Is It Time To Move Your Projects to Design-Build or Lease-Leaseback?
The best project delivery results in the construction industry are realized when design professionals, contractors, and owners work together from inception of a project to completion. In a public works environment, school districts have two additional project delivery options: design-build and lease-leaseback. These methods not only afford contractors and designers the opportunity to commit to a guaranteed maximum price (GMP) by the time a project is submitted to DSA, they also promote team collaboration from the start.
With California’s increasingly busy—and costly—construction market, it’s becoming more difficult to predict costs with a typical design-bid-build delivery method. It’s been our experience that having a contractor on board and involved during design to review costs and perform constructability reviews helps with materials and systems selection. In addition, having a contractor commit to those costs during the design phase can help a client manage the budget and schedule.
How Do Design-Build and Lease-Leaseback Differ from Traditional Design-Bid-Build Project Delivery?
- Contractor and major trade subcontractors participate during the design phase
- Focus is on designing to a fixed or target budget rather than bidding on an approved design
- Contractor selection based on a combination of qualifications and price
- Ability to better match contractor experience and performance with the project needs
- Greater opportunity to select the contractor’s key personnel, including the project manager and superintendent
- Project goal is to obtain best value with target budget
- Historically lower change order rate, fewer claims, and less litigation
- Historically shorter project schedule.
- Alignment of owner goals fosters a win-win philosophy between owner, architect, and builder
- Fosters a true relationship-based partnership that adds efficiency
- Use of a skilled and trained workforce is required (AB566/SB693)
Design-build is being used by many of the University of California and California State University campuses, cities, counties, airports, and community college districts with very good results. This is consistent with results of long-standing research conducted on the benefits of using design-build compared to design-bid-build as shared in the table below.
The selection process can vary from intense design competitions with client design meetings and GMPs to simpler, quality-based selection with no design work and price being only one of many factors. Some of the best results we’ve achieved using the design-build approach have been when a client hired the most experienced and qualified team; set the schedule, budget, and project goals together; and then worked collaboratively to meet those goals. Additionally, this collaborative approach can provide the least risk for a school district by shifting the risk to the design-build entity.
It is very important to note that this type of project delivery requires an experienced owner who is active and responsive to the design-build team. If you are new to design-build, it is critical to obtain training on current best practices through the Design-Build Institute of America (DBIA). You should also consider hiring a design-build consultant to assist you in setting the project up for success. Lastly, it is most important that an owner make the decision to use the design-build delivery method early on in the project development process.
The DBIA best practices (www.dbia.org/resource-center/Pages/Best-Practices.aspx) recommends that an owner select a team based primarily on qualifications, with consideration for price. In other words, set your primary goals including funding constraints for a project and allow the team to meet collaboratively or exceed those goals with your participation.
You can learn more about design-build at dbia.org. The DBIA Western Pacific Region, which includes California, has established an Owners Council that is limited to “owners-only” participation where owners can ask questions, exchange ideas, and learn.
Although lease-leaseback has been heavily scrutinized in the last year, some of the concerns have been addressed with current legislation approval as of January 1, 2017 (AB 2316). Now, many school districts are using the lease-leaseback delivery method and most have been very successful on past projects.
While it’s typical to select the architect separately, it is still very important to choose the contractor team as early as possible to benefit from their involvement in the design process. While lease-leaseback can work very similarly to design-build, one difference made clear with the new legislation is that pre-design services, final pricing, and construction must be separated.
When a client selects an experienced design-build or lease-leaseback team—comprising contractor, subcontractors, architect, and engineers—they can achieve superior results when working collaboratively with a district team. Design-build and lease-leaseback teams may suggest separate approval for construction packages to accelerate the schedule. They can also provide innovative solutions to give clients the best value for their money and meet their project goals. Challenges will always present themselves, but with a design-build or lease-leaseback delivery method, the team can focus on solutions rather than finger pointing.
Overview of the Process
- An RFQ/P process is used to select the best-value design-build entity.
- A school district enters a contract with a single design-build entity, typically led by a builder, that provides both design and construction services.
- The design-build team is typically composed of a contractor, architect, design consultants, and selected specialty trade subcontractors.
- Design-build in the U.S. is typically contractor-led, primarily due to bonding requirements.
Recent Legislation: AB1358 and SB693
- Requires a skilled and trained workforce
- Ed Code 17250.10 ET (Ed Code 17250)
- Public schools are allowed to use the design-build delivery method as of January 1, 2008, under SB614
- Project value must be at least $1 million
- Requires a project-specific board resolution
Selection of a Design-Build Entity
If using a best value selection, a school district must use the following minimum scoring criteria when selecting a design-build entity:
- Technical design and construction experience
- Life-cycle cost over 15 years or more
Note: A school district can adjust weighting and/or add other scoring criteria. Many public entities hold a design competition with GMP to select design-build teams, but this can be expensive, time-consuming, and often reduces competition.
- Single-point responsibility
- School district is provided with a GMP
- Design-build entity assumes all the financial risk for errors and omissions (school districts have this risk when using design-bid-build)
- Contractor may be able to self-perform work
- Specialty trade subcontractors can participate during the design phase. This is particularly important as these trades have valuable input on costs, constructability, and advantages of various systems particular to their trade expertise. To address potential owner concerns regarding transparent pricing, the early participation of specialty trades can be requested.
Overview of Process
- More traditional contract structure where the school district holds separate prime contracts with the architect of record and the contractor
- The school district typically selects an architect first, then moves to select the lease-leaseback entity using a best value process, and awards lease-leaseback agreements including preconstruction services with a preliminary lump sum or with fee levels
- The architect develops plans and specs with the lease-leaseback entity’s input
- Plan approval through DSA
- Lease-leaseback entity submits and Board approves final GMP
- Validation (not required, but a best practice)
- Issuance of a notice to proceed
Current Legislation AB566/SB693 Amends Ed Code 17406/7
- Ed Code 17407.5 Skilled and Trained Workforce
Selection of a Lease-Leaseback Entity in Accordance with AB2316
- Board approves lease-leaseback selection criteria based on best value
- A school district issues an RFQ/P soliciting qualified firms
- Lease-lease back entity selected based on published criteria
- School district and lease-leaseback entity enter into a single agreement for preconstruction and construction services with a separate site lease (can be for multiple buildings and sites)
- Contract value is based on GMP
- LLB entity can finance the project for the school district
- Contractor may be able to self-perform work
- Specialty subcontractors can participate during the design phase
Is Design-Build or Lease-Leaseback Right for Your District?
There are hundreds of construction journal articles across the U.S. proclaiming the benefits and superior results of using alternative project delivery methods. Projects can be delivered faster—with less chance of costly change orders—because these highly collaborative delivery methods produce higher quality, more efficient design and construction processes. Sounds great, right? But if you’re considering design-build or lease-lease back, just know that these processes require a very experienced owner, clear goals, and a strong communication plan to be successful. If your district has these covered, then these delivery methods are worth considering.
By HMC Architects; Ed Mierau, CEO, Neff Construction, Inc.; Dave Umstot PE, CEM, Co-Founder and President, Umstot Project and Facilities Solutions, LLC