision of the term maintenance contractors. The term maintenance contractors are responsible for all routine, cyclical, and winter maintenance, and small capital maintenance and improvement works.

The report can be viewed at International FHWA.

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