5.3 Project Delivery Systems

• Library: Virginia Construction Law Deskbook (Virginia CLE) (2019 Ed.)

5.3 PROJECT DELIVERY SYSTEMS

5.301 Conventional Project Delivery. The contracting arrangement historically used in most general building projects in Virginia and throughout the United States is design-bid-build. Under this arrangement, the owner or developer contracts with an architectural or engineering firm to design the facility. Once those plans and specifications are completed, they are made available to the construction community for cost estimation. Typically, a general contractor will collect bids from specialty contractors such as earthwork contractors, concrete placement contractors, and electrical contractors. The general contractor will then compare its own bid estimates for the specialty work, add its management and self-performed work estimates, and present a proposal to the owner to build the project. The owner may select a winning bid or negotiate with one or more contractors to award the contract to a general contractor for construction phase services.

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Design-bid-build is typically used by state government entities and private owners where (i) there is a desire to control the design process, (ii) time of project delivery is not a primary concern, or (iii) legal impediments or business considerations rule out design-build or other project delivery schemes. Under a conventional delivery program, an owner enjoys close control of a design that can be reviewed, approved, adjusted, and developed while the project is no more than lines on paper (or the equivalent in electronic media). This allows the scope of the project to be changed at minimal cost in response to user demands and budget considerations as the design is developed. With a completed design, an owner can reasonably request that multiple contractors provide competing lump sum cost or guaranteed maximum price proposals to build according to the design documents. The proposal or bid preparation process can be lengthy, as contractors and specialty subcontractors are contacted, questions are asked about the design, amendments are issued to address questions or correct design problems prior to bid, and final bids or proposals are prepared. Following bidding, there may be a period of negotiation of final contract terms with the selected contractor before work on the project begins.

This deliberate approach is used frequently for public work because it lends itself to a competitive procurement process. Typically the project is advertised, and multiple contractors each submit a lump sum price in a sealed envelope at a designated place and time. When the bids are unsealed in a public forum, the winning bid is the low price that is responsive to requirements spelled out in the invitation to bid. ⁹² Competitive sealed bidding was until recently codified as "the preferred method of construction procurement for public bodies in the Commonwealth." ⁹³ Nonetheless, public contracts for construction with nongovernmental contractors may be procured only by competitive sealed bidding except in limited circumstances which include, among other requirements, a determination made in advance by the public body and set forth in writing that competitive sealed bidding is either not practicable or not fiscally advantageous to the public. ⁹⁴

Unfortunately, the certainty of the price of a project on the day of bidding can be ephemeral. Changes to the design during construction and correction of design errors and omissions occur in virtually all projects, and they often lead to changes in the cost of building the project and may require

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additional time. Generally, the contractor only assumes an obligation to build what is on the plans and in the specifications, not to guarantee that those documents will inevitably result in a successful facility. ⁹⁵ Design-bid-build is arguably more vulnerable to claims by a contractor for defective or deficient plans because of the owner's representation that the plans are complete when the project is issued for pricing.

5.302 "Multi-Prime" Project Delivery. An owner will sometimes contract with multiple firms to build a project rather than with a single general contractor who then subcontracts to several specialty contractors. ⁹⁶ So-called "multi-prime" arrangements may be used when a project is too large for a single general contractor in the community to build, or when there are an insufficient number of qualified general contractors to ensure competition. A multi-prime approach is also suited to a program for fast-track project delivery, particularly in circumstances where it may be advantageous to begin construction before the full project design is completed. Under this scenario, an owner may elect to award an initial contract for site-work activities to a qualified civil contractor, a second contract to a contractor for performance of base-building activities, and a third contract for interior improvements. Each contractor that is contracted directly to the owner is a "prime" contractor.

Another circumstance that lends itself to the multi-prime arrangement is a project that has a large specialty component that would turn the traditional general contractor/subcontractor arrangement on its head. For example, construction of a chiller plant to provide air conditioning to a building campus typically requires a large mechanical contract with a smaller general building component. Furnishing and installing the equipment is a costlier project component than building the simple structure that houses the equipment. The small general contractors that would provide cost-effective bids to build the building would not usually be able to manage a large and sophisticated mechanical subcontractor. Conversely, a large mechanical subcontractor may have no interest or no expertise in managing the construction

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of a building. In this case, an owner may have no cost-effective choice but to contract with both the small general contractor and the mechanical contractor, making them both prime contracts.

A multi-prime arrangement is sometimes financially desirable and, occasionally, the only feasible delivery method. It does, however, require an owner to devote greater resources to a project because the owner generally becomes responsible for coordinating the performance of multiple contracts that may be performed simultaneously. This is considerably more challenging than managing a designer and then a builder in a conventional project. From an organizational perspective, one can view the owner as filling the role of general contractor to its multi-prime (sub)contractors. The expertise required to manage multiple contracts will often cause an owner to contract for professional services to manage these contracts on its behalf.

5.303 Construction Manager Project Delivery.

A. In General. Using a construction manager (CM) to direct a project can be seen as a variation on other delivery systems or as a system unto itself. ⁹⁷ A CM provides oversight and management of the building process on behalf of the owner. A management firm or individual may be hired at any stage of the process, but is typically hired when the design of the project is at or near completion. The CM may estimate the cost of the design and assist the owner with pre-construction value engineering and assistance in making changes should the project have budgetary or other cost-effectiveness issues to overcome. The CM may also review the design for constructability and other design issues to identify potential design errors, omissions, or code compliance problems before the drawings are issued to one or more contractors for construction cost proposals or bids. Generally, the CM will manage the bid or selection process, be a consultant to the owner during contract negotiations with contractors, and, once construction starts, act as the owner's agent managing the project through final completion. Alternatively, the CM may be more than a mere agent of the owner and may accept the risks often assumed by a traditional general contractor. The extent of the CM's authority and risk is dictated by its contract with the owner, but it is generally broad enough for the CM to be seen as the face of the owner

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during the project. ⁹⁸ Virginia does not permit a CM to self-perform more than 10 percent of the construction work, as measured by the cost of the work. ⁹⁹

CMs...