Environmental liabilities are the black sheep of the balance sheet. They are expenses that companies are, by law, obligated to fund, report and remedy, but which never result in a return on investment. Arguably, restoration of property value could be considered ROI, but that’s just recouping the lost value of an existing asset.
Because remediation programs are funded from the operating income of the company’s balance sheet with no ROI, there is constant pressure from accounting departments, C-suite executives and managers to drive down the cost to get a site to closure, while still meeting the obligations of various state and federal closure requirements.
“How can we get to closure as quickly and cost effectively as possible to make this liability go away responsibly?”
Traditionally, programs designed to remediate soil and groundwater problems have been executed in a design-bid-build (DBB) delivery system. The DBB procurement process helps eliminate the perception of a potential conflict of interest wherein the designer is also the constructor, even where a conflict may not exist or where collaboration among engineers and builders is essential to refining and prescriptively specifying the solution to a remediation challenge.
The linear DBB process uses a multistep design approach, inclusive of detailed engineering drawings and specifications to competitively procure construction services after the design is completed and accepted by the owners and/or the regulatory agency(s). Acceptance by the owner is an inherent risk transfer mechanism, whereby most of the risk is transferred to the owner for construction of the “accepted” design based on an engineering “Standard of Care” metric.
The conventional wisdom behind the DBB delivery is to use competitive procurement to drive down the costs to complete a remedial action.
“Competitive procurement?” That must mean the absolute lowest market price and the best value for the project, right? Maybe. Maybe not. It depends on the definition of “value.”
If value is defined as the lowest initial construction cost, then yes, DBB is a “competitive” delivery method. If value considers elements such as life-cycle costs, delivery efficiency, innovation, value engineering, streamlined remedy completion and reduced remedy risk, then lowest initial cost generally does not equate to “value.”
One of the pitfalls of a DBB process, especially in the remediation realm, is that most of the work is conducted below ground, where significant unknowns may exist that were not uncovered or defined during design and investigation activities. In many cases, these unknowns are managed during the construction program through change orders, unexpectedly increasing costs and adding time after revising the design and detailed construction specifications.
Despite broad acceptance as the conventional “way things are done,” the challenges of applying DBB to complex projects with high change order potential is well recognized. In response, design-build (DB) approaches have evolved for all sorts of infrastructure development to better manage risk transfer, create collaboration, ensure accountability for performance, and save time. Design-build allows owners to shift from a Standard of Care performance metric to actual performance parameters, providing a higher level of certainty that a project will function as intended. Design-build is especially attractive for remediation projects where a less-specific design-engineering program can be combined with a more flexible construction approach to anticipate and effectively manage unpredictable site conditions.
The most beneficial opportunity for improving remediation project delivery has been realized as highly prescriptive, fixed-price DB models evolved to more flexible DB variants. Most notably, the Progressive Design-Build (PDB) approach supports the collaboration and design iteration that is essential to managing sub-surface unpredictability. PDB relies on a process during which the owner, engineer and contractor work together during the design process to define project goals early, and then to perform constructability reviews and cost estimate revisions at key design milestones. This “progressive” development of scope and cost creates value from design iteration, quantifies and assigns risks as they are understood and progressively refines the scope of work to meet project objectives. With a design-builder selected on a combination of qualifications and fee and engaged from the outset of the project definition process, project risks can be managed and shared instead of being held by primarily by owners as is the case for DBB projects.
For example, a PDB program was implemented to design and construct a hydraulic containment system in southern New Jersey. With a breakaway plume potentially impacting downgradient residential homes, the project included design, construction and startup of a remote, automated hydraulic containment system with multiple extraction wells and a mile-long forcemain.
The forcemain, which crossed through residential areas and under state highways via directional drilling, was installed to convey water from the extraction system to the treatment plant, facilitating capture of the plume before impacting the downgradient residential homes. Instead of completing a detailed design/specification package and then bidding out the job with a risk of subsequent change orders, the project was delivered by a design-build team that interactively solved the subsurface challenges and accurately estimate the cost of the solution from the outset. Then, the PDB model supported agreement on a fixed construction price and a single version, Issued for Construction design. Time savings results from the fact that the Issued for Construction design was used to release long lead-time materials and initiate fieldwork while the final design details were completed.
Once the design and construction solution and the accompanying price was agreed to, the project moved to construction based on a guaranteed maximum price basis with a shared savings provision. Ultimately, the project was delivered on-time, on-schedule and the Owner received a 5 percent credit due to value engineering during construction.
“But we have been using DBB for years, why shift to DB?” When asking yourself this question, think about value. As an owner, a responsible party or even a consultant/engineer, think about your last sizeable remediation project and ask yourself:
- Could costs have been reduced through an iterative design effort? Streamlined schedule?
- How about change conditions from “unknowns” that could have been managed differently to lessen or eliminate their impact on projects costs?
- Did you have a guaranteed maximum price to complete construction?
Although design-build may not be perfect for every situation, the value in the design-build delivery method boils down to this:
- Mitigating construction risks with early design-builder collaboration.
- Using guaranteed maximum pricing (GMP) negotiations in most PDB lessens risk to owners for change orders.
- Reducing costs during development of Issued for Construction design packages, as opposed to detailed Engineering Drawings and Technical Specification packages aimed purely at “equal, competitive procurement” multi-bid scenarios.
- Streamlining the procurement process, which reduces the time frame from final design to construction; this also saves on costs and cuts construction time (and, potentially, time to site closure).
Finally, PDB projects are typically negotiated as “open book” with a fixed risk fee that allows the owners to have a single point of accountability with the design-builder.
With such transparency, is it a case of the “fox guarding the henhouse,” or are we finding more efficient and less risky ways to build a better mousetrap?
Seems to me that the hens are safe, but that the mice should be worried.