CHANGING THE PROCUREMENT PROCESS CHANGES THE DESIGN PARADIGM

In 2007, NREL selected Design Sense as a consultant to put together the acquisition plan and the request for proposal (RFP). Dave Shelton provided the information and perspectives in this section, which has been edited for length.

Design Sense wrote Appendix A of the RFP, which is the conceptual document and has three component parts:

1 Procedures 2 Project program

3 Performance specifications.

Inside the performance specifications are quality-control substantiation elements—elements that the design-build team has to submit to demonstrate compliance with certain programming and performance elements.

The 3PQ Process

Design Sense has a process called 3PQ, which stands for procedures, program, performance, and quality assurance. The procedures section represents who does what, to whom, and when. It has several attributes, but most of them focus around the management of a project.

1 Procedures: Oftentimes we think of projects being just design and construction, but there’s a whole management and collaboration and coordination that has to be established as well. That’s the procedures section.

2 Program: There’s no mystery there, it’s just a project program: the quantitative measure of the scope of the work.

3 Performance: The performance specification is the qualitative measure of the program. A program could have six conference rooms to support twelve people in each room. That would be the quantitative measure. Under the qualitative measure, we would go into the criteria for those rooms in terms of lighting levels, acoustic treatments, ventilation, ambient temperature control, IT tech - nology, etc.

4 Quality Assurance. The “Q” in 3PQ is basically substantiation: the submittals and requirements of documentation required by the design-builder to be given to the owner, so that the owner can measure with a regular iterative process that the project is being designed and constructed in accordance with the performance criteria.

We create flow diagrams for the 3PQ process. Basically, it starts off at the very beginning before what we call the project definition phase, where we go through a risk and reward analysis. We identify the objectives. It’s a 40,000-ft overview.

The second phase we call “procurement model development.” Basically we identify what the goal is, the risks associated with that goal, the restrictions to contract methodology. We put all of that together, and that creates a facilitated process of how we structure the procurement. Is it a request for qualifications (RFQ) or request for proposals (RFP) process? As it turns out on the NREL RSF project, they selected three teams [under an RFQ process] and then received their proposals [in response to the subsequent RFP].

Following the RFQ phase we developed the RFP, with all of the little details. On this project, NREL knew a lot about about energy efficiency; there is a building technologies group [at NREL] that understood they could get EUI down to 25,000 BTU/sq ft/year. So we took that information and integrated it into the performance criteria for the competition.

When the RFP was put together, based on submitted qualifications, NREL had reduced the selection to three teams, and then each of those three teams got the RFP in draft form, so they could see the goal of the project. When we put out the final RFP, it was structured with procedures, program, performance criteria, and quality assurance measures, and the objectives and scope of the project with all priorities divided into three groups.

The 3PQ process is an inversion of the traditional acquisition method. In “design–bid–build,” owners hire an architect and they put together a defined scope of the work, what the project is in very detailed form, then it’s put out to the market to bid on, and various prices come in. Usually the lowest qualified price is the one that’s taken. That’s a fixed-scope, variable-price model.The scope is fixed, but the owner is faced with varying prices.

The Fixed-Price, Variable-Scope Procurement Model

We take that model and we reverse it. We start with a fixed price— in the case of NREL, $63 million—and that doesn’t change. In the 3PQ process (it’s also called “preferred price priority queue”), for that preferred price of $63 million, here is a queue, or list, of prioritized elements. We work with the owner in a brainstorming exercise where the objectives get written out. Then we arrange them in order of which are required and which are optional.

Any time we start one of these exercises, we found that owners can tell you all kinds of things that they want. But they really only know what they want when they can truly identify what they’re willing to give up to get certain other things. That’s the idea of prioritization. In their minds, at the time when NREL prioritized that work, they chose net-zero energy to be great if they could get it, but they weren’t willing to give up higher-priority things to get it.

Those are broad-scale objectives. During the solicitation, when the design-builders had to submit proposals, they had to write a narrative for each of the objectives that they had selected, in terms of what they would provide. At a fixed price, the design-builder chooses the scope. They go through that checklist and check off which of those things they’re going to achieve. The program, which is the quantitative measure, prioritized three categories: mission critical, highly desirable and “if possible” criteria.

Through the architectural program, NREL prioritized various offices and conference rooms. Likewise, the proposers had to check off in their proposal which of the quantitative elements they included. In the end, there is a fixed-price, variable-scope project, rather than a fixed-scope, variable-price.

It assures two things. It assures the owner that for their budget, which is finite, they’re going to meet their mission-critical goals, the base level of need. The competition between the design-builders is a competition against scope, not a competition of price.

Every owner has a different definition of what quality means. Because the owner has a priority queue, they’re able to communicate to the competing firms what’s important to them. In that regard, I think NREL and the US Department of Energy would say all of the proposals had value. The process also gave them three completely different options. They paid stipends [to the losing teams] because they wanted ownership rights for the two unsuccessful offers.

Design-build is very much a growing trend. I think there’s a chal - lenge on the education side. Owners must control the project outcome. This is a different paradigm; it’s a complete shift over traditional “design–bid–build,” so naturally it takes some education on the owner’s part to understand. It takes a little while to understand that the project outcome on the back side can be superior to other delivery methods if you pick the right team and you’ve got the right criteria put together [on the front side]. It’s very much a growing trend. We’ve done this on more than 100 projects. It works for any kind of project. It’s not sensitive to the project type, just the contractual make-up.

The key to this is the understanding that with a procurement model inversion, you’ve got a fixed price and a variable scope; that scares a lot of owners. Because you must select a team and move forward on a project that is not bound by a set design. When these teams submitted [their proposals], they only completed maybe 10 percent of the design. So that [approach] demands of the owners that they prioritize their scope and objectives properly and that they qualify the teams that are coming in. What you have instead [of a set of plans] are performance metrics that any number of design solutions could satisfy. The RFP doesn’t say what something must be, it says what something must do and the design-builder gets to choose how it must be.

Congressional appropriations limited the building construction cost to $63 million, or $259 per square foot. The Congressional appro - priations did not include a net-zero building. There was a base scope, and they used some metrics to establish the $63-million price tag for the building. That $63 million didn’t have the specific objective of being net-zero energy, which was one of the lowest-rated priorities. Yet NREL accomplished that goal because the design-build team worked collaboratively with the owner and the builder.

Phil Macy [of Haselden Construction] always made a great point. He said that he got out of the way, sat in the corner, and let the energy engineers start the beginnings of the project solution.10_{He knew that}

one of the owner’s big concerns was driving down the energy con - sump tion of the building. Architects don’t take a back seat to too many people. [In this project,] to his credit, the architect allowed the energy guys to state what they needed the building to be in order for them to keep energy costs low. That’s how the project design took place.

Haselden used what they call “cost transfer.” When they took cost out of mechanical and electrical demands on the building, they took

that cost savings and put it back in to other architectural features, so they accomplished more of the objectives on the checklist.

Because the owner doesn’t state what the solution is, this project puts the designer and builder together with the owner so they can collaboratively work out the solutions for the trade-offs. Here’s one of the shocking things they found out about the building afterward: when they brought the energy demand down on the building, all the pumps, fans, duct sizes, and all of that stuff, started reducing in size as well, because the owner managed plug loads so well, there wasn’t a need to build heavy-duty air-conditioning systems because the building wasn’t heating up.

You’ve got to get the designer, builder, and the owner all working on it collaboratively, but the box they must work within is the RFP. That establishes performance criteria. It limits the cost to $63 million. It establishes performance specifications relative to acoustics, tempera - ture control, IT, security, interior finishes—everything. So it’s a whole- building design concept rather than a prescriptive specifi cation. The owner’s protected, because the performance criteria must be met. In this case, it included all of the project objectives.

Early on, when the three shortlisted teams started the competition, we brought the three teams together, gave them the draft RFP and asked them two questions: First of all, do you believe that the expectations and the objectives of RFP are clear? Do you understand them? Secondly, do you believe that the project is achievable? By that we mean particularly are the mission-critical objectives achievable? Do you think we can get some of the other objectives and programs— the highly desirable and if possible [objectives]? So it’s a dialog with the marketplace.

At the particular point when you’ve got the shortlist of teams, you’ve really got to communicate, “we’re not trying to ‘get you’ with any - thing; we truly want you to pick the scope of the work, and we promise we won’t change these performance expectations during the process.” Normally, the design is a trade-off conversation [but] because the goal is to meet the base performance criteria within the $63 million price tag, there are no change orders in this process by definition. A change order is traditionally a change to the drawings and specifications in traditional design–bid–build. Here, because the owner doesn’t provide drawings and prescriptive specifications [to the contractor], there’s nothing to change.

After [it placed the contractor and the architect] under contract, NREL allowed them to develop the preliminary design completely so they could validate that they could do the project within the budget of what they had promised during the selection. They still had risk, because if they bailed out during the development of that preliminary design, they would only get paid 50 cents on the dollar [for their effort]. That two-step process at the front end benefited both sides.