Contractor claims in design-build won't quit | 3D printing potential for heavy civil | Cost spirals on MTA mega-projects
With the professional liability insurance market for heavy civil mega-projects in the US at "near crisis" the risks in design-build mega-project delivery are once again front and center in Engineering News-Record.
Historically, design-build projects have been procured lump-sum based on an incomplete set of design drawings - usually no more than 30 percent - leading to projects that are underbid with puny profit margins for contractors. In fact, a highly publicized recent Travelers study of 200+ heavy civil projects found that the amount of design risk assumed by a contractor is highly correlated with shrinking margins.
The reasons why are complex - contractors aren't great at fixed-price bidding on incomplete designs, there are inherent challenges applying design-build models to horizontal, heavy civil projects, and a lack of industry consensus and precedent exists over what, exactly, should constitute a designer's standard of care during the tender phase of design-build procurement.
Contractors have instead looked to the design team - and its insurers - to make up the shortfall. This is wreaking havoc in the market for project-specific professional liability insurance (which wraps the entire design team, including subconsultants, in one policy with dedicated limits for the duration of the project). "A lot of contractors will throw anything out there to see if it sticks," an insurance broker told ENR. Some insurers (Lexington/AIG, Swiss Re) have simply pulled out from the domestic PSPL market entirely - putting even more stress on the limited capacity that remains.
A growing consensus exists that the industry needs to explore new delivery models and risk-shifting solutions. So I was pleased to see ENR highlighting the work of David Hatem's industry task force (on which I served). The white paper that we published last spring made several recommendations on how to improve design-build procurement, contracting approaches, and PSPL underwriting generally, including:
- There is a significant distinction in claims history between vertical and horizontal infrastructure projects, in part because the latter include “mega-projects” within their rubric; these projects should be viewed differently from a risk management and insurance perspective.
- Second, contractors continue to struggle with fixed-price bidding on incomplete design documents – creating tailwinds for an increase in progressive design-build/P3 procurement, which the task force viewed as a plus for the industry.
- Finally, federal funding from the bipartisan infrastructure bill is a great opportunity for the industry to leverage best practices, experiment with alternative procurement and contracting approaches, and create meaningful, positive change in the North American design-build and P3 markets.
Public owners like Amtrak and FTA have recently looked into progressive delivery models for their capital programs. And there has been a noticeable shift in the market over the last year to progressive design-build. Whether owners are happy with the results remains to be seen, but the winds of change are beginning to blow across the domestic infrastructure industry. (ENR)
Richard Korman
The technology that underpins 3D printing is ready for prime time.
But industry experts believe that, for it to grow beyond the residential construction vertical, state and local governments must update their existing building codes and permit application processes. Administrative hoops and not technical barriers, then, are the shoals that 3D-printed materials and components must navigate if the industry is to scale "in a meaningful way in non-residential construction," where the need for standardization across the entire project delivery stack is crucial to improving budget and schedule outcomes, particularly on heavy civil mega-projects.
But it takes time for legislators and policymakers to update building codes and for attitudes to change about specifying new materials (take cross-laminated timber, for example, which finally seems to be meeting its moment). In the meantime, the 3D-printing industry could instead focus on reducing project costs and schedule impacts by leveraging new technology to print bespoke components for things like MEP systems and construction equipment - freeing up project labor to focus on other high-leverage tasks that could drive down costs.
And, if increasing "modularity" is the key to improving project outcomes, then the business case for 3D printing and its ability to streamline the complexity of heavy civil mega-projects becomes even more compelling. (Construction Dive)
Chris Wood
The MTA spent twice as much on outside consultants than it did digging the actual tunnels from East 63rd to 96th Streets that carry the Second Avenue Subway.
That's according to researchers at NYU, who recently published a 400-page report about the project. Citing the MTA's reliance on its consultants as leading directly to significant cost increases, the report flagged contractor and union overstaffing, "dug caverns for platforms that were double the necessary size," and "station designs so bespoke that each of the three new stops has escalators made by a different manufacturer" as the primary drivers of the project's inflated price tag.
Published by the Transit Costs Project at the Marron Institute of Urban Management, the report determined that MTA spent $3.8B on design, engineering, and construction of the Second Avenue Subway tunnels; $655M to outside consultants; and $378M on actually boring the tunnel itself. While these numbers are notable albeit presented in a vacuum, many of the report's conclusions echo those from the Eno Center for Transportation report that I mentioned recently: transit agencies should try and keep project oversight functions in-house, have the staff and leadership capability of directing a mega-project, and try to standardize as many elements of the project as possible. (Interestingly, and as Eno also recommends, MTA did chop up the Second Avenue Subway project into two segments, with the next piece north of 96th Street currently in pre-construction.)
The NYU report also claims that design-build delivery has had the opposite effect of increasing costs rather than streamlining them, whereby "firms protect their bottom lines from potential increased risk." But it's way too early to call design-build in New York a failure, with authority for most agencies only existing for less than a decade at this point and more data needed to draw such a sweeping conclusion. And, while it should be of no surprise to anyone that it's more expensive to build in New York City, there are plenty of lessons to apply from East Side Access and the Second Avenue Subway during this mega-project moment for our industry. (NY Post)
Nolan Hicks
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