Construction Project Delivery Systems and Procurement Practices
Assignment One: Built Environment - Describe 'design - build' system of project delivery and how it is different from 'traditional' procurement approach. Highlight the key benefits of design-build system.
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Added on 2023-06-13
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This article discusses the various project delivery systems and procurement practices in construction projects. It covers the traditional design-bid-build system and more innovative systems like Agency-CM, CM at-Risk, and the Portland Method. The advantages and disadvantages of each system are also discussed. The article is prepared by Trauner Consulting Services, Inc. and is relevant for students studying construction management or related courses.
Construction Project Delivery Systems and Procurement Practices
Assignment One: Built Environment - Describe 'design - build' system of project delivery and how it is different from 'traditional' procurement approach. Highlight the key benefits of design-build system.
Added on 2023-06-13
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CONSTRUCTION PROJECT DELIVERY SYSTEMS
AND PROCUREMENT PRACTICES:
CONSIDERATIONS
ALTERNATIVES
ADVANTAGES
DISADVANTAGES
Prepared By:
Trauner Consulting Services, Inc.
APRIL 2007
Copyright© 2007 by Trauner Consulting Services, Inc. No part of
this publication may be reproduced, stored in a retrieval system,
or transmitted in any form or by any means without the prior
written permission of Trauner Consulting Services, Inc.
AND PROCUREMENT PRACTICES:
CONSIDERATIONS
ALTERNATIVES
ADVANTAGES
DISADVANTAGES
Prepared By:
Trauner Consulting Services, Inc.
APRIL 2007
Copyright© 2007 by Trauner Consulting Services, Inc. No part of
this publication may be reproduced, stored in a retrieval system,
or transmitted in any form or by any means without the prior
written permission of Trauner Consulting Services, Inc.
PROJECT DELIVERY SYSTEMS
Project delivery systems refer to the overall processes by which a project is designed, constructed, and/or
maintained. In the public sector, this has traditionally entailed the almost exclusive use of the design-bid-
build system, involving the separation of design and construction services and sequential performance of
design and construction. In recent years, however, the public sector has begun experimenting with
alternative methods to improve the speed and efficiency of the project delivery process.
These alternative systems move closer to the integrated services approach to project delivery favored in
the private sector. To illustrate this concept, the innovative delivery systems have been arranged below
on a continuum, with the traditional design-bid-build approach appearing on the left and the more
innovative systems arranged from left to right according to increasing similarity to the private sector
model in terms of greater responsibility and risk shifted to the constructor, and less separation between
design and construction services.
Design-
Bid-Build
Public-Private
Partnership
CM at-Risk
ID/IQ
Design-
Build
Public Sector Model: Private Sector Model:
• Separation of services for
design and construction
• Fixed-price, low bid (for
construction)
• Owner retains majority of risk for
performance
• Single entity provides integrated
services
• Design
• Construct
• Operate
• Maintain
• Finance
• Negotiated or target pricing
• Long-term partnerships
• Contractor assumes greater
performance risk
Delivery Systems
AlliancingDesign-
Sequencing
Agency-CM
Portland Method ECI
1
Project delivery systems refer to the overall processes by which a project is designed, constructed, and/or
maintained. In the public sector, this has traditionally entailed the almost exclusive use of the design-bid-
build system, involving the separation of design and construction services and sequential performance of
design and construction. In recent years, however, the public sector has begun experimenting with
alternative methods to improve the speed and efficiency of the project delivery process.
These alternative systems move closer to the integrated services approach to project delivery favored in
the private sector. To illustrate this concept, the innovative delivery systems have been arranged below
on a continuum, with the traditional design-bid-build approach appearing on the left and the more
innovative systems arranged from left to right according to increasing similarity to the private sector
model in terms of greater responsibility and risk shifted to the constructor, and less separation between
design and construction services.
Design-
Bid-Build
Public-Private
Partnership
CM at-Risk
ID/IQ
Design-
Build
Public Sector Model: Private Sector Model:
• Separation of services for
design and construction
• Fixed-price, low bid (for
construction)
• Owner retains majority of risk for
performance
• Single entity provides integrated
services
• Design
• Construct
• Operate
• Maintain
• Finance
• Negotiated or target pricing
• Long-term partnerships
• Contractor assumes greater
performance risk
Delivery Systems
AlliancingDesign-
Sequencing
Agency-CM
Portland Method ECI
1
Project Delivery Systems
Design-Bid-Build
Description
Design-Bid-Build (DBB), or design then bid then build, is the traditional delivery system for the public
sector, in which an agency will use in-house staff (or, alternatively, use consultants) to prepare fully
completed plans and specifications that are then incorporated into a bid package. Contractors
competitively bid the project based on these completed plans and specifications. The agency evaluates
the bids received, awards the contract to the lowest responsible and responsive bidder, uses prescriptive or
method specifications for construction, and retains significant responsibility for quality, cost, and time
performance.
Advantages Disadvantages
• Applicable to a wide range of projects
• Well established and easily understood
• Clearly defined roles for all parties
• Provides the lowest initial price that
responsible, competitive bidders can
offer
• Extensive litigation has resulted in
well established legal precedents
• No legal barriers in procurement and
licensing
• Insurance and bonding are well
defined
• Discourages favoritism in spending
public funds while stimulating
competition in the private sector
• As construction features are typically
fully specified, DBB provides agencies
with significant control over the end
product (however, this may come at
the expense of increased agency-
inspection efforts)
• Tends to yield base level quality
• Least-cost approach requires higher
level of inspection by the agency
• Initial low bid might not result in
ultimate lowest cost or final best value
• Designers may have limited
knowledge of the true cost and
scheduling ramifications of design
decisions
• Lack of input from the construction
industry during the design stage
exposes the agency to claims related to
design and constructability issues
• Tends to create an adversarial
relationship among the contracting
parties, rather than foster a cooperative
atmosphere in which issues can be
resolved efficiently and effectively
• Agency bears design adequacy risk
• No built-in incentives for contractors
to provide enhanced performance
(cost, time, quality, or combination
thereof)
• Greatest potential for cost/time growth
(in comparison to other delivery
methods)
• Often prone to adversarial positions
that lead to disputes and claims
2 Design-Bid-Build
Design-Bid-Build
Description
Design-Bid-Build (DBB), or design then bid then build, is the traditional delivery system for the public
sector, in which an agency will use in-house staff (or, alternatively, use consultants) to prepare fully
completed plans and specifications that are then incorporated into a bid package. Contractors
competitively bid the project based on these completed plans and specifications. The agency evaluates
the bids received, awards the contract to the lowest responsible and responsive bidder, uses prescriptive or
method specifications for construction, and retains significant responsibility for quality, cost, and time
performance.
Advantages Disadvantages
• Applicable to a wide range of projects
• Well established and easily understood
• Clearly defined roles for all parties
• Provides the lowest initial price that
responsible, competitive bidders can
offer
• Extensive litigation has resulted in
well established legal precedents
• No legal barriers in procurement and
licensing
• Insurance and bonding are well
defined
• Discourages favoritism in spending
public funds while stimulating
competition in the private sector
• As construction features are typically
fully specified, DBB provides agencies
with significant control over the end
product (however, this may come at
the expense of increased agency-
inspection efforts)
• Tends to yield base level quality
• Least-cost approach requires higher
level of inspection by the agency
• Initial low bid might not result in
ultimate lowest cost or final best value
• Designers may have limited
knowledge of the true cost and
scheduling ramifications of design
decisions
• Lack of input from the construction
industry during the design stage
exposes the agency to claims related to
design and constructability issues
• Tends to create an adversarial
relationship among the contracting
parties, rather than foster a cooperative
atmosphere in which issues can be
resolved efficiently and effectively
• Agency bears design adequacy risk
• No built-in incentives for contractors
to provide enhanced performance
(cost, time, quality, or combination
thereof)
• Greatest potential for cost/time growth
(in comparison to other delivery
methods)
• Often prone to adversarial positions
that lead to disputes and claims
2 Design-Bid-Build
Project Delivery Systems
Indefinite Delivery/Indefinite Quantity (ID/IQ)
Description
With ID/IQ contracting (also referred to as job order, task order, area-wide, county-wide, city-wide, and
open-ended contracting), the agency will identify and develop specifications for task items. Contractors
then competitively bid these task items based on unit prices for task items for a specific contract term.
The total quantity and exact location of the work are not provided at the time of bid. After awarding the
contract, the agency will issue individual work orders as services are needed at specific locations.
The uncertainty associated with the scheduling of the work and the quantity of work that will ultimately
be let has led some agencies to guarantee a minimum value of work to ID/IQ contractors.
Objective
• Time savings in engineering and procurement
Project Types/Selection Criteria
• Clearly defined, standardized, or repetitive work items
• Minor construction, maintenance, pavement marking, signing, and repair contracts that can be
classified into small task orders
Advantages Disadvantages
• Reduces overall procurement time by
allowing agencies to eliminate
separate bid processes for repetitive
work items
• Structuring work in small tasks may
offer increased opportunities for
smaller or disadvantaged businesses
• Provides flexibility in when to let
portions of an overall construction
program
• Awarding multiple ID/IQ contracts
will ensure competitive pricing of
work orders
• Long-term contracts can foster a spirit
of cooperation/partnership between
contractors and the agency
• Large packages could exclude smaller
contractors from bidding
• Without minimum work guarantees,
the possibility that selection for award
may not necessarily lead to work
orders may discourage potential
bidders
• Without advance knowledge of the
timing and duration of task orders, it is
more difficult for ID/IQ contractors to
manage resources
3 ID/IQ
Indefinite Delivery/Indefinite Quantity (ID/IQ)
Description
With ID/IQ contracting (also referred to as job order, task order, area-wide, county-wide, city-wide, and
open-ended contracting), the agency will identify and develop specifications for task items. Contractors
then competitively bid these task items based on unit prices for task items for a specific contract term.
The total quantity and exact location of the work are not provided at the time of bid. After awarding the
contract, the agency will issue individual work orders as services are needed at specific locations.
The uncertainty associated with the scheduling of the work and the quantity of work that will ultimately
be let has led some agencies to guarantee a minimum value of work to ID/IQ contractors.
Objective
• Time savings in engineering and procurement
Project Types/Selection Criteria
• Clearly defined, standardized, or repetitive work items
• Minor construction, maintenance, pavement marking, signing, and repair contracts that can be
classified into small task orders
Advantages Disadvantages
• Reduces overall procurement time by
allowing agencies to eliminate
separate bid processes for repetitive
work items
• Structuring work in small tasks may
offer increased opportunities for
smaller or disadvantaged businesses
• Provides flexibility in when to let
portions of an overall construction
program
• Awarding multiple ID/IQ contracts
will ensure competitive pricing of
work orders
• Long-term contracts can foster a spirit
of cooperation/partnership between
contractors and the agency
• Large packages could exclude smaller
contractors from bidding
• Without minimum work guarantees,
the possibility that selection for award
may not necessarily lead to work
orders may discourage potential
bidders
• Without advance knowledge of the
timing and duration of task orders, it is
more difficult for ID/IQ contractors to
manage resources
3 ID/IQ
Project Delivery Systems
Agency-Construction Manager (Agency-CM)
Description
Agency-CM (also known as Program Management for multiple contracts or programs) is a fee-based
service in which the construction manager (CM) is exclusively responsible to the agency and acts as the
agency’s representative at every stage of the project. The CM is selected based on qualifications and
experience, similar to the selection process for design services. CM responsibilities may include
providing advice during the design phase, evaluating bids from prime contractors, overseeing
construction, and managing project cost, schedule, and quality. The CM may work with the designer or
contractor to reduce the cost, but does not guarantee price or take on the contractual responsibility for
design and construction.
Objective
• Supplement in-house staff with independent professionals having expertise in project
management, scheduling, and cost control
• Time savings by fast-tracking construction
Project Types/Selection Criteria
• Agency must supplement its internal resources and management expertise given the project’s size
or complexity
• Large, complex (multi-season) projects with multiple phases or contracts
• Fast-tracked construction (using phased packages) is possible
4 Agency-CM
Agency-Construction Manager (Agency-CM)
Description
Agency-CM (also known as Program Management for multiple contracts or programs) is a fee-based
service in which the construction manager (CM) is exclusively responsible to the agency and acts as the
agency’s representative at every stage of the project. The CM is selected based on qualifications and
experience, similar to the selection process for design services. CM responsibilities may include
providing advice during the design phase, evaluating bids from prime contractors, overseeing
construction, and managing project cost, schedule, and quality. The CM may work with the designer or
contractor to reduce the cost, but does not guarantee price or take on the contractual responsibility for
design and construction.
Objective
• Supplement in-house staff with independent professionals having expertise in project
management, scheduling, and cost control
• Time savings by fast-tracking construction
Project Types/Selection Criteria
• Agency must supplement its internal resources and management expertise given the project’s size
or complexity
• Large, complex (multi-season) projects with multiple phases or contracts
• Fast-tracked construction (using phased packages) is possible
4 Agency-CM
Project Delivery Systems
Advantages Disadvantages
• Earlier involvement of CM
(constructor) bridges design and
construction phases
• Furnishes construction expertise to
designer
• Provides the opportunity for “fast-
tracking” or overlapping design and
construction phases – faster than
traditional design-bid-build system
• Augments the agency’s own resources
to help manage cost, time, and quality
• Procuring separate design and
construction contracts is less change
for agency
• Provides an independent point of view
regarding constructability, budget,
value engineering, and contractor
selection (No inherent bias towards
design or construction)
• Potential to fast-track early
components of construction prior to
completion of design
• Reduces the agency’s general
management and oversight
responsibilities
• Added project management cost for
CM services
• Agency cedes much of the day-to-day
control over the project to the CM,
adding a level of bureaucracy in the
field
• CM not at risk for construction cost
• Agency continues to hold construction
contracts and retains contractual
liability
• Unlike CM at-Risk, Agency-CM
services are not regulated by state
licensing laws for contractors or A/E
firms
• High agency involvement (in
comparison to other innovative
delivery systems)
5 Agency-CM
Advantages Disadvantages
• Earlier involvement of CM
(constructor) bridges design and
construction phases
• Furnishes construction expertise to
designer
• Provides the opportunity for “fast-
tracking” or overlapping design and
construction phases – faster than
traditional design-bid-build system
• Augments the agency’s own resources
to help manage cost, time, and quality
• Procuring separate design and
construction contracts is less change
for agency
• Provides an independent point of view
regarding constructability, budget,
value engineering, and contractor
selection (No inherent bias towards
design or construction)
• Potential to fast-track early
components of construction prior to
completion of design
• Reduces the agency’s general
management and oversight
responsibilities
• Added project management cost for
CM services
• Agency cedes much of the day-to-day
control over the project to the CM,
adding a level of bureaucracy in the
field
• CM not at risk for construction cost
• Agency continues to hold construction
contracts and retains contractual
liability
• Unlike CM at-Risk, Agency-CM
services are not regulated by state
licensing laws for contractors or A/E
firms
• High agency involvement (in
comparison to other innovative
delivery systems)
5 Agency-CM
Project Delivery Systems
Construction Manager at Risk (CM at-Risk)
Description
With CM at Risk, the agency engages a construction manager (CM) to act as the agency’s consultant
during the pre-construction phase and as the general contractor (GC) during construction.
During the design phase, the CM acts in an advisory role, providing constructability reviews, value
engineering suggestions, construction estimates, and other construction-related recommendations. At a
mutually agreed upon point during the design process, the CM and the agency will negotiate a Guaranteed
Maximum Price (GMP). The GMP is typically based on a partially completed design and includes the
CM’s estimated cost for the remaining design features, general conditions, a CM fee, and construction
contingency.
The construction contingency can be split into CM and agency components. The CM contingency will
cover increased costs due to unavoidable circumstances, for example material escalation. The agency
contingency would cover cost increases from agency-directed or agency-caused changes. The
construction contingency can be handled in different ways under the contract. Unused CM contingency
can be returned to the agency, shared by the agency and CM, or given to the CM.
Agencies are increasingly experimenting with sharing the contingency pool with the CM to provide the
CM with an incentive to control cost growth associated with change orders to meet the GMP. The agency
may elect to remove pricing of some material or work items as part of the GMP if pricing of these items
results in an excessively high CM contingency or GMP. For example, if the price of steel were too
volatile to achieve an acceptable GMP, the agency could establish a separate bid item and pre-pay or pay
for the steel directly under this item at actual cost.
After the GMP is established, the CM can begin construction, allowing for the overlap of the design and
construction phases to accelerate the schedule. Once construction starts, the CM assumes the role of a
GC for the duration of the construction phase. The CM holds the construction contracts and the risk for
construction costs exceeding the GMP.
Objective
• Time savings by fast-tracking design and construction in phased packages
• Transfer performance risk to CM
Performance Outcomes
According to a CII/Penn State University comparison of delivery systems for buildings used in the U.S.,
CM at-Risk costs 1.5% less than DBB, completes 5% faster than DBB, and performs equal to or better
than DBB in most quality measures. (Sanvido and Konchar 1999)
6 CM at-Risk
Construction Manager at Risk (CM at-Risk)
Description
With CM at Risk, the agency engages a construction manager (CM) to act as the agency’s consultant
during the pre-construction phase and as the general contractor (GC) during construction.
During the design phase, the CM acts in an advisory role, providing constructability reviews, value
engineering suggestions, construction estimates, and other construction-related recommendations. At a
mutually agreed upon point during the design process, the CM and the agency will negotiate a Guaranteed
Maximum Price (GMP). The GMP is typically based on a partially completed design and includes the
CM’s estimated cost for the remaining design features, general conditions, a CM fee, and construction
contingency.
The construction contingency can be split into CM and agency components. The CM contingency will
cover increased costs due to unavoidable circumstances, for example material escalation. The agency
contingency would cover cost increases from agency-directed or agency-caused changes. The
construction contingency can be handled in different ways under the contract. Unused CM contingency
can be returned to the agency, shared by the agency and CM, or given to the CM.
Agencies are increasingly experimenting with sharing the contingency pool with the CM to provide the
CM with an incentive to control cost growth associated with change orders to meet the GMP. The agency
may elect to remove pricing of some material or work items as part of the GMP if pricing of these items
results in an excessively high CM contingency or GMP. For example, if the price of steel were too
volatile to achieve an acceptable GMP, the agency could establish a separate bid item and pre-pay or pay
for the steel directly under this item at actual cost.
After the GMP is established, the CM can begin construction, allowing for the overlap of the design and
construction phases to accelerate the schedule. Once construction starts, the CM assumes the role of a
GC for the duration of the construction phase. The CM holds the construction contracts and the risk for
construction costs exceeding the GMP.
Objective
• Time savings by fast-tracking design and construction in phased packages
• Transfer performance risk to CM
Performance Outcomes
According to a CII/Penn State University comparison of delivery systems for buildings used in the U.S.,
CM at-Risk costs 1.5% less than DBB, completes 5% faster than DBB, and performs equal to or better
than DBB in most quality measures. (Sanvido and Konchar 1999)
6 CM at-Risk
Project Delivery Systems
Project Types/Selection Criteria
• Large projects with multiple phases and contracts
• Fast-tracking – Staged construction
• Limited internal agency management resources and expertise
• Limited time or funding constraints
Advantages Disadvantages
• Allows for innovation and
constructability recommendations in
the design phase, yet the agency still
retains significant control over the
design
• CM holds construction contracts,
transferring performance risk to GC
• GC puts more investment in cost
engineering and constructability
review than with CM-Agency
• Fixes project cost and completion
responsibility earlier than Design-Bid-
Build
• Potential to fast-track early
components of construction prior to
complete design
• Reduces agency’s general
management and oversight
responsibilities
• Use of a GMP with a fixed-fee and
opportunity for shared savings
provides an incentive for CM to
control costs and work within funding
limits
• Once construction begins, the CM
assumes the role of a general
contractor, leading to possible tensions
with the agency over project quality,
budget, and schedule
• Use of a GMP may lead to disputes
over the completeness of the design
and what constitutes a change to the
contract
• Agency retains design liability
• CM input may not be included by
designer
• Incentive split of savings scheme may
create perception of inflated GMP
• GMP approach may lead to a large
contingency to cover uncertainties and
incomplete design elements
7 CM at-Risk
Project Types/Selection Criteria
• Large projects with multiple phases and contracts
• Fast-tracking – Staged construction
• Limited internal agency management resources and expertise
• Limited time or funding constraints
Advantages Disadvantages
• Allows for innovation and
constructability recommendations in
the design phase, yet the agency still
retains significant control over the
design
• CM holds construction contracts,
transferring performance risk to GC
• GC puts more investment in cost
engineering and constructability
review than with CM-Agency
• Fixes project cost and completion
responsibility earlier than Design-Bid-
Build
• Potential to fast-track early
components of construction prior to
complete design
• Reduces agency’s general
management and oversight
responsibilities
• Use of a GMP with a fixed-fee and
opportunity for shared savings
provides an incentive for CM to
control costs and work within funding
limits
• Once construction begins, the CM
assumes the role of a general
contractor, leading to possible tensions
with the agency over project quality,
budget, and schedule
• Use of a GMP may lead to disputes
over the completeness of the design
and what constitutes a change to the
contract
• Agency retains design liability
• CM input may not be included by
designer
• Incentive split of savings scheme may
create perception of inflated GMP
• GMP approach may lead to a large
contingency to cover uncertainties and
incomplete design elements
7 CM at-Risk
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