Progressive Design-Build (“PDB”) emerged as a project delivery model in Canada when many owners, consultants and contractors sought to mitigate cost and schedule risks resulting from the COVID-19 pandemic. PDB has quickly gained traction, particularly in complex and high-risk transit projects. This article provides an overview of the PDB process and looks at key factors when considering this project delivery model.
Most are familiar with Design-Build, whereby the design and construction services are contracted to a single entity known as the design-builder. The design-builder is responsible for all work on the project, often providing a turnkey solution for the owner. Although the use of subcontractors to complete more specialized work is common, the design-builder remains the primary contact and primary force behind the work.
The common challenge with this approach lies in the transfer of risk from the owner to the design-builder after the Request for Proposal (“RFP”) is awarded. Contractors are often hampered in their execution of the work by unknown conditions, which often result from inadequate access to the project site before submitting their response to the RFP. Considering these inconveniences, a new project delivery method emerged in the market – the PDB method.
The PDB model features a collaborative approach between the owner and its contracting partner during the early stages of projects such as project requirements and design work. It introduces additional steps that enable the owner and design-builder to progressively develop a design solution before jumping directly into detailed design and construction.
The owner selects the design-builder largely based on expertise through a Request for Qualifications (“RFQ”). The primary driver of this process is not necessarily price competition on the overall design-build contract price, but rather on the value the contractor can provide. Once the design-builder is chosen, the design-builder delivers the project in two distinct phases.
First is the Preconstruction Services stage, whereby the design-builder collaborates with the owner and its consultants to create or confirm the project’s basis of design, and then advances that design. Decisions are based on cost, schedule, operability, life cycle and other considerations, with the design-builder providing ongoing, transparent, cost estimates to maintain the owner’s budgetary requirements. When the design has achieved an appropriate level of definition adhering to the owner’s needs, the design-builder will provide a formal commercial proposal for Phase 2 services.
Phase 2 only commences once the owner and design-builder agree upon commercial terms (including the price and timeline). This is often called the Final Design and Construction Services stage, and generally also includes any testing, commissioning, and other services that have been agreed upon.
According to the Design Build Institute of America, if, for any reason, the parties cannot reach agreement on the Phase 2 commercial terms, then the owner may have the right to exercise an “off-ramp”, where it can use the design and move forward with the project through a design-bid-build procurement, with another design-builder, or any other way it deems appropriate.
PDB offers several key advantages:
- Collaboration and risk transfer: The owner(s), consultants, and contractors have an opportunity to work more collaboratively to develop design, reduce risk and finalize pricing before contracting for project implementation. A significant benefit is that the creativity and expertise of design-builders is promoted, and the project’s value is maximized as early as the design phase. Working collaboratively during the design phase facilitates efficient risk transfer to the party best placed to manage that risk. Collaboration can reduce project costs and disruptive delays or claims compared to a standard Design-Build approach.
- A short procurement cycle: A PDB model saves the design consultants time and money putting together a submission that may never move past the RFP stage. Additionally, they can better understand project requirements, as well as owner and stakeholder expectations – enabling them to tailor the design to meet project needs while understanding or minimizing risks.
- Increased competition: With inflation and supply chain issues impacting the delivery of many construction projects, owners need to focus on ensuring optimum value for their capital investments. By reducing risks and eliminating the time and cost required to prepare a RFP response, more contractors and consultants will be willing to participate, thereby increasing the quality and size of the competition. Beyond the owner’s target price, the final pricing is developed gradually over the development phase.
Despite these positive attributes, there are several reasons that an owner may not be interested in, or even able to use, PDB. These include the following considerations:
- Awarding without full competition: Some owners find awarding a construction contract without full price competition on the overall design-build contract price to be politically impractical and prefer to have price factored into the selection process. They may also feel uncomfortable in negotiating the commercial terms of the arrangement.
- Subcontractor procurement challenges: Procurement regulations may require subcontractors to be procured competitively. This can take away from the collaborative benefits of the PDB model and deprive the project of valuable subcontractor input during the design process.
- Exercising the off-ramp: Owners may be uncomfortable in exercising the “off-ramp” in the event the parties cannot reach commercial agreement on the design-builder’s proposal.
Once an owner has decided to proceed with the PDB model, the next consideration is the form and content of the contract. While PDB contracts are similar to Fixed Price Design-Build contracts, there are some important differences. A few key considerations of contract issues in a PDB model include:
- Cost estimating: The contract should specifically state what work the design-builder will perform for the Preconstruction Services stage, including the extent and frequency of cost estimating and modeling.
- Ability of the design-builder to access and rely upon owner-provided information: Due to the design-builder’s early involvement in the design process, there is a question as to how to treat information obtained by the owner before the design-builder was involved (e.g. geotechnical reports). Owners and design-builders should make informed decisions about the cost-benefit of the design-builder’s access and reliance on previously completed studies.
- Early work packages: The contract should address the processes for the owner’s development and authorization of early work packages. This includes procuring subcontractors and evaluating self-performance of the design-builder.
- Subcontractor and vendor procurement: The contract should address how subcontractors and vendors will be procured and the owner’s role in that process. Likewise, the parties need to address the role that these parties may play in the Preconstruction Services stage and how this relates, if at all, to their involvement in the Final Design and Construction Services stage.
- Commercial Proposal: The form and content of the commercial proposal should be thoroughly addressed in the contract.
- Off-ramp: This should be clearly addressed in the contract. In particular, the rights of the owner to use information from the first stage for subsequent procurements associated with the project should be clearly established. Finally, the parties need to determine the process for obtaining bonds from the design-builder.
Closing thoughts
PDB is an excellent option for complex projects with design and/or construction challenges, where the design-builder can provide very early input on design or constructability issues. Complex projects also benefit from high level, intense collaboration and teamwork. As complex projects are difficult to price, PDB’s collaborative, open book pricing allows the parties to make more realistic pricing assumptions with a better understanding of the risks involved. Despite these features, there are key contextual factors and contractual issues involved in proceeding with the PDB model.