Revitalizing Design-Bid-Build for Tunnel Projects

Introduction
The tremendous and unprecedented proliferation of tunnel projects in North America, coupled with increasing interest, utilization, and experience with alternative delivery methods, provide the occasion to probe: Are there any specific procurement and contractual respects in which the traditional Design-Bid-Build (“DBB”) method can be improved for the delivery of tunnel projects?

The intent is not to compare or promote DBB relative to other available alternative delivery methods, nor to universally criticize or commend any particular delivery method. Rather, the focus is aimed at specific procurement and contractual respects in which DBB may be improved on a project-specific basis to enhance delivery of tunnel projects.

DBB Tunnel Projects: Opportunities for Improvement in Procurement and Contracting
The starting question of this discussion is, what are we trying to improve in the DBB method as traditionally utilized on tunnel projects? Many alternative delivery methods, such as Conventional Design-Build, Progressive Design-Build, and CM/GC, are intended and implemented in the expectation that they will address perceived inherent shortcomings experienced in the DBB method.

Those shortcomings derive from the independent and sequential nature of the design and construction processes in DBB and the prevalence of disputes arising out of the following principal sources:

• Differing subsurface conditions
• Imbalanced risk allocation
• Disagreements and misunderstandings as to the roles, responsibilities, and risks of project participants concerning:
  • a. the adequacy, suitability, constructability and compatibility of permanent works design in expected and encountered subsurface conditions;
  • b. whether specifications are performance or design (prescriptive) in character, with the differing risk and responsibility implications;
  • c. the appropriateness of design and implementation of construction means/methods selections in expected and encountered subsurface conditions.
  • d. contractual and commercial implications of modifications to planned design and construction approaches due to subsurface conditions encountered during construction.

Delivery methods alternative to DBB have, in their own respects, spawned other challenges in their implementation on tunnel projects.

These circumstances provide a context and opportunity to investigate whether the DBB method may be meaningfully revitalized in a manner that improves its utilization on tunnel projects by addressing the shortcomings in that method. Certainly, it is recognized that some of these improvements may need to be legally authorized by procurement laws at the state and federal levels.

Procurement

• Contractor Pre-Qualification: Within legal constraints, consideration should be given to pre-qualifying Contractors using criteria relevant to project-specific factors, requirements, and expectations. This is an important consideration given the number of disputes and failures on tunnel projects attributable to perceived deficient capabilities, experience, resources, and performance of the prime and specialty trade subcontractors. Equally important considerations are the qualifications and experience of Owners and their Consulting Engineers in the planning, design, and delivery of tunnel projects.
• Escrow Bid Document Requirements: Historically, Owners have underutilized Escrow Bid Document (“EBD”) requirements in DBB procurement and contractual risk allocation practices. The prescribed contents of EBDs should be conscientiously developed by the Owner’s Engineer of Record (“EOR”) and other consultants to ensure that the Bidder’s submission will evidence a prudent and realistic review and understanding of anticipated subsurface conditions and project-specific design and construction considerations. The EBDs should also show that the Bidder has planned and priced the cost of achieving the project requirements in accordance with realistic and appropriate construction means and methods and equipment selections suitable to the reasonably anticipated subsurface conditions.

If properly defined and submitted, EBDs should provide an important—perhaps determinative—context for the evaluation and resolution of entitlement and quantum of post-award differing site conditions (“DSC”) and other disputes. As such EBD requirements in procurement documents must be conscientiously aligned with risk allocation provisions in the (eventual) Contract Documents.

The procurement documents should require that the EBDs include a tender risk register demonstrating that the Bidder has identified, assessed, planned, and priced for subsurface conditions risks indicated in the Contract Documents and baselined in the Geotechnical Baseline Report; that the Bidder has planned to address those risks by its anticipated construction means/methods and other measures and has developed appropriate contingency plans to address the consequences of the materialization of those risks.

The EBDs should also require the inclusion of specialized reports of independent consultants retained by the Bidder. These reports should address the evaluation of subsurface conditions, including groundwater impacts during construction. In addition, EBDs should include quantity take offs, anticipated production rates, and vendor proposals, such as those demonstrating the ability and suitability of the planned TBM utilization in anticipated subsurface conditions.

The contents of EBDs do not necessarily establish that the Bidder’s planning and pricing assumptions; contemplated construction means/methods and equipment selections; or interpretations or expectations as to subsurface conditions—based on indications in the Contract Documents, including baselines in the GBR—are objectively reasonable or in conformance with the requirements of the Contract Documents. Nor do EBD contents supersede the Contract Documents including risk allocation terms. The EBDs however, should provide transparency regarding the Bidder’s pricing and planning bases and expectations contemporaneous with bid so as to inform and provide an objectively reasonable baseline for the evaluation of any post-award disputes.

Contractual

• Risk Allocation-Subsurface Conditions Information Disclosure: Reasonable, fair, and balanced contractual risk allocation provisions for subsurface conditions on tunnel projects are essential for project success. Available data and other information should be disclosed to Bidders and, in most instances, be encompassed in the definition of the Contract Documents with an expectation of reasonable Contractor reliance. While, in certain circumstances, it may be prudent to qualify or limit the accuracy, completeness or other factors affecting the reliability of that information, use of disclaimers should be avoided or minimized and, if necessary, be clearly and specifically articulated and limited in scope and effect on risk allocation.

• DSC Provisions: On most public projects, the terms of DSC provisions are prescribed and mandated by statutes and regulations. However, even within those legal constraints, there are meaningful opportunities to augment the standard DSC provisions in several important respects. For example, consider the following:

• EBDs: EBD requirements should be integrated into the DSC provision by mandating that the EBD contents minimally be considered in the evaluation and determination of both DSC entitlement and quantum. Some Owners may elevate this requirement and render the EBDs as having determinative impact on DSC entitlement.
• Reasonable Reliance Upon Indications in Contract Documents: DSC provisions may be augmented with requirements that the Contractor must identify the specific affirmative indications in the Contract Documents that were relied upon in planning and pricing the bid and to demonstrate the objective and causal reliance upon those indications by explicit reference to the EBD contents. Contractors should be required to accept DSC risk if bid expectations were not objectively reasonable, were more optimistic than reasonably indicated in the Contract Documents, or not supported by EBD contents.
• Geotechnical Baseline Reports: Geotechnical Baseline Reports (“GBRs”) are frequently and appropriately utilized on tunnel projects. However, there are potentially significant opportunities to improve GBR alignment and integration with DSC and other risk allocation provisions. In the DSC provision, explicit reference should be made to the GBR and its priority in the contractual hierarchy as the source of contract indications relevant to baselined conditions. It is important to recognize that GBRs reasonably are not expected to baseline all anticipated subsurface conditions nor the behavior of those conditions due to interactions with the Contractor’s selected means and methods. The Contract Documents should explicitly state that the fact that a GBR does not baseline a particular condition does not imply, much less warrant, that the condition will not be encountered. GBRs should contain clear, objectively articulated and realistic interpretations of data so as to provide a balanced framework for bidding, eventual contractual risk allocation, and dispute resolution. The purpose of the GBR is risk allocation, not the prescription or detailing of design or construction criteria or requirements. These admonitions as to GBR preparation and utilization are considered essential to effective risk allocation.
• Causation: DSC claims often involve disputes about whether the alleged cost or time impacts are due to DSCs or some other cause such as the Contractor construction means/methods, equipment selection, operation and maintenance, and related issues. The DSC provision should explicitly require that any cost or time adjustment be caused by the claimed DSC.
• Equitable Adjustment Provisions: The DSC provisions should be aligned with relevant (more generic) contractual adjustment or variations provisions such as those addressing payment, unit prices, quantity variations, and changes and time adjustments. In particular, quantity variation provisions should be conscientiously drafted to align with the equitable adjustment terms of the DSC provision, in order to avoid ambiguities in the interpretation and application of those provisions that may create redundant, inconsistent, or conflicting avenues for entitlement to, or measurement of, equitable adjustments arising from DSCs.

• Construction Means/Methods Submittals
As a general matter, construction means/methods are the exclusive responsibility of the Contractor unless designed or otherwise specifically designed, detailed, or prescriptively mandated by the Owner. Effective and efficient tunnel construction necessarily depends upon the appropriate design and implementation of construction means/methods and equipment selections suitable in the reasonably expected subsurface conditions. Failures to realistically assess the achievability and suitability of construction means/methods and equipment selections in the project-specific reasonably anticipated subsurface conditions has proven to be a major and frequent source of disputes on subsurface projects. Also, the failure to adequately assess permanent works design requirements relative to anticipated suitable subsurface conditions and construction means/methods—and their interactions, interdependencies, and influences upon each of them—is yet another major source of disputes in tunnel projects. In fact, those observations have been cited as reasons for interest in early contractor involvement delivery approaches, such as progressive design-build and CM/GC.

In DBB tunnel projects, some of these concerns could be mitigated by increased use of construction means/methods submittal requirements. Contract Documents would need to clearly define the scope of submittal reviews, and explicitly state that review and comments on those submittals do not result in responsibility of the Owner, its EOR, or other consultants for construction means/methods. Use of methods statements improves transparencies and mutual understandings in construction means/methods planning and execution, as well as their evaluation relative to conformance with planning expectations included in EBDs.

• Contractor Design-Related Proposals or Involvement
Permanent works design conventionally has been considered the exclusive province of the Owner and its EOR in DBB. Recognition of the interfaces and interdependencies among subsurface conditions, permanent works design, and construction means/methods raises the important question of whether the DBB method could be improved by contractual provisions that invite and encourage increased opportunities for (post-award) Contractor proposals for or other involvements in modifications to permanent works design (i.e., value engineering proposals, substitutions, design delegation or alternative design submittals).

The answer is a qualified “yes”, subject to clear understandings as to:

• a. the Owner (and its EOR) limited role(s) in the review of the proposal;
• b. any specified or delegated responsibility of the Contractor (and its EOR) for design modifications;
• c. assigned responsibilities for any interfaces and coordination required between Contract Documents design and the Contractor-proposed design modifications;
• d. any significance and implications in the Owner’s acceptance of the Contractor’s proposed design modifications on otherwise governing contractual risk allocation terms.

In certain instances, a Contractor may propose design modifications in permanent work (e.g., segmental lining) to accommodate its construction means/methods approaches or equipment selections. In that context it is important that contract terms clearly address design responsibility, risk allocation and cost and schedule implications of those modifications.

• Observational Method
The importance of the Observational Method (“OM”) in underground design and construction is well-accepted, albeit underutilized, in DBB. The OM provides opportunities to reevaluate and validate anticipated subsurface conditions and planned design and construction approaches in the context of actual subsurface conditions encountered during construction.

There are intrinsic limitations and uncertainties associated with pre-construction subsurface investigations and judgmental evaluations of the data produced. During design development, reasonably probable parameters of variations in encountered subsurface conditions and the potential for design approach and construction methods modifications should be anticipated, evaluated, and included in contingent planning. Final design in subsurface projects is often more realistically considered as a plan that is subject to confirmation and validation during construction and is likely subject to modified approaches due to interactions of the ground and tunnel structure and construction means/methods, and the monitoring and assessments of those interactions. Subsurface (physical and behavioral) conditions encountered during construction may necessitate modifications to planned design and construction approaches.
Contracts should anticipate those modifications and provide a framework for risk allocation and cost/time adjustments.

It has been observed that the OM has been underutilized in all delivery methods, including DBB.

The challenges to effective OM implementation in DBB traditionally arise from how those modifications impact adjustments to cost, time, and contractual and commercial risk allocation terms; the degree of contractual flexibility of effectuating those adjustments; and whether adjustments in those terms are warranted (and, if so, on what bases). These implementation challenges have resulted in significant disputes on DBB projects.

DBB contractual pricing and risk allocation approaches have been noted to constrain the utilization of the OM. Generally, and to a significant extent, DBB lacks the requisite collaborative framework that supports more receptive and adaptative contractual approaches—approaches that allow planned design and construction means/methods approaches to be valued during construction and that anticipate required modifications arising from reasonably anticipated and probable parameters of variations in encountered subsurface conditions.

In 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. Similar 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.

To some extent, underutilization of the OM in DBB has been attributed to the failure to include in Contract Documents (a) contingencies as to design or other modifications due to probable ranges or parameters of material variations between reasonably anticipated (as defined in Contract Documents) and actually encountered subsurface conditions, and (b) unit pricing or other agreed methods to facilitate and manage cost and time adjustments necessitated by the occurrence of those contingencies. For example, the cost and time impacts resulting from work performance and materials quantities increases that may be required due to design or other modifications triggered by the OM should and could be addressed in the Contract Documents by unit price and allowance provisions. In tunneling, pre-excavation probing and grouting ahead of TBM progression could be a good candidate for such an approach. Addressing these considerations in DBB Contract Documents provides a significant opportunity for improvement. The flexible contracting approach embodied in NEC4 Engineering and Construction Contracts facilitates risk allocation and commercial (payment and quantities measurements) adjustments that may be required in the implementation of the observational approach on DBB tunnel projects. Under that approach, bidders may be required to submit methods of data collection regarding variations in encountered conditions and characterization methods to be utilized during construction that correspond with baselines contained in a GBR.

The independent and sequential character of the design and construction processes in DBB presents challenges and complications in the implementation of the OM. Why? From procurement and contracting perspectives, Owner-furnished design is expected to be final and complete at the point of construction contract award, and the Contractor has a reasonable right to expect that the contract document design upon which it bases its bid will be suitable for construction. The OM inherently recognizes the reality that Contract Document design may not be final and complete (i.e., will need to be validated during construction and may need to be modified based on encountered subsurface conditions). That reality may appear to contradict the fixed price and standardized risk allocation procurement and contractual regimes underlying the DBB method. The potential of design modification raises several questions: Who bears the risk, cost, and schedule consequences of those modifications? How do and should contract provisions allow for variations in risk allocation, terms, and cost and schedule adjustments due to such modifications? Do and should Contract Documents contemplate and contingently provide for those variations and modifications due to reasonably defined parameters of potential design revisions?

The implementation of the OM in DBB could be improved by including explicit provisions in Contract Documents regarding anticipated probable ranges of encountered subsurface conditions and their design and construction means/methods implications and by providing for particular contingent design modifications based on those encountered subsurface conditions, including provisions to address any potentially indicated risk allocation and cost and schedule adjustments due to those modifications. Potential and contingent design modifications should be defined in Contract Documents, derivative of and correlated with reasonably predicated probable ranges of specified variations in encountered subsurface conditions from those assumed as the basis of initial design assumptions.

Performance Specifications
In DBB tunnel projects, performance specifications are frequently utilized by Owners to require an end result in design or construction objectives while not prescribing the details of achieving those objectives.

Disputes on subsurface projects often arise from disagreements as to whether a contractual provision is a performance specification—that is, a specification requiring achievement of a particular performance objective or result and delegating responsibility and risk for design and other execution details to the Contractor—or a design specification detailing, in a prescriptive and mandatory manner, the design or other details that a Contractor must follow to achieve a particular performance or other result, with explicit or implied responsibility of the Owner for the adequacy of that specification. In many disputes, the focus is whether the particular specifications are, in reality, purely performance specifications or, in contrast, actually either “design specifications” or “hybrid specifications” that prescribe design details or other requirements that significantly constrain the Contractor’s discretion and ability to achieve the defined objectives. The risk of these disputes may be significantly mitigated in DBB tunnel projects through more conscientious and precise articulation of specifications intended to be purely performance-based.

Interface Roles, Responsibilities, and Risks
Tunnel contracts are at times procured and contracted as a component of other independent scope contract packages, such as stations and systems packages. Disputes frequently arise as to the respective roles, responsibilities, and risks among the various individual contract packages especially as to scope and work involving interfaces, coordination, and interdependencies among the design and construction of those packages. Inevitably, the Owner and its Consultant team are implicated and drawn into those disputes.

These are significant opportunities to improve DBB clarity in the definition, allocation, and management of these interface risks. The importance of effectively and proactively addressing these risks is especially important in the context of megaprojects: a designation appropriate for the characterization of most tunnel projects.

Risk Management and Insurance Programs
Tunnel projects pose significant complexities and risks for all participants due to the inherent uncertainties associated with subsurface conditions and the efficacies and suitability of planned design and construction approaches when conditions actually encountered materially differ from those reasonably anticipated in the design and construction means/methods planning. Interfaces and interdependencies among subsurface conditions, permanent works design and construction means/methods heighten the potential and consequences of the materialization of those risks.

The megaproject characteristics of tunnel projects further elevate risk concerns. Never before have there been more infrastructure megaprojects in various stages of study, planning, design, procurement, and construction.

Certainly, not all risks are transferable to coverages under insurance policies. Robust project-specific risk management programs are, therefore, essential. Many underwriters evaluate the insurability of risk on tunnel projects based on assessments of project-specific risk management projects proactively prescribed and implemented by the Owner. In DBB tunnel projects, it is critically important that insurance requirements and programs be conscientiously developed and monitored through project execution.

The underwriting of project-specific insurance on a tunnel project involves, to say the least, a challenging process. Traditional underwriting approaches which focus on (a) the capabilities, qualifications and experience of the project participants and (b) the technical challenges posed by the Project, are necessary and appropriate. However, the focus in the underwriting needs to be broader in focus and more flexible, pragmatic, and continuous in nature.

More specifically, the underwriting process should take into account the project-specific risk factors involved in the tunnel project. As such, the focus of underwriting should include an assessment of:

• a. the Owner’s funding availability;
• b. project planning and managing approaches, capabilities and experience;
• c. the extent to which project cost estimates and schedules have been subjected to a rigorous and independent validation and evaluation;
• d. the extent to which risk will be reevaluated as the project progresses, and cost estimates and schedules revised to take into account those risk factors and other developments;
• e. the roles and responsibilities of the various project participants and the extent to which those roles and responsibilities may transform or evolve over the duration of the project;
• f. evaluation of the reasonableness of proposed risk allocation among the project participants and the insurance coverage implications of those risk allocation decisions; and
• g. consideration as to appropriateness of the Owner’s delivery method and the contractual practices, including risk allocation approaches, that the latter intends to utilize in the implementation of the selected delivery method.

While all of these factors should be understood and evaluated in the initial underwriting process and monitored over the typically, and continuously over the relatively, long duration of a tunnel project, those factors and considerations, and their potential impact on liability exposure are dynamic and likely to evolve. As such, prudent underwriting must be both dynamic and continuous in nature so as to provide periodic opportunities for the identification and evaluation of the liability risk implications of that evolution. Accordingly, some professional liability and other insurers providing project-specific and wrap-up coverage on tunnel projects have developed underwriting approaches designed to allow for periodic evaluation of the variability and evolution of dynamic risk factors that may impact liability risk or other relevant exposures.

Conclusion
These are significant opportunities to improve DBB procurement and contracting practices on tunnel projects. Perceived inherent shortcomings in the DBB method on tunnel (and other major subsurface) projects, to a degree, have prompted an increased interest and utilization of alternative delivery methods. The objective of this article is to constructively probe and advance ideas and opportunities to improve procurement and contractual practices in DBB which should serve to promote that method as an effective and successful approach for Owners.

Certainly, no delivery method is proven—nor expected—to be a panacea. Success in all methods requires conscientious project-specific focus, prudent planning, budgeting, and procurement practices, as well as fair contractual risk allocation, effective risk management programs, and insurance support.

Owners are encouraged to consider these ideas and opportunities in evaluating and deciding as to delivery method selections on tunnel projects and, particularly, in procurement and contractual approaches in DBB. For many traditionalists, the hallmarks of DBB delivery are its independence and sequential characteristics and discrete contractual roles, responsibilities, and risks boundaries of the design and construction processes. In many respects, however, those hallmarks contradict the levels of interaction and interdependence in design and construction processes required for effective delivery of tunnel projects, compelling the increasing utilization of early contractor involvement approaches to delivery of those projects. However, there are significant opportunities to revitalize DBB delivery on tunnel projects and—while appropriately and prudently respectful to traditional hallmarks—allow for meaningful opportunities to embrace and implement opportunities for more flexible and adaptive interactions of design and construction processes, while simultaneously achieving effective risk allocation. Achieving those opportunities is the essence of DBB revitalization.

David J. Hatem, PC is a partner with MG+M The Law Firm, Boston, MA. The author is very appreciative of the assistance provided by Bridget Araldi, MG+M The Law Firm, in the preparation of this paper. A more expanded version of this paper, including substantial references, may be accessed at https://www.mgmlaw.com/news-insights/states-revitalizing-design-bid-build-for-tunnel-projects. A follow up paper by Craig Covil is planned for the April issue of TBM.