Minutes Exhibit A
Port Commission Regular Meeting
of February 9, 2016


AMERICAN COUNCIL OF ENGINEERING COMPANIES
of Washington

. Testimony ofVan Collins to Port of Seattle Commission, February 9, 2016

Good Morning Mister President, Members of the Commission.

My name is Van Collins and i am the President and CEO of the American Council
of Engineering Companies of Washington and I am here today in support of item
number 6a on your agenda related to Procurement Excellence, at least as this
proposal addresses and relates to the procurement of engineering and related
professional services.
ACEC represents over'150 engineering firms in Washington State covering all
Suite207  engineering disciplines.  Collectively, they employee over 5,000 Washington
residents in highly technical and desirabie family wage jobs.  In short, ACEC
700  112'" Avenue NE
members impact the quaiity and nature of life of every citizen in this state.
Bellevue,WA98004
Specuflc to the Port of Seattle, these firms comprise the vast majority of the' . .     ' _ .
Phone (425) 453-6655  engineering firms with which the Port currently does business. ACEC members
view the Port of Seattle as a very, very important client and believe that ACEC
Fax (425) 451-3521
members, in turn, represent a valuable and important resource to the Port. In a
http://www.cecw.org  nutshell, the Port/ACEC relationship is a vital one and symbiotic in nature. To
function at the highest level, it demands a cooperative and collaborative
interaction that seeks to maximize quality, innovation and value to the taxpayers.
It also requires give and take and a basic equitable appreciation from each side as
to what the other needs to be successful - cooperation and understanding rather
than adversity and divergence.

Turning to the proposal at hand, ACEC supports the Port staff's recommendation         i
regarding the need to investigate, analyze and overhaul the Port's procurement         I
processes as it relates to engineering and professional services. In fact, ACEC has
been attempting to more fully engage the Port on this topic for several years and,
when Mr. Caplan was hired last year, we directly approached him with our
concerns in an effort to open a more meaningful dialog regarding issues which
often negativeiy affect both the Port and the engineering community alike. One
example of this is the amount oftime it takes to reach contractual agreement.
As you can see, I have provided you with a copy ofa letter. This letter was drafted
at Mr. Caplan's request and sets forth ACEC's top three concerns with the Port's
procurement and contracting processes.  I provide this as background and
evidence of ACEC's concern and commitment to the Port.  However, it is
important to note that we do not make specific demands in the letter. Instead,
we ask the Port to commit to a collaborative, ongoing, and highly functioning
process by which to reach agreement on issues of concern to both ACEC and the
Port.

"IMPROVING THE BUSINESS OF ENGINEERING"

In closing, we view the Procurement Excellence proposal as another way to
address these issues of concern - through outside expertise and independent
analysis.  To that end, we support the proposal and- once again offer the
experience and expertise of the ACEC membership to come alongside the Port in
a collaborative effort to make the procurement and contracting processes at the
Port work for both sides. As 3 directly affected industry, who helps the Port
deliver its daily operations and capital development projects, we do ask, however,
to be directly involved in this critical undertaking - from the beginning to end -
and a commensurate commitment from the Port to meaningfuily engage on our
issues throughout. We hope for an environment where both sides can move
forward with a pledge of creating win-win outcomes.
Thank you and l wiil be happy to answer any questions.

'XEMWEC
AMimnmN ('IouNcn or ENGINEERING COMPANIES
'
of Washington


November 17, 2015

Mr. David Capian
Senior Director of Strategic Initiatives
,
Port of Seattle
PO. Box 1209
Seattle, WA 981 11

Re: Identication of Issues of Concern to ACEC of Washington Members

Dear Mr. Caplan:
Suite 207

Thank you again for taking the opportunity to meet with me and our Chairman of the
700 ~ 112'" Avenue NE
Board, Scott \Voerman, on October 7, 2015 to discuss the status of the Port of
Believue..WA 98004     Seattle/ACEC liaison committee and our issues of concern. We appreciated your
candor and Wiliingness to openly discuss these matters.
Phone (425) 453-6655

FM (425) 4513521     Many of the consultants represented by ACHC have worked repeatedly with the Port
over a period of many years (often 15 to 20 years or more). They feel a sense of
http://W\vw.acec-     partnership with the Port in providing, upgrading and maintaining high quality
\va.0rg      facilities that are recognized throughout the transportation industry as state of the art.
The Port benets from these consultant's sense of partnership in receiving high quality
work from experienced and qualied A/E rms who are familiar with the Port's
facilities and the Port's typical requirements and procedures. Consultants represented
by ACEC would like to perceive that their sense of partnership is being recognized
and reciprocated by the Port through a genuine willingness to discuss and negotiate
terms of engagement that are fair and reasonable to both parties.

As you requested, we are now following up with a list of our top three (3) ACEC
issues regarding the Port's procurement and contracting processes. These three issues
are (1) application of qualications based selection (QBS) requirements, (2) the Port's
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position of non-negotiability of standard terms and conditions and (3) an institutional          ,
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approach of "shifting any and all risk to the consultant".                              I
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|

In addressing these issues, we want to reiterate that it is not our intent to have the
Port merely accede on any of these issues. To the contrary, we want the Port to be a
strong owner and are certain there are countervailing concerns that will need to be
addressed and balanced. Similarly, we also believe that ACEC may be able to be as'sist
the Port on issues that are important to' the Port such as small and disadvantaged
business development. We want to once again state our desire for this exchange to
lead towards both sides committing to a collaborative process that can fully address
all such issues. We believe that this is best accomplished through a highly functioning
liaison committee structure.


"IMPROVING THE BUSINESS OF ENGINEERING"

November 17, 2015

Identication of Issues of Concern to ACEC of Washington Members
Page 2


Based upon our experience with other public owners and with other highly
functioning workgroups, we believe beyond any doubt that it is entirely possible to
address issues of concern and importance to both sides and to effectively negotiate
many solutions that are mutually acceptable. In fact, we believe that many issues often
have common solutions once investigated fully. This type of effort takes dedication,
trust, transparency, and perseverance. ACEC is strongly committed to this effort and
hopes the Port sees the wisdom and value in partnering with ACEC.

1.  Application of Qualications Based Selection Requirements .

At a very basic level, proper application and use of Qualifications Based Selection
(QBS) for Architectural and Engineering (A/E) Services requires an understanding
and appreciation of the policies underlying QBS laws. The rationale is based in quality,
safety, and ultimately long-term cost savings to the public owner. We believe that an
understanding and appreciation of these policies are critical to the Successful
implementation of the public procurement of A/E services. Accordingly, you will
nd attached hereto an addendum that provides both a general explanation of these
laws and policies and a more specific look at how they relate to and are incorporated
into Washington law.

In providing this background, ACEC believes it to be axiomatic that public owners
must follow both the spirit and letter of the law to fully meet the Legislature's
directives and to receive the full intended benefits  i.e. quality, innovation, and cost
savings. Again, it is ACEC's desire to collaborate with the Port to help ensure that
both the policies and letter of Washington's QBS law are addressed, understood, and
appreciated. We further believe that to do otherwise could, in fact, have negative
effects on the Port, the public interest, and the A/E community.

A. Fair and Reasonable Compensation

ACEC would like to engage with the Port regarding fair and reasonable
compensation. As we indicated in our face to face meeting, the A/E community
believes that the Port's allowable rates are neither fair nor reasonable. Two examples
are the process used to establish rates at the outset of a project and then any
subsequent changes to those rates.

The Port requires a long and laborious process to negotiate and approve the rates for
each and every one of a consultant's employees and the employees of every sub
conSultant that will be utilized on a project. This negotiation process is performed
by Port employees that have no direct project involvement.  If a consultant's
employee receives a pay raise or is otherwise promoted, then the consultant often

November 17, 2015

Identication of Issues of Concern to ACEC of Washington Members
Page 3

nds itself in another lengthy process to renegotiate that employee's rate with the
Port. The other alternative for the consultant is to bring a less experienced (and lower
cost employee) onto the project, which could affect the quality of the work
conducted.

At its best, the Port's procedure is highly time consuming and administratively costly
to both the Port and the A/E community. At its worst, this procedure creates
conditions that disfavor project success and economic survivability of the consultant.

This is especially important in relation to the Port's focus and emphasis on small and
disadvantaged businesses.  The Port's initiative in this area is clearly negatively
impacted by its own contracting processes and procedures. It is, however, notable
that the Port's process is very unusual and unique.

The effects of this process are dramatic, though. It tends to create an adversarial
relationship when a collaborative relationship is necessary to foster innovation,
creativity, and great solutions to difcult problems.

It is generally accepted that total design costs are approximately 1% to 2% of a
project's life-cycle costs, where the life~cycle costs include the costs to design,
construct, operate and maintain a project. Accordingly, the design is a small fraction
of a project's overall cost. More importantly, a project's design is the single largest
factor that impacts its life-cycle cost. Of course, this fact merely serves to reiterate
and support QBS's underlying policies - innovation, quality, creativity and the
recognition of cost savings. This also means that public owners should create systems
and processes that promote this policy.

Another area that causes rates to become neither fair not reasonable is in relation to
periodic escalation for multiyear contracts. The Port's contract makes escalation
optional and fully within the Port's discretion regardless of market conditions.
Moreover, any approval is often tied to the consumer price index which clearly
underestimates escalating costs to the A/E community. The rst chart below was
taken from the Bureau of Labor Statistics for the consumer price index (CPI) in
Seattle. As can be seen, the CPI has generally been between 1% and 2% over the last
year.  Of course, CPI is the cost seen by consumers, not the A/E community.
Contrastingly as shown by the second chart, annual wage adjustment alone (and
largest cost factor for firms) in the A/E community is well over 3%. This data is the
result of a scientifically based, doubleblind, annual survey just released by ACEC.

November 17, 2015

Identication of Issues of Concern to ACEC of Washington Members
Page 4

Chart 1. Overthe.year percent change In CPI-U, Seattle, August 2012August 2015

Percent change
4.0 




2.0 


1,0 

All ielns
~ ~ - All Reins less bud and energy

00
'Aug  Oct  Dec Feb  Apr  Jun  Aug  Oct  Dec Feb  Apr  Jun  Aug  Oct  Dec Feb  Apr  Jun  Aug
'12 '13 '14 '15

Source: US. Bureau at Labor Statistics.


Vii
Wage Adjustments                     -.l
Average Actual 2015 and Average Projected 2016
__ ,  nzms Proimg'g fl




IZOISAduaI -. 3'



Source: ACEC Salary Survey, 2015

Collectively, these pricing pressures negatively affect the overall project quality, that
were discussed above in relation to low cost bidding versus QBS selection.

As is discussed in the addendum, RCW Chapter 39.80 clearly provides that fair and
reasonable compensation must be paid on A/E contracts. However, it is also not
lost on ACEC that the Port actually purports to support a similar position as part of
its foundational documents. The Port's Mission Statement reads:

The Port of Seattle is a public agency that creates jobs by advancing
.
trade and commerce, promoting industrial growth, and stimulating
economic development.

ACEC believes that the A/E community is demonstrably part of that economic
development mission and that this can be accomplished within the A/E community
only if fair and reasonable compensation is paid.

November 17, 2015

Identication of Issues of Concern to ACEC of Washington Members
Page 5

2.  Nonnegotiable ContractLanguage

As was previously described, all public owners in Washington State have the
obligation to  negotiate A/E contracts pursuant to RCW Chapter  39.80.
Unfortunately, this is not the Port's standard position. The following was taken from
a recent Port Request for Qualications:

6. Contract Terms & insurance. A copy of the Ports standard
terms and conditions is contained in Attachment C. By offering a
submittal, the firm represents that it has carefully read the terms
and conditions and agrees to be bound by them. The Port will not
negotiate changes to the standard contract terms and conditions.
Specific insurance requirements for this contract are contained in
Attachment C.

Strangely, the Ports standard terms and conditions also contains a provision in the
indemnication clause that acknowledges, to be effective under state law, thatit
must be specifically negotiated between the parties. Clearly, thisis not done by the
Port and would accordingly negate the clause's otherwise purported indemnication
requirement.

ACEC believes that the better answer is for the Port to actively engage with ACEC
to collectively reach acceptable terms and conditions In doing so, it should be
possible to reach terms that comply with state law, clear up ambiguity, increase
enforceability, minimize disagreement, and decrease negotiation time.   The
Agreement should also be consistent withinsurance policies issued by both US and
London Professional liability underwriters.

The Washington State Department of Transportation (WSDOT) is a prime example
of a state agency that uses this process effectively. WSDOT actively engages its
consultants and contractors to work out problems and ambiguities in its standard
terms and conditions. Both sides find it effective and worthwhile.

3.  Allocation of Risk to the Consultant

The Port's standard terms and conditions while being non-negotiable currently are
also pervasive with examples of terms and conditions that shift risk to a consultant
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regardless of the ability of that consultant to control the risk. ACEC, again, would
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like the opportunity to articulate why this is not beneficial to either the consultant or           I
the Port and to negotiate more acceptable terms.
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The Port's standard terms and conditions contain a number of provisions that might          i
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well create concern with a consultant's professional liability insurance. First and
t

November 17, 2015

Identication of Issues of Concern to ACEC of Washington Members
Page 6

foremost, these provisions, again, tend to create an adversarial atmosphere that will
affect the manner in which the A/E community approaches contracts with the Port.
Unlike contractors, A/E firms cannot directly price risk into their contracts.
However, they will still respond to reduce that risk.  In short, risk suppresses
innovation and creativity because uninsurable risk can literally destroy a firm
nancially (and leave the Port without an adequate remedy).

One of the results of this risk is that it can negatively affect conStruction costs. The
reason for this is that a firm in this environment will have to evaluate the project's
demonstrated areas of risk. For example, given a choice between option A which is
"safe" or "tried and true" but results in higher construction costs (which the A/E
rm does not incur) versus option B which is more creative and saves construction
costs, but may be less conventional, it is clear which one a prudent designer would
choose. This is very akin to practicing "defensive" medicine by physicians and leads
to a clear proposition that processes, procedures, contract terms, or other items that
foster an adversarial atmosphere do in'fact tend to inhibit creativity and innovation
and to increase project costs.

This concept was vocalized by President Ronald Reagan a number of years ago during
a ceremony recognizing design excellence in federal buildings when he said, "[g]ood
design doesn't cost money. Good design saves money, and you know how that
warms my heart."

At a recent conference sponsored by the American Public Works Association, Ms.
Karen Erger, Vice President and Director of Practice Risk Management for the
Lockton Companies gave a PowerPoint presentation that stressed it is actually in a
public owner's best interest for its contracts to generally consider the areas and
likelihood that a consultant's insurance coverage could become problematic. The
slides that Ms. Erger used included the following:

But Our Lawyer Wrote this Contract!
- Transactional lawyers draft contracts

Want to get "best" terms and shift most risk

0 But litigators settle (and sometimes try) cases

Know it's hard to settle when defendant's uninsured

0 Skilled lawyer at insurance expert

Especially about A/E professional liability

November 17, 2015

Identication of Issues of Concern to ACEC of Washington Members
Page 7


Insurance Helps Resolve and Fund Claims
0 Most civil cases do not
go to trial (only 5% do)
0 Lack of coverage creates settlement problems

Coverage issues delay and complicate settlement




Collecting from an insurance company is simple




Collecting from an A/E defendant will be hard

- Uninsurable contract provisions must be
deployed  if at all - with this in mind

As can be seen, Ms. Erger advises that public owners will nd it more difficult to be
paid and to resolve claims if public owners maintain overly narrow contract terms.
In addition, Ms. Erger suggests that public owners will find it difcult to ever collect
beyond a consultant's insurance coverage because of the type of assets (mainly
accounts receivable) consultants have within their rms. Lastly, Ms. Erger suggests

a list of common contract liability issues that public owners should be willing to
address with consultants in relation to professional liability coverage.

Common Contract Insurability issues
1. Elevated Standard of Care
LDOOVCDL-wa . Indemnity
with Duty to Defend
.lndemnity for Damages Caused by Others
. Owner as Additional Insured



. Guarantees and Warranties



. Prevailing Party Fee Clauses


. Guaranteeing
Contractor's Work
. Responsibility for Site Safety



. Everything Else

ACEC would like the opportunity to examine the Port's standard terms and
conditions and to work with it and representatives from the insurance industry to
eliminate ambiguities and to maximize the insurability of the contract to the benet
of both parties.                                                            l

4.  Conclusion

In closing, it has been ACEC's intent to demonstrate why it would be benecial to
both the Port and to the A/E community to agree to engage in an active and highly
functioning process to address issues of mutual concern. We strongly hope that the

November 17, 2015

Identication of Issues of Concern to ACEC of Washington Members
'
Page 8

Port agrees with our position and moves to create a collaborative and high
functioning work group to work through issues of mutual concern.

Thank you and we look forward to your response,


Van A. Collins
President/CEO

ADDENDUM
POLICIES AND LAWS RELATED TO
WASHINGTON QBS

A. Policies Underlying QBS

QBS was developed to procure services for which price competition made no sense. For example,
innovation and creativity cannot be fairly and accurately priced until both the owner and A/E have
engaged in a collaborative process and the full scope of work is mutually understood and agreed upon.
An engineer can hardly "hard bid" (submit a rm price) for a project when part of the cost to the
engineering rm (and therefore its needs for compensation) will be determined only after discovery of
the owner's needs and intentions.

A common question regarding the use of QBS is simply: "Why not select a consultant
based on lowest bid?" The answer is that design services are different in nature than
construction services because project design informs construction tasks and
subsequently overall project cost. For example, design can take into consideration life-
cycle and maintenance costs. Design based on low bid could mean that lower costing
(and likely less experienced) personnel are doing the work, or that innovative or creative
alternatives are not considered. In the long-run, a cheaper design could mean the overall
project costs more (including life~cycle and maintenance costs) or will not last as long as
a project carefully designed. To put this in perspective, according to guidance published
from the Washington State Ofce of Financial Management, approximately one-third
of public works project costs should be for design. If project design costs less, for
instance, because particular products or methods were not utilized, the constructed
project could have higher maintenance costs attributed to the use of inferior products
or methods, thus increasing the overall cost over time.

All consulting rms, regardless of the type of services offered, earn their money by
billing out "hours." Because professional consulting rms are not selling an actual
commodigz, the only way to lower the cost charged to complete a project is to either cut
the number of hours spent on the project, use less experienced personnel that cost less
For design rms to win              i
per hour, or implement some combination of both methods.
project work via a low bid, they would have to use less experienced personnel, evaluate                g
fewer alternatives, develop plans and specications that include less detail (which in turn                j
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can add to construction costs through additional Requests for Information [BEISI or
submittals and rovide minimal review of nal drawin s  lans and s ecications. All
of those tactics add up to less attention to detail and perhaps lower gualigg of the nal
product.

AnAam's quua/z'ea/z'omBated Selection in Wax/Wye" State - Procurement ofDeriga Service;
lg: Public Agenda, Cynthia jean Rem, jam 7, 2073 (mp/9am added).

This does not mean that QBS leads to escalated project costs. To the contrary, QBS often saves money.

Among the studies which have concluded that QBS in fact has saved tax dollars include
A" Ambler qfIm/ei Perlaz'm'g to Qua/99mm": Based Sela/2'0" by Paul S. Chinowsky, PhD
(University of Colorado) and Gordon A. Kinsley, PhD (Georgia Tech). It found that
government agencies that use qualications-based selection are better able to control
construction costs and achieve a consistently high degree of project satisfaction than
those using price based procurement methods.

The study drew from a database of approximately 200 public and private construction
projects in 23 US states, included transportation, water, commercial, and industrial
projects, ranging in size from relatively small projects to those costing hundreds of
millions dollars. Its authors compared various procurement methods, including QBS,
Best Value, and Low-Bid, with such factors as total project cost, projected lifecycle cost,
construction schedule, and project quality outcome. Results showed that using QBS to
procure the design component of a construction project "consistently meant lower
.  overall construction costs, reduced change orders, betterproject results and more highly
satised owners than in other procurement methods."

The authors, both experts and noted researchers in the engineering and construction
field, concluded that QBS should continue to be the procurement method of choice for
public contracting ofcers seeking to acquire A/E services to meet increasingly
challenging infrastructure needs.

A specic study comparing costs between agencies that use QBS and those that select
on price also found that the QBS process saves money. Selecting Arc/Meat: and Engineers
r Pub/1'6 Building Projectr: An Aabm'r and Comparison of tbe Many/am! and Flo/ilk; rm/m
compared projects in Florida, which used QBS, with those in Maryland, which for a
period oftime employed price competition. The comparative study found Maryland's
A/E selection process was signicantly more time consuming and expensive than
Florida's. In Maryland, the necessity of preparing detailed programs on which A/Es can
base price proposals results in added expense to the state in the form of administrative
staff, time delays and consultant costs, and overall budget. The increased administrative
costs in Maryland resulted from the necessity of preparing detailed programs on which
A/Es can submit price proposals. These additional system costs were not evident in
Florida. While A/E fees were lower in Maryland than in Florida, the added costs of the
Maryland process far outweighed the savings in A/E fees that resulted from a process
in which the state developed detailed programs and A/E selections were made with price
as an initial factor.

Since Maryland's law requiring selection based on price went into effect, there was an
11.6 percent increase in personnel and a 17.9 percent increase in the budget (in constant
dollars) for construction projects.

Maryland's A/E selection process took considerably longer to complete than Florida's.
The total delay relating to the A/E portion of the capital construction process in
Maryland was almost 10 months.  The delays occurred while detailed program
descriptions were being prepared, during the actual selection process and during the
design and approval phase. The Maryland Department of General Services completed
the A/E portion of the capital construction process, from the point that funds are
approved to the beginning of the actual construction cycle, in 31 months. The same
steps are completed, on average, in 21 months in Florida agencies.

The study concluded that Maryland's A/E selection process was signicantly more time
consuming and expensive than Florida's.  In Magland, the necessity of preparing
detailed programs on which AzEs can base price proposals results in added expense to
the state in the form of administrative staff, time delays and consultant costs. As a result,
the Maryland legislature repealed its bidding law and enacted a state "miniBrooks Act"
or QBS statute.

fo/m Zl/I. Palette/[0, Tbe Comm? 071 Federal Procurement ofArr/aiteetmzz/ and Egi/zeeling Service:
(limp/3452': added).

In short, QBS recognizes that when lowest design cost becomes a paramount and overriding
consideration to a public owner, then quality, innovation, project outcome, and long-term project life-
cycle cost can and often are all negatively impacted. This should not be surprising and it should alSo
not be acceptable.

B. Washington State QBS Law

So how does Washington law address these policies in statute? The answer is that Washington law
absolutely and fully embraces these. policies.

RCW 39.80.010 clearly establishes the policy intent and directive. that all levels of Washington
government must implement and follow.

The legislature hereby establishes a state policy, to the extent provided in this chapter,
that governmental agencies publicly announce requirements for architectural and
engineering services, and negotiate contracts for architectural and engineering services
on the basis of demonstrated competence and qualication for the type of professional
services required and at fair and reasonable prices.

Breaking this policy into its component parts leads one to several clear observations:

1.  Selection  of A/E  services  must  be  accomplished  through
evaluation of competence and qualications.

2.  The public owner must negotiate a contract,

3.  The public owner is obligated to pay a fair and reasonable prices.