Project Delivery Methodologies

A number of times within the body of this Program Management audit report Pegasus-Global has alluded to the need to align the project delivery methodology to the size, complexity, goals and objectives of the specific project or program to be executed by the City. During its review of the City documents and the interviews of a wide range individuals across the public service Pegasus-Global found that there was an almost universal acceptance of being limited to the traditional DBB project delivery methodology. As noted in Section 4.2.1 above Pegasus-Global found no legislative or regulatory barrier to the use of any of the project delivery methodologies generally recognized and in use within the construction industry. It appeared to Pegasus-Global that the primary reasons for the default to the traditional DBB delivery system were that: (1) the Corporate procedures, polices and directives are based on that traditional delivery system; and, (2) the staff at all Levels were the most familiar with and therefore the most comfortable with that traditional DBB delivery methodology.

Pegasus-Global reiterates here that the DBB delivery methodology is a time tested and accepted delivery system throughout the construction industry internationally. However, the industry has come to accept the fact that the:¹¹⁰

… preference for separate design and construction and price-based selection has its roots in historic concerns over fraud and abuse, as opposed to the more current interest in governmental efficiency and cost savings.

As summarized in Exhibits 8(A) and 8(B) to this Program Management audit the industry has come to the realization that the selection of the project delivery system used to execute a capital construction project can have either a beneficial or a detrimental impact to the effectiveness and efficiency with which that project is delivered. From a study conducted in 1999 which compared time, quality and cost elements of the three most predominant delivery systems it was reported that:¹¹¹

… on average, projects delivered using the design-build project delivery system, took 33.5% less time to delivery and had a unit cost 6.1% less than similar projects delivered under the design-bid-build project delivery system. Projects delivered under the construction management at risk project delivery system took an average of 13.3% less time to deliver and had a unit cost of 1.6% less than similar projects delivered using the design-bid-build project delivery system.

Relative quality measures showed that design-bid-build projects on average resulted in the lowest possibility of meeting owner expectations.

Since the late 1990’s when the papers cited above were published extensive work has been done across the industry in an attempt to assist owners in selecting the delivery methodology which most enhances the probability of achieving a project’s goals and objectives. The most common denominator in those studies is the need to closely match the project size, complexity, goals and objectives to the delivery system which provides the best match to those project specific success elements. One of the next most often cited conclusion is that the owner must retain some degree of flexibility in order to “adjust” the project delivery methodology chosen so as to accommodate those elements of the project or program which may be unique to that

110 “Challenges of Implementation: Public Policy and Legislation”, Preston Haskell, Proceeding of the Congress on Managing Engineered Construction in Expanding Global Markets, ASCW, October 1997, page 650

111 “Selecting Project Delivery Systems, Comparing Design-Build, Design-Bid-Build and Construction Management at Risk”, Victor Sanvido and Mark Konchar, The Project Delivery Institute, 1999, Executive Summary

project or program. The need for flexibility is demonstrated perfectly in the City’s street renew capital projects and its CIPP capital projects. The uniqueness of those particular recurrent programs make flexibility of delivery methodology of critical importance to the City from a number of perspectives, from attracting additional bidders to the maximizing the efficiency of administration of the projects comprising those two programs.

Each of the project delivery methodologies has a certain set of dynamics which in effect define that delivery system and each has, as a result, its strengths and weaknesses. However, tailoring the different delivery systems to the specific project is not as difficult as might be supposed; the key is to develop and have a set of parameters established for each of the delivery methodologies to be made available to the Departments, along with a specific statement of which of those parameters are “inviolate” and which are “flexible within reason”. In effect, the Manager of Capital Projects, working with the other Branches and Department would prepare Procedures or Administrative Directives which would address each of those acceptable project delivery methodologies, along with a “menu” of specific processes from which the project could, within reason, deviate with prior permission. The process of introducing the expanded project delivery methodologies into the Department capital project programs should be done systematically, perhaps following a plan under which test projects utilizing those delivery systems could be executed, then using the lessons learned during those test projects to further customize and refine the City’s delivery methodologies and Procedures.

At the current time it appears to Pegasus-Global that the City has a limited and rigidly imposed delivery methodology, traditional DBB, which the Departments believe can only be bypassed in extraordinary circumstances after undergoing an extensive review and approval cycle. As expressed in more than one interview, the feeling is that attempting to deviate from the traditional DBB delivery methodology is too complex and time-consuming to warrant the action except in the most unusual circumstances. Pegasus-Global found that while no procedural or regulatory barrier existed to requesting the use of an alternative delivery system existed a the Corporate or Department Levels, the fact that the only definitive Procedures which existed at those Levels were directly tied to the traditional DBB delivery methodology would tend to support that feeling as expressed during those interviews.

Pegasus-Global found it encouraging that the City is experimenting with P3 as an alternative delivery methodology. However, it would be a mistake to assume that every City project would be best executed under a P3 delivery methodology. Like every delivery methodology P3 has strengths, weakness and its own unique risk profile; again, the goal it to match the individual program or project with the delivery methodology which can best address the uniqueness of that program or project. Based only on the data gained during this Program Management audit, Pegasus-Global identified three project delivery methodologies in addition to the traditional DBB and P3 alternative from which the City might improve its value-for-money ratio:

 Design-Build. This delivery methodology has been in use for so long that by now it is also considered a “traditional” methodology. In simplest form it is simply contracting with a single entity for design and construction of a structure or facility. It’s primary benefits are: (1) single point (one contract entity) responsibility for execution of the project; (2) cost and time savings; and, (3) greater owner to contractor risk allocation (in particular when paired with a fixed price or guaranteed maximum price). The primary risks are the owners need to clearly and concisely define the full scope of work for the project at the time of bid in order to avoid being subjected to a blizzard of change orders while at the same time having to exercise restraint in its “interactions” with the contractor during design and construction in order to avoid interference in the contractors means and methods.

 Construction Manager at Risk. This delivery methodology can be used with either the traditional DBB or Design-Build format, with the Construction Manager essentially acting as the owner’s agent during the project life cycle. Unlike the City’s current use of Contract Administrators, however, a CM at risk has a financial incentive to see the project executed within the time allowed and at the budget set. While this delivery methodology relieves the owner of several management and administration functions, it also requires that the owner avoid excessive involvement in the project during execution of the project.

 Cost Reimbursable with Key Performance Indicators. This particular delivery methodology is best suited to projects in which the following conditions exist: (1) the

technology to deliver the project is well known and time-tested; (2) the scope of work is well defined, understood and, generally, repetitive; and, (3) the basis of material, equipment and labour costs are relatively stable and consistent. This particular delivery methodology does entail the City retaining the cost and schedule risk for the project and so may not suitable for large, complex or one-off projects; however, in situations where the “known is significantly greater than the unknown” cost reimbursable delivery methodologies can function at a positive value-for-money ratio. This is particularly true if the cost reimbursable delivery system is linked to a program of Key Performance Indicators under which a contractor has the opportunity to increase the project margin by exceeding the cost, schedule and quality goals established for the project at the time of contract. Pegasus-Global believes that a cost reimbursable with key performance indicators delivery methodology, if linked with project bundling and other administrative adjustments (i.e. multiple year contracts and short form contracting) may be one way to effectively and efficiently execute repetitive projects such as street renewal and CIPP.

Pegasus-Global acknowledges that the adoption of those delivery system methodologies would have an “investment cost” as the policies, procedures and directives would have to be developed within which those delivery methodologies could be used and must be executed;

however some of that effort has already been expended during the City’s investigation into the P3 delivery methodology. Pegasus-Global also believes that any investment in developing those methodologies in the short term will improve the City’s ultimate value-for-money return over the longer term.