Civic Leadership Program: Alternative Project Delivery

The 2019 AIANY Civic Leadership Program cohort convened at the Center for Architecture on Friday, August 2, for their second Development Session, which focused on alternative project delivery methods, how they differ from traditional methods, how they are utilized in New York City, and how they can best serve the public. The session was organized by Civic Leaders Richard May, AIA, and Leanne Zick, Assoc. AIA.

The session consisted of three parts, beginning with a presentation by Erwin Figueroa from Transportation Alternatives on the inner workings of government systems and effective advocacy strategies. Next, Richard and Leanne discussed what architects are typically expected to know about delivery methods and compared how different delivery methods can impact specific projects. The day culminated with a roundtable discussion between experts representing a range of perspectives; panelists included Daniel Maldonado and Tracy Anderson of SKANSKA USA; Thomas Foley, PE, of the NYC Department of Construction and Design Deputy Commissioner for Public Buildings; and Thomas Grassi, FAIA, of HNTB.

The session framed the traditional Design-Bid-Build (DBB) as a foil to the Public Private Partnership (P3). Design-Bid-Build is a method wherein the owner contracts separately with the design firm that produces construction documents and the builder. Meanwhile, a Public Private Partnership utilizes a Special Purpose Vehicle (SPV) to form a project-specific entity where private sector partners are responsible for the design, construction, finance, and long-term operations and maintenance of the public asset.

The alternative project delivery methods discussed also included Design-Build (DB), Integrated Project Delivery (IPD), Design-Build-Operate-Maintain (DBOM), and Expedited Project Delivery (EPD). Delivery methods can be plotted on two axes based on their level of team segmentation and the directness of compensation. Design-Bid-Build projects (DBB) typically have low team integration and direct compensation, whereas P3s have high team integration and indirect compensation. Other alternative methods can be found between these two ranges; however IPD projects can have a greater level of team integration than P3s, although they do not include a private financial partner.

The key differentiators between P3s and traditional delivery methods are the way they are planned and funded, the duration of their contracts, the way contracts are written, and the way risk is managed and mitigated. When an agency is planning to utilize a P3, there is a lot of upfront investment into developing a clear and comprehensive RFP to ensure a successful partnership. There is also a large amount of planning and capital needed to respond to an RFP, usually without a stipend. Generally, only large firms and SVP can take the risk of going after these projects. Additionally:

• Alternative delivery systems incorporate additional design team members concerned with variables like operations, maintenance, and finance methods that require many more separate, negotiated contracts. Contracts must be drawn between each party and take extensive work.
• A single firm can fill multiple roles on the project but each role typically also means a new contract.
• It is critical that the requirements of the project and the end users are clearly established because changes are costly and can disrupt the schedule.
• DBB often gives the owner more control over what the project looks like, whereas alternative methods provide less control. This is because the SPV aims to optimize the entire process for design efficiency and innovation.

In funding a P3, the private entity is remunerated either by user fees or availability payments, which are government reimbursements for maintenance and operation based on contractual performance criteria over time. Additionally:

• User fees can include tolls and service fees. For example, an airport service fee can be imposed when purchasing airline tickets. Revenue can also be generated by retail within an operating facility.
• The public partner often provides publicly owned land, tax incentives, and other resources that the private partner would otherwise not be able to utilize.
• Once the project is operational, the private partner must continually satisfy the performance criteria of the contract be paid by the public entity.

The duration of the P3’s relationship with the public agency is longer because the SPV is responsible for the operation and maintenance of the asset. This is also how the SPV can recoup its investment. At the end of the contract, the lease on the asset can either be renewed, given to a different entity, or given back to the public. Additionally:

• These relationships will typically last a minimum of 20 years and can be as long as 100.
• When the lease on the asset is up, it may be most efficient to keep the same, experienced party on board to operate and maintain the facility.

P3 contracts promote innovation, as the requirements are less descriptive and more performance-based. Since the SVP will be financing each phase of the asset’s life, there is an added incentive to find efficient solutions for all phases. Additionally:

• Expertise from the operations and maintenance teams of the project can be valuable, if not crucial, at the onset of design for the success of the partnership.
• Observing project delivery methods from the collective perspectives of an architect, a contractor and funder, and a city official can streamline critical elements to each party when economic, schedule, planning, legal, and negotiation issues arise in the course of building a project.
• Keeping standards for performance is of the utmost importance in a P3. Everyone in the partnership must be invested in the architecture, design, finance, and function of the project for it to be successful.
• Multiple delivery methods can be used within the same project when certain issues arise. For example, the World Trade Center Transportation Hub utilized a Design-Build contract for it’s retractable skylight due to its innovative nature.

With P3 projects, most of the risk is assumed by the SVP, who is also better equipped to handle the risk, as they can restructure their partnerships to mitigate potential issues. Additionally:

• Although, the typical public agency risks are transferred in a P3, there is a much greater burden for the officials to clearly write and enforce the contract and requirements; once the P3 begins it is very costly to make changes.
• The risk of each party is a topic of debate in alternate delivery methods and can often vary greatly from project to project.

Different public agencies, states, and public funding sources stipulate limitations on which project delivery methods are allowed. Alternate delivery methods to DBB are currently being assessed in many jurisdictions::

• New York and New Jersey cannot authorize a P3 but the Port Authority of New York and New Jersey can because it is a joint-venture between the two states.
• Expedited Project Delivery (EPD) is a brand new alternative project delivery method championed by the Federal Transit Administration and the Valley Transportation Authority (VTA) for the extension of the BART Line.
• The city and DDC are exploring design-build methods for the development of borough-based jails. DB must be authorized at the state level before New York City can utilize this delivery method.
• P3s require that the public agency officials managing the project adopt a very different set of roles and responsibilities from DBB, which New Yorkers are more familiar with.
• Any MTA capital project estimated to cost $25 million or more is now required by state legislation to use Design-Build.

As architects and citizens, we want to design infrastructure and other public sector work that is appropriate, safe, meets the end users’ needs, and is fiduciarily responsible to our fellow taxpayers. Choosing the right delivery method for a project is critical to its success. Furthermore, expanding New York City’s options for delivery methods can play a key role in delivering more well-designed projects on time, within budget, and to the public’s satisfaction. The power of negotiation is critical for mediating between diverse stakeholder needs to produce buildings that better serve public interests. This session equipped the 2019 Civic Leaders with a greater understanding of these relationships.