Chapter 1 Introduction
Introduction
From 1983 to 1995, I was the supply branch chief for the Arizona Game and Fish Department. Best job ever. In 1992, we embarked on a renovation program for our six fish hatcheries. The Tonto Creek Hatchery was my first attempt at procuring design and construction services, and my first million-dollar contract. Our department engineer was also new to public design and construction procurement, and we learned together.
The Tonto Creek Hatchery was built in 1937 on US Forest Service Land along Tonto Creek, about 20 miles east of Payson, Arizona. At 6,500 feet elevation on the Mogollon Rim, the 50-acre hatchery produces an average of 50,000 pounds of rainbow, brown, and native Apache trout each year.
We procured an engineering firm that specialized in fish hatcheries. Over the next few months, they designed a state-of-the-art facility, with 12 covered raceways, an oxygenation system, and an incubation room for hatching fish eggs. We used the plans and specifications to obtain construction bids and awarded the contract to a very competent contractor. The contractor considered the project a “vacation” and provided travel trailers for his entire crew. They worked construction on weekdays and fished Tonto Creek
on the weekends. Construction was completed on schedule, and we held the ribbon-cutting ceremony with several prominent public officials.
That’s when the problems began.
When the water started flowing, the raceways overflowed, and we were st anding in muck. The engineer blamed the contractor, claiming the pipes were clogged with debris. The contractor ran a camera through the pipes and found them clear of obstructions. After considerable head scratching, the engineer suggested adding an additional pipe. Another 12-inch-diameter pipe for each raceway for another $200,000 “might” work. “Engineering is an art, not a science,” the engineer explained as he proposed his fee for a revised design.
We quickly contracted with another engineer for a second opinion. According to his calculations, the raceway piping diameter should have been at least 20 inches, pushing capacity to more than double the original 12inch pipes. Calculating water flow is science, not art. We fired the original engineer, excavated, replaced the pipe, and the hatchery was finally ready to raise fish.
That’s when the real trouble started.
We filed a claim against the engineering firm for the additional construction and design cost, and the engineering firm filed a claim against us for terminating the contract and defaming its stellar reputation. “Engineering is an art, not a science, and we designed the facility within the normal standard of care of the engineering profession,” claimed the chief engineer. The chief engineer even blamed us, complaining that we should have checked his calculations. The dispute lasted for several months and was often heated. We eventually negotiated a settlement, but the engineer went bankrupt.
Our engineer and I learned many important lessons in our first experienc e with procuring public design and construction services. The first lesson: Procuring design and construction is different from procuring commodities and services.
How Is Public Design and Construction Procurement Different?
What makes public design and construction procurement different from procuring goods and services? The procurement principles and many procurement laws and practices for procuring design and construction are the same as for buying goods and services. The need for ethics and integrity are equally important. We cast a wide net to pursue maximum competition and achieve a fair and reasonable price. We ensure that the procurement process is fair,
equitable, and transparent, and the selection of the winning contractor is based on sound logic and carefully documented.
However, there are many differences, and some may seem confusing and even counterintuitive. In most jurisdictions, and when using federal funds, price cannot be a factor in the selection of an architect or engineer. Like the fish hatchery, there is no guarantee that the design will work. We may need to verify that wages paid to construction workers comply with federal or local prevailing rates. Failing to obtain a payment bond could result in claims from suppliers and subcontractors, and special insurance is required for the designer and contractor.
Most purchased goods are mass-produced in controlled environments. Construction is performed in the field with unknown conditions and constraints that may delay performance or add to costs. Construction designs are untested, providing for some uncertainty as to the outcome. Because of this uncertainty, changes are common. Construction projects may take months or even years to complete, presenting many opportunities for delay, cost increases, and disagreement.
A Building Boom
Construction projects may also be massive in scale, scope, and cost. Government agencies invested $355 billion in construction projects in 2022,1 ranging from small office remodels to airport expansions and commuter rail projects. El Paso, Milwaukee, Oklahoma City, and St. Louis were building streetcar projects in 2018. The Dallas Area Rapid Transit (DART) started constructing a $1.2 billion 26-mile “Silver Line” commuter rail system in 2019 that, combined with the Fort Worth Trinity Metro “Tex Rail,” will connect Dallas to Fort Worth and DFW Airport.2 Along with many other projects, DART is planning for the Design-Build construction of a $1.94 billion subway.3
The New York City MTA is seeking $54 billion in local and federal funding to renovate and upgrade its subway system.4 North American Rail, a seven-state “mega-region,” is planning a $105 billion high-speed commuter rail system that will speed passengers at 200 mph between Boston and New York City.5 Other proposed high-speed rail projects include the $24–42 billion Cascadia linking Vancouver, Portland, and Seattle,6 and a $105 billion, 500-mile bullet train between Los Angeles and San Francisco.7
Public construction projects can be incredibly complex. The 1.9 million square foot LEED Platinum Mercedes-Benz Stadium signature roof opens and closes like a camera aperture and features retractable seating, floorto-ceiling windows that overlook Atlanta, and a 360-degree “halo” video
display.8 The proposed North American Rail project includes a 16-mile-long tunnel and another tunnel under Boston’s “Big Dig.”9
Construction projects can require multiple years to complete. It will take 20 years before passengers ride the North American Rail from New York City to Boston.10 DART began planning its second downtown subway in 2007, with revenue service planned for 2025.11
Construction complexity can range from simple task order or job order contract projects to complex systems, requiring multiple contracts for design, construction, and equipment. The DART Silver Line rail project includes the procurement of Design-Build construction of 26 miles of heavy rail, a hike and bike trail, an expansion to an equipment maintenance facility, program management services, and the purchase of commuter rail vehicles and associated maintenance—all totaling more than $1.2 billion.12 Additional contracts for real estate acquisitions, a federally mandated positive train control system, and environmental services are also required for this massive project.
Multiple Moving Parts
Design and construction contracts are more complex and difficult to administer. There may be multiple contracts for design and construction and other requirements that must be administered in harmony.
Construction contracts are more challenging from a legal perspective, with federal and state Davis Bacon laws requiring the payment of prevailing wages to workers, Buy America compliance for materials and equipment, subcontracting and supplier disadvantaged business and employment goals, and other complexities. Construction project delivery methods—including Design-Build and Construction Manager at Risk—add additional levels of complexity and risk to procurement.
Non-traditional financing of public construction projects can contribute to t heir complexity. The Texas high-speed rail project is planned as a public-private partnership (P3), blending private sector investment with federal funds.13 Construction of the $1.5 billion Mercedes-Benz Stadium14 and $622 million Atlanta Braves SunTrust Park15 was funded through various sources, including private investment through P3s. The Atlanta Braves and their SunTrust Park funding partners are also investing $700 million in mixed-use development in the Battery Park community near the ballpark.16 Virginia is spending $1 billion on four I-495 and I-95 highway projects through a P3.17 Other highways and rail improvements are funded partially through lowinterest Federal Transportation, Infrastructure, Finance, and Innovation Act (TIFIA) loans, private investment, and toll revenue. These funding sources bring more complexity, risks, and legal requirements.
Public construction can produce challenges for communities, leading to opposition from some stakeholders. Construction of highways and interchanges can literally divide communities with concrete barriers. Like the construction of railroads in the 19th century, highways connect some communities, while diverting traffic and commerce from others. Extending highways to suburbs may reduce congestion but may also promote suburban sprawl, leading to even greater congestion. New development improves older neighborhoods but can cause gentrification, displacing established residents and businesses.
The Ugly Bus Barn
After receiving a notice of award, a contractor started clearing a site for the new Marshall Independent School District (MISD) bus maintenance facility. The district had outgrown its old bus barn, and the new facility would include parking for 120 buses and a 24,000 square foot maintenance facility. Funding would come from a capital reserve fund and the sale of bonds.
During an MISD Board meeting, several members of the Oak Ridge Neighborhood Association delivered a petition and lined up to speak in opposition to the project. The association brought a lawyer, and speakers threatened to seek a restraining order to stop construction, citing the following reasons:
◾ Bus traffic would cause congestion and pose a safety hazard in the neighborhood.
◾ Noise, dust, and traffic during construction would be disruptive and endanger children.
◾ The unsightly facility would reduce property values.
◾ The neighborhood was not consulted on the facility and learned about construction through a news article.
What impact might this community opposition have on the project? What can the district do to address the concerns of the neighborhood association?
Community meetings early in the planning process would have provided some transparency and allowed the school district to address citizen concerns. It may not be too late for public meetings. There may be several things the district can do to alleviate the community complaints. The district could work with the city to design better access to route bus traffic away from the
neighborhood. The district also might consider designing an attractive facility and include a community center or green space. Finally, the district should emphasize the value the facility may add, including new jobs and increased business for local stores and restaurants.
Aligned Principles: The ABA Model Procurement Code
Fortunately, the procurement of public design and construction services is based on the same public procurement principles as for commodities and services, as stated in Section 1–101 of the 2000 American Bar Association (ABA) Model Procurement Code for state and local governments:
◾ To provide for increased public confidence in the procedures followed in public procurement
◾ To ensure the fair and equitable treatment of all persons who deal with the procurement system
◾ To provide increased economy in procurement activities and to maxim ize to the fullest extent practicable the purchasing value of public funds
◾ To foster effective broad-based competition within the free enterprise sy stem
◾ To provide safeguards for the maintenance of a procurement system of qu ality and integrity
◾ To obtain in a cost-effective and responsive manner the materials, services, and construction required by agencies in order for those agencies to better serve businesses and residents
Aligned Principles: The NIGP Code of Ethics
Likewise, the NIGP (Institute for Public Procurement) Code of Ethics applies to procurement of public design and construction services, as it does to the procurement of commodities and services:
The Institute believes, and it is a condition of membership, that the following ethical principles should govern the conduct of every person employed by a public sector procurement or materials management organization:
◾ Seeks or accepts a position as head (or employee) only when fully in ac cord with the professional principles applicable thereto and when
confident of possessing the qualifications to serve under those principles to the advantage of the employing organization
◾ Believes in the dignity and worth of the service rendered by the organi zation and the societal responsibilities assumed as a trusted public servant
◾ Is governed by the highest ideals of honor and integrity in all public and personal relationships in order to merit the respect and inspire the confidence of the organization and the public being served
◾ Believes that personal aggrandizement or personal profit obtained th rough misuse of public or personal relationships is dishonest and not tolerable
◾ Identifies and eliminates participation of any individual in operational situations where a conflict of interest may be involved
◾ Believes that members of the Institute and its staff should at no time, or u nder any circumstances, accept directly or indirectly, gifts, gratuities, or other things of value from suppliers, which might influence or appear to influence purchasing decisions
◾ Keeps the governmental organization informed, through appropriate channels, on problems and progress of applicable operations by emphasizing the importance of the facts
◾ Resists encroachment on control of personnel in order to preserve integrity as a professional manager
◾ Handles all personnel matters on a merit basis, and in compliance with applicable laws prohibiting discrimination in employment on the basis of politics, religion, color, national origin, disability, gender, age, pregnancy, and other protected characteristics
◾ Seeks or dispenses no personal favors; handles each administrative problem objectively and empathetically, without discrimination
◾ Subscribes to and supports the professional aims and objectives of NIGP: The Institute for Public Procurement
Construction Definition
Because different laws, regulations, and practices apply to procurement of public design and construction that may not apply to other procurements, it is essential to understand the legal definition of public construction. Construction is the process of building infrastructure. The ABA 2000 Model Procurement Code for State and Local Governments defines “construction” as:
The process of building, altering, repairing, improving, or demolishing any public infrastructure facility, including public
structures, public buildings, or other public improvements of any kind to real property. It does not include the routine operation, routine repair, or routine maintenance of any existing public infrastructures, buildings, or real property.
The NIGP Dictionary of Procurement Terms defines construction as:
The process of using labor to build, alter, repair, improve, or demolish any structure, building, or public improvement; generally does not apply to routine maintenance, repair, or operation (MRO) of existing real property.
The definition for construction, often also called public works, may vary by st ate and community, and the difference may be significant. It is important for the procurement professional to know and understand the legal definition for construction that applies to the specific jurisdiction and funding source.
The Design and Construction Process
On any given day, governments are seeking bids or proposals for the design and construction of:
◾ Disaster and environmental clean-up projects
◾ Power production and transmission facilities
◾ Wastewater treatment plants
◾ Schools and universities
◾ Sports facilities and playgrounds
◾ Roads and bridges
◾ Transit facilities
◾ Dams and reservoirs
◾ Levees and pump stations
◾ Computer facilities
◾ Fire and police stations
◾ Airports
◾ Equipment maintenance facilities
◾ Prisons
◾ Office buildings
◾ Facility repairs, renovations, and upgrades
Design and construction projects involve a planned sequence of many concu rrent and consecutive activities intended to achieve a defined outcome.
The construction process begins with a vision and plan. New neighborhoods require schools, parks, fire stations, roads, and public transportation. As communities grow, wastewater plants require upgrades and expansion. Public buildings require repair and renovation as they age. Highways and bridges need repair, replacement, or expansion for public safety and to relieve congestion. Planners project growth patterns and develop long-term community plans. Engineers and project managers estimate the cost of various alternatives. Finance and budget staff determine project funding requirements and revenue and financing sources.
Once the funding authority appropriates or budgets the funds, a project ma nagement team assembles to plan the project. Planners evaluate potential sites for public facilities or corridors for roads or utilities to determine the best location or route. Planning conducts community meetings and public hearings for transparency and citizen involvement. If necessary, real estate is acquired from businesses and citizens or provided by developers. Engineers evaluate the site for hazardous materials, impact on drainage, and other state and federal requirements. Preservationists and environmentalists examine the site for historic significance and potential disturbance of endangered habitat and species. Civil engineers locate and map water, sewer, and other utilities so they can be avoided or moved during construction.
The project management team, along with the contracting officer, determines the project delivery method. The equal opportunity manager sets goals for disadvantaged or minority- and woman-owned business participation. Procurement prepares and issues the solicitation for design services. After proposals are received in response to the solicitation, a technical evaluation committee recommends selection of the architect or engineer, and the contracting officer negotiates the design contract.
If the delivery method is Design-Bid-Build or Construction Manager at Risk, the architect or engineer will design the entire project in detailed drawings and specifications. If the delivery method is Design-Build, the project management team will prepare preliminary specifications and drawings that the design-builder will complete. The project management team meets with the architect or engineer for each phase of design to ensure that the design meets the government’s requirements and that the estimated cost does not exceed available funds.
The design documents become the scope of work for seeking bids or proposals from contractors. After procurement awards the construction contract, the contractor assembles its team of subcontractors, sets up temporary office and storage facilities, brings equipment to the site, sources construction materials and supplies, and begins construction.
The contract administration team carefully observes construction and te sts materials to ensure compliance with the design specifications. Each
month, the contractor submits an invoice for work completed, which is reviewed by the contract administration team before authorizing payment. When the contractor completes construction and the facility is ready for occupancy or use, the contract administration team inspects the work and prepares a punch-list of deficiencies for the contractor to resolve. When the punch-list is cleared, the facility is accepted by the contract administration team, and all required documents are submitted by the contractor, the project is complete, and the warranty period begins.
A public works project requires a team that represents nearly every part of t he organization:
◾ Planning is responsible for developing plans for community infrastructure.
◾ Project managers and engineers develop the project scope and cost estimates.
◾ Budget and finance officials determine revenue and financing requirements and sources, assign budget codes, and plan cashflow.
◾ The contracting officer procures design and construction and other materials and services needed to build the project. Procurement also administers the design and construction contracts.
◾ Project or construction managers review the plans and specifications and inspect the construction.
Responsibility for Design and Construction Contract Management
The role of the procurement official for design and construction services varies by organization. Ideally, a contracting officer leads the team responsible for design and construction procurement and contract administration. The contracting officer administers the contract, delegating authority to the project manager for testing, inspection, change orders, and other activities, while retaining responsibility for contract actions, including modifications and settling disputes.
In some governments, project managers or others in the public works or en gineering department procure construction and design services, and the procurement department may not be involved. In others, the role of public procurement may differ, depending on the type of construction used. For example, procurement may be responsible for procuring the construction of vertical structures, while horizontal construction procurement like bridges and roads are the responsibility of engineering or public works.
The 2000 ABA Model Procurement Code for State and Local Governments provides a recommended statutory or regulatory template for state and local governments. It has been adopted in some form by many state and local governments. The Model Procurement Code supports a single central procurement authority for the entity, with “relevant and recent experience in public procurement” and responsibility for “procurement of all supplies, services, and construction.” NIGP endorsed a similar centralized procurement policy in a 1989 resolution that was ratified in 1995.
Despite this clear guidance, many governments continue to either exempt construction and design services from public procurement laws and regulations or assign procurement responsibility to the public works, engineering, or other non-procurement business division. NIGP reported in its 2017 Public Procurement Benchmark Survey Report that 19% of public procurement units were not responsible for construction, while another 18% were responsible for some construction procurement but not for all public works.
With advances in technology, the evolution of alternate project delivery methods and private financing, increased focus on security and sustainability, and the public need for transparent and responsible procurement, a central procurement authority that includes responsibility for construction and related services is essential.
Regardless of where the procurement authority resides, the same public procurement principles that apply to procurement of commodities and services must apply to public design and construction.
Procurement Laws and Regulations
The laws and regulations that apply to the procurement of professional services and construction vary considerably among government organizations. It is important for procurement professionals to be familiar with and frequently review the applicable laws and regulations that apply to each procurement and to consult with legal counsel for guidance and clarification.
Both the ABA 2000 Model Procurement Code for State and Local Governments and the Federal Acquisition Regulation (FAR) are frequently referenced in this text. The ABA Model Procurement Code is the standard for more than half of the states and is based on public procurement best practices. In addition to the ABA, the National Institute of Governmental Procurement and the National Association of State Procurement Officials (NASPO) recommends the adoption of the Model Procurement Code.
One might say the FAR is the grandfather of all government procurement law. Although the FAR may not apply directly to state and local government
