DBB, DB or DBM? Performance of Road Project Delivery Methods

Transcription

1 DBB, DB or DBM? Performance of Road Project Delivery Methods Tiina Koppinen VTT Technical Research Centre of Finland ( Pertti Lahdenperä VTT Technical Research Centre of Finland ( Abstract Internationally, road procurement is moving towards more integrated services. At the same time, the number of alternative project delivery methods has increased making selection of the best one difficult. The client must understand the features of the methods in order to select the most effective ones. That is why the presented study compared the performance of Design Bid Build (DBB), Construction Management (CM), Design Build (DB) and Design Build Maintain (DBM). Based on the analysis of road procurement, more integrated services give better value for money and are of more help to the client in attaining his goals than more traditional methods. Yet, one should realise that each method has its typical applications, and all methods are not suitable for all purposes. Keywords: Road procurement, project delivery, performance, comparison, life cycle 1. Client's Changing Needs as Starting Point Project delivery methods where the implementer offers more integrated service packages are increasingly used in infrastructure projects worldwide. The client no longer splits up the project to procure different types of services by different contracts. Besides construction, at least technical design and maintenance for a certain time period, often also financing, are covered by a single contract. The change in the modus operandi is the result of clients wanting to focus on their core businesses as managers of infrastructure networks as well as the overall aim of generating added value. Generally, broader service packages have been assumed to allow optimising the product and implementation as a whole as well as to actuate sector development. Yet, contrary views in favour of traditional methods are also voiced: splitting up the project into small components is believed to increase competition in the markets and ensure the client's decision making power concerning the details of the project. This together with other presented critique raises the issue of the usability and actual effectiveness of various delivery methods. 263

2 2. Performance Assessments as the Goal The presented study charted the performance of different delivery methods in road procurement from the international viewpoint focussing especially on three areas: Examination of the operating principles and present performance level of various methods in actualized road projects. Assessment of the development means and potential of delivery methods and their resulting future performance. Anticipation of changes in the operating environment, and evaluation of their impact on the usability of different delivery methods. Since there is special interest towards Design Bid Build (DBB), Design Build (DB) and Design Build Maintain (DBM) in Finland, the study was to analyse the performance of these delivery methods and their applicability. As the municipal sector uses Construction Management (CM) it was also included in the comparison to some extent. Different financing solutions and costs as well as (indirect) social impacts were excluded from the study. 3. Charting of International Experiences The study looked at the experiences gained from different project delivery methods in England, Australia, New Zealand and the United States in addition to Finland. An earlier study [3] found these countries the most innovative, which was presumed to mean that they were best poised to answer questions about new methods. Data were collected by interviewing over 60 persons representing different project parties in these countries and by charting and making use of studies conducted there and in other countries [1]. In the assessment of the merits of the delivery methods, the client's viewpoint was emphasised. The viewpoints of the contractor, designer and end user were also considered in order to ensure the support of all parties for the methods. Only that ascertains the positive future development of the sector. In the studied countries there is a clear trend towards more integrated services and more risk borne by service providers. DB has gained ground on DBB and even replaced it completely in some countries. It is considered effective in procuring roads since it shortens project duration thereby improving cost certainty. Just about the only problem seen with it is the cooperation between the parties (especially designer/contractor) which various joint enterprise models seem to be able to address. Various applications of DBM have also been used alongside DB since the 1990s to improve the life cycle economy of roads. The applications have ranged from fully client financed roads to pure toll roads. With the former, the enlarged responsibility of the private sector covers only 10 year maintenance whereas in the case of toll roads the project company collects revenue in the form of user fees over a contract period of years. DBM has led to effective operation in 264

3 terms of quality, schedules and costs. Yet, for instance, the used payment bases have also been criticised. CM has been used hardly at all in road procurement. Finnish experiences of CM indicate some benefits from it although, at the same time, the fact that buying small work packages does not allow the industry to develop drew criticism. 4. Cost Savings through Integrated Services Each phase of a project (procurement, design, construction and maintenance) involves a certain cost and duration. Costs may be incurred by the client's organisation (procurement, supervision) or industry (tender preparation, design, construction, maintenance, consulting). In the study, the interviewees indicated the actual phase level, party specific cost changes of various delivery methods compared to traditional procurement based on projects they have carried out. The costs for comparing different delivery methods were calculated on the basis of relative costs where the starting point was the cost structure of two reference projects. The chosen study period was 30 years, and delivery methods were compared on the basis of the present values of their costs. The analysis [2] showed that DBB is the slowest and generally leads to the highest total costs in road procurement as shown by Fig. 1. CM speeds up project implementation, but costs about as much as DBB. The duration of a DB project may be slightly longer than in CM due to the longer procurement phase, but shorter than with DBB. On the other hand, the costs are clearly lower than with the CM and DBB. However, DBM is the one that yields the largest savings. In DBM the project takes a little longer than in DB and especially CM. Millions Present cost % 2 % 4 % 6 % 8 % 10 % Interest rate DBB CM DB DBM Poly. (DBB) Poly. (CM) Poly. (DB) Poly. (DBM) Figure 1. Costs of reference project by different delivery methods and at different discount rates. 265

4 The savings from DB and DBM depend on many factors; the most significant one appears to be savings in construction costs. Moreover, the methods also lower a project's supervision, project management and design costs. On the other hand, the savings in maintenance costs appear to have little effect on the present value of total project costs. The present cost is also affected by the discount rate, but with the exception of relative position of DBB and CM changes in it do not alter the ranking of the delivery methods. Subsequent assessments were made using relative costs based on a discount rate of 6 per cent. 5. Added Value through Integrated Services Not only does the cost behaviour of procurement methods vary, their ability to generate value for the client and the other parties also varies. The value criteria generally used were grouped in the study into the value factors of Fig. 2: cost certainty, time certainty, short cycle times, good quality (aesthetics, travelling comfort, minor need of maintenance), safe and environment friendly implementation, flexibility (ease by which client can effect changes), smooth delivery (effective communication, no disputes or claims), public inconvenience (road availability, minimum user disturbances). The interviewees assessed how well these goals were attained by different delivery methods compared to DBB. The viewpoint was mainly that of the client. In general, the interviewees found that methods where the contractor is responsible for design (DB and DBM) generate more value. The broader the service package, the better the perceived value generation on average. DBB and CM, on the other hand, were believed to lead to an increased number of interfaces between the parties and possibly to problems, inefficiency and lower value generation. CM was, however, considered superior to DBB in some areas. Different clients and projects may emphasise value factors quite differently. If flexibility becomes the determining criterion, DBB and CM are the best methods. On the other hand, if the weight of quality and flexibility trebles, the value generation of DBB exceeds that of DB. If again, the weights of flexibility and time certainty increase 2.5 fold, CM generates more value than DB. Yet, as the study focussed on a so called average project, various value factors were assigned equal weight in drawing conclusions and the illustration of results. When value generation was studied from the viewpoints of other project parties, contractors and designers were found to have noticed some problems also with the more integrated methods. Contractors perceived high tender costs and cooperation with the designer the biggest problems. Risk allocation and increasing project sizes also provoked discussion. Typically contractors did, however, find that broader service packages lead to efficiency and better possibilities of developing operations. Designers saw problems especially in the implementation of DB where they are often subordinated to the contractor as the limited economic resources of designers seldom give them an equal footing. 266

5 Figure 2. Value generation capacity of different procurement methods compared to DBB. 6. Economic Efficiency is the Key There is a continuous demand on public clients to get more value for tax money. The accrual of costs or value generation in themselves do not prove the excellence of a delivery method in that context. The significant factor is the amount of value the method can generate in relation to its costs. That is why the concept of economic efficiency (EE) was introduced into the study. It indicates the normative ratio of generated value to costs in comparison to DBB. The conducted analysis and Fig. 3 in the next chapter show that CM s economic efficiency is on a par with DBB. DB improves EE significantly: it generally allows generating more value for the client at lower costs. DBM as much as doubles the benefits of DB and thus gives the best value for money. The total differences are so large that moderate changes in the weights of value factors play no role in the ranking of delivery methods. The overall assessments requested of interviewees concerning the "value for money" of various methods were also in line with the above analysis. The general reasons perceived to contribute to the superiority of DB and DBM 267

6 included transfer of risk to the private sector, the optimised delivery process and quality as well as utilisation of the management skills of the private sector. 7. Development is the Basis of Future Performance The study also attempts to provide answers for the long term instead of just evaluating the "historical performance" of delivery methods. Therefore, the interviewees were asked to assess the development potential of different methods. Development potential was divided into more easily assessable sub factors by main categories as follows: 1) adaptability/regeneration of process, 2) generation/utilisation of information, 3) project team coherence/capacity for cooperation, and 4) means and possibilities of improving workability of delivery method. The first three categories represent general preconditions for development of the activity over the long term. The fourth one covers the concrete means for improving the efficiency of delivery methods presented by interviewees and literature. Based on the assessments of the interviewees and on the critical analysis, it became evident that DBB and CM have little development potential whereas the potential of DB and DBM is significant. The relative development potentials of different delivery methods are indicated by the lengths of the arrows in Fig. 3. However, here the lengths of the arrows are meaningful only in relation to each other, not as exact numeric values. Future performance is the sum of present performance and development potential. Thus, there are good grounds to assume that the performance gap between DBB and CM on the one hand, and the more integrated DB and DBM on the other, will only widen in the future. Figure 3. Current economic efficiency of delivery methods and its future development. 268

7 Attainment of the full performance capacity of delivery methods naturally requires elimination of the existing factors that limit efficiency. The research report [2] specified the improvement proposals already considered as development potential above. Their aim is to optimise the performance of delivery methods from the viewpoint of all parties (see [1]). In DBB, for instance, the constructability of designs and cost certainty can be improved. In CM, the overlapping of operations can be reduced thereby making project management more effective. In DB, tender costs can be cut, cooperation between suppliers improved, risk allocation optimised, opportunities to innovate increased and quality improved. In DBM, tender costs can be reduced, risk allocation optimised, innovation promoted and flexibility increased. 8. The Future Operating Environment The future will bring changes also to the operating environment where roads are procured and built. Changes will affect factors guiding procurement (rules, financing, changing traffic environment) as well as the production process even the end product. In light of the anticipated changes it would appear that more integrated delivery methods will allow us to adapt better to changes than more traditional methods. Yet, there would appear to be no serious hindrances to the use of any of the methods in the future. 9. Application Areas of Different Delivery Methods The study would seem to indicate that more integrated delivery methods provide better value for money than traditional ones. Each delivery method does, however, have its distinct best applications outside of which its advantages cannot be realised in full. According to Fig. 4, DBB is still suitable for small and simple projects, which offer little room for innovation, or which involve many factors of uncertainty due to parties or issues external to the project. CM, again, is well suited for large and/or tight scheduled projects involving many constraining factors where the client also must effect changes during implementation or the life cycle. As project size and degree of freedom increase, DB and DBM become more preferable. Since DBM is suited for larger than average projects, DB can be considered appropriate for average projects. DB and DBM projects must not, however, involve factors of uncertainty due to third parties. 10. More Integrated Service Packages for Future Roads The study clearly indicated that more integrated service packages can provide concrete benefits to all parties compared to DBB. Thus, further development of DB and its adoption as the standard alternative to DBB is recommended. The benefits of DBM are also apparent; it is generally the best solution for large projects. 269

8 Small Project size Huge DBB CM DB DBM Point of Comparison Figure 4. Optimal application areas of various delivery methods. Changes in procurement must yet occur in steps in order to give industry time to adapt and to allow time for contract standardisation and development of appropriate specifications. Selected delivery methods must also be used continuously to motivate people to acquire the know how required by new methods which will also make them better. The private sector must at the same time focus on relationship building and developing cooperation models. Thereby road procurement and implementation can be raised to a new level which furthers the attainment of the client's goals, increases industry's productivity and profitability, and gives society the best possible value for tax money. It should be kept in mind that the study targeted only road projects. Thus, the results cannot be assumed to be directly applicable to vertical, or even other infrastructure construction, since these often differ from road construction in many ways. References [1] Koppinen, T. & Lahdenperä, P.(2004) Road Sector Experiences on Project Delivery Methods. VTT Research Notes 2260, Espoo p. + app. 32 p. (Available online at: [2] Koppinen, T. & Lahdenperä, P. (2004) The Current and Future Performance of Road Project Delivery Methods. VTT Publications 549, Espoo p. 270

9 (Available online at: [3] Pakkala, P. (2002) Innovative Project Delivery Methods for Infrastructure. An International Perspective. Tieliikelaitos, Helsinki p. (Available online at: 271