Brian Johanning
Missouri is the latest state in the nation to adopt alternative procurement legislation, thanks to a handful of local A/E/C professionals and organizations. The new law, which went into effect this week, allows public agencies to use the design-build procurement method for all types of design and construction. It’s a process that’s promising to drive innovation and value for those who use it correctly.
Brian Johanning, vice president of infrastructure and development at Shafer Kline & Warren, helped craft that legislation and rally local and statewide supporters in order to sign the bill into law. We sat down with Johanning to get a better understanding of this concept, and explore the ways in which the region will be impacted.
For those who may be unfamiliar, explain the concept of design-build.
In the traditional model of “design-bid-build,” an owner hires an architect or engineer to design their project. They’ll get through design and put it out for bid, and anywhere from two to 15 people can respond and put in a proposal. About 95 percent of the time, the lowest bid wins the contract. So, if you can get a bid bond, you can win a project. Design-bid-build goes on quite a bit in the public sector.
Read more about design-build in this white paper from Shafer Kline & Warren.
With design-build, the owner hires the team and has one contract, one point of responsibility with the design-build team. That team is made up of consultants and contractors. Normally, qualifications -- understanding an approach of a project and fee -- are all evaluated as part of the selection criteria. But it’s a very performance-oriented procurement mechanism, as opposed to price-driven.
Design-build has been used in the private sector by players like US Federal Properties, VanTrust, Hunt Midwest, Northpoint, and Block, to varying degrees. Sometimes they’re developer-led design-build, most of the time it’s contractor-led design-build, and occasionally it’s designer-led design-build. But it’s becoming much more popular in the public sector now. The biggest design-build projects in Kansas City are the Bond bridge, NNSA Complex, Manchester Trafficway, and the monstrosity that is the KDOT Gateway project. All of those projects share the same characteristics in that they have compressed schedules, they’re complex, and there are many governing entities with money involved in each of those projects. Coordinating those interests is very important.
What are the advantages this method affords? Who can benefit?
The number one advantage design-build affords is that it allows owners to arrive at a total project cost at a much earlier timeframe. As you’re working through budgets and trying to finance projects, you don’t get a lot of opportunities to go back to the well and get more money down the line. If you’re a political entity, you have a governing body -- whether it’s a city council, commissioners, school board -- and budgets you have to stay within. So design-build really allows the private sector to engage at a much earlier time in the project procurement to ensure that cities get the programming they need for the budgets they have. It allows teams to drive innovation earlier in the process.
When an owner does traditional design-bid-build, they assume the risk in some respects for any errors or omissions in the project plans or specifications. If a general contractor who bids the project overruns on certain quantities, they’re entitled to a change order. Often times, change orders can overrun a budget quickly. In design-build, the guaranteed maximum price (GMP) is achieved earlier in the process and unless there’s a lot of scope added, there are no change orders. That’s a huge advantage.
The other big advantage is compressing a schedule. For a roadway project, you don’t have to have the bridges completely designed before you start grading. For a building project, you don’t have to have the window glazing selected before you’re pouring concrete. You can begin construction before the design is 100 percent complete.
By far the greatest attribute of design-build is that it’s all a very collaborative process that brings the designer, owner, and contractor together to let the market drive things in an efficient manner.
What kind of impact will this have in Kansas City?
"There was a hole in the middle of the country," Johanning said about the Midwest's use of design-build. "It’s very prevalent in Texas, California, Florida, Colorado, and New York."
The biggest part of this is transferring risk from public agencies to the private sector, allowing the private sector to drive innovation and utilizing the latest and greatest in technology to apply it to public taxpayer funded projects. How will it change things in Kansas City? To me, you’re going to see competition be enhanced with this type of procurement vehicle. You’ll see owners driving a lot more value for their dollar.
The thing that we want to be careful about and the thing we’re educating owners on is that the cost of pursuit for design-build projects is pretty high for A/E/C design-build teams. As much as we can try to limit design competitions or increase the use of stipends, the more innovation and value owners will be able to drive. Instead of just getting one idea, at times during this process they can get three or four ideas through the procurement process.
What kind of support have you seen for this law?
What we were able to achieve in Missouri was unprecedented, in that we gained universal support. The voting record is quite telling; We had very few ‘no’ votes in the House or Senate. We achieved that in the true spirit of design-build.
We had a lot of meetings leading up to this point with industry groups representing contractors, architects, engineers, and owners, as well as the Missouri Municipal League and the Missouri Association of Counties. Through a lot of negotiations, we got the bill to where we wanted it, where everyone had some say in the outcome. I don't know that it’s perfect for everyone, but everyone feels like they left their mark on it. In the spirit of collaboration and integration, we were able to come to some consensus.
The biggest takeaway for people to understand is that this bill doesn’t legislate that every project will be design-build or construction manager at-risk. It just gives owners an option. Not every project is right for design-build. The biggest detractors to this point, and our biggest risk moving forward, is having practitioners and owners that aren’t educated on when to choose it as the appropriate procurement vehicle, because there are lots of different forms of it. So the biggest risk is that it is taken advantage of, or it’s used on a project that doesn’t require it. There is no silver bullet for some challenges on projects. Right-of-way acquisitions, utility relocations, if there are really stiff public opposition to a project, this types of procurement model is not going to solve that type of problem.
What role did you play in crafting this legislation?
There were a lot of people involved in the passage of this. The legalese that were hugely critical in seeing this forward were Bill Quatman at Burns & McDonnell, Rodney Gray at Polsinelli, and Tom Whitaker at JE Dunn. Also, of course, our bill sponsor Lincoln Hough (R-Springfield). I was in charge of the ground game, organizing the grassroots effort and quarterbacking with DBIA National to have their support. Without the help of Burns & McDonnell, JE Dunn, Polsinelli and many others, none of this would be possible. My involvement goes back about four years, but this is something that’s been in the works for almost 15 years now.
How are you trying to educate owners on the design-build process?
It’s happening on several different fronts. Through DBIA, we are holding owners-only seminars on a semi-annual basis. We have bootcamps for owners and practitioners on an annual basis. We do monthly programming for members and non-members alike to attend and observe lessons learned. We have a regional conference every spring that has various breakout sessions will people go and become more educated.
That’s the formal way. Informally, many DBIA members and others are having one-on-one meetings with owners trying to convey and carry the DBIA message to owners. It’s being done in a lot of different ways, and we’re still refining how to best move forward.
Interested in learning more about design build? Read this white paper from Shafer Kline & Warren, or check out this upcoming event with the Design-Build Institute of America.