The Design-Build Project Delivery Approach for Airports

Traditional Methods of Airport Project Delivery

Airports can choose among several project delivery methods depending on the nature of the project, cost considerations, risk tolerance, schedule sensitivity, and resource management. Two of the most common contracting approaches in airport design and construction are:

• Design-Bid-Build (DBB) is the conventional public works process. With DBB, 100% design is required before bid and construction, the designer and contractor are separate and independent, and the schedule is sequential. DBB gives the owner direct control of most aspects of the project, including design and contracting decisions. But by segregating design from construction, DBB sometimes leads to negative consequences such as tension between the owner and contractor, schedule extension, high owner risk arising from change orders and schedule delays, and increases in the likelihood of litigation and claims regarding cost overruns and delays.
• Design–Construction Management (Design-CM) is another common project delivery approach aimed at expediting construction schedules and improving cost control. Airport owners hire either a CM agent acting as the owner’s advocate without liability or a CM/general contractor who assumes cost and/or schedule risk. The latter construction management contract type is called CM-at-Risk. Design-CM gives the airport owner the flexibility to fix cost and schedule under a guaranteed maximum price, reduce staffing, and increase the number of local trade contractors through competitive subcontract bidding. Although the schedule is improved over the linear DBB method, construction managers still prefer to bid only after design is relatively complete, and there still is a likelihood of litigation and claims between the owner and the CM.

Airport Design-Build Gaining Momentum

The design-build (DB) approach is the new kid on the block. It establishes a single point of responsibility for both design and construction—in other words a one-stop shop. In the DB approach, the owner selects a single firm (or consortium/joint venture) to perform both design and construction under a single contract. DB can be implemented with a variety of contracting methods, ranging from competitive lump sum bidding to sole source negotiation.

Despite owner concerns about control sharing, complex contracts, and the need to set design and construction criteria, DB offers airports some major benefits. Chief among these are reduced owner risks, accelerated schedule, and lower costs. In addition, DB provides clear accountability and responsibility, reduces conflicts and litigation, and improves design and construction efficiency through expert value engineering and constructibility reviews.

A Penn State University study has shown that for a variety of U.S. building, industrial, and transportation projects, DB average unit costs are 4.5% and 6.0% less than design-CM and design-bid-build, respectively. The same study indicated that DB total project delivery is 23% faster than design-CM and 33% faster than design-bid-build. This does not mean that DB is always the best solution, but it means that when it is selected for the right reasons (i.e., reduction of owner risk, cost, and schedule), the owner has been reaping the benefits.

Bechtel Leading the Way in Airport Design-Build Projects

According to Engineering News Record survey, Bechtel is the top DB firm in the United States. In recent years, Bechtel has had several major successes on DB airport projects both within and outside the U.S. Notable project examples and unique features of these projects are as follows:

Chicago O’Hare Terminal 6 (T6) Program—A Progressive Lump-Sum DB Contract

The T6 program is the largest DB airport program in the U.S., and will cost from $800 million to $1 billion. The program involves the development of a 69,000-square-meter terminal with 20 contact gates, and will be the home of several airlines. The City of Chicago turned to DB after the Terminal 5 (T5) program experienced budget overruns using the design-construction management at risk approach.

The reason for the overrun: separating the design from the construction had resulted in a design that could not be built with the available budget. As a result, for T6 the City decided to shift the design risk to a DB contractor and place the burden of integrating design and budget on the contractor’s shoulders. The contractor selected through competitive bidding, T6 Partners, consists of a Bechtel-led joint venture along with six local design and contracting firms.

The significance of the T6 program is that it provides the owner with all the advantages of DB while going a long way toward eliminating one of the greatest reservations about DB, namely, reduction of owner control. Several facts about Chicago’s approach are worth noting:

• The City based its selection of the DB contractor on the contractor’s qualifications (size, financial strength, and experience) to handle the job.
• To ensure that their expectations would be met; the City provided detailed design criteria, schedules, and budget requirements.
• To ensure adequate control, the City set up the contract as a progressive lump-sum negotiation process, which calls for the City to review the design process at the 30%, 60%, and 100% stages.

At the 30% stage, T6 Partners submitted the cost for full design services, which the City accepted. At the 60% stage, the City and T6 Partners have the option of entering into negotiations to fix the lump-sum construction cost. If agreement cannot be reached, the design work continues to 100% and negotiations for final construction costs can be entered into. If agreement cannot be reached at this point, the City can elect to shift the process to a more traditional approach.

Portland Airport Light Rail Extension Project — Negotiated Lump-Sum DB Contract

This 3-year $125 million project is an outstanding example of innovative public-private partnership. The project consisted of an 8.8-kilometer line extension to the Portland International Airport, along with three new rail stations, and access improvements. The extension to the airport had been part of the regional plan for many years, but had not been funded—a bond issue required a public vote and a lengthy process. Innovation was required to resolve this problem.

Bechtel proposed a public-private partnership where it could obtain private funds to pay for one-third of the project cost in return for development rights for a 45-hectare site adjacent to the airport and a sole-source position for building the new rail line. At 30% design completion, the contract value was agreed upon and the project was subsequently delivered in 3 years, instead of the originally forecast 8 years, with no change orders, cost overruns, or schedule slippages—strong confirmation of the contention that integrating design and construction can yield significant cost and schedule benefits.

London Luton Airport—Sole-Source DB Contract

In October 2000, Bechtel established Alterra Partners to develop, finance, construct, own, and operate airport projects and concessions throughout the world. Since then, Singapore Changi Airport has become an equal partner with Bechtel, and Alterra has been creating strategic alliances with leading airport operators to complement Alterra’s skills in development, financing, and asset management.

The London Luton Airport was Bechtel’s first DB effort for an Alterra Partners joint venture, consisting of Bechtel Enterprises, Barclays Bank, and TBI (one of the world’s leading airport owners and operators). Bechtel was selected as the contractor following privatization. Bechtel took on the $140 million, 2-year project to build a new passenger terminal as a lump sum DB contract. A previous contractor had started the project, and Bechtel was required to use existing subcontractors and contract terms.

The key point about this project is that the owner passed the completion risk on to the Alterra joint venture, which passed them off to Bechtel as DB contractor. And it paid off! As far as quality, cost, and schedule were concerned, the owner’s goals were achieved.

Costa Rica Juan Santamaria Airport—Sole-Source DB Contract

This is another Alterra project in which Bechtel is responsible for design and construction. Phase 1 is currently being implemented and includes a terminal expansion, addition of some contact gates, and resurfacing of the runway. Phase 2 will involve further expansion.

Once again, DB is proving to be a good delivery mechanism. The design level at the time of bidding was limited to 2%, and the final scope and price were determined by the design completion to 10%. The owner made numerous scope changes to the design, and the open book negotiating process allowed the owner to review quantities, prices and fees in the cost estimates. Construction and design are taking place concurrently, resulting in cost and schedule savings.

Lima Jorge Chavez Airport—Sole-Source DB Contract

This airport is the first major DB project in South America. The government of Peru decided that privatization was the only way to upgrade this major international gateway in great part due to financial constraints. A joint venture consisting of Alterra Partners, Frankfurt Airport Group, and Cosapi (a Peruvian construction firm) were awarded the concession. A joint venture of Bechtel and Cosapi was selected as the DB contractor.

The project is currently being designed to meet the client’s budget, and the cost estimate is being conducted on an open book basis in which the client can review the Bechtel joint venture’s cost estimates, including quantities, prices, and fees. The DB mentality is resulting in value engineering and constructibility reviews very early in the process. Completion is expected by the year 2008.

Airport Design-Build Gaining Momentum

DB offers major advantages to airport owners—decreased costs, reduced schedules, and lower risks. Private industries understand these advantages and have been executing their projects on a DB basis for many years. They have also learned that sharing control of their projects does not sacrifice quality as long as the proper criteria are set up and adhered to.

The reluctance of the public sector to use the DB approach on airports is beginning to break down, and new DB airport projects are popping up throughout the U.S. and Europe. The Chicago T6 and Portland LRT projects are excellent examples of the way the DB delivery approach is gaining momentum in the U.S.