Phase 1B Report on Water Treatment Plant Improvements Project Delivery Options

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2 56 Exchange Terrace, Fourth Floor Providence, Rhode Island tel: fax: October 31, 2008 Ms. Julia A. Forgue, P.E. Director City of Newport Department of Utilities 70 Halsey Street Newport, Rhode Island Subject: Reference: Phase 1B Report on Water Treatment Plant Improvements Project Delivery Options Professional Services as City Advisor for Water Utility Strategic Options and Delivery of Water Treatment Facilities, Project Dear Ms. Forgue: Camp Dresser & McKee Inc. (CDM) is pleased to present this report on the results of Phase 1B of the City Advisor services for the Newport Water Utility. This report reflects presentations and discussions at the workshop conducted with the Newport City Council on September 29, We would like to acknowledge the valuable input and helpful assistance to CDM s Phase 1B work provided by the Newport City Manager, City Solicitor, Director of Finance, and Director of Planning as well as that provided by yourself and your staff. Please do not hesitate to contact us regarding any questions or clarification regarding the contents of this report. Very truly yours, Patrick E. Gallagher Vice President Camp Dresser & McKee Inc. Carol A. Rego, P.E. Vice President Camp Dresser & McKee Inc RT2.2B5

3 Executive Summary ES.1 Purpose and Contents This report documents the Phase 1B professional services provided by CDM during the period August 4, 2008 to October 31, 2008, as City Advisor for Water Utility Strategic Options and Delivery of Water Treatment Facilities, Project This Phase 1B work examined a wide range of project delivery options ( project delivery means performance of the project s design, construction and operation) available to the City of Newport (City) for required improvements to the Station No. 1 water treatment plant (WTP) and the new Lawton Valley WTP. The project delivery options examined include traditional design-bid-build, design-build, and design-buildoperate. Included in this report are the following sections and appendices: Section 1 Introduction and Background Section 2 Identification and Evaluation of Project Delivery Options Section 3 Comparison of Three Project Delivery Strategy Alternatives Section 4 Conclusions and Recommendations Appendix A September 29, 2008, City Council Workshop Materials Appendix B Task 1B.1 Memorandum on Project Delivery Objectives, Options and Criteria Appendix C Task 1B.2 Memorandum on Evaluation and Comparison of Project Delivery Options Appendix D Task 1B.3 Memorandum on Risk Allocation for Project Delivery Options ES.2 Summary of Methodology The Phase 1B methodology performed by CDM included the following steps and activities: 1. Kickoff meeting with Water Utility staff on August 5, 2008, to obtain relevant information and documents and to discuss the scope and schedule for Phase 1B activities. 2. Identify a preliminary list of possible project delivery options and City objectives for implementation of the projects. A ES-1

4 Executive Summary 3. Screen the preliminary list of possible options based on ability to meet key City objectives and develop a short-list of final project delivery options. 4. Evaluate the pros and cons of the final project delivery options on a comparative basis using the City objectives as the primary criteria. 5. Develop the proposed allocation of project risks between the City and the contractor for each project delivery option. 6. Meet with City Manager, City Solicitor, Director of Finance, and Director of the Department of Utilities to review and discuss the results of the evaluation of the final project delivery options. 7. Identify three best fit strategies for project delivery. 8. Compare the relative advantages and disadvantages of the best fit project delivery strategies in terms of the City objectives for project implementation. 9. Hold workshop with City Council (September 29, 2008) and, subsequent to the workshop, individual follow-up to address questions and issues related to the workshop and the above Items 1 through 8 Phase 1B activities. 10. Prepare this Phase 1B Report to document above Items 1 through 9 and related activities through October 31, The presentation materials utilized for the step 9 workshop with City Council are included in Appendix A. The Task 1B.1 memo, describing steps 2 and 3, is presented in Appendix B. The Task 1B.2 memo, documenting step 4, is presented in Appendix C. The Task 1B.3 memo, describing step 5, is presented in Appendix D. Steps 7 and 8 are described in Section 3 of this Phase 1B report. ES.3 Summary of Project Delivery Options The options examined for project delivery (i.e., the project s design, construction and operation) of the Station No. 1 WTP improvements and the new Lawton Valley WTP during Phase 1B can be summarized in terms of the follow categories: Traditional design-bid-build (DBB) - With City operation - With contract operations Design-build (DB) - Progressive DB with City operation - Progressive DB with contract operations A ES-2

5 Executive Summary - Performance-based DB with City operation - Performance-based DB with contract operations - Prescriptive DB with City operation - Prescriptive DB with contract operation Design-build-operate (DBO) - Separate DBO contracts for each WTP - Combined DBO for both WTPs Distribution system operation and maintenance - City operation - WTP DBO contract Within each category are a number of specific options, as described in Section 2 of this report. ES.4 Summary of Screening / Evaluation of Options The first step in the screening and evaluation of project delivery options for the Station No. 1 WTP improvements and the new Lawton Valley WTP was to identify the City s objectives for project delivery. These objectives are described below: Quality: Provide treatment facilities that will reliably produce required quantities of finished water in full compliance with federal and state regulations for water quality, consistent with water age constraints associated with wholesale customer distribution systems, safe yield constraints and the wide range of raw water quality variations for the sources of water supply to these WTPs. Cost: Minimize the life-cycle cost of both plants (i.e., combination of design, financing, construction and long-term operation, maintenance, renewal and replacement costs). Risk: Achieve an optimal balance of risk allocation between the City and project contractors. Schedule: Achieve the December 31, 2014, schedule deadline for completing construction of the new Lawton Valley WTP set forth in consent agreements with the Rhode Island Department of Environmental Management and the Rhode Island Department of Health. A ES-3

6 Executive Summary At the September 29, 2008 workshop with City Council, Quality was ranked as the City s top-rated or most important objective. An initial list of some 25 preliminary project delivery options consisting of different combinations of the options listed in ES.3 was screened based on these City objectives and the following final project delivery options were identified for further evaluation (see Task 1B.1 memorandum in Appendix B): Category 1, Options 1.1 and 1.3: Traditional Design-Bid-Build (DBB) with City operation and maintenance under separate construction contracts for Station No. 1 and Lawton Valley Category 2, Options 2.5, 2.9 and 2.11: Prescriptive Design-Build (DB) with City operation and maintenance for Station No. 1 and Performance-based or Prescriptive Design-Build (DB) for new Lawton Valley WTP Category 3, Options 3.1 through 3.5: Performance-based Design-Build-Operate (DBO) under separate or a single DBO contract(s) for Station No. 1 and Lawton Valley The WTP traditional DBB Options 1.1 and 1.3 with City operation were utilized as the baseline against which the advantages and disadvantages, schedule impacts, and risk allocation implications of the final project delivery Options 2.5, 2.9, 2.11 and 3.1 through 3.5 are evaluated and compared. Based on detailed evaluation and comparison of the pros and cons of the above shortlist of final project delivery options (see Task 1B.2 memorandum in Appendix C) and consideration of the risk allocation aspects of the final delivery options (see Task 1B.3 memorandum in Appendix D), the three best fit strategies for design, construction and operation of the Station No. 1 WTP improvements and the new Lawton Valley WTP are: 1. Traditional Design-Bid-Build (DBB) contract procurements for the Station No. 1 WTP and the Lawton Valley WTP with City operation, along with an engineering agreement and series of amendments to provide design and related services (baseline) 2. Single hybrid Performance/Design Alternatives Design-Build (DB) contract procurement for both Station No. 1 and Lawton Valley WTPs with City operation as the best fit DB strategy for Newport s unique requirements 3. Single hybrid Performance/Design Alternatives Design-Build-Operate (DBO) contract procurement for both Station No. 1 and Lawton Valley WTPs with contractor long-term operation as the best fit DBO strategy for Newport s unique requirements A ES-4

7 Executive Summary The Performance/Design Alternatives strategies (DB or DBO) involve a comprehensive performance-based procurement with established performance criteria and project quality requirements. The performance specifications may entail the full range of design and operational criteria and construction/equipment quality requirements that must be met by the proposer/contractor. This approach provides a range of design alternatives and construction flexibility to utilize innovation and bring efficiency to achieve the lowest possible life-cycle cost for the project while, at the same time, meeting the City Council s top-ranked objective of delivering a reliable/quality project for treatment of the unique and challenging raw water quality conditions associated with the City s 9-reservoir surface water supply system. Section 3 of this report describes each of these three best fit strategies for design, construction and operation of the Station No. 1 WTP improvements and the new Lawton Valley WTP. ES.5 Summary Comparison of Best Fit Strategies The relative advantages and disadvantages of the three best fit strategies are described in Section 3 of this Phase 1B report and are summarized below. Single versus Separate Contract Procurement The single contract procurement approach reflected in the DB and DBO strategies (numbered 2 and 3, respectively, in Section ES.4) offers a number of advantages to the City: City costs for DB or DBO procurement would be reduced considerably with a single contract for both plants. Opportunities for life-cycle cost savings through economies of scale and other efficiencies would be maximized with a single DB or DBO contractor. More effective management of project implementation risk. For example, risks in construction scheduling and on-site construction activities with ongoing WTP operations would be allocated to a single DB or DBO contractor. With separate DB or DBO contractors or with multiple construction contracts and design engineers under the Traditional design-bid-build strategy (numbered 1 in Section ES.4), these risks would be dispersed. Design-Build (DB) versus Design-Build-Operate (DBO) As compared to design-build-operate (DBO), design-build (DB) with City operation would provide a number of benefits or advantages to the City in the long-term operation and maintenance of the Project, including: City avoidance of additional annual costs for contractor overhead and profit (these additional costs are likely to offset private contractor efficiencies or savings in the direct costs of operations). A ES-5

8 Executive Summary Maximum flexibility in day-to-day operations with City operations staff to help ensure effective interface with the challenging variability in raw water quality due to the nine geographically-dispersed surface water sources of supply and the strict requirements for the quality of the finished water entering the City and outside customer s distribution system. Difficult employee transition issues (such as retirement and health benefits) under DBO do not arise with continued City operation and design-build (DB). The following Section ES.6 summarizes the conclusions and recommendations as to the project delivery strategy that should be implemented by the City for the design, construction, and operation of the Station No. 1 WTP improvements and the new Lawton Valley WTP. ES.6 Conclusions and Recommendations Key conclusions of the City Advisor s development and evaluation of project delivery options for the Station No. 1 WTP improvements and the new Lawton Valley WTP, as documented in this Phase 1B report, are as follows: Either the design-build (DB) or the design-build-operate (DBO) single contract project delivery strategy would provide a more straightforward path for the City s implementation of the WTP projects than would the Traditional design-bid-build (DBB) strategy. The DB strategy offers significant advantages over the Traditional DBB strategy in terms of achieving the City s top-ranked objective of maximum project design and construction quality / operational reliability and in promoting the City s important objective of reducing each project s life-cycle cost to the lowest possible level through innovation in design and construction. Between the DB and DBO strategies, a single Performance/Design Alternatives DB contract procurement would be the most suitable strategy for City implementation of the WTP projects. The DBO strategy does not offer a high likelihood of annual net savings in long-term costs for operation and maintenance. The DB strategy takes full advantage of the City s long history and experience in operating two interrelated treatment plants under conditions of highly variable and challenging raw water conditions, while allowing a wide range of design and construction flexibility to achieve the lowest possible life cycle cost for the project. It is therefore recommended that the single Performance/Design Alternatives Design- Build (DB) contract procurement with continued City operation for both Station No. 1 and Lawton Valley WTPs is the most advantageous strategy for project delivery consistent with Newport s unique requirements and with all of the City s objectives for effective and reliable treatment/project quality. A ES-6

9 ES.7 Summary of the DB Procurement Process Executive Summary Figure ES-1 depicts the key activities that would be included in the recommended two-step procurement process utilizing a single Design-Build (DB) contract for the Project. The process includes two steps. In the first step, the project is widely advertised and the procurement is open to any and all firms to demonstrate qualifications and experience to undertake the Project. This first step includes the City and City Advisor s preparation and issuance of a Request for Qualifications (RFQ), which will include a list of qualifications criteria. This is followed by an evaluation by the City Selection Committee of all the qualification statements received and the selection of a short-list of three to five pre-qualified firms. The second step includes the City, City outside legal counsel, and City Advisor s preparation of a draft Request for Proposals (RFP) and a draft Design-Build Contract and distribution to the short-listed firms for review and comment. After consideration of the comments received, the City will issue the RFP and DB Contract to the shortlisted firms. Upon receipt of the DB proposals (which may allow for an interim technical proposal), the City Selection Committee will request clarification of the proposals, as necessary, and will evaluate the proposals based on the criteria set forth in the RFP and select the best value proposal for final contract negotiations. The RFP will include and describe the criteria that will be utilized by the City Selection Committee to evaluate DB proposals and to select the best value proposal for negotiation of a final DB Contract that would be presented to the Newport City Council for approval. A ES-7

10 Publish Notice/ Advertisement of Project Issue Request for Qualifications Evaluate Qualifications and Select Short-List Distribute Draft Request for Proposal and Draft Design- Build Contract to Short-List for Comment Issue Request for Proposals and DB Contract Evaluate Proposals and Select "Best Value" Proposal Negotiate Final Design-Build Contract City Council Approval/Award Contract Key Criteria DB Experience Design of Similar Projects Construction Experience Financial Condition Key Criteria Life-Cycle Cost Reliability/Quality of Project Schedule Risk Allocation Key Personnel Figure ES-1 Recommended Design-Build Procurement Process

11 Contents Executive Summary Section 1 Introduction and Background 1.1 Background Water Treatment Plant Compliance Evaluation City Advisor for Water Utility Strategic Options and Delivery of Improvements to Water Treatment Facilities Phase 1 Utility Ownership/Governance and Project Delivery Strategy Section 2 - Identification and Evaluation of Project Delivery Options 2.1 Identification of City Objectives for Project Delivery Identification of Preliminary Project Delivery Options Screening of Preliminary Project Delivery Options Evaluation of Final Project Delivery Options Risk Allocation for Project Delivery Options Three Best Fit Project Delivery Strategies Section 3 Comparison of Three Project Delivery Strategy Alternatives 3.1 Description of Project Delivery Strategies Single Contract Procurement Comparison of DB/DBO and Traditional Strategies Comparison of DB and DBO Summary Section 4 - Conclusions and Recommendations Appendices Appendix A September 29, 2008 City Council Workshop Materials Appendix B Task 1B.1 Memorandum on Project Delivery Objectives, Options and Criteria Appendix C Task 1B.2 Memorandum on Evaluation and Comparison of Project Delivery Options Appendix D Task 1B.3 Memorandum on Risk Allocation for Project Delivery Options A FZ00073toc i

12 Tables 2-1 Ranking of the Final Project Delivery Options A FZ00073lot.doc ii

13 Figures ES-1 Recommended Design-Build Procurement Process... ES Recommended Design-Build Procurement Process A FZ00073lof.doc iii

14 Section 1 Introduction and Background 1.1 Background The Newport water system includes a complex system of nine surface water reservoirs seven located on Aquidneck Island and one located in each of the towns of Little Compton and Tiverton. The system includes two treatment plants with different processes, one of which has equipment that is much beyond its useful life. The distribution system includes several (three) pressure zones, several consecutive systems, and extended water age concerns. The system s retail base includes the city of Newport and the town of Middletown. The system also has two wholesale customers: the Portsmouth Water and Fire District (PWFD) and the Naval Station Newport (NSN). In 2004, the City of Newport completed a Water Treatment Plant Compliance Evaluation (CDM, February 2004). The purpose of this project was to assess current and future regulatory compliance as well as the physical condition of Newport s two water treatment plants Station 1 Water Treatment Plant and Lawton Valley Water Treatment Plant (WTP). In January 2008, the City of Newport entered into consent agreements with the Rhode Island Department of Health and Department of Environmental Management under which the City is now obligated to conduct certain studies and make certain physical improvements to its two WTPs. In March 2008, The City of Newport retained the professional services of Camp Dresser & McKee Inc. (CDM) to work as the City Advisor to assist with the identification and evaluation of strategic options for the long-term ownership, governance, operation and financing of the City s Water Utility (so-called Phase 1A) as well with the development of a plan for the implementation of needed physical improvements to its two water treatment facilities (so-called Phase 1B). This report documents the results of the City Advisor work during Phase 1B, which identifies and evaluates project delivery options for implementation of the design, construction and operation of long-term improvements to the Station No. 1 WTP and the new Lawton Valley WTP required under the January 2008 consent agreements. As discussed in this Phase 1B report, project delivery options including traditional design-bid-build (DBB) contracting, design-build (DB) contracting, and design-buildoperate (DBO) contracting are evaluated for the purpose of developing a recommended project delivery strategy that would provide the most efficient possible plan for City implementation of both Station No. 1 WTP and the new Lawton Valley WTP projects. 1.2 Water Treatment Plant Compliance Evaluation The Water Treatment Plant Compliance Evaluation completed by CDM in 2004 included several major elements: A 1-1 FZ00073sec1

15 Section 1 Introduction and Background Assessed the status of compliance with current and future drinking water regulations; Conducted an audit of the WTPs and identified deficiencies; Developed treatment goals; Evaluated alternative technologies; and Recommended improvements including cost estimates and implementation schedule. The study resulted in recommendations that formed the basis of a two-phase Capital Improvement Program (CIP) consisting of both short-term and long-term improvements. These improvements at the City s two treatment facilities are driven by future drinking water regulations, plant capacity needs, plant reliability and/or safety requirements. Overall, the CIP includes: (1) upgrades to the Station 1 Water Treatment Plant in the form of a new pretreatment train to restore the plant s reliable capacity to its original 9 million gallon per day (mgd) capacity on a maximum day basis, and (2) replacement of the Lawton Valley Water Treatment Plant. The objectives of these improvements are to implement reliable and cost-effective water treatment systems, tailored to the City s long-term needs, prior to the end of This schedule is dictated by separate consent agreements with Rhode Island s Department of Health (RIDOH) and Department of Environmental Management (RIDEM). Meeting this schedule is critical to increasing system reliable capacity, overall facility reliability, and water quality compliance. 1.3 City Advisor for Water Utility Strategic Options and Delivery of Improvements to Water Treatment Facilities In November 2007, the City acting through its Department of Utilities, issued a Request for Proposals to engage the services of a consultant to serve as the City s Advisor and provide services to complete the necessary phases and tasks for the long term improvements to the Station 1 and Lawton Valley Water Treatment Plants. In March 2008, Camp Dresser & McKee Inc. (CDM) was selected by the Department of Utilities and confirmed by the City Council to serve in this role as City Advisor. In this capacity, CDM is providing professional services for the City necessary to identify and evaluate strategic options for the long-term ownership, governance, operation and financing of the City s Water Utility and to fully develop the strategy for the delivery of the treatment plant improvements and, in subsequent phases, to manage and oversee on behalf of the City the procurement, design and construction of these improvements. CDM s work as the City Advisor will be conducted in five phases (as may be revised to reflect decisions made by the City during Phase 1): A 1-2 FZ00073sec1

16 Section 1 Introduction and Background Phase 1 Utility Ownership/Governance and Project Delivery Strategy Phase 2 Utility Financing Phase 3 Engineering Studies and Preliminary Design Phase 4 Procurement Documents and Process Phase 5 Monitoring of Contractor Performance 1.4 Phase 1 Utility Ownership/Governance and Project Delivery Strategy The objectives of Phase 1 are to provide the City with detailed information to support and allow decision-makers to select: (1) a water utility ownership and governance structure that will promote the City s strategic objectives and will address the fundamental question as to what is the best long-term ownership, governance, financial and operation structure for the City s water utility, and (2) project delivery strategies and to prepare implementation plans for the long-term improvements to Station No. 1 Water Treatment Plant and a new Lawton Valley Water Treatment Plant. The selected project delivery strategy and associated implementation plan must: (1) complete construction and testing within required schedule, including consent order dates; (2) minimize life-cycle cost; (3) optimize project delivery risk allocation; and (4) achieve project quality standards and minimum requirements. Given the different nature of the issues and concerns that must be addressed for the options available to the City relative to the decisions for ownership and governance strategy compared to the decisions for specific project delivery strategies for the water treatment plant improvements, Phase 1 has been conducted in two steps or phases: Phase 1A Utility Ownership/Governance Strategy Phase 1B WTP Improvements Project Delivery Options Phase 1A identified all of the strategic options available to the City for utility ownership and governance (including capital financing and system operation and maintenance). For each option, CDM has identified key issues and questions related to the selection of a strategic option, and assessed the pros and cons of these strategies in terms of relevant policy, risk, cost, technical, public acceptance, and service quality factors to support the city s decision-making process. As part of this task, CDM has reached out to and interviewed key stakeholders, including wholesale water customers, to obtain input for City consideration. The Phase 1A report was delivered to the City on July 2, 2008; it recommended continued City ownership of the water utility along with continued rate-payer financing of capital improvements. At its regularly-scheduled meeting on July 23, 2008, City Council adopted a resolution approving such recommendation for A 1-3 FZ00073sec1

17 Section 1 Introduction and Background continued City ownership of the water utility and commencement of the Phase 1B City Advisor work. The Phase 1B tasks and related activities were completed by the City Advisor during the period from August 4, 2008, through October 24, CDM identified City objectives for project delivery and a wide range of project delivery options available for implementation of the long-term improvements to Station No. 1 and the new Lawton Valley Water Treatment Plants. This was followed by an assessment of the pros and cons of these delivery options and strategies in terms of the City objectives to support the City s decision-making process as to the most-efficient project delivery strategy for the City of Newport. The Phase 1B work is the subject of this report. A 1-4 FZ00073sec1

18 Section 2 Identification and Evaluation of Project Delivery Options 2.1 Identification of City Objectives for Project Delivery Four key City objectives were identified by the City Advisor based on the objectives commonly utilized by municipal water utilities to evaluate project delivery options for the design, construction, and operation of water treatment projects. These commonly-used objectives have been tailored to reflect the unique needs and characteristics associated with the delivery of the long-term improvements required for the Station No. 1 and Lawton Valley water treatment plants by the City of Newport. 1. Minimize the life-cycle cost of both plants (i.e., combination of design, financing, construction and long-term operation, maintenance, renewal and replacement costs). 2. Achieve the schedule milestones set forth in consent agreements with the Rhode Island Department of Environmental Management and the Rhode Island Department of Health (recognizing that certain interim milestones may need to be revised in accordance with the project delivery strategy selected by the City for implementation). 3. Provide treatment facilities that will reliably produce required quantities of finished water in full compliance with federal and state regulations for water quality, consistent with water age constraints associated with wholesale customer distribution systems and with safe yield constraints and the wide range of raw water quality variations for the sources of water supply. 4. Achieve an optimal balance of risk allocation between the City and project contractors. These objectives are not listed in any order of priority. Discussion among members of City Council at the September 29, 2008 workshop indicated that project quality/reliability is the single most important or top-ranked objective with lowest life-cycle cost a close but very important second-ranked objective. Schedule and optimal risk allocation are valued as related but secondary objectives that need to be satisfied. 2.2 Identification of Preliminary Project Delivery Options Table 1 in the Task 1B.1 memorandum in Appendix B presents a list of the preliminary project delivery options identified for implementation of the Station No. 1 WTP improvements and the new Lawton Valley WTP. Included on this list are A 2-1

19 Section 2 Identification and Evaluation of Project Delivery Options various combinations of City operation and contract operation along with further combinations of the project delivery options for the Station No. 1 WTP improvements and the new Lawton Valley WTP, both individually contracted and combined under a single contract. Traditional Design-Bid-Build (DBB) The preliminary project delivery options include Traditional design-bid-build (DBB) contracts, a sequential project delivery process whereby the City would hire a design engineer to prepare detailed plans and specifications for the improvements and then would award separate construction contracts to the lowest responsible bidders (Category 1.0 in Table 1 in Appendix B). A series of amendments would also be required to provide lump sum payments for the scope of services of the design engineer at various points during the design and construction of the projects. The City would operate and maintain the completed facilities with its own employees (as the existing plants are operated) or hire an outside company to provide operations and maintenance services. Design-Build (DB) The preliminary project delivery options, under Category 2.0 in Table 1 in Appendix B utilize Design-Build (DB) contracts where a contract that includes both design and construction of the required improvements is procured. Like with the Traditional DBB options, the preliminary options for DB contracts also include the further option of operation and maintenance of the completed plants either by City employees or an outside contractor. In addition, three variations in the DB delivery method are included in the preliminary project delivery options: Progressive DB: The DB contract would be awarded before the construction cost is determined. The DB contractor initially would work with the City in preparing the design. At the point where approximately 60 to 70% of the design is complete, the contractor would propose a guaranteed maximum price as the basis for negotiation with the City for construction of the project under a construction management atrisk approach. Performance-based DB: The DB contract would be procured on the basis of criteria established by the City Advisor describing how the completed plant is required to perform upon completion of construction (e.g., raw and finished water quality parameters would be specified). The DB proposer would have a relatively large degree of discretion as to the design approach and details. The construction cost would be established in the DB contract when initially signed. Prescriptive DB: Before procuring the DB contract, the City would have the City Advisor prepare a preliminary design (approximately 30% design completion) and the DB contractor would be required to follow the preliminary design as it prepares the final or detailed design and performs construction. Like with performancebased DB, the construction cost would be established in the DB contract when initially signed. A 2-2

20 Section 2 Identification and Evaluation of Project Delivery Options Design-Build-Operate (DBO) The Category 3.0 project delivery options in Table 1 in Appendix B include Design- Build-Operate (DBO) contracts that would assign responsibility for design, construction and long-term operation and maintenance of the plants to the DBO contractor (including operation of the existing facilities during the period when the improvements are implemented). This category is significantly different from Categories 1.0 and 2.0 in that WTP operation would not be performed by City employees. Under DBO, design and construction would utilize the performancebased DB method to afford maximum design flexibility to the contractor who would also have long-term responsibility for operation and maintenance and day-to-day performance of the plants and sources of water supply. The costs for construction and annual operation and maintenance would be established in the DBO contract when initially signed. Options are included in Table 1 in Appendix B for single and combined DBO contracts. 2.3 Screening of Preliminary Project Delivery Options As more fully described in the Task 1B.1 memorandum in Appendix B, the following short-list of final project delivery options have been identified as a result of screening the list of preliminary options in Table 1 in Appendix B, mainly on the basis of the City objectives of lowest life-cycle project cost and optimal risk allocation: Category 1, Options 1.1 and 1.3: Traditional design-bid-build (DBB) with City operation and maintenance under separate construction contracts for Station No. 1 and Lawton Valley Category 2, Options 2.5, 2.9 and 2.11: Station No. 1 WTP prescriptive design-build (DB) with City operation and maintenance and new Lawton Valley WTP performance-based or prescriptive design-build (DB) under separate DB contracts Category 3, Options 3.1 through 3.5: Performance-based design-build-operate (DBO) under separate or a single DBO contract(s) for Station No. 1 and Lawton Valley 2.4 Evaluation of Final Project Delivery Options Tables 1, 2 and 3 in the Task 1B.2 memorandum in Appendix C summarize the evaluation and comparison of the pros and cons for the final project delivery options for implementation of the Station No. 1 WTP improvements and the new Lawton Valley WTP described in detail in the Task 1B.2 memorandum. Based upon the evaluation of the pros and cons of the final project delivery options described in Appendix C, the relative ranking of the options with respect to the two City objectives that vary the most significantly among the options is provided in Table 2-1 below. In Table 2-1, a value of 1 represents the top ranking while a value of 4 represents the lowest ranking. A 2-3

21 Section 2 Identification and Evaluation of Project Delivery Options Table 2-1 Ranking of the Final Project Delivery Options Life-cycle Cost Procurement Risk Options 1.1/1.3 Traditional design-bid-build 4 3 Options 2.5/2.11 Prescriptive design-build 3 1 Option 2.9 Performance-based design-build 2 2 Options 3.1/3.2 Design-build-operate 1 4 The performance-based Design-Build (option 2.9) and Design-Build-Operate (options 3.1 and 3.2) provide the greatest potential for achieving the lowest project life-cycle cost. The DBO option, however, presents the greatest risk in procurement time, cost and ability to recover or exceed the upfront costs of procurement incurred by the City through net savings in project life-cycle cost. Section 2.5 addresses the question of risk allocation for project execution under each of the project delivery options. For the performance-based DB and DBO, requirements for project quality would also be provided by the City Advisor to help assure that the City s top-ranked objective of Project Quality/Reliability is met. 2.5 Risk Allocation for Project Delivery Options Based on the detailed allocation of project risks outlined in Table 1 in the Task 1B.3 memorandum in Appendix D, the final project delivery options are ranked as follows with respect to the City objective of optimal risk allocation: 1. Options 3.1/3.2 Design-build-operate 2. Option 2.9 Performance-based design-build 3. Options 2.5/2.11 Prescriptive design-build 4. Options 1.1/1.3 Traditional design-bid-build 2.6 Three Best Fit Project Delivery Strategies Based on detailed evaluation and comparison of the pros and cons of the above shortlist of final project delivery options and consideration of the risk allocation aspects of the final delivery options, the following three best fit alternative strategies for design, construction and operation of the Station No. 1 WTP improvements and the new Lawton Valley WTP have been identified: A 2-4

22 Section 2 Identification and Evaluation of Project Delivery Options 1. Traditional Design-Bid-Build (DBB) contract procurements for the Station No. 1 WTP and the Lawton Valley WTP with City operation, along with an engineering agreement and series of amendments to provide design and related services 2. Single hybrid Performance/ Design Alternatives Design-Build (DB) contract procurement for both Station No. 1 and Lawton Valley WTPs with City operation as the best fit DB strategy for Newport s unique requirements 3. Single hybrid Performance/ Design Alternatives Design-Build-Operate (DBO) contract procurement for both Station No. 1 and Lawton Valley WTPs with contractor long-term operation as the best fit DBO strategy for Newport s unique requirements Description of these best fit strategies along with their relative advantages and disadvantages are described in Section 3 of this Phase 1B report. A 2-5

23 Section 3 Comparison of Three Project Delivery Strategy Alternatives 3.1 Description of Project Delivery Strategies The following three possible best fit alternative strategies for design, construction and operation of the Station No. 1 WTP improvements and the new Lawton Valley WTP have been identified based on the evaluation of project delivery options described in Section 2: 1. Traditional Design-Bid-Build (DBB) contract procurements for the Station No. 1 WTP and the Lawton Valley WTP with City operation, along with an engineering agreement and series of amendments to provide design and related services 2. Single hybrid Performance/Design Alternatives Design-Build (DB) contract procurement for both Station No. 1 and Lawton Valley WTPs with City operation as the best fit DB strategy for Newport s unique requirements 3. Single hybrid Performance/Design Alternatives Design-Build-Operate (DBO) contract procurement for both Station No. 1 and Lawton Valley WTPs with contractor long-term operation as the best fit DBO strategy for Newport s unique requirements The relative advantages and disadvantages of these best fit strategies are described in this Section 3. In Section 4 of this report, the recommended project delivery strategy resulting from this comparison of advantages and disadvantages is described. 3.2 Single Contract Procurement The single contract procurement approach reflected in the DB and DBO strategies (numbered 2 and 3, respectively, in Section 3.1 above) offers a number of advantages to the City: City costs for DB or DBO procurement would be reduced considerably with a single contract for both plants. Opportunities for life-cycle cost savings through economies of scale and other efficiencies would be maximized with a single DB or DBO contractor. Management of project implementation risk, especially those related to construction scheduling and the interrelationships between on-site construction activities and the need for ongoing operation of both WTPs would be more effective with a single DB or DBO contractor. The disadvantages associated with a single DB or DBO contract primarily include the concentration of financial risk with one DB or DBO contractor and the City s reliance on the performance of a single contractor. By comparison, these disadvantages do not A 3-1 FZ00073sec3

24 Section 3 Comparison of Three Project Delivery Strategy Alternatives outweigh the benefits or advantages the City would gain through the use of a single DB or DBO contract procurement. The role of the City Advisor in the DB or DBO contract procurement process will be to help to manage and mitigate any such financial and performance risks. 3.3 Comparison of DB/DBO and Traditional Strategies Utilization of a hybrid Performance-based/Design Alternatives approach to the DB or DBO contract procurement provides a means of balancing the important City objective of reducing each project s life-cycle cost, on the one hand, with the City s top-ranked objective of delivering upgraded and new WTP facilities that will meet project quality requirements and provide reliable treatment, on the other. The Performance-based/Design Alternatives approach would involve a comprehensive performance-based procurement with established performance criteria and project quality requirements. The performance specifications may entail the full range of design and operational criteria and construction/equipment quality requirements that must be met by the proposer/contractor. This approach would provide the DB or DBO proposer/contractor with a range of design alternatives and construction flexibility to utilize innovation and bring efficiency to achieve the lowest possible lifecycle cost for the project within an envelope of comprehensive performance criteria and project quality requirements to ensure that City and water customer needs for effective and reliable treatment are met for treatment of the unique and challenging raw water quality conditions of the City s 9-reservoir surface water supply system. The DB and DBO single contract procurement strategies would provide the City with several advantages as compared to the Traditional DBB strategy: Single DB or DBO contract avoids the need and additional costs for City management and administration of the multiple construction contracts and design engineering amendments required for the Traditional DBB strategy. Separate contracts for design and construction under the Traditional DBB strategy for each WTP creates fragmentation of project delivery responsibility and gaps in risk allocation that can be more effectively addressed with a single DB or DBO contract. Construction cost and delay claims lodged with the City and the resulting disputes that commonly arise from the owner s design documents used for bidding the construction contracts that commonly occur under the Traditional DBB strategy are minimized under a DB or DBO contract. Single DB or DBO competitive procurement with a wide range of design and construction flexibility allowed under a hybrid Performance-based/Design Alternatives approach would likely yield life-cycle project cost savings to the City and improved project quality as compared to the Traditional DBB strategy where design and construction is not integrated under one contractor. A 3-2 FZ00073sec3

25 Section 3 Comparison of Three Project Delivery Strategy Alternatives A 3-3 FZ00073sec3 The disadvantages associated with the DB and DBO contract procurement strategies include: The costs that would be incurred by the City for the DB or DBO contract procurement are significantly greater that the procurement costs that would be incurred under the Traditional DBB strategy (such DB or DBO procurement costs could be on the order of $3,000,000). Approval of the Rhode Island PUC of such DB or DBO procurement costs would be required. The level of City control over the detailed design of each project would be diminished under the DB or DBO strategy, as compared to the Traditional DBB strategy where the City prepares 100% complete design documents before construction contracts are awarded. Construction of the Station No. 1 WTP improvements would most likely start earlier under the Traditional DBB strategy due to the extended period of time required up-front for DB or DBO contract procurement. The following Section 3.4 compares the relative advantages and disadvantages to the City of the DB and DBO project delivery strategies for the design, construction and operation of the Station No. 1 WTP improvements and the new Lawton Valley WTP. 3.4 Comparison of DB and DBO Between the DB and DBO strategies, the DB strategy utilizing a single contract procurement under a hybrid Performance-based/Design Alternatives approach would provide the most advantageous overall strategy for City implementation of the WTP projects. This is due, in part, to the fact that the DB strategy would take full advantage of the City s long history and experience in operating two interrelated treatment plants under conditions of highly variable and challenging raw water conditions. Further, it would provide the City with added flexibility for day-to-day and long-term operations and maintenance, renewal and replacement decisions. The potential benefits to the City of the DBO strategy where long-term operations and maintenance (O&M) services are, in effect, added to the DB strategy would be limited and would not outweigh the disadvantages of the DBO strategy. Such disadvantages include added procurement complexity and cost, heavy reliance on DBO contract terms and profitability of operations for contractor performance during the 20-year O&M period, financial and other challenges in the transition of existing City WTP employees, and loss of City direct control and flexibility in day-to-day operations and interfacing with the delivery of raw water from Newport s 9-reservoir system. 3.5 Summary The comparison of the relative advantages and disadvantages of the three best fit project delivery strategies described in this Section 3 of the report indicates that the most advantageous overall approach for the City would be the DB single contract project delivery strategy utilizing a hybrid Performance-based/Design Alternatives procurement for City implementation of the WTP projects.

26 Section 4 Conclusions and Recommendations The key conclusions of the City Advisor s development and evaluation of project delivery options for the Station No. 1 WTP improvements and the new Lawton Valley WTP, as documented in this Phase 1B report, are as follows: Either the design-build (DB) or the design-build-operate (DBO) single contract project delivery strategy would provide a more straightforward path for the City s implementation of the WTP projects than would the Traditional design-bid-build (DBB) strategy. The DB strategy offers significant advantages over the Traditional DBB strategy in terms of achieving the City s top-ranked objective of maximum project design and construction quality/operational reliability and in promoting the City s important objective of reducing each project s life-cycle cost to the lowest possible level through innovation in design and construction. Between the DB and DBO strategies, the DB single contract project delivery strategy with comprehensive performance criteria and project quality requirements established under a Performance-based/Design Alternatives approach would be the most suitable strategy for City implementation of the WTP projects. This is due, in part, to the fact that the DB strategy would take full advantage of the City s long history and experience in operating two interrelated treatment plants under conditions of highly variable and challenging raw water conditions and the DBO strategy does not offer a high likelihood of annual net savings in long-term costs for operation and maintenance. It is therefore recommended that the single Performance-based/Design Alternatives Design-Build (DB) contract procurement for both Station No. 1 and Lawton Valley WTPs with City operation is the most advantageous strategy for project delivery consistent with Newport s unique requirements and with all of the City s objectives for project delivery. The recommended procurement process for the single DB contract is shown in Figure 4-1. The process includes two major steps. In the first step, the project is widely advertised and the procurement is open to any and all firms to demonstrate qualifications and experience to undertake the Project. This first step includes the City and City Advisor s preparation and issuance of a Request for Qualifications (RFQ), which will include a list of qualifications criteria. This is followed by an evaluation by the City Selection Committee of all the qualification statements received and the selection of a short-list of three to five pre-qualified firms. The second step includes the City, City outside legal counsel, and City Advisor s preparation of a draft Request for Proposals (RFP) and a draft Design-Build (DB) Contract and distribution to the short-listed firms for review and comment. After consideration of the comments received, the City will issue the RFP and DB Contract to the short-listed firms. Upon receipt of the DB proposals (which may allow for an interim technical proposal), the City Selection Committee will request clarification of the proposals, as necessary, and A 4-1

27 Section 4 Conclusions and Recommendations will evaluate the proposals based on the criteria set forth in the RFP and will select the best value proposal for final contract negotiations. The RFP will include and describe the criteria that will be utilized by the City Selection Committee to evaluate DB proposals and to select the best value proposal for negotiation of a final DB Contract that would be presented to the Newport City Council for approval. A 4-2 FZ00073sec1

28 Publish Notice/ Advertisement of Project Issue Request for Qualifications Evaluate Qualifications and Select Short-List Distribute Draft Request for Proposal and Draft Design- Build Contract to Short-List for Comment Issue Request for Proposals and DB Contract Evaluate Proposals and Select "Best Value" Proposal Negotiate Final Design-Build Contract City Council Approval/Award Contract Key Criteria DB Experience Design of Similar Projects Construction Experience Financial Condition Key Criteria Life-Cycle Cost Reliability/Quality of Project Schedule Risk Allocation Key Personnel Figure 4-1 Recommended Design-Build Procurement Process

29 Appendix A City Council Workshop Presentation Materials Dated September 29, 2008

30 Options for Implementing Required ed Improvements e to Water Treatment Facilities Project # Newport City Council Workshop September 29, 2008 Workshop Agenda Purpose: To review the results of CDM s Phase 1B evaluation of options for the design, construction and operation of improvements to Station No. 1 WTP and new Lawton Valley WTP Present and discuss: Options for project delivery Evaluation criteria / methodology / key project factors Traditional DBB and two best fit DB/DBO options Schedule / next steps 2 1

31 Scope of Work for City Advisor Five Phases: 1. Utility Ownership/Governance and Project Delivery Strategy A. Utility Ownership/Governance B. Project Delivery Strategy 2. Utility Financing 3. Engineering Studies and Preliminary Design 4. Procurement Documents and Process 5. Monitoring of Contractor Performance This workshop will focus on Phase 1B 3 Phase 1B August October, 2008 Develop a plan for efficient design, construction and operation ( delivery ) of long-term improvements to Newport s Station No. 1 and Lawton Valley water treatment plants OPTIONS: Traditional Design-Bid-Build Design Build Design Build Operate 4 2

32 Project Delivery Options Traditional design-bid-build build (DBB) Design-build (DB) Prescriptive Performance-based Progressive Design-build-operate (DBO) 5 Traditional Design-Bid-Build (DBB) 1. City hires design Engineer with phased services and amendments 2. City / Engineer prepare 100% design 3. City awards construction contracts to lowest bidders 4. City / Engineer monitor construction progress 5. City operation 6 3

33 Prescriptive Design-Build (DB) 1. City / City Advisor prepare mandatory 30% design 2. City selects short-list of qualified contractors 3. City awards DB contract based on best value final design / construction of 30% design 4. City / City Advisor monitor final design, construction and testing by DB contractor 5. City operation 7 Performance-Based Design-Build (DB) 1. City / City Advisor prepare performance requirements 2. City selects short-list of qualified contractors 3. City awards DB contract based on best value design solution 4. City / City Advisor monitor design, construction and testing by DB contractor 5. City operation 8 4

34 Progressive Design-Build (DB) 1. City selects DB contractor based on primarily on qualifications 2. City / DB contractor prepare 70% design 3. City / DB contractor negotiate guaranteed maximum cost for construction 4. City / City Advisor monitor final design, construction costs, and testing by DB contractor 5. City operation 9 Design-Build-Operate (DBO) 1. City / City Advisor prepare performance requirements 2. City selects short-list of qualified contractors 3. City awards DB contract based on best value design and operation solution 4. City / City Advisor monitor design, construction, testing and operation by DB contractor 5. Contractor operation for 20 years 10 5

35 Evaluation of Project Delivery Options 1. Identify City objectives and all options for project delivery 2. Screen initial iti options to short-list t of final options 3. Evaluate pros / cons of final options using City objectives 4. Identify two best fit DB and DBO delivery strategies 5. Workshop to review / revise / discuss above 6. Report will document evaluation and workshop (Oct. 9) 7. City Council decision on project delivery strategy (Oct. 22) 11 City Objectives for Project Delivery Cost: lowest life-cycle cost Total present or annualized value of costs during life of project for design, construction and long-term operation and maintenance Schedule: achieve December 31, 2014 deadline for new Lawton Valley plant Quality: reliable treatment of highly variable and difficult to treat raw water Risk: optimal allocation between City and contractor 12 6

36 Sample of Summary Matrix Delivery Option Life-Cycle Project Cost Reliability / Quality of Project 1. Traditional designbid-build (DBB) 2.5 Prescriptive design-build (DB) Schedule Risk Baseline Baseline Baseline Baseline 3.1 Performancebased designbuild-operate (DBO) Uncontrollable risks (such as change in law, raw water quality, acts of God, permit delay, subsurface conditions; etc.) remain with City for each project delivery option. 13 Priorities or Relative Weights for City Objectives? Cost: lowest life-cycle cost Total present or annualized value of costs during life of project for design, construction and long-term operation and maintenance Schedule: achieve December 31, 2014 deadline for new Lawton Valley plant Quality: reliable treatment of highly variable and difficult to treat raw water Risk: optimal allocation between City and contractor Other: any objectives missing? 14 7

37 List of Initial Project Delivery Options (1 of 2) 1.0 WTP Traditional design-bid-build (DBB) 1.1 DBB of Station No. 1 WTP improvements w/ City O&M 1.2 DBB of Station No. 1 WTP improvements w/ Contract O&M 1.3 DBB of new Lawton Valley WTP w/ City O&M 1.4 DBB of new Lawton Valley WTP w/ Contract O&M 2.0 WTP Design-build (DB) 2.1 Progressive DB for Station No. 1 WTP improvements w/ City O&M 2.2 Progressive DB for Station No. 1 WTP improvements w/ Contract O&M 2.3 Performance-based DB for Station No. 1 WTP improvements w/ City O&M 2.4 Performance-based DB for Station No. 1 WTP improvements w/ Contract O&M 2.5 Prescriptive DB for Station No. 1 WTP improvements w/ City O&M 2.6 Prescriptive DB for Station No. 1 WTP improvements w/ Contract O&M 2.7 Progressive DB for new Lawton Valley WTP w/ City O&M 2.8 Progressive DB for new Lawton Valley WTP w/ Contract O&M 2.9 Performance-based DB for new Lawton Valley WTP w/ City O&M 2.10 Performance-based DB for new Lawton Valley WTP w/ Contract O&M 2.11 Prescriptive DB for new Lawton Valley WTP w/ City O&M 2.12 Prescriptive DB for new Lawton Valley WTP w/ Contract O&M 15 List of Initial Project Delivery Options (2 of 2) 3.0 WTP Design-build-operate (DBO) 3.1 Performance-based DBO for Station No. 1 WTP improvements 3.2 Performance-based DBO for new Lawton Valley WTP 3.3 Combined DBO for Station No. 1 and Lawton Valley WTPs 3.4 Alternative solution-based DBO for water supply and treatment 3.5 Private finance included with DBO for Station No. 1 and Lawton Valley WTPs 4.0 Distribution system operation and maintenance (O&M) 4.1 Continue City O&M for distribution system 4.2 Apply CUO to City O&M for distribution system 4.3 Separate O&M contract for distribution system 4.4 WTP O&M includes O&M for distribution system 4.5 WTP DBO includes O&M for distribution system 16 8

38 Screening of Initial Options 1. Progressive DB options (construction cost negotiated after contract award) eliminated as unacceptable to City 2. Individual O&M contracts with separate DB or traditional contracts eliminated because cost saving potential is not significant and there is unacceptable risk to City with multiple contracts 3. Distribution system under O&M or plant DBO contract eliminated due to high level of uncertainties with aging water lines and resulting contract administration and cost difficulties for the City 17 Final Project Delivery Options Station No. 1 WTP Improvements 1.1 Traditional design-build-bid (DBB) w/ City operation (Baseline) 2.5 Prescriptive design-build (DB) w/ City operation 3.1 Performance-based design-build-operate (DBO) New Lawton Valley WTP 1.3 Traditional design-build-bid (DBB) w/ City operation (Baseline) 2.9 Performance-based design-build (DB) w/ City operation 2.11 Prescriptive design-build (DB) w/ City operation 3.2 Performance-based design-build-operate (DBO) Combined Station No. 1 / Lawton Valley WTPs 3.3 Performance design-build-operate (DBO) 18 9

39 Important Project Characteristics in Evaluation of Final Options Station No. 1 Existing plant to remain in operation Improvements to expand reliable capacity Lawton Valley Existing plant to be replaced with new plant Site not yet determined Both plants (unique to Newport) Raw water from 9 surface reservoirs is extremely variable and is very difficult to treat Variability of raw water creates serious plant design / operations risk Finished water must meet strict chemistry profile (i.e., avoid lead release) 19 Newport Water System Two plants Lawton Valley Station 1 Nine reservoirs 5 supply Lawton Valley 4 supply Station 1 10

40 Source Operation is Complex to Deal With Highly Variable Water Quality (1 of 2) 21 Source Operation is Complex to Deal With Highly Variable Water Quality (2 of 2) 22 11

41 Day-to-Day Water Quality Variability Increases Operational Challenges (1 of 2) 23 Day-to-Day Water Quality Variability Increases Operational Challenges (2 of 2) 24 12