TO: Mayor and City Council
THROUGH: Steve Powers, City Manager
FROM: Peter Fernandez, Public Works Director
SUBJECT:
title
Public Hearing - Exemption from Competitive Bidding Process and Authorization of an Alternative Contracting Method for the Salem Public Library Improvement Project
Ward(s): All Wards
Councilor(s): All Councilors
Neighborhood(s): All Neighborhoods
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ISSUE:
Shall City Council, acting as the Local Contract Review Board, adopt Resolution No. 2018-76 in support of an exemption from the competitive bidding process and use of a Design Build contracting method for the Salem Public Library Improvement project?
RECOMMENDATION:
recommendation
Adopt Resolution No. 2018-76 in support of an exemption from the competitive bidding process and use of a Design Build contracting method for the Salem Public Library Improvement project.
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SUMMARY AND BACKGROUND:
In November 2017, Salem voters approved the Salem Public Library General Obligation Bond Measure 24-432 authorizing $18.6 million for seismic safety, security, and accessibility upgrades to the Salem Public Library and associated parking facilities. The City issued the debt on the bond in March of 2018, and will be required to spend 85 percent of the budget within three years of the debt issuance in order to meet the requirements of the debt and to avoid accruing arbitrage penalties. This timeline results in a projected move-in date of May 2021.
A Design Build (DB) contracting method is recommended for the project because contractor involvement at the very beginning of the design phase is needed to develop the most cost effective structural solution for the existing building and parking structure. In addition, the improvements must be designed and constructed over a short, inflexible time period. With the specific method of DB contracting proposed, known as Progressive Design Build, the DB contractor will contract with architects and engineers to form one team that is responsible for all of the design and construction activities. This method of project delivery is slightly different from the Construction Manager/General Contractor (CM/GC) method of project delivery that was chosen for the Salem Police Facility. The CM/GC delivery method was chosen for the Police Facility because it involved a new building that required extensive architectural and engineering program development and conceptual design before a contractor could be retained. Because the Library improvements will be performed on an existing building, the project is more defined and can benefit from having a DB contractor team in place from the very beginning of the design phase. The DB contractor will provide a Guaranteed Maximum Price (GMP) near the end of the design process and be contractually bound to deliver the project within that GMP. The DB contracting method typically results in much shorter overall construction duration compared to traditional design-bid-build contracting methods. Meeting the project budget and schedule commitments are critical to avoid bond arbitrage penalties.
Oregon Revised Statutes (ORS) Chapter 279C and the City’s Public Contracting Rules (PCR) 9.7, allow City Council, acting as the Local Contract Review Board, to exempt a public improvement contract from the competitive bidding requirements if, after a public hearing, they find that such an exemption is unlikely to encourage favoritism in the awarding of public improvement contracts or substantially diminishes competition for public improvement contracts, and will likely result in substantial cost savings and other substantial benefits to the City or the public. The DB contractor will be selected competitively via a Request for Proposal (RFP) process.
FACTS AND FINDINGS:
1. The exemption is unlikely to encourage favoritism in awarding public improvement contracts or substantially diminish competition for public improvement contracts.
The DB Contractor will be selected through a competitive and open RFP selection process authorized by the City.
A) Solicitation Process: Pursuant to ORS 279C.360, the DB solicitation will be advertised at least once in the Daily Journal of Commerce, and in as many additional issues and publications as the City may determine.
B) Full Disclosure: To ensure full disclosure of all information, the RFP solicitation package will include:
1. Detailed Description of the Project
2. Contractual Terms and Conditions
3. Selection Process
4. Evaluation Criteria
5. Role of Evaluation Committee
6. Provisions for Questions and Comments
7. Complaint Process and Remedies Available
C) Competition: The City anticipates that competition for the project will be similar to that experienced in other projects of this type. The competition will remain open to all qualifying proposers. The City will communicate with the construction contracting community as well as the architect/engineering consulting community about the DB contracting method. The evaluation and solicitation process employed will be open and impartial. Selection will be made on the basis of final proposal scores derived from price, experience, quality, innovation, and other factors. The competitive process used to award subcontracts for all competitively bid construction work will be specified in the DB contract and will be monitored by the City. The City may designate in the contract the proposed percentage of construction work that must be subcontracted and may not be self-performed by the DB contractor.
2. Awarding a public improvement contract under the exemption will likely result in substantial cost savings and other substantial benefits to the City or the public.
Awarding construction contract(s) for the project using the DB delivery method will likely result in substantial cost savings to the City. This finding is supported by the following information required by ORS 279C.330 and ORS 279C. 335(2)(b).
A) How many persons are available to bid?
Based on previous experience in Oregon, a typical RFP of this size and complexity will result in between five and seven interested proposers. The actual number of proposals received may be lower but a minimum of three proposals for this project are anticipated.
B) The construction budget and the projected operating costs for the completed public improvement.
Budget: The City has a fixed budget available for the project that cannot be exceeded. The completion date cannot be extended. Early reliable pricing provided by the DB contractor during the design phase reduces the potential for time delays due to subsequent discovery of higher-than-anticipated costs and consequent changes of plans.
Long-Term Costs: The DB contracting method is expected to produce a scope of work and design that best meets the requirements of the project with significantly lower risk to costs. Integrating the DB contractor into the design process allows for early identification of risks and facilitates teamwork between the City, designers, and the DB contractor. The project requires expertise regarding the constructability and long-term cost/benefit analysis of innovative design, knowledge best obtained directly from the construction industry. Many decisions arising during the design process will require immediate feedback on constructability and pricing. Under the traditional design-bid-build contracting method, there is a higher risk of increased change orders and schedule impacts for a project of this size and complexity. Since there are significant costs associated with delay, timely project completion is critical.
Fewer Change Orders: When the DB contractor leads and participates in the design process, fewer change orders occur during project construction than in the traditional design-bid-build contracting method. This is due to the DB contractor’s better understanding of the City’s needs and the design intent. The designer works for the DB contractor, therefore the City has no liability for discrepancies in plans that could lead to change orders. As a result, the project is more likely to be completed on time and within budget. Fewer change orders reduce the administrative costs of project management for both the City and the DB contractor.
GMP Change Orders Cost Less: In addition to being less frequent, change orders are processed at less cost under a GMP. The design-bid-build method typically results in the contractor charging fifteen percent markup on construction change orders. The GMP method applies lower predetermined markups. The experience of the industry is that the markup is in the range of three to five percent.
Cost Savings: The GMP method allows the City to obtain the full savings if the actual costs are below the GMP. When the DB contractor completes the project, savings between the GMP and the actual cost accrue to the City.
Contractor’s Fee Is Less: DB contracts are designed to create a better working relationship with the contractor than the traditional design-bid-build contracting method. As a consequence, the overhead and profit fee is generally in the three to five percent range. Contractors indicate this is slightly lower than the fee anticipated on similar design-bid-build contracts.
C) Public benefits that may result from granting the exemption.
Time Savings: Use of DB as an alternative contracting method allows construction work to commence relatively rapidly on some portions of the work while design continues on the remaining portions. The DB method shortens the overall duration of the construction and provides for completion of the project by the due date. It is critical to adhere to both the schedule and budget for the project.
Cost Savings: The project will benefit from the active involvement of a DB contractor during the design process:
1. DB contractor input regarding the constructability and cost-effectiveness of various alternatives will guide the design toward the most economic choices.
2. Consideration of the specific equipment available to the DB contractor allows the designer to implement solutions that utilize the capacity of that equipment.
3. The DB contractor provides current and reliable information regarding the cost and availability of materials, especially those that are experiencing price volatility and/or scarcity.
4. The DB contractor can order materials while design is being completed, avoiding inflationary price increases and providing the lead-time that may be required for scarce materials.
GMP Establishes a Maximum Price Prior to Completion of Documents: The DB contractor obtains a complete understanding of the City’s needs, the design intent, the scope of the project, and the operational needs of the project by leading in the development of the construction documents. By participating in the design phase, the DB contractor can provide suggestions for improvement and cost reduction. With the benefit of this knowledge, the DB contractor also guarantees a maximum price to be paid by the City for constructing the project.
D) "Whether value engineering techniques may decrease the cost of the public improvement"
DB Process: The DB process offers an opportunity for value engineering ("VE") which is more effective than can be attained through VE during the traditional design-bid-build process. VE is most effective prior to construction and during the design phase by a team consisting of the owner, architect, consultants, and the DB contractor. When VE is conducted during the design phase led by the DB contractor, the team can render the most comprehensive evaluation of all factors that affect the cost, quality, and schedule of the project prior to construction. Design phase VE minimizes delays and additional administrative costs that would otherwise be a factor with VE during the construction phase on a design-bid-build project.
The DB contractor has the ability to set the schedule, sequence work, and commit to implement the design within schedule and budget.
E) The cost and availability of specialized expertise that is necessary for the public improvement.
Early integration of the project team creates more informed, better quality decision-making. A more efficient construction team saves the City money.
Several benefits of DB on this project will be realized:
• Developing the design documents to reflect the best work plan that accommodates the City and DB contractor;
• Producing the best grouping of bid packages that will help ensure better trade coverage;
• Determining the most efficient construction staging area;
• Providing cost effective coordination with utilities; and
• Helping adjust the work plan as necessary.
This component cannot be addressed by the usual design-bid-build method of construction because the contractor is selected solely by having the lowest bid.
F) Any likely increases in public safety.
Construction will occur in close proximity to active City operations at City Hall. All work must be coordinated to avoid safety risks to the general public and to ensure efficiency in construction. The collaboration between the City, designer, and the DB contractor assures coordination of work and consideration for the safety of vehicular and pedestrian paths surrounding the project. DB contracting ensures that public safety is effectively managed in a “fast track” mode to minimize delays.
G) Whether granting the exemption may reduce risks to the City or the public that are related to the public improvement.
The DB process mitigates risks arising from site coordination with City operations, site staging and laydown coordination, and site safety and work hours.
The DB contractor’s GMP provides a complete project within the City’s budget.
A DB contractor engaging in early work amendments provides insight and verification of unforeseen conditions to the designers, DB contractor, and City, as well as expediting the construction schedule by starting early work during the design phase.
H) Whether granting the exemption will affect the sources of funding for the public improvement.
The City is funding the project with the sale of general obligation bonds as approved during the November 2018 Election. Therefore, the DB process, has no impact on the funding sources.
I) Whether granting the exemption will better enable the City to control the impact that market conditions may have on the cost of and time necessary to complete the public improvement.
In addition to the numerous construction market factors that currently exist in Oregon, the difficulty in establishing the best work sequence for this complex project complicates the ability to accurately estimate the cost of the project. The early involvement by the DB contractor allows for the opportunity to sequence and phase aspects of construction as well as gage the market and take advantage of early procurement of materials to lock in material cost savings. DB also allows for early construction phasing to begin which can result in timely completion of the project.
J) Whether granting the exemption will better enable the City to address the size and technical complexity of the public improvement.
Technical expertise is required for environmental management, quality management, structural engineering, scheduling, estimating, meeting sustainable facilities standards and guidelines, and ensuring energy efficiency. Specialized skills are required of the DB contractor to negotiate and price multiple options and schedule complex tasks. A high level of coordination among the City and all the design and construction entities is required and facilitated by the DB contracting method.
K) "Whether the public improvement involves new construction or renovates or remodels an existing structure"
The project involves significant renovation to the Salem Public Library including seismic and safety improvements.
L) Whether the public improvement will be occupied or unoccupied during construction.
There are options for construction phasing that require further analysis. There may be phases where the Library is occupied and others where services are provided from other temporary locations while the Library is under construction. DB contractor participation is critical to determine the most effective solution to this issue.
M) Whether the public improvement will require a single phase of construction work or multiple phases of construction work to address specific project conditions.
The project currently anticipates a complex, phased approach to construction.
N) Whether the contracting agency or state agency has, or has retained under contract, and will use contracting agency or state agency personnel, consultants and legal counsel that have necessary expertise and substantial experience in alternative contracting methods to assist in developing the alternative contracting method that the contracting agency or state agency will use to award the public improvement contract and to help negotiate, administer and enforce the terms of the public improvement contract.
The City is supported by its City Attorney. DAY CPM serving as the Owner’s Representative has extensive expertise and experience with DB.
Brian D. Martin, PE
City Engineer