Happy Thanksgiving from the Division 4 Triclinium.  

We are grateful for your interest in sharing ideas about construction law and project delivery systems.  We are thankful you are reading.  Thanks for spreading the word.  

I'm enjoying the smells of turkey, yams, and pies in the oven, my mother sitting in the open doorway soaking up a sliver of sunshine, my daughter heading out for a walk with her cousin and dog, my wife running herd on all that needs organizing for receiving the rest of the horde later this afternoon.  Life is good and I'm a lucky and happy guy.  I wish you and yours the same.  

Why, Oh Why, Can't We Have Better Metrics? Sales Puffing Division.

Why, oh why, can't we have better metrics from public projects.

Developing good metrics entails some work.  Private owners usually don't have multiple projects to compare, they may want to keep their cost information private, and they don't want to pay to gather meaningful information after the fact.  Once the project is done there is no glory in second guessing that it could have been done better some other way.  So private owners are left to the hype of contractors touting their pet delivery model to gain a competitive marketing advantage.

It shouldn't be that way on public projects.  Universities, cities, states, federal agencies, all should have strong incentives to develop metrics and develop data bases to compare projects and what really works best.  University construction management programs and engineering schools are in a prime position to develop this data.  They should have a mandate and receive funding to do it.  They should compare notes, and they should publish.  It's not happening.   So we are left to the hype of contractors touting their pet delivery model to gain a competitive marketing advantage.

Take the construction of a new $58 million clean technology laboratory building at Washington State University in Spokane.  Dave Harrison, Sr. VP at Skanska, has an article in the Daily Journal of Commerce today boldly claiming how "Design Build Cuts Costs for WSU Lab."   Harrison is an alumni of the WSU construction management program back in 1983 and has had reason to pay attention to the campus.

Here's Harrison with the wind-up:

Fortunately, we’re seeing some of the institutions in Washington’s university system start to turn to construction-delivery methods that align with their goals better than the traditional design-bid-build model. This is especially notable at a time when every dollar of public spending is under scrutiny.  Fortunately, these construction methods can also deliver the best value to universities.   A tremendous example is about to get under way at Washington State University. Together, with LMN Architects and other members of the project team, we’re preparing to deliver the new Clean Technology Laboratory Building. ... 

I must say, with that headline announcing cost savings for design-build, and the breathy introduction, I'm looking for some hard data here.  Something more than sales puffery.  We're not getting it ....

In the past, an architect would be retained by the school, designs agreed upon and then handed to the selected contractor to execute. That system often led to conflicts regarding designs and how to execute them, putting all parties at a disadvantage as they scramble to build lines of communication, slowing the entire delivery process. ....  For the clean-tech building, WSU is utilizing design-build and it will make a significant difference for their project, helping head off some of the traditional construction trouble spots. By working together as one team, the contractor, architect and key engineering partners can identify constructibility issues in the design well before they become an issue in the field.   This means fewer uh-oh moments where a contractor has to tell an architect and a client that the design they each love needs adjustment. Instead, we are working together to make sure everyone is on the same page before a shovel ever hits the ground. 

It’s easy to see how working this way has the potential to speed up the schedule. It also gives everyone from the board of trustees to taxpayers peace of mind that they are getting the best value for their dollars.  ....  

In other words, hire us and trust us!

Alternative delivery methods have been put to use at the University of Washington as well. The GC/CM method was used to deliver the renovation of the Husky Union Building last year. That project required a significant amount of preservation of the original building. Additionally, by bringing more parties to the table to plan, we were able to minimize campus disruption while the project was under way. GC/CM also allowed us to significantly increase the efficiency of delivery. 

What can work at the UW and WSU can work in other places. All universities should consider the value of alternative delivery methods and see how they can be put to use for the benefit of their campus communities. This is especially true of public institutions at a time when funding is as tight as ever.  Schools, contractors, architects and other stakeholders all stand to gain from the right kind of construction-related collaboration. 

Hire us and trust us.  Skanska, of course, is a great builder and they'll do a good job no matter which delivery system a University may employ.  Will the promise of cost savings and schedule savings be realized in this case?  Or are these just noises from a good contractor touting the latest delivery model to get a leg up in marketing for the next job?  How will we ever know?

Washington State University in this case, and public owners on all jobs, should gather the data, they should share it, and they should publish it. Put those construction management departments to work to study these projects and separate the hype from reality.

Viking Stadium Reaches Financial Close with GMP for Construction

The new stadium for the Minnesota Vikings starts construction this week.   Funding sources for the $975 million project include the state ($348 million), the city of Minneapolis ($150 million) and the Vikings ($477 million). 

M. A. Mortenson has signed a GMP contract in the amount of  $763 million.  The team has announced it plans to close on financing for its share of the project cost before the end of November, and the state will conduct a bond sale in January for its portion.  The project is scheduled for substantial completion in July 2016.  If we care to count, this represents $24.6 million of work in the ground every month over the 31 month schedule!

Mortenson plans to self-perform $110 million of concrete work (~14% of budget).  Mortenson's fee at $12.5 million is a slim 1.6% of budget.  The local MBE/WBE commitment is 20 percent. 

The roofing steel is special 65 Grade steel to be manufactured in Luxembourg.  The balance of the steel order (~7,000 tons, 65%) is domestic.

Mortenson and it's construction partner Thor Construction claim they spent 16,000 hours in pre-construction.  The request for proposal was issued in late September 2012, and Mortenson/Thor were selected on February 15, 2013.  In other words, pre-construction involvement by the contractor was not that heavy (~8 persons over a year).  Mortenson, founded in 1954, is one of the country's larges privately held companies, with 2011 revenue of $2.47 billion (Forbes)

The Architect for the Project is HKS Architects.

Young Communists Grappling with the Toyota Production System in Nikita Krushchev's Russia

I'm reading "Red Plenty" by the British writer Francis Spufford.  It's about the mid-20th century moment when the Russians truly believed, for a moment, that their socialist vision of plenty might actually come to pass, that they might overtake America and sit on top of the heap.  It vividly portrays real and fictional characters grappling with some of the problems of pulling this off.  

Turns out some of what they were grappling with resonates with our challenge of making construction projects more efficient.  Take this short dialogue;  it's just-in-time delivery, long before the Toyota Production System:

(The scene is a cocktail party.  Two young mathematicians, handsome Valentin and nerdy but enthusiastic Kostya, are chatting up a slightly older, attractive fruit fly geneticist)

Kostya:  'So the economic task is to allocate our limited resources in the most efficient way possible.  The socialist economy tries to do that by pushing factories to do more every year.  But here's the catch.   We don't want them to do more.  We really want them to do the least they can possibly do that will still fulfill the plan.  Yet the targets they're given don't make that possible.  The target for a transport enterprise, for example, is given in ton-kilometers.  They're supposed to move the greatest weight they can over the greatest distance they can--which is hopeless, it should be exactly the other way around, so long as everyone who needs stuff moved is happy.  We need new targets.  And luckily, thanks to Valentin's boss, Professor Kantorovich, who is standing just over there, the mathematical means exist to create them.'  

Attractive fruit fly geneticist:  'Not ton-kilometers?  

Kostya:  'No; and not kilowatt-hours of electricity either, or liters of refined gasoline, or square meters of spun nylon.  Did you know that last year more than half of the hosiery delivered to shops was sub-standard?'   

Attractive fruit fly geneticist:  'Let's say that I had an anecdotal appreciation of that fact, from trying to put some on.'  

Valentin:  'Kostya really knows how to talk to girl, don't you think?' said Valentin.  'No, no, go on: league after league of malformed stockings….'  

Kostya:  'The point being that it was incredibly hard for the stores to send the bad stuff back to the knotting mills, because it all counted towards their output targets.  What we need is a planning system that counts the value of production rather than the quantity.'  

And that's what we need on construction projects.  With traditional fixed price contracting,  the schedule of value is like the ton-kilometers of a transport business; like the factory under a quota, individual contractors like the hosiery factory are not easily inclined to tear out and redo defective work; like the goal for the Russian economy, the goal is to produce value.

And so here I will paraphrase for our purposes ….

Attractive fruit fly geneticist:  'The value to whom?'

Valentin:  'Good question,' said Valentin.   

Kostya:  'Not just the value to the [Trade Contractor], or even to the consumer, because that only gives you [low bid fixed priced contracting] again, surging to and fro, doing everything by trial and error.  It's got to be the value to the whole [Project]; the amount it helps with what the whole [project team] is trying to do in [the planned construction] period.   

No, "Competitive Bidding" is not a Popularity Contest, Why do You Ask?

Every once in a while we run across a case in the advance sheets that stands out in its moral clarity, soundness of reasoning, and wisdom of disposition; a case that stands as a beacon of all that is good about the rule of law.  Eel River Disposal Resource Recovery, Inc. v. County of Humboldt  2013 Cal. App. Lexis 894 is such a case.

Eel River Disposal addresses the abuse of a competitive bidding process for a 10-year exclusive franchise to collect and dispose of solid waste in the Willow Creek area of Humboldt County.  Willow Creek is the Big Foot Capital of the world, marijuana country.  We have a friend who teaches cello in the region.  All her students come from parents involved in the marijuana trade; they are the only ones with stable, reliable, and disposable incomes.  The legal no mans land of the marijuana trade makes the culture secretive.  All is not what it seems.  The lawlessness is apparently infectious.

For 37 years Humboldt County had awarded an exclusive franchise to collect solid waste in the Willow Creek area to Tom's Trash.  In 2010 the County elected not to renew the contract amidst findings that Tom's Trash was delinquent in submitting franchise fees and otherwise not in compliance with the terms of its contract.  The Board of Supervisors directed the Department of Public Works to competitively bid a new solid waste franchise for the Willow Creek Area.

The DPW published selection criteria in a request for proposals, with price being the predominant factor for selection.  Four companies responded, including Eel River and Tom's Trash.  The DPW duly ranked the proposals and recommended an award to Eel River:

[I]n the minds of the three members of the review committee …[Eel River] "hit all the buttons."  It not only "scored 100% on the evaluated criteria identified in the RFP," but also offered "the lowest cost to the community and a reasonable cost for adding curb-side recycling availability to the community and even with the curb-side recycling, they are still the lowest cost provider. 

Tom's Trash tied for last place in the DPW's evaluation.

So what happened?  Shortly before the hearing on award of a contract to Eel River Supervisor Ryan Sundberg, whose district includes Willow Creek,  distributed packets to other members of the Board containing letters from residents supporting an award to Tom's Trash.  At the hearing, the board,  without making a finding that dispensing with competitive bidding would be in the public interest, ignored the bidding process and awarded a contract to Tom's Trash.   The county counsel did her best to accommodate the whim of her client, apparently without a word of caution.

Eel River filed for a writ of mandate that the Board had a duty to award a contract to Eel River as the lowest responsible bidder.  The trial court denied the writ application, finding that the phrase "competitive bidding" in the relevant county ordinance did not imply a requirement that the county award a contract to the lowest responsible bidder.

The court of Appeal came out swinging:

 As we shall explain, the trial court's confusing analysis fails to properly inquire into the ambiguity of the phrase "competitive bidding," fails to consider substantial extrinsic evidence bearing upon the meaning of that ambiguous phrase, fails to recognize that section 40059 and 49201, which are both part of the 1989 Act and in pari materia, can readily be reconciled, misapplies Cypress Security and ignores important policies regarding the letting of public contracts and settled principles of statutory construction.   As we shall explain, the court's ruling renders section 49201, subdivision (c) and subdivision (a)(2) of Humboldt Code section 521-6 meaningless and vindicates a grossly unfair bidding process that would invite the very favoritism, fraud and corruption the law relating to the letting of public contracts is designed to prevent.  

It's possible to view this case as "Forget it, Jake.  It's Chinatown," as Shuan Martin (professor UCSD law school) does.  But I think the case is more important than this quip would suggest.

• The case holds the Board, County Counsel, and Superior Court judge accountable, and does so with a very solid explanation of what's at stake with public bidding laws.   It teaches by example.
• The case provides a great review of statutory construction and why these doctrines are more than just words to be employed in rationalizing an outcome.

In California, as elsewhere, there has been a general eroding of competitive bidding standards as public entities have struggled to gain more control over the selection of their contractors for projects.  This sentiment is contributing to the movement towards design-build and public private partnerships.  But this sentiment is also driving more questionable practices like using lease-lease-back schemes to avoid competitive bidding.  If, or should we say when, the legality of lease-lease-back without competitive bidding makes it to the Court of Appeal in California, this decision will be prominently discussed.  

The Remedy

The court's adopted remedy is also interesting.  Rather than hold "the board called for competitive bids and Eel River was the successful bidder, ergo a contract must be awarded to Eel River," the court remanded this case to the trial court.  The trial court, having been sharply rebuked, will now have to decide whether the granting of injunctive relief is practical (as the Court of Appeal strongly suggests it is).  In addition, the Court of Appeal seemed to leave the door open for the county to make an end run and keep the contract with Tom's Trash by making a public finding that this is in the public interest and that competitive bidding is waived--as allowed by Humboldt Code Section 561-2 (and CA Public Resources Code Section 40059).  This would not be an easy finding to make in light of the facts outlined by the Court of Appeal.  Such a finding might bring into focus constitutional limits on a public entity's discretion to declare something in the public interest in the absence of any cognizable facts.

The case is wise because it does not force a decision on the parties, but strongly sets the scene for the court and the county to do the right thing in this case, and perhaps the next time.

Time will tell.

Is P3 for Infrastructure, and Design-Build for Buildings?

Judging by Jim Parsons article in ENR, September 16/23, 2013, P3 projects are currently focused on road and transportation projects, and there is not much evidence that P3's are breaking into vertical construction:

• $1 billion, 29 mile I-95 Express Lanes in northern Virginia 
• $360 million second phase of the Presidio Parkway, San Francisco
• $840 million , 29.7 miile Nortwest Corridor covering Cobb and Cheorkee Counties, GA, 
• $1.5 billion replacement of Goethals Bridge, Elizabeth N.J. to Staten Island, N.Y. 
• $5.9 billion 21 mile I-4 Ultimate project in Orlando, Fl scheduled to begin next year

Meanwhile, the State of Nevada is undertaking its first P3 with Project NEON in Las Vegas, a  3.7 mile stretch to improve U.S 95/I-15 interchange.

Indiana DOT is looking for private investors to help build segments of I-69, a north-south shipping corridor in the southwest of the state.

As reported here, Maryland is pursuing P3 for its 16 mile Purple Line light rail link.

Jeff Levy, President & CEO of New York based Rail-Works predicts Baltimore's proposed Red Line and D.C.'s street car system will go P3.

Are we seeing infrastructure moving towards P3 and building construction moving towards design-build?