Schoharie Reservoir Low Level Outlet project

Last Word – Balancing the Risks and Rewards of Underground and Trenchless Delivery Methods

Steven Kramser

Too few bidders. Bids above engineer’s estimates. Labor shortages. Material shortages and price increases. Delays in design or construction. Increasing claims or change orders. Do these events sound familiar?

The underground construction business is impacted by continuing and new challenges. The linear nature of trenchless work is different than general construction and methods for recovery due to problems are frequently limited. For all types of projects, owners desire construction methods for jobs that can be safely implemented and be delivered on-time and on-budget. While designers are pressed to produce high quality documents with limited budgets and cannot afford to take on unlimited liability, and construction companies cannot bet the house on a single project.

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The challenges between owners, designers and constructors sometimes feel like they are in conflict. But solutions are needed when the needs to improve, rehabilitate and build new public infrastructure remain very high. There are many types of delivery methods being used in underground construction. These range from conventional – design-bid-build (DBB), to construction management at risk, design build and several others. Each method has its advantages and challenges. There is a clear shift in the industry away from conventional delivery to alternative delivery as the preferred method.

Recently, the insurance industry indicated that contractors did not cover their costs on four out of 10 major construction projects related to infrastructure work. Further and more concerning, big design-build (DB) infrastructure projects (greater than $250 million in construction cost) are often “money-losers” for contractors. According to this analysis, contractors did financially better with traditional design-bid-build procurement. This has led to a reevaluation of alternative delivery approaches for many projects by owners and the introduction and use of progressive DB. Owners still would like to use a form of alternative delivery that provides a shorter project schedule than DBB, achieves contractor buy-in to the design solutions and has single source accountability.

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With progressive DB, the design/construction team is involved in the early stages of the owner’s project development. This approach promotes further collaboration between the owner, designer and contractor. Some may call this a form of “partnering” or early contractor involvement (ECI). In comparison with traditional design build, contractors are often requested to price the project with designs only at the 30 percent to 60 percent stage. Recent trenchless projects have seen many variations of progressive DB. The approach for implementation is still evolving.

Interestingly, I was part of a trenchless project using microtunneling almost 20 years ago that used a variation of design build that we called “modified” design build. For this project, a contractor was selected before the design was completed to work with the engineer and owner. The engineer then became a subconsultant to the contractor. This new team completed the design and then the contractor submitted a lump sum price to the owner. This partnering approach improved constructability and minimized the potential for change orders. The benefits of this approach were evident as construction was completed on schedule and cost was almost $2 million less than the original budget. While this method did not gain traction then, a version of this approach is now becoming a desirable alternative.

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The issue with design build projects is the challenge of submitting a lump price when many design elements are not fully developed or unclear. We have seen many designers and contractors not willing to accept the higher or unbalanced risk allocation with some design build or public private partnership (P3s) projects. This has resulted in teams no going projects or withdrawing from submitting a bid after short-list.

Owners need to evaluate the appropriateness of the delivery method for their particular project. An approach that may have worked for a straightforward directional drilling project across a waterway may not work for a complex microtunneling project in an urban environment. There needs to be an evaluation of risk shifting versus risk sharing. If too much risk is transferred to the designers and contractors, prices will escalate and exceed the allocated budget. For example, contractual terms that go beyond the normal standard of care or include clauses on fit for purpose.

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Owners should continue to evaluate the full range of delivery options for trenchless and underground projects. There is not a magic solution that works for every project. For more complex conditions, more advanced designs are necessary to properly bid the projects, minimize overruns and to create a winning environment for all involved parties. The design should be advanced to an appropriate level where costs can be reliably evaluated. We need to get back to a fair balance of risk and rewards.

Steve Kramer, P.E., FASCE, is a senior vice president at COWI where he oversees the growth and development of the transportation and water business in North America and a member of the Trenchless Technology Editorial Advisory Board.

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