Summer 2023
The Debut of Progressive Design-Build in New York Public Works Projects: Perspectives from owners, contractors, and design firms
Christopher Archer, General Counsel, Chief Compliance Officer and Corporate Secretary at Yonkers Contracting Company, Inc.
Kathy Tuznik, Senior Deputy General Counsel at NYC Department of Design and Construction
Progressive design-build (“PDB”) is generally recognized as a project delivery method in which the owner’s selection of the design-builder is based exclusively or at least primarily on qualifications and experience of the design-build team, deferring price and schedule commitments until the owner and the selected design-builder have collaborated to “progress” the project’s design development toward completion. Based on a recent contract award in compliance with the enabling design-build legislation, it appears that PDB is making its debut among New York public works projects.
While New York State may not have been the first place in the country to adopt traditional design-build delivery for its public works construction projects, in just over a decade since passage of its first authorizing statute, design-build has become widespread in the public sector as New York’s state- and local-level agencies, departments, and authorities have had numerous successes on this front. These include the completion of the Governor Mario M. Cuomo Bridge (Tappan Zee Bridge Replacement), a $4.0 billion design-build project, one of the largest-ever transportation design-build contracts in the United States and the largest bridge project in New York State history.
Now, with traditional design-build delivery well established for New York’s public projects from many state agencies as well as within New York City, New York’s owner-agencies, design-build contractors, and design firms are turning their attention to PDB project delivery method. In doing so, they are evaluating the pros and cons of this delivery method as an additional tool in the procurement toolbox.
By way of background, New York State first authorized design-build for its public projects in 2011 through the passage of the Infrastructure Investment Act (“IIA”) via the governor’s state budget bill. The bill authorized five state agencies, departments[1], and authorities to use design-build for project delivery, originally for a period of three years, which has since been extended.[2] In subsequent legislative sessions, from 2015 through 2020, design-build authority was expanded for use by ten additional state-level agencies, departments, and authorities.[3]
More recently, design-build authority was granted at the local level in New York City, first in 2018, with limited, project-specific authority, including to the New York City Department of Design and Construction (“DDC”) for the Borough-Based Jails program consisting of design-build contracts expected to total approximately $8.7 billion. This local authority was expanded in 2019 with the passage of the New York City Public Works Investment Act (“PWIA”), which allowed five city agencies and two authorities to utilize design-build more broadly for specified categories of projects.[4]
The emergence of progressive design-build in New York State’s public works landscape, however, does not appear to be the result of changes to the existing authorizing statutory framework. Indeed, the state’s 2023-2024 budget – the vehicle through which most of New York State’s design-build authorizing laws have traditionally been enacted – contained no provisions that would expressly authorize progressive design-build nor to otherwise expand traditional design-build to additional state or local agencies.[5] Furthermore, the 2023-2024 legislative session did not produce any legislation that could accomplish these goals.
That said, in February 2023, the New York State Battery Park City Authority (“BPCA”), an authority authorized under the IIA, awarded as a two-step progressive design-build contract for its North/West Battery Park City Resiliency Project, one of several coastal resilience projects to protect lower Manhattan against future flooding from anticipated sea level rise.[6] With no recent changes to New York State’s statutory framework for design-build, it appears that this procurement was spawned through BPCA’s careful use and interpretation of existing law, which does not expressly allow or prohibit progressive design-build, provided that cost/price is part of the best value selection.[7]
While precise definitions of progressive design-build can vary across the industry, a commonly accepted principle is that the design-builder is selected exclusively or at least primarily based on qualifications without a price or schedule commitment from the design-builder at the time of selection.[8] This is a stark difference from the common approach of traditional design-build in the public sector in New York State and other locales wherein heavy weighting – often times 50% or more – is given to the price and schedule commitments put forward in design-builders’ proposals. In progressive design-build, price and schedule commitments are submitted by the selected design-builder only well after selection, after the owner and design-builder have engaged in a collaborative process to “progress” the project’s design development closer to completion, generally 50% or more complete and sometimes as far along as 90-100% design completion.
New York’s current authorizing statutes for design-build, IIA on the state level and PWIA on the local level for New York City, while not expressly prohibitive of progressive design-build, seemingly do not allow authorized owner-agencies to issue a design-build contract based entirely on qualifications without at least some reliance on a price component, as both statutes mandate use of a two-step selection process in which “the proposal’s costs” are evaluated as a criterion in the second step.[9]
Thus, it appears that New York’s authorized owner-agencies, while perhaps able to label design-build procurements as “progressive” under the current statutory framework, absent legislative changes, are nevertheless required to evaluate some type of price/cost component submitted by would-be design-builders in their proposals, even if that does not include submission of a firm, fixed price or guaranteed maximum price (GMP) for the entirety of the design and construction to complete the project. This seemingly could be accomplished by requiring design-builders to submit with their proposals price/cost with respect to limited, discrete components of the project services, such as for pre-construction services to take place after selection of the design-builder but before the design-builder later submits its price and schedule commitments (sometimes referred to as “Phase 1” in PDB parlance, with “Phase 2” referring to the design and construction phase following acceptance of price and schedule commitments), or with respect to hourly rates and/or multipliers that will apply to design services rendered on a cost-plus basis.
As noted above, BPCA awarded a two-step progressive design-build project earlier this year (North/West Battery Park City Resiliency Project). The scope of work for the project included Phase 1 services, consisting of design and pre-construction services, as well Phase 2 work, consisting of final design, construction, and acceptance. An examination of BPCA’s publicly available request for proposals (“RFP”) components for this project reveals that BPCA made a decision, in compliance with its design-build enabling legislation, to select a design-builder for the project primarily relying on qualifications without any commitment on the part of the design-builder to a final contract price. Specifically, BPCA allocated 30 points (out of possible 100[10]) to the price proposal; however, only two components of the price proposal appear to be binding on the proposing design-builders: the Phase 1 Services Amount and Phase 2 Fixed Percentage Fee[11], with BPCA reserving the right to negotiate these two figures with the highest scoring proposer.
Although the proposing design-builders were also required to submit a “rough order of magnitude” cost estimate for components of Phase 2 work, this figure does not appear to be binding on the selected design-builder; however, it was part of BCPA’s price proposal evaluation. Ultimately, the price for Phase 2 work would be dependent upon the successful negotiation of anticipated GMP amendment(s) to the contract during Phase 1.
Based on the BPCA’s publicly available RFP components, it would appear that BCPA followed the Design-Build Institute of America’s advice with respect to the utilization of a cost element in PDB procurement, including (a) cost being weighted significantly less than the qualifications and approach of the design-build team, (b) cost elements were limited to aspects that were not dependent on further defining the scope or schedule of the project, and (c) opening the price proposals only after the technical proposals have been evaluated and scored.[12]
From the perspective of an owner, PDB can be an effective tool to create a more reliable contract schedule and price because it allows the owner to defer finalizing price, schedule, and performance commitments until after the design-build team is under contract and the design and project risks have been sufficiently vetted and defined. This approach could be especially helpful for complex projects with technical risks and evolving scope, which makes it difficult for the owner to prepare clear project requirements and criteria upon which a fixed binding price could be proposed. PDB allows the owner to focus primarily (if not completely) on the qualifications of the proposing design-build teams, which tends to lead to substantial benefits, such as increased collaboration and teamwork.
The PDB procurement process can also be streamlined and may be of shorter duration than the standard lump sum design-build process, requiring fewer deliverables from the proposers. Whether or not cost must be part of the evaluation process depends on the applicable enabling legislation; under current New York legislation, it appears that both New York state and local entities may be able to access benefits of PDB, so long as they still require some element of cost and/or price as part of the proposal. However, the key point for any owner to understand with respect to the cost elements is the need for a clear definition of what is included in the cost elements, how the cost elements will be evaluated, and whether the cost elements are going to be fixed and binding on the selected design-builder.
The benefits of PDB continue further during the contract administration process. Phase 1 enables the owner to gather the information as early in the project as practicable allowing both the owner and the design-builder to make decisions on the most accurate and reliable information, as well as align expectations between the two parties. Furthermore, the flexibility of Phase 1 grants the owner full transparency into the cost estimating and scheduling process implemented by the design-builder. PDB allows the owner to directly participate with the design-builder on an open-book basis, permitting the owner to make informed decisions about the design based on real-time schedule and budget input from the design-builder. The owner may also set parameters for Phase 1, such as specifying a not-to-exceed budget.
As with any project delivery methodology, if an owner chooses to deliver a project using PDB, such decision requires the owner to be fully committed to that methodology, including having sufficient resources dedicated to the procurement and contract administration processes, as well as trained owner personnel who are well versed in the PDB delivery methodology. Although trust, partnering, and commitment to collaboration is extremely important in any design-build approach, it is crucial to the success of a PDB project, with both parties fully committed to the PDB project execution.
From the perspective of the design-builder contractor and design firms, PDB offers the potential to alleviate a friction that has existed between them in traditional design-build delivery and seems to have only gotten worse over time: the apportionment of risk and responsibility for increased construction costs due to changes in the design as it advances towards 100% completion. As noted above, under the traditional design-build approach, the design-builder is generally required to submit its price commitment, often through a lump sum, fixed price, relatively early in the design development process, generally at 10-30% completion. With so much design development still to occur, there is plenty of opportunity for change that could result in increased construction costs beyond that which the design-builder assumed in its proposal price.
In negotiations between the design-build contractor and design firm, design firms generally seek to limit exposure for such increased costs by restricting their responsibility to situations where it is proven that the design firm failed to meet the professional standard of care (i.e., negligence).
Design-build contractors, on the other hand, tend to bristle at tying the design firm’s responsibility to the standard of care alone. There is a dearth of legal precedent establishing what amounts to a breach in this context, making this an amorphous concept to prove.[13] Ideally, contractors will have the design firm take on more risk for such increased costs. Seeking to fix the design firm’s responsibility to a contract-based standard under this approach, the design firm would be liable for increased construction costs for any increases in quantities and costs that exceed set ranges or if the design fails to meet the specifications or applicable owner bridging documents.
Because there is often little, if any, overlap in the positions of the design-build contractor and design firm, this can be one of the most difficult issues to resolve in forming a team to pursue design-build projects, and in some cases can be one that prevents a potential team from coming to terms, thereby reducing competition for the design-build contract.
To address the potential for increased construction costs in this context, design-build contractors are pushed to include substantial contingencies in their proposal prices. The exhaustion of such contingencies has resulted in claims and litigation between design-build contractors, design firms, and professional liability insurance carriers.[14] Such claims have driven up the cost of professional liability insurance, with two carriers exiting the market for primary professional liability coverage in recent years.
PDB does not eliminate this conflict entirely, but it will reduce it as PDB requires a final price commitment from the design-builder much later in the design development process (e.g., 50-100%). By submitting the design-builder’s price commitment when the design is closer to completion, the risk of design changes is reduced thereby reducing the risk of related construction cost increases. PDB also benefits owners through reduced contingencies resulting from unforeseen design changes and, perhaps, reduced professional liability insurance costs.
But, for all of the buzz surrounding PDB, owner-agencies, design-build contractors, and design firms alike must be wary of potential project partners looking to PDB as a panacea to resolve all challenges with traditional design-build. Such an approach would ignore the need for additional investment into training and personnel development required to ensure PDB’s success. PDB depends heavily on collaboration and coordination among all stakeholders–perhaps even more so than traditional design-build–and will require new skills and capabilities. Therefore, owners and firms that wish to move into the PDB space will do well to come prepared.
Successful owner-agencies under the traditional design-build model may find that even with PDB’s benefits, the traditional design-build might continue to be a favored option. This is possible when an owner’s projects contain many standardized or even modular components. Such projects are more conducive to the development of firm, fixed price commitments earlier in the design development process due to their relative predictability. Examples include roadway and bridge projects, like those from NYSDOT, one of the earliest adopters of the traditional design build approach in New York’s public sector with many successes now under the department’s belt.
Although the 2023-2024 legislative session did not result in any substantive changes to New York State or New York City design-build authority, public owners do appear to have some flexibility to implement the PDB approach if cost and/or price are part of the best value selection criteria. Qualification-based PDB is not the right approach for every project but allowing owners and design-builders access to this tool is a great step forward toward more efficient, cost effective construction. This is an exciting development in the New York public works space and is sure to be a hot topic of conversation among owners, contractors, and design firms going forward.
[1] The 2011 bill initially authorized design-build for use by the New York State Thruway Authority; New York State Department of Transportation; New York State Bridge Authority; New York State Department of Parks, Recreation and Historic Preservation; and New York State Department of Environmental Conservation.
[2] 2011 N.Y. S.N. 2; 2011 N.Y. LAWS 56.
[3] 2015 N.Y.SB 4610, 2015 N.Y. Laws 60; 2017 NY AB 2009, 2017 N.Y. Laws 59; 2020 N.Y. SB 7508, 2020 N.Y. Laws 58
[4] In 2022, one additional city agency was added and the sunset provisions of the PWIA was extended by additional five years.
[5] In 2022, IIA was amended to extend its authority through December 21, 2027.
[6] James Leggate, Engineering News Record, NY Agency Picks Team for Battery Park City Resilience Project (Feb. 16, 2023).
[7] Portions of the Request for Proposals for the project are publicly available and accessible at: Final Conformed BPCA PDB RFP (ny.gov).
[8] Design-Build Institute of America, Progressive Design-Build, Design-Build Procured with a Progressive Design & Price, A Design-Build Done Right(™) Deeper Dive (2023).
[9] IIA (2011 N.Y. S.N. 2) at section 5(b); PWIA at section 4(a)(2).
[10] The RFP allocated 60 points to the technical proposal and the remaining 10 points were allocated to 10% of the proposer’s final statement of qualifications score.
[11] The publicly available components of the RFP indicate the Phase 2 Fixed Percentage Fee is an amount “attributable to profit and risk” with specific terms of this Fee being described in the PDB contract, which was not publicly available. See Proposal Form 7 of the RFP.
[12] Design-Build Institute of America, Progressive Design-Build, Design-Build Procured with a Progressive Design & Price, A Design-Build Done Right(™) Deeper Dive (2023), page 6.
[13] Richard Korman, Engineering News Record, Partner Against Partner, Some forecast there will be more expensive professional insurance disputes pitting contractors against designers and insurers on big projects with cost overruns (February 6/13, 2023).
[14] See e.g., Walsh Granite JV v. HDR Engineering, Inc., Case 2:17-cv-00558-NBF (W.D.Pa.); Middlesex Corp., v Fay, Spofford & Thorndike, Inc., 2019 WL 3552609, (Superior Court of Massachusetts, Suffolk County, 2019).
Any of the opinions expressed in this article belong to the authors and do not represent those of their employers.