Construction reform gives public authorities more options for projects
As published in the September 7th, issue of Business First of Columbus.
For well over 100 years, most public authorities in Ohio – unlike most other states – have been required to use one delivery method to build construction projects: the multiple-prime contractor method. In Ohio, the multi-prime statutes required most public authorities to bid out separate contracts for a construction project’s plumbing, electrical and HVAC elements. Almost always, additional elements were bid separately as well, especially the general contracting scope of work. Double-digit prime contracts were not uncommon for a project.
Despite some advantages to multi-prime, projects sometimes were beset with multiple disputes among the prime contractors, who were unable to coordinate their work effectively, resulting in lawsuits, delays and cost overruns.
The public authority often was stuck in the middle, because that’s who the quarreling contractors typically sued, instead of each other, because the public authority has a legal duty to see to it that each prime contractor has timely access to its work area, and the public authority was seen as the “deep pockets” on the project.
But things have changed. In September 2011, House Bill 153 gave Ohio public authorities the ability to procure construction work with three new delivery methods, as well as retaining the option of multi-prime. These new tools are: general contracting, construction manager at-risk and design-build. These methods have been used in the private sector for a very long time, as well as by the federal government and other states.
Proponents of these alternative methods tout faster construction, more flexibility, decreased cost and overall lower risk to the public authority.
Of the three new methods, the general contracting method most closely resembles multi-prime. The difference is that instead of bidding out several different contracts, a single general contract is bid. The general contractor subcontracts with the various trade contractors. The burden of managing the multiple contracts is shifted to the general contractor, away from the public authority.
Construction manager at-risk
This is structured very similarly to the General Contracting method. The key differences are timing and how the construction manager is awarded a contract.
In the General Contracting method, the general contractor is a stranger to the project until the bid documents are published. In Construction manager at-risk, the construction manager may be hired even before detailed design has begun. The construction manager works with the architects and engineers designing the project, advising on constructability and budget issues.
When the design has matured to where the work can be priced, the construction manager bids the construction subcontracts to pre-qualified subcontractors, and develops a guaranteed maximum price for completing all work. And just like with the General Contracting method, the construction manager holds the multiple contracts necessary to build the project, shifting management responsibility away from the public authority.
In Construction manager at-risk, candidate construction managers are short listed based on qualifications and experience. Then the public authority chooses which construction manager it believes will deliver the best value based on the fees charged and anticipated performance.
At this point the public authority negotiates a contract with its top-ranked construction manager. If a contract cannot be negotiated, the public authority may choose to negotiate with the next highest ranked construction manager.
The public authority also may ask for submittals of sealed guaranteed maximum prices during the selection process, but only in the rarest of circumstances will a construction manager have enough information to price a project with sufficient precision at such an early stage. Generally, by hiring a Construction manager at-risk when the design is complete enough to develop a guaranteed maximum price, the public authority has lost much of the value that a Construction ManagerAt-Risk can bring.
The design-build model allows public authorities to contract with a single entity for both design and construction. It harks back to the days of the master builder, and likely is how the architectural marvels of the old world were built.
Design-build gives the public authority one true single point of responsibility, eliminating any contractor management responsibility and removing the public authority from the age-old dispute of whether a problem is the fault of the designer or contractor.
Procurement of a design builder closely follows the qualifications based approach used in Construction manager at-risk. The key difference is that public authorities must engage the services of a “criteria architect” or “criteria engineer,” who may be an outside consultant or an employee of the public authority. This person’s role is to develop baseline design criteria and requirements for the project and to work with the public authority to evaluate proposals from the design-builder candidates.
A new era has begun in Ohio public contracting. It will be interesting to see what proportion of construction dollars go to which delivery methods.
Doug Shevelow is a partner at Bricker & Eckler LLP. Desmond Cullimore is an associate.
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