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HomeMy WebLinkAbout2002-10-15 City Council (6)City of Pale Alto CRy Manager’s Report TO: FROM: HONORABLE CITY COUNCIL CITY MANAGER DEPARTMENT: PUBLIC WORKS DATE:OCTOBER 15, 2002 CMR:409:02 SUBJECT:REPORT ON ALTERNATE PROJECT DELIVERY METHODS FOR THE COMMUNITY FACILITY/BOND MEASURE PROJECTS This is an informational report and no Council action is required. BACKGROUND On July 8, 2002, Council held a study session to discuss the community facility projects being considered for funding through a bond measure on the November 2002 ballot. Various aspects of the projects were discussed, including cost estimates and financing options. As part of the City Manager’s Report, staff attached a report from the Palo Alto Community Facilities Cost Advisory Committee, which was formed to review the City’s project cost estimates and make cost savings recommendations. Members of the Cost Advisory Committee were present at the Council meeting and answered Council’s questions regarding their report. The Cost Advisory Committee recommended the City investigate project delivery methods other than the City’s typ!cal design-bid-build method. Specifically, the Committee recommended, "... the consideration of alternative design and/or construction delivery processes that have been used by other public entities. Evaluate cost and schedule benefits as well as tradeoffs of alternate methods. Develop project delivery processes that are customized for each separate project to produce optimum results. Examples of techniques that have been utilized by other public entities include (but are not limited to): Private/Public Partnership Design-Build Construction Manager/General Contractor (CM!GC) - currently used by the Palo Alto School District Multiple Prime Contractors" Council expressed interest in the Cost Advisory Committee’s recommendation and directed staff to research alternate project delivery methods before the November 2002 ballot. CMR:409:02 Page 1 of 6 On July 15, 2002, Council adopted a resolution and introduced an ordinance to place a general obligation bond measure on the November 2002 ballot to fund the Mitchell Park Library/Community Center and Children’s Library Renovation and Expansion projects. DISCUSSION Staff has researched the various alternate project delivery methods recommended by the Cost Advisory Committee and a brief description of each method follows: Alternative Project Delivery Methods Design~Build: The design-build process employs a single entity providing both design and construction services. Typically, a construction company is the single entity and either employs architects or engineers for the design phase or teams with a design firm experienced in the specific project type. The construction company itself then performs the construction. The design-build method can provide savings in cost and time because the entire project is managed and constructed by a single entity, reducing the staff time necessary to solicit and contract with a separate architect and contractor. The method also eliminates the coordination difficulties of dealing with separate entities on one project. In addition, this method generally results in a lower number of claims during construction because a single entity is responsible for both design and construction. However, the owner gives up some control of the overall design of the project. Design-build has generally been used for smaller projects that are straightforward in nature such as building renovations or work involving pre-fabricated or "off-the-shelf" structures, although recent legislation authorizes counties and transit agencies to use design-build on very large projects. Complex projects such as libraries, community centers and educational facilities require much more owner input and, due to their "civic" nature, require a higher level of involvement by the public and public officials. The design-build approach is seldom used by general law cities because of competitive bidding requirements. Charter cities may use design-build, with selection based on qualifications, not competitive bidding, if their charters allow. Some public agencies have elected to utilize a modified design-build method often referred to as design-build- bridging in order to satisfy competitive bidding requirements. In this method, the public agency employs a design firm to develop the design through schematic design. The public agency then puts the documents out to bid for a team to complete the design and then construct the project. This method has many disadvantages, foremost of which is the small amount of input fr.om the agency in the final design process. CMR:409:02 Page 2 of 6 Multiple Prime Contractors: In this method, the owner typically retains the services of both an architect and a construction manager (CM). The architect prepares the design and the CM performs pre- construction services including preparation of the bid packages. The owner then puts the bid packages out to bid, receives bids, and awards construction contracts to the lowest responsible bidders. The owner therefore has a prime contract with each trade, with no general contractor. The bid packages are typically put out at the same time and the owner’ awards all the contracts at the same time. However, a variation, is sometimes used in which the bid packages and contracts are done sequentially in order to fast-track a project. In this method of contracting, the CM, in addition to its typical services (coordination, scheduling, payments, inspection, etc.) manages multiple prime contractors on the jobsite, typically the role of general contractor. This means that there is no single bidder with overall cost and schedule responsibility. The CM hired to perform a multiple prime project is not at risk for overall budget or schedule, leaving the owner in the position of absorbing the majority of the risk for cost and schedule overruns. Cost savings for multiple prime contracting result from not having to pay for the general contractor’s liability insurance (typically in the range of 0.75% to 1.5%), payment and performance bonds (typically 0.5% to 1%), or mark-up of the subcontractors’ work. Additional savings can result from the owner receiving bids and awarding contracts to the lowest responsible bidder for each trade instead of the lowest lump sum bid that may include higher prices for some of the trades. There are some additional costs to multiple prime contracting, including preparing multiple bid packages, attending multiple pre-bid meetings, preparing multiple construction contracts, obtaining council approval and award of contract for each portion of the work, and processing multiple payments during construction. Also, the CM’s fee is greater in multiple prime contracting as its service includes coordinating the multiple contractors’ work, a service typically provided by the general contractor. The net effect of the above cost savings and additional costs usually results in an overall savings of 2-4% of the construction costs. This approach has been used by various government entities, including the City of Mountain View in the construction of its new library in 1997 and the County of Santa Clara on the $197 million Santa Clara County Valley Medical Center. Construction Manager @ Risk (CM @ Risk)." In this project delivery method, also known as construction manager/general contractor, the owner contracts with a "CM @ Risk" to provide the services described above under Multiple Prime Contractors, as well as to assume responsibility for project cost and schedule. CMR:409:02 Page 3 of 6 First, the owner conducts a qualification-based selection process and then contracts with a CM @ Risk. This may be done early in the design of the project so the CM can provide pre-construction services (estimating, scheduling, design review, constructability review, value engineering, cost monitoring). Next, the CM @ Risk, working with the architect, prepares bid packages for each of the trades on behalf of the owner (as in the Multiple Prime method). The owner puts the bid packages out to bid (oftentimes to pre-qualified contractors), receives the bids, awards contracts to the low responsible bidders, and then assigns the contracts to the CM @ Risk. The owner and CM @ Risk then enter into a contract with a "not to exceed" dollar value by adding: fees for pre-construction and construction services all the bids the prior agreed to CM contingency amount (to cover the CM’s unforeseen expenses) the CM’s general conditions (rental and staffing of the jobsite office) the CM’s overhead and profit the CM’s general liability insurance Once the CM @ Risk contract is executed, the CM manages the project. It is important to note that the CM cannot perform any work on the project. There is efficiency and probable time and cost savings to this method because there is no duplication of effort between the CM and the general contractor. The owner may also save money by taking the lowest bid for each trade instead of the lowest lump sum bid (as in the Multiple Prime method). Also, cost overruns are eliminated because the owner has entered into a "not to exceed" contract with the CM @ Risk. The CM @ Risk cannot increase profit beyond the set fee, and therefore has no incentive to take short cuts or diminish construction quality. The CM may receive additional fees for changes directed by the owner or for costs associated with unforeseen conditions (e.g. unknown underground conditions, unusually adverse weather, or other items beyond the CM’s control). It is possible to have a shared savings clause that allows the owner and CM @ Risk to share any cost savings. This is an incentive for the CM @ Risk to reduce costs. Other incentives for the CM @ Risk to provide good service are favorable references and repeat business. One of the most important aspects of this approach is that the owner can select the CM @ Risk based on qualifications, not solely on price. The firm is selected based on company experience and staff experience. This method, or a similar variation, was used by CMR:409:02 Page 4 of 6 Redwood City on their new city hall project in 1997 and is currently being used by the City of San Jose on their new city hall project. Private/Public Partnership: Staff believes that this method was recommended by the Cost Advisory Committee for the Art Center project, but not for the library or community center projects. In fact, on July 15, 2002, Council approved a memorandum of understanding between the City and the Art Center Foundation to pursue a public/private partnership. This project delivery method usually results in cost savings by eliminating some of the design review and permitting costs, and by being able to accept pro bono work. This approach was successful in the renovation and expansion of the Children’s Theater project a few years ago. Mitchell Park Library/Community Center Pro_iect Staff believes the Multiple Prime or possibly the CM @ Risk contracting methods would be appropriate for the Mitchell Park Library/Community Center project due to potential cost savings and contracting efficiencies. The Design-Build contracting method is strongly not recommended and the Public/Private Partnership is not applicable to this project. Staff has prepared a chart that compares the estimated costs of the Mitchell Park Library/Community Center project using the different project delivery methods described above (see Attachment B). If the November bond measure passes, staff will prepare a scope of work for final design and initiate negotiations with Group 4, the architectural firm who prepared the feasibility study and conceptual designs of the project. As explained above, staff feels it is important to have the CM under contract with the City during the final design phases in order to provide design review and other pre-construction services. Accordingly, staff intends to make a recommendation to City Council on the project delivery method to be used for the project at about the same time the final design contract is presented to Council for approval. Children’s Library Renovation and Expansion Project Staff believes the Children’s Library expansion and renovation project is too small to expect any meaningful savings by utilizing an alternate project delivery method and will likely recommend that the City use the typical design-bid-build method. ATTACHMENTS Attachment A:Comparison of Estimated Delivery Methods Project Costs Using Alternate Project CMR:409:02 Page 5 of 6 PREPARED BY: DEPARTMENT HEAD: Senior Project Manager GLENN S. ROBERTS Director of Public Works CITY MANAGER APPROVAL: Assistant City Manager CMR:409:02 Page 6 of 6 ATTACHMENT A l--- wO° Ou..I © w w 0 00 00 0 O0 0 0 O~ 0 0 0 0 0 0 (~) 00 0 0 UO 0 0 0 ~ 0 0 0 0 0 Ol 0 0 0 0 0 0 0 0 O0 0 0 0 0 0 0 0 0 0 ~U3~O ¢q 0 0 v-~a3 u3 0 0 O0 0 0 0 0 0 0 0 0 0