In my column last month I discussed the innovative financing provisions that were a part of the Transportation Equity Act for the 21st Century (TEA-21) P.L. 105-178 and offered opinions on how those provisions might affect contractors. This month I will discuss the design-build provisions in TEA-21. At the outset, I wish to express that I am concerned over the possibility that states might use the design-build method to quickly spend some of the increased funding in TEA-21. I fear if that happens it will adversely affect small to medium-sized contractors.
Prior to enactment of TEA-21, design-build contracting had only been allowed on an experimental basis for federal-aid projects. Generally, prior to TEA-21 federal law required competitive bidding and the award of the contract to the lowest responsible bidder.
Section 1307(a) of TEA-21 is titled “Design-Build Contracting” and specifically amends 23 U.S.C. 112 to authorize the use of the design-build approach by state DOTs for certain federal-aid highway projects.
Section 1307 (a) permits a state transportation department or local transportation agency to award a design-build contract for a qualified project “using any procurement process permitted by applicable state or local law.” Obviously, one of the issues readers will face is whether award of a design-build contract is permitted in their state. A qualified project is one that exceeds $5,000,000 in estimated total cost for intelligent transportation systems or exceeds $50,000,000 estimated total cost for other highway projects. It appears that Congress was sensitive to the concern that some states may attempt to use design-build for projects that should be competitively bid.
Section 1307 (c) directs the secretary to issue regulations within three years, after consultation with AASHTO and representatives of affected industries. The regulations are to identify criteria to be used by the secretary in approving design-build projects and procedures to be used by a state transportation department or local transportation agency to obtain approval.
Interestingly, section 1307(e)(1) provides that the design-build provisions only become effective three years after the date of enactment of TEA-21. However, during the period before issuance of regulations, the secretary may approve design-build contracts in accordance with the experimental program already in existence.
Section 1307(b) amends 23 U.S.C. 112(e)(2) to make the standardized provisions for changes, differing site conditions and suspensions of work inapplicable to design-build contracts. I envision that the design-build team may well find itself forced to accept the risk of site conditions differing from those it expected.
The design-build section of TEA-21 came from the Senate bill, S. 1173. There was no comparable provision in the original House bill. The Senate report lists the advantages of the design-build process as “greater accountability for quality and costs, less time spent coordinating designer and builder activities, firmer knowledge of project costs and a reduced burden in administering contracts.” The report states that a particular advantage of design-build is accelerated project delivery, noting a study of 11 such projects in Florida that found that the design-build process “produced significant improvements in project performance.” The average construction time was 21.1%shorter and actual procurement times were 544less. The report did not mention that the Florida Transportation Builders Association lobbied against continuation of the Florida DOT’s design-build program and that it was continued only for major bridges and transit projects. The report also failed to address whether the design-build approach results in cost savings.
The House report differs from the Senate report only by recommending a two-year waiting period after enactment and a $10,000,000 floor on “intelligent” systems. The final version of the act, contained the Senate provisions for a three-year waiting period and a $5,000,000 floor. Neither report adequately explains how the $5,000,000/$50,000,000 floor was established for qualifying contracts. The reports merely state that the design-build method is not appropriate for every highway project. The reports also state that the limit applies to each “usable segment” of the project. This language, although not repeated in the statute, may be used to prevent the use of design-build on composite projects that exceed the minimum only by grouping several smaller projects together and bidding them as one. This language may also prevent a state DOT or local transportation agency from tacking small projects onto larger projects to include them in the process. For example, state DOTs may not be able to add a separate $5,000,000 project to the bid package of a $45,000,000 project to reach the $50,000,000 level.
In my last two columns, as well as my June column, I have outlined the anticipated increased focus on innovative contacting techniques. FHWA and several state DOTs have advocated innovative contracting techniques for several years. In TEA-21 Congress specifically authorizeds innovative financing and design-build. I believe those techniques are appropriate for some projects, but they are not a panacea. Contractors, particularly those building large complex projects, must be prepared to play in this new ball game or otherwise risk losing a substantial amount of work.