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Early Contractor Involvement: Rethinking and Recalibrating Delivery Methods for Subsurface Projects

Introduction

For more than half a century, the underground design and construction industry has been challenged to develop and successfully implement approaches to improve delivery and risk allocation, and minimization of disputes, on major subsurface projects. In the last two decades, intensified efforts to address those challenges have concentrated and resulted in increased utilization of delivery methods alternate to the long-dominant and pervasive traditional design-bid-build (“DBB”) method. Design-Build (“DB”) has emerged as the preferred delivery method for many project sponsors of major subsurface projects.

In the last several years, problematic trends have been identified and serious questions raised about whether conventional DB is meeting the challenge of improving project delivery and achieving realistic procurement pricing and balanced risk allocation on heavy civil and major subsurface projects. Reports abound regarding claims and disputes among project participants; unrealistic pricing and contingencies; imbalanced risk allocation; substantial financial losses experienced by Design-Builders; and the concerning increase in professional liability claims by the latter against their Consulting Engineer subconsultants. These losses and claims have resulted in the significantly diminished availability and capacity of bonds and project-specific professional liability insurance for those projects. (Hatem 2022).

The recent industry critical spotlight on conventional DB fairly raises a basic question: Is conventional DB intrinsically the problem, or is that delivery approach simply a manifestation and symptomatic of more dysfunctional characteristics and fundamentally flawed premises and expectations underlying the assignment of project participant roles and responsibilities and risk allocation inherent in all delivery methods for subsurface projects?

This paper will examine that question and analyze whether Early Contractor Involvement (“ECI”) methods , such as Progressive Design-Build (“PDB”) and Construction Manager/General Contractor (“CM/GC”), are prudent approaches that may provide more sensible and successful procurement and contractual strategies and mechanisms to improve and inform pricing realism and the balance of risk allocation on subsurface projects by providing and facilitating increased opportunities for synchronized, holistic, and timely collaboration of the Owner, Contractor, and Consulting Engineer in the development and evolution of design and construction approaches from preliminary stages and through construction; and thereby be more likely to enhance the availability and capacity of bonding and project-specific insurance coverages on those projects.

  • Subsurface Conditions Risk Allocation: Critical and Inherent Factors and Characteristics

Effective, efficient, and balanced risk allocation on subsurface projects depends upon the holistic consideration of the interdependencies, interrelationships, and dynamics that define critical and inherent factors and characteristics of subsurface projects. These factors and characteristics require and depend upon recognition that:

  • The adequate scope and quality of subsurface investigation are essential.
  • Subsurface conditions risk and assessment are especially specific to particular site conditions.
  • Subsurface conditions risk allocation is significantly imprecise and often grounded in subjective and judgmental assessments. (Stephenson & Suhadolnik 2022).
  • The meaningful and timely opportunity for reasonable and realistic evaluation of available subsurface data should occur in synchronization with the development of the contemplated permanent works final design and construction means/methods approaches.
  • The compatibility and suitability of those approaches in the reasonably anticipated subsurface conditions are based upon available subsurface data and related evaluations.
  • The availability and opportunity to reasonably evaluate subsurface data, evaluations, final design, and construction means/methods approaches should occur prior to contractual commitment as to construction cost and risk allocation terms.
  • Understandings as to the interactions and interdependencies among the roles and responsibilities of project participants are essential.
  • There are critical dependence and interdependencies of the design and construction approaches in the context of both anticipated and encountered subsurface conditions during construction.
  • The iterative, evolving, and continuous nature of the design and construction approaches is influenced by actually encountered subsurface conditions.
  • The continuous and meaningful involvement and site observations by the Consulting Engineer during construction is necessary to evaluate the efficacy of the design in the context of specifically encountered subsurface conditions. (Muir Wood 2000; Charrett 2022).
  • The need for a relatively flexible planning and pricing approach that recognizes the potential that (a) encountered subsurface conditions during construction may differ from those anticipated in the design approved for construction; and (b) design and construction approaches contingently may need to be modified based on subsurface conditions (i) actually encountered during construction; and (ii) that fall within reasonably anticipated probable variation parameters.

The overarching question is how these critical and inherent factors and characteristics can be sensibly aligned and synchronized with the assigned roles and responsibilities of project participants to achieve pricing realism and effective, efficient, and balanced risk allocation.

  • Subsurface Projects: Delivery Methods

The various project delivery methods are distinguished by how the roles and responsibilities of the project participants are assigned and how risks are allocated to address these critical and inherent factors and characteristics.

The megaproject characteristics of major subsurface projects – complexities; substantial construction values; varied and fragmented design and construction scope distributions; critical design and construction interfaces and interdependencies; and diverse roles and responsibilities of multiple participants – elevate and intensify the risks and stakes for project participants. (Hatem & Corkum 2010).

  • Subsurface Conditions Risk Allocation: Flawed and Unrealistic Premises and Expectations

Despite their fundamental differences, DBB and conventional DB share, and are predicated upon, three flawed and unrealistic premises and expectations: (1) that roles and responsibilities on subsurface projects should be compartmentalized and contractually assigned and executed independently and rigidly among project participants; (2) that procurement methods must be conceived and implemented on that basis; and (3) that consideration and implementation of potential modifications in permanent works design or construction means/methods, due to probable variations in encountered subsurface conditions, are to all extents to be minimized, or even eliminated, to avoid disrupting previously contractually defined design and construction approaches. Demarcations as to roles, responsibilities, and risks often are not as clear, definitive, and absolute as may appear in contractual terms, nor are they appropriate given the inherent factors and considerations of subsurface projects.

The need to develop and implement procurement and contractual methods, that are intended to achieve those premises and expectations, lies at the root of problems and disputes arising from ineffective and imbalanced risk allocation on subsurface projects.

  • Design-Bid-Build and Conventional Design-Build Subsurface Projects: Distinctive and Common Aspects as to Typical Roles, Responsibilities, and Risks

Despite their distinctive aspects relating to assignment of roles and responsibilities and allocation of risks among project participants, both DBB and conventional DB have in common procurement and contractual regimes that do not allow for timely, simultaneous, and transparent Owner-Contractor interactions, collaboration, or input in (a) the evaluation of subsurface conditions risk; (b) the permanent works design development process; or (c) the design and development of contemplated construction means/methods. Furthermore, neither delivery method embraces or is receptive to reasonably contemplated probable variations in subsurface conditions encountered during construction that may necessitate modifications to the planned permanent works design or construction means/methods approaches, and corresponding commercial and contractual risk allocation adjustments.

More specifically, in DBB, Owners may be less receptive to proposed modifications to the final design after the issuance of construction documents and fixed cost commitment given their perceived confidence in and responsibility for the adequacy of that design. Similarly, in conventional DB, the Design-Builder may resist modifications to the design approaches that formed the basis of its pre-award technical preliminary design and pricing proposals, as well as its contractual fixed price and risk allocation commitments.

The bottom line is that both DBB and conventional DB are conceived and structured in a manner in which roles and responsibilities are independently and inflexibly assigned in fragmented and demarcated manners that do not adequately and realistically account for the inherent interrelationships, interdependencies, and dynamics required for effective, efficient, and balanced risk allocation, considering the critical and inherent factors and characteristics of subsurface projects.

This fragmented and disintegrative structure during critical pre-construction phases of planning and development of design and construction approaches leads to:

  • Misalignment in the assessment and pricing of anticipated risks, especially subsurface conditions risks.
  • Divergence and polarization of financial and contractual interests among Owner and Contractor (or Design-Builder).
  • Fixed price contracting approaches that do not reflect the realities of (a) reasonable risk assessments based on available data, or (b) contingencies in planning of modifications to design and construction approaches due to reasonably anticipated probable variations in encountered subsurface conditions.
  • Constrained and inflexible design and construction approaches that are either overly-conservative in DBB or unduly optimistic in conventional DB; neither of which spectrum is responsive or receptive to the realities of necessary modifications in final design and construction approaches that may be required due to reasonably anticipated parameters of probable variations in encountered subsurface conditions.
  • Aversions, intolerance, and inflexibility to such modifications resulting in the elevated occurrence of adversarial disputes and conflicts; a virtual zero-sum game environment.

As Sir Alan Muir Wood summarized:

“The principal players in a tunnelling project may be imagined to be assigned as the members of an orchestra. Each needs to be able to master his own instrument, each needs to have a good ear for the contributions of others in order to be able to engage in the counterpoint of dialogue. The conductor, the leader of the project, needs to understand how to blend the contributions by the players, requiring an appreciation of the range of pitch and tonalities – the specific element – of each instrument. Too often, the tunnelling players are each following unrelated scores, with the conductor confined to the role of the orchestral administrator, without insight into the essence of the enterprise, the manager without understanding of what is managed. No wonder if the result is too frequently cacophonous.” (Muir Wood 2000).

  • Early Contractor Involvement: A Path Forward

Early Contractor Involvement (“ECI”) approaches, such as Progressive Design-Build and Construction Manager/General Contractor, allow for more sensible and successful procurement and contractual strategies to improve and inform pricing realism and the balance of risk allocation on subsurface projects by allowing for increased opportunities for more transparency, and synchronized and timely collaboration among the Owner, Contractor, and Consulting Engineer in the development and implementation of design and construction approaches; and, thereby, enhance the availability and capacity of bonding and project-specific insurance coverages on those projects. (Hatem 2020; Hatem 2022; Hatem 2022).

PDB and CM/GC represent delivery methods with different and distinctive characteristics. However, both methods – in contrast to DBB and conventional DB – provide opportunities for substantial and meaningful interaction, constructive collaboration, and transparency in understanding between the Owner and Contractor as to risk assessments and in the development of permanent works design and construction means/methods prior to final agreement on price and risk allocation terms. In addition, both PDB and CM/GC allow for increased and enhanced utilization of the Observational Method.

  • Early Contractor Involvement: More Collaborative, Interactive, and Objectively Documented Basis to Inform Realistic Pricing and Risk Allocation Decisions

At the 60+% level of design development on a major subsurface project – i.e., the minimal point at which the Contractor (in CM/GC) or the Design-Builder (in PDB) is typically expected to contractually commit to a fixed price and risk allocation terms – the following has transpired:

  • The subsurface investigation and data evaluation are complete or minimally substantially complete.
  • Sufficient subsurface data is available to adequately inform the permanent works design and construction means/methods design and approaches.
  • The permanent works design is substantially complete.
  • There has been a reasonable opportunity to address and mitigate issues that have been identified in a Risk Register during the development of both the permanent works design and construction means/methods.
  • The Contractor or Design-Builder has a realistic and reliable basis upon which to plan, evaluate and allocate risk, and price (with appropriate contingencies) the design of permanent works and construction means/methods.
  • An adequate, reasonably informed, and realistic basis exists to negotiate and contract on relevant and balanced risk allocation terms.
  • There is an adequate contractual basis to facilitate resolution of any subsequent DSC disputes.

ECI: Advantages for Subsurface Projects

ECI improves and increases opportunities for:

  • Interface, interactions, collaboration, and alignment regarding:
  • Subsurface conditions evaluation.
  • Development of permanent works design and construction means/methods suitable for anticipated subsurface conditions.
  • Identification of design criteria and details for anticipated contingent modifications to permanent works design and construction means/methods due to probable parameters of subsurface conditions encountered during construction.
  • Development of contractual documentation of mutual and transparent understandings as to assessment, design and construction means/methods modifications, and other contingencies, risk allocation, and compensation and time adjustments due to:
  • Subsurface conditions encountered during construction.
  • Design and construction means/method modifications required during construction due to certain parameters of encountered conditions.
  • Collaboration in design development and contractual alignment of specific (and optional, contingent) permanent and temporary design approaches with particularized risk allocation and pricing.
  • Reduced conservatism in design criteria, requirements, or details in initial released for construction (“RFC”) Contract Documents.
  • Flexibility in technical, contractual, and commercial considerations due to design modifications based on subsurface conditions not initially assumed as a basis for the design of the RFC Contract Documents.
  • Increased transparency and collaboration in the risk allocation contractual terms.
  • Establishing and fostering a culture that embraces and effectively/fairly manages variations in subsurface conditions, and in required modifications to design and construction approaches.

As demonstrated, ECI provides several opportunities to correct and recalibrate the flawed and unrealistic risk allocation premises and expectations underlying DBB and conventional DB. ECI constructively addresses the critical and inherent factors and characteristics, thereby promoting effective, efficient, and balanced risk allocation in subsurface projects.

In both DBB and conventional DB, the Contractor’s or Design-Builder’s fixed price is based on a design; in DBB, typically the Owner is explicitly or impliedly responsible for the adequacy and suitability of the final design, and in DB, the Design-Builder bears that responsibility. (Hatem & Gary 2020). In either and both delivery methods, contractual terms (including risk allocation and opportunities for cost and time adjustments to the fixed price) have the effect of explicitly or implicitly discouraging modifications to the final design during construction due to differing subsurface conditions. In DBB, the Owner typically will bear the additional risk or cost due to such modifications; in conventional DB, the Design-Builder typically will bear that risk and cost. Simply put, these delivery approaches produce an aversion to receptivity for design and construction modifications that may be necessary based upon reasonably anticipated parameters of conditions variations encountered during construction that, by definition, occur after contractually-defined risk allocation and cost commitments have been established.

ECI affords the Owner and the Design-Builder with meaningful and timely opportunities to identify and anticipate – through planning, design, and construction phase contingent modifications, as well as pricing contingencies – reasonable and agreed upon ranges or parameters of anticipated encountered subsurface conditions that may produce the need for such modifications, and to contractually address the risk or cost consequences for project participants.

ECI: Facilitating Utilization of the Observational Method

The observational method (“OM”) has been defined as:

“[A] continuous, managed, integrated, process of design, construction control, monitoring and review that enables previously defined modifications to be incorporated during or after construction as appropriate. All these aspects have to be demonstrably robust. The objective is to achieve greater overall economy without compromising safety.” (Nicholson et al. 1999).

In recent years, there has been discussion within the underground design and construction industry that the traditionally perceived boundaries between permanent works design and construction means/methods considerations may not always need to be absolute and immutable. In addition to the benefits of allowing a Contractor to provide early input in the development of permanent works design under ECI, there has also been recognition that, in appropriate instances, the Owner and/or its Consulting Engineer may have valuable input, and thus should have the meaningful opportunity to be involved (to varying and appropriate degrees), in providing recommendations, criteria, and standards for the design of construction means/methods.

As Sir Alan Muir Wood stated:

“Good tunnelling practice demands continuity and interaction of planning, investigation, conceptual design, detailed design and construction. Each is dependent to a degree on the others. A site investigation, for example, needs to be directed to obtaining information of particular relevance to a specific form of tunnelling; where unexpected features are revealed, the tunnelling strategy may need to be reconsidered and the site investigation appropriately varied. Conceptual design and construction are particularly interdependent since the former may depend upon quite specific features of the latter for success, with the need to ensure that these are rigorously implemented.

Present trends in commissioning tunnelling tend to ignore a condition for good tunnelling: the overall management of the design process. The many engineering activities of a project are subdivided and performed sequentially or separately, with only limited coordination. This ensures that interaction cannot occur and that the specific needs cannot be addressed in the early phases.

The single motive appears to be to ensure fixed costs of each fragmented activity, an objective far removed from obtaining good value for money. The costs may well be fixed – up to a point – but the price for so doing will be high and good tunnelling practice suffers in consequence. The goal of economic tunnelling, which benefits all involved, is effectively prevented.

Moreover there are greatly increased risks of disputes and litigation because of the attempt to unload all responsibilities into construction. This procedure is as good for the legal profession as it is disastrous for good engineering. Tunnelling methods based on the observational method (ISOM) [i.e. Informal Support based on the Observational Method] are particularly incapable of optimization where the overall project is fragmented.” (Muir Wood 1994).

The Observational Method in DBB and Conventional DB

Both DBB and conventional DB contractual pricing and risk allocation approaches have been noted to constrain the utilization of the OM. In significant part, those methods lack the requisite collaborative framework that allows for more flexible, receptive, and tolerant contractual provisions to verify planned design and construction approaches and anticipate any required modifications in those approaches due to reasonably anticipated probable parameters of variations in encountered subsurface conditions. The interactive, synergistic, and collaborative characteristics of ECI foster a contractual and pragmatic environment that is more embracing of the variations and flexibilities inherent in the design and construction of subsurface projects and required to maximize OM utilization.

As previously discussed, both DBB and conventional DB – while distinct delivery methods – are based on structures that result in inflexibility in and resistance to modifications in planned design and construction approaches. As explained below, these approaches constrain OM utilization:

“In the design-bid-build contracts, there is typically a separation between the designer and the contractor, which may create obstacles to modifying the design during construction and, consequently, a barrier to the use of the observational method. The same kind of problems may arise in a design-and-build contract if the client keeps the right to approve all modifications of the design and has no incentives to do so. This separation can lead to disputes and confrontation between the actors involved. This must be avoided when implementing the observational method, where high-quality communication and cooperation are essential.” (Tidlund 2021).

In DBB, receptivity to the OM is confronted by constraints. As stated by Powderham and O’Brien:
“Under a conventional [DBB] contract, a contractor bids on a project based on a fixed design specified in the contract documents and on the premise that it will be built as designed. The introduction of the OM within such a contract immediately presents commercial risks from the need to allow design changes during construction. Such risks tend to fall predominantly upon the contractor who can consequently be exposed to the double disadvantage of less return but more ownership of the design. Risk allocation is reasonably well defined in a conventional [DBB] contract where most of the design risk is taken by the client and most of the construction risk is carried by the contractor.” (Powderham & O’Brien 2021).
The integration and synchronization of design and construction in conventional DB improves opportunities for OM utilization. Commenting on conventional DB, Powderham and O’Brien note similar limitations in facilitating OM utilization:

“[DB] forms of contract offer greater potential to adopt the OM where design and construction are inherently more closely inter-related and the contractor has significant ownership of the design. However, intense time pressures (especially during tender phases) and fragmentation of design effort within an adversarial environment may often inhibit the adoption of the OM. Stakeholder approval, especially of the client, may be difficult to achieve. Implementation of the OM requires greater effort by the designer and the contractor, and it may not be in the commercial interests of either party to pursue the OM unless there is an appropriate financial incentive.” (Powderham & O’Brien 2021).

ECI: OM Alignment

Procurement and contractual approaches on major subsurface projects should aim to anticipate subsurface conditions risk contingencies and appropriate modifications in design and construction approaches that may be necessary to address probable and reasonable parameters of variations in conditions assumed and predicted during design development and prior to construction commencement. Delivery approaches and contract terms should both enable and embrace the potential for such variations and modifications. Success in the implementation of the OM is significantly influenced, if not determined, by such approaches and terms.

ECI improves and facilitates opportunities for OM implementation by fostering collaboration, flexibility, and joint Owner-Contractor (in CM/GC) or Owner-Design-Builder (in PDB) pre-construction, mutual understandings and decisions as to:

  • The nature and extent of subsurface investigation required to support design development and constructability approaches.
  • The mutually understood evaluation of subsurface conditions data.
  • The collaborative identification and assessment of probable and reasonable parameters of variations in subsurface conditions that may reasonably be expected to be encountered during construction; and the development of standards or criteria for the monitoring, measurement, and evaluation of actual (physical or behavioral) encountered conditions.
  • The collaborative development of modifications to permanent works design and constructability approaches (both as initially planned and any modified, contingent approaches) to be implemented based upon probable variations in actually encountered conditions.
  • The contractual terms to address risk allocation and equitable adjustment/relief implications of any design and constructability modifications. (Powderham & O’Brien 2021; Tidlund 2021; Brochner et al. 2006; Kadefors & Brochner 2008; Muir Wood 2000; Klary et al. 2023).

ECI: Recalibrating Project Delivery with Cost and Risk Realities

There are multi-dimensional concerns presented by the problematic conventional DB procurement and contractual practices in heavy civil and major subsurface projects. At root, these concerns principally derive from mandates that a fixed price be contractually committed prior to sufficient clarity and comprehension of the expectations as to what is required of the DB team in the final design and construction approaches. Those concerns are exacerbated by aggressive and imbalanced risk allocation obligations of the Design-Builder.

The principal concerns with conventional DB approaches on these projects primarily and predominantly arise out of unrealistic expectations of project participants as to the actual and inherent project cost and risks necessary to be reasonably assessed and factored in the design and construction of a project that meets the Owner’s ultimate requirements. Simply put, the realistic project cost is not captured in the fixed-price award.

The overarching question is when can sufficient understanding of design and construction approaches reasonably and realistically be known in a manner to adequately and realistically inform commitments as to contractual pricing and risk allocation terms.

Experience has demonstrated that on major complex DB subsurface projects (and especially megaprojects), it is neither realistic, reasonable, nor fair to expect that such an understanding can or should be known or knowable at the time of DB Contract execution.

The acute problems associated with procurement and contractual practices in conventional DB that (a) require a fixed price at the time of initial DB Contract award and (b) mandate imbalanced risk allocation terms, need to be corrected and a more sensible path forward developed. In general, the solution should allow for deferral of contractual commitments as to final price and risk allocation terms until the Design-Builder has had a reasonable opportunity to understand the required design and construction approaches, and the site, subsurface, and other relevant conditions and constraints (physical and political) in which those approaches will materialize. ECI provides approaches to address these problems by recalibrating procurement and contractual practices to cost and risk realities.

The experience of the past in major subsurface projects amply demonstrates the advisability of balanced risk allocation; and the promise of success in the future for the design and construction industry vitally depends upon it. Disregarding or minimizing the longer-term significance of specific Contractor, Consulting Engineer, and professional liability insurer withdrawal from the conventional DB arena is not reflective of a sound or prudent owner programmatic approach.

  • Summary: Holistic Considerations

Realistic pricing, and effective, efficient, and balanced risk allocation on major subsurface projects depend upon meaningful and timely pre-construction collaboration to address the interrelationships, interdependencies, and dynamics among permanent works design, construction means/methods, and evaluation of subsurface conditions, as well as the advisability of defining and addressing, both commercially and contractually, the consequences and the probable and reasonable parameters of anticipated subsurface variations in conditions that may be encountered during construction, which could require design and construction means/methods modifications.

Project delivery methods on major subsurface projects should realistically account for these intense interactions and interdependencies, and the necessary alignments and collaborations among the respective roles and responsibilities of all project participants and corresponding risk allocations required to address the critical and inherent factors and characteristics of those projects. ECI provides sensible platforms and beneficial delivery approaches to accomplish those objectives on major subsurface projects.

A more expanded version of this paper, including substantial references, may be accessed at https://www.donovanhatem.com/early-contractor-involvement-rethinking-and-recalibratingdelivery-methods-for-subsurface-projects/.

References

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Hatem, D.J. 2020. Improving Risk Allocation in Design-Build Subsurface Projects, Tunnel Business Magazine, June 2020.
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Powderham, A. and O’Brien, A. 2021. The Observational Method in Civil Engineering, CRC Press, Boca Raton, FL, USA.
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David J. Hatem, PC, is a partner with Donovan Hatem LLP, Boston, MA.

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