Attachment 7a attach for Special Meeting held Jan 13, 2015 1:00PM at SEA

7a attach

Item No.: 7a_attach
Date of Meeting: January 13, 2015
T h a x t o n P a r k i n s o n pllc
MEMORANDUM

TO: PORT OF SEATTLE
FROM: ROBYNNE THAXTON PARKINSON
SUBJECT: RISK ALLOCATION UNDER A PROGRESSIVE DESIGN-BUILD CONTRACT
DATE: 1/7/2015
All construction projects carry risk, and those risks remain the same regardless of the delivery method used for the project.
This memo discusses the allocation of risk in a progressive design-build project and explains how those risks have been
addressed for the Port of Seattle IAF Contract. Please note that this memo reflects the status of the contract to date. The
Port team has not finalized all of the provisions. In addition, the Port intends to leverage alternative procurement process
available for design-build projects by vetting the commercial terms with the Finalists. The Finalists for the procurement will
have the ability to propose alternative commercial terms, and the Port will collaborate with the Finalists during the
procurement and with the selected Finalist to determine the final risk balance that best fits the needs of the project.
A. Progressive Design-Build
The goal of the progressive design-build delivery method is to place the risks of a construction project with the entity best
able to manage, price or control the risk. One of the primary concerns expressed by owners with the progressive designbuild
delivery method is that the maximum construction cost for the project is not known at the time that the owner enters
into the contract; however, as outlined in the following graphics, the owner actually knows the maximum cost of the
project earlier in progressive design-build than in any other delivery method.
1. Design-Bid-Build
In the design-bid-build delivery method, the owner does not know the construction cost until the project is fully designed
and publically bid on a lump sum basis. In addition, the owner warrants the sufficiency of the design to the contractor
1
under the Spearin doctrine and largely assumes the risk of problems with the design . With a lump sum bid, the contractor
includes the cost of all contingency and risk in the lump sum, and the owner has no opportunity to audit the cost or manage
the risk on the project. Further, there is a greater risk to the owner of cost growth with changes.

Design
Knowlege of
cost Construction
Procurement of
100% design procurement low
Constructor bid/lump sum

Construction

2. GC/CM
In the GC/CM delivery method in Washington State and pursuant to RCW 39.10.370, the owner does not know the
Maximum Allowable Construction Cost until the design is 90% complete. The GC/CM is selected using a qualifications plus
1 Although the Owner ultimately has the ability to make a claim against the designer for issues related to the design, for a variety of
reasons, these claims are extremely difficult to recover.
P a g e | 1
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9311 SE 36 St., Suite 103, Mercer Island, Washington 98040 206.909.5290
rparkinson@rtp-law.com www.rtp-law.com

fee approach early in the project. Subcontractors perform at least 70% of the construction (RCW 39.10.390). With the
exception of the mechanical and electrical subcontractors, other subcontractors are selected through public bid on a lump
sum basis. Although the GC/CM is subject to a MACC, the owner still warrants the sufficiency of the design to the GC/CM,
and with any publically bid, lump sum contract, there is greater risk of cost growth with change orders.

Design Knowlege
of cost 90%
design

Procurement of Subcontractor Procurement :
GC/CM: low bid/lump sum
Qualifications an Fee

Construction

3. Progressive Design-Build
In progressive design-build, the design-builder is selected prior to the start of the design process, thus integrating the
design and the construction activities, and more importantly responsibilities, at the earliest possible time. This integration
allows the parties to address potential problems with the design during the design process, thus greatly reducing the risk of
changes during construction when the changes are more expensive. Further, in progressive design-build, the design-builder
is fully responsible for the design of the project, thus eliminating owner responsibility for cost growth over the established
GMP for design errors.
The owner and design-builder agree on a guaranteed maximum price ("GMP") at approximately fifty to sixty percent
design, thus shifting the responsibility early in the project to the design-builder to design the project within the maximum
cost. In addition, the design-builder is selected based on qualifications and fee, and the owner remains heavily involved in a
collaborative process in the management of the design and the selection of key subcontractors. The use of the guaranteed
maximum price instead of a lump sum allows the parties to include contingencies in an open book format in the GMP;
however, if those contingencies do not arise, the owner does not pay the cost, although there is usually a savings incentive
paid to the design-builder to manage the contingencies such that they are substantially below the GMP. As more fully
explained below, the Port will have even earlier knowledge of costs, as the parties will establish a Target Budget to which
the design-builder will be required to design after the Validation Period.

Design Knowlege
of GMP
50% design

Procurement of Design-
Builder: Subcontractor Procurement: Best Value
Qualifications/Fee

Construction

B. Procurement
1. Selection Criteria
The best way for an owner to manage the risks in any design-build project is to select the most qualified and experienced
design-builder with a history of success. The IAF Procurement is designed to select a design-builder with substantial
experience both in progressive design-build and successful delivery of projects of a "Similar Size and Complexity." The
definition of "Similar Size and Complexity" is as follows:
a. Projects Using an Integrated Delivery Method, which are projects that required extensive coordination and
integration of the design and construction team and early involvement of the constructor during design.
Special consideration and possible additional points will be given to projects that utilize the Design-Build
delivery method and, more specifically, Progressive Design-Build;
b. Projects with "Multiple and Diverse Stakeholders" that may have included tenants, facility user groups, the
public, regulatory agencies, and/or owners with multiple divisions or departments who have diverse and
conflicting interests;
c. Projects in excess of $250 million;
d. Projects for public owners;
e. Projects in which a bridge is a primary component;
f. "Complex Projects", which are those that include additional considerations beyond the design and
construction of the project. Although the Port provides examples of Complex Projects below, these examples
are intended to be illustrative only. Proposers may include other types of projects that are similarly complex
in nature.
i. Airport construction on an active Air Carrier Airport (certified Class I or II), with work activities either in
terminals or adjacent to aircraft gates and ramps;
ii. Projects with unique security requirements such as prisons, military facilities or US State Department
facilities, or
iii. Hospitals with extensive accreditation or regulatory compliance requirements.
The Proposers will also provide extensive information about their management approach for the IAF Project, interact with
IAF team members, and provide competitively bid price factors that will have significance throughout the project.
2. Price Factors
The price factors currently anticipated include the following:
a. Fee Percentage: The Fee Percentage will be used as a mark up for the cost of the work during the
Validation Period; however, one of the deliverables of the Validation Period is a Fixed Fee that will be
calculated using the competitively bid Fee Percentage multiplied by the cost of the Work in the Target
Budget. The current thinking is that the Fixed Fee will not be altered unless the Project Scope changes by
more than twenty percent. The Port is controlling the risk of paying more than what the project is worth
through substantiating the cost of the Work with invoices that are subject to a robust third party
verification process.
b. Insurance and Bonding Multiplier: The Insurance and Bonding Multiplier will cover all of the designbuilder
's insurance and bonding for the project.
c. Personnel Multiplier: This is a multiplier on the actual cost of employee wages for the design-builder and
certain Key Team Members.
d. Hourly Rates: For certain Key Team Members, the RFP currently requires that the design-builder identify
hourly rates.

C. Project Phases
The Project is divided into phases. For each phase, the Port is afforded protections that allow it the maximum flexibility to
pursue the Project in the best interests of the Port. In addition, if the Port cannot agree to the commercial terms at the
conclusion of each Phase, the Port may terminate the contract and continue the project using a more traditional delivery
method.
1. Validation Period.
a. Purpose. The Validation Period is the phase when the design-builder verifies or validates information
provided by the Port, including the Port's budget and schedule. The purpose of this phase is the
following:
i) Allow the design-builder sufficient time after the award of the contract to thoroughly review the
information provided by the Port. The design-builder will validate a wide variety of information
such as as-built drawings, geotechnical data, performance criteria, and Port estimates and
assumptions on budget, scope and schedule. With the exception of a limited amount of
information such as traffic and usage studies that are time consuming and expensive to
reproduce, the design-builder will be verifying all of the Port provided information.
ii) Obtain the design-builder's agreement as to the Initial Basis of Design Documents, the Target
Budget and the Target Schedule.
iii) Shift the risk to the design-builder for differing site conditions related to Port provided
information.
b. Deliverables. At the conclusion of the Validation Period, the design-builder will provide the Port a number
of deliverables that provide protections to the Port with respect to cost and scope control. The Port will
review all of the deliverables through a robust third party verification process, and the design-builder may
not move forward with the project until the parties have incorporated these deliverables into the
Validation Period Amendment. The three most critical deliverables are contained in the Validation Period
Amendment and include the following:
i) Target Budget. The design-builder will provide a Target Budget for review and approval by the
Port. Although the Target Budget is not a guaranteed maximum price, the design-builder is
obligated to submit designs that are consistent with the Target Budget or provide notice to the
Port that the designs will exceed the Target Budget. The Port is in control of all decisions that
will change the Target Budget.
ii) Target Schedule. The design-builder will provide a Target Schedule for review and approval by
the Port. Like the Target Budget, the Target Schedule is not guarantee, but the design-builder
must provide designs that are consistent with the Target Schedule or provide notice to the Port.
The Port is in control of all decisions that will change the Target Schedule.
iii) Initial Basis of Design Documents. The Initial Basis of Design Documents is the agreed upon
scope of work for the Project. This set of documents will define the parameters and initial
performance requirements for the Project. The Port is in control of all decisions that will alter
the Initial Basis of Design Documents.
c. Subcontractors. The design-builder will also provide to the Port a Subcontract Plan for approval by the
Port, which will establish how the design-builder intends to pre-qualify and procure its subcontractors,
including all subconsultants, design-build subcontractors, trade subcontractors and suppliers. We
anticipate that the design-builder will request that it procure subcontractors prior to the conclusion of the
Validation Period. The contract requires the design-builder to obtain the approval of the Port prior to
subcontracting with any entity prior to the approval of the Subcontract Plan.

d. Self-Performance. "Self -Performance" occurs when the same entity controls both the design and the
construction of a specific scope of the Work. Self-Performance may occur by the design-builder or by a
specialty contractor such as fire suppression, electrical, or mechanical. Under the IAF contract, the
design-builder must identify those scopes of the Work that it intends to self-perform or to subcontract to
a self-performing specialty contractor. The Port must approve all self-performance, and that approval
may not be unreasonably withheld.
2. GMP Development Period.
a. Purpose. The GMP (or Guaranteed Maximum Price) Development Period is the phase when the parties
further develop the scope, consistent with the Initial Basis of Design Documents, Target Budget and
Target Schedule. It is during this period when the majority of the design decisions are made, and the Port
maintains control of the design decisions during this period. The goal is to conclude the GMP
Development Period as quickly as possible. When the Port determines that the Project is sufficiently
defined to establish a reliable GMP, the Port requests that the design-builder submit a GMP Proposal.
The GMP Proposal is negotiated between the parties, and contains the design-builder's proposed Final
Basis of Design Documents, Contract Schedule and Guaranteed Maximum Price. As with the Validation
Period Amendment, the information provided in the GMP Proposal will be subjected to a robust third
party verification process, and the design-builder may not go forward with the project until the parties
have entered into the GMP Amendment.
b. Deliverables. The primary deliverables of the GMP Development Period will be incorporated into the
GMP Amendment and are as follows:
i) Guaranteed Maximum Price. The GMP is the amount beyond which the design-builder cannot
charge. The GMP may not be changed except through Change Order.
ii) Contract Schedule. The Contract Schedule contains the Substantial Completion Date and other
Milestone Dates the design-builder must meet with applicable liquidated damages if dates are
not met, unless modified via Change Order.
iii) Final Basis of Design Documents. The Final BoDD is the final scope on which the GMP and
Contract Schedule are based. Any changes to the BoDD must be made by Change Order.
c. Subcontracting. The design-builder will select subcontractors pursuant to the Subcontract Plan approved
by the Port. The design-builder must propose three subcontractors for the Port's approval, and the
design-builder may select from the list of three Port-approved subcontractors through a best value
competitive selection process. The majority of the subcontractors during this period are developing the
design; however, the Port anticipates that it will be necessary for the design-builder to perform some
construction work during this period. The Port must approve all early construction packages, and prior to
providing a Notice to Proceed on any early construction package, the Port and the design-builder will
agree upon either a Lump Sum or Not to Exceed amount for this work. Except in emergencies, the team
does not anticipate that the design-builder will be allowed to perform any construction work without
these important cost controls in place.
3. Post GMP Period.
a. Purpose. During t he Post GMP Period, the design is fleshed out to create construction documents and
pursue the majority of the construction on the project. Provided that the design is consistent with the
Basis of Design Documents and the previous design decisions, the design-builder has the discretion to
complete the design. This period provides the Port with the following essential protections:
i) Guaranteed Maximum Price. In progressive design-build, the Port establishes the GMP earlier
than in any other delivery method, anticipated at approximately 60% design. The design-builder
is required to develop designs consistent with the established GMP. The contract provides the

Port's usual protections for notice of changes. The design-builder may not exceed the GMP
without for a Port issued Change Order.
ii) Contract Schedule. The design-builder must meet the Substantial Completion and Milestone
Dates, unless these are changed via Change Order.
iii) Basis of Design Documents. The design-builder must meet the performance and other criteria
set forth in the Basis of Design Documents. The design-builder is allowed the discretion to finish
the design and develop the Construction Documents consistent with the Basis of Design
Documents and is responsible for completing the construction.
b. Deliverables. The ultimate deliverable from this period is a functioning project.
c. Subcontracting. The design-builder continues to comply with the approved Subcontract Plan. The designbuilder
may proceed with construction as it gets permitting approval and a Notice To Proceed from the
Port.
D. Payments to the design-builder
The payments to the design-builder depend on the phase of the project. Each phase is set forth below with the payment
structure. The design-builder may be paid through a number of different methods, defined as follows:
1. Definitions:
a. Cost of the Work. These costs are actual costs incurred by the design-builder as defined in the
Agreement. The Cost of the Work excludes certain costs such as negligence, home office overhead, and
certain travel costs. The Cost of the Work is substantiated through open book and auditable payment
applications with back up documentation of the costs.
b. Fee. The Fee is a competitively bid percentage of the Cost of the Work. The Fee includes all of the designbuilder
's home office overhead and other non-specified non-reimbursed costs as well as profit.
c. Fixed Fee. At the conclusion of the Validation Period, the parties will agree on a Fixed Fee that is based on
the competitively bid fee percentage multiplied by the estimated Cost of the Work in the Target Budget.
The Fixed Fee does not change unless a) the contract is terminated, b) the scope increases or decreases
twenty percent or c) upon agreement by the parties. The twenty percent figure is the current status of
the contract which may change.
d. Insurance and Bonding Multiplier. The competitively bid multiplier for the design-builder's insurance and
bonding costs.
e. Personnel Multiplier. The competitively bid fully burdened rate for personnel.
f. Not to Exceed ("NTE") Sum. A sum agreed upon by the parties that acts as a "mini GMP" for a specified
scope or scopes of work. The design-builder is compensated for the Cost of the Work plus Fee, but the
design-builder may not charge more for that scope of the Work than the NTE. If the actual cost is lower
than the NTE, the Port will realize the savings. Once established, the NTE may not be changed except
through written Port permission.
g. Lump Sum. A sum agreed upon by the parties that caps the amount the design-builder may be
compensated for a specific scope of the Work. The design-builder is compensated based on the
percentage complete for the scope of the Work. Once established, the Lump Sum may not be changed
except through written Port permission.
h. Hourly Rates. The competitively bid rates for the Key Personnel set forth in the design-builder's proposal.
i. Performance Incentive Plan Payments. The amount the design-builder earns through Port evaluation of
its performance and savings under the established GMP. The specific incentives have not been finalized;
however, incentives that have been discussed include a savings clause, provided that thedesign-builder

achieves the performance requirements, and an incentive based on achieving various collaboration
objectives. The overall goal of an incentive program is to encourage collaborative and other positive
behaviors, which have a high correlation with extremely successful projects.
2. Payments by Phase
a. Validation Period:
Payment: 1) Cost of the Work
2) Fee
3) Insurance and Bonding
Max Cost: Not-To Exceed Sum for Validation Period
Controls: 1) Payment applications must be supported with invoices and other back up
documentation
2) Port approves shortlist for all subcontractors
3) Hourly rates for Key Team Members, competitively bid
4) For personnel without agreed upon hourly rates, the design-builder and
Subconsultants may not charge more than the actual cost of personnel plus a personnel
multiplier that was competitively bid
b. GMP Development Period:
Payment: 1) Cost of the Work
2) Fixed Fee
3) Insurance and Bonding Multiplier
4) Incentives
Max Cost: 1) Not to Exceed Sum for Design Services
2) Not to Exceed Sum for General Conditions costs
3) Fixed Fee does not change unless the scope increases or decreases twenty percent
4) Not to Exceed and/or Lump Sums for early construction packages
Controls: 1) Payment applications must be supported with invoices.
2) Port approves shortlist for all subcontractors
3) Design Submissions must be within Target Budget/Target Schedule
4) Hourly rates for Key Team Members, competitively bid and subject to Not to Exceed
amounts
5) For personnel without agreed upon hourly rates, the design-builder and
Subconsultants may not charge more than the actual cost of personnel plus a personnel
multiplier that was competitively bid, subject to Not to Exceed amounts.
c. Post GMP Period:
Payment: 1) Cost of the Work
2) Fixed Fee
3) Insurance and Bonding multiplier
4) Incentive Payments
Max Cost: 1) GMP, which includes the following:
a) Not to Exceed Sum for Design Services
b) Not to Exceed Sum for General Conditions costs
2) Fixed Fee
Controls: 1) Payment applications must be supported with invoices.
2) Port approves shortlist for all subcontractors

3) Hourly rates for Key Team Members, competitively bid and subject to Not to Exceed
Amounts
4) For personnel without agreed upon hourly rates, the design-builder and
Subconsultants may not charge more than the actual cost of personnel plus a personnel
multiplier that was competitively bid and subject to Not to Exceed Amounts
E. Other Controls
1. Documentation.
a. Notice and Changes Provisions. As with all Port contracts, the design-builder must provide notice of all
events that may alter the commercial terms of the contract, including the Target Budget, Target Schedule,
the GMP, the Contract Schedule, and any established NTE or Lump Sum. The GMP, any established NTE
or Lump Sum, and the Contract Schedule may only be changed through Written Authorizations and
Change Orders, and the design-builder must follow the notice and documentation requirements normally
required by the Port in all of its projects.
b. Trend Log. The design-builder must identify issues that may modify the Target Budget, Target Schedule or
materially alter the Initial Basis of Design Documents. The parties track these Trends on a weekly basis,
and the change does not change the Target Budget, Target Schedule or the Initial Basis of Design
Documents without written permission from the Port.
c. Design Log. During the design process, the parties track reliable design decisions through a design log.
The design log allows both parties to make early decisions from which the design is developed. Reliable
design decisions are all consistent with the Initial or Final Basis of Design Documents. An example of a
reliable design decision would be a space plan that allows the Port to purchase equipment or furniture
based on the plan.
2. Other Protections
a. Submittal and Substitution Process. After the parties agree on the Basis of Design Documents, the designbuilder
must comply with the Port's Submittal and Substitution Processes.
b. Quality Assurance/Quality Control. The design-builder must follow the Port's QA/QC processes.
c. Building Information Modeling. Building Information Modeling ("BIM") is a computer system most often
associated with the development of the design and the reduction of design errors. However, BIM is also
an excellent tool to incorporate estimating and cost control reporting, as well as schedule and sequencing
development. One of the RFP selection criteria will be the design-builder's successful implementation of
BIM systems on similar projects as well as a well thought out plan for the use of BIM on the IAF Project.
d. Lean Construction Techniques. The Port will be requiring the design-builder to apply robust lean
construction techniques. Lean construction techniques have been responsible for substantial increased
efficiency in construction and include required collaboration, substantial communication, co-location of
the Design-Build Team and efficient use of BIM.
e. Qualifications Focused Procurement. The Port has designed an RFQ/RFP process designed to select the
most qualified design-builder who has a substantial track record of managing progressive design-build
projects and bringing them in on time and on or under budget. Selecting the right design-builder is the
best way for an owner to manage the risks inherent in this process.

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