Sept. 24, 2003

As government agencies are forced to do "more with less," one local architectural firm sees privatization playing a bigger role in the public development process -- a direction that can enhance public benefit while helping agencies keep costs in check.

"Historically, public sector projects have been driven by a contract process focused on the lowest responsible bidder," said James Robbins, design principal of Robbins Jorgensen Christopher, a San Diego architectural firm which has served both public and private sector clients. "However, as the private sector has recognized for some time, the lowest bid doesn't necessarily assure value or quality. Ultimately, this type of bid-driven process can end up costing more in the long run."

Fortunately, Robbins notes that times are changing. "Budget crises and tougher economic times challenge everyone to work smarter and think more creatively," he said. "The bottom line is that developers are looking for tenants, and government agencies are looking for capital facilities investment dollars. Whereas in the past, these two entities engaged in their own version of the 'Hatfields and McCoys,' today they are learning to love each other. Government agencies at every level are reviewing the manner in which they develop, design and construct capital facilities."

The traditional design/bid model involves appropriations of tax revenues or public bond financing to pay for the project. An architect is hired and, when the design is complete, it is issued for competitive bidding among general contractors. The construction contract is then awarded to the low responsible bidder.

"This model was adopted primarily to ensure fairness in contract award practices and to prevent cronyism, kickbacks and 'Tammany Hall' style corruption," Robbins said. "The architect develops plans that detail every shift in plane and every change in material, and they do this largely without the benefit of advice from the contractors and subcontractors that will actually perform the work. Estimates are made without the benefit of real-world bids since the designers and builders have little interaction prior to the time when decisions are made. This not only results in construction cost over-runs, but often pits architects and contractors against each other with the agency owner left to sort out contract disputes."

The delivery time of these projects is longer than that of private projects since design must by completed before construction begins. Additionally, annual budget shortfalls often result in the delay of needed facilities (or the need to adopt cumbersome bond programs to pay for them).

Finally, because design/bid contracts are always awarded to the lowest responsible bidder, this breeds a process that is cost driven rather than quality driven.

This public sector process is in sharp contrast to the private sector. Private sector owners typically hire architects and contractors to work together as a team to maximize value within a specific budget limit. Value is further enhanced by fast track decision-making that allows design and construction phases to overlap. For example, grading and foundation plans can often be constructed while detailed architectural plans are still being developed.

"These plans are usually better coordinated since architects and engineers can work directly with builders who are more familiar with the local availability and relative cost of various building products and assemblies," Robbins said.

Battle-fatigued owners, architects and contractors have all concluded that there must be a better way. In this case, "reinventing government" has meant adopting public procurement processes that more nearly approximate private enterprise. While struggling to maintain assurances that selection procedures will be transparent and fair, public owners are increasingly adopting procedures that pre-qualify bidders, reward good performance and encourage architects and contractors to work together as a design-build team.

"Increasingly, contracts are being awarded based upon the best value within a specified budget limitation rather than lowest cost," Robbins said. "The determination of best value necessarily requires a subjective assessment of various offers, but that assessment is structured and formal, usually awarding design points according to written evaluative criteria."

In recent years, the U.S. Navy has used design-build strategies to reduce its risk and speed up project delivery. At the Marine Combat Center in Twenty Nine Palms, the Navy staged a design-build competition and selected a team based on the concept of "best value" rather than lower cost. Architects Robbins Jorgensen Christopher, along with Soltek Pacific, a general contractor, designed and built a $14.7 million bachelor quarters in 12 months, with no change orders, cutting the normal delivery schedule in half.

The $14.7 million Bachelor Quarters, P-495, at the Twenty Nine Palms Marine Corps Base was designed and built in a year by the design-build team of Robbins Jorgensen Christopher and Soltek Pacific.

The Navy has further leveraged the advantages of design-build processes by limiting competition to pre-qualified teams based upon evaluations of prior performance. Construction projects are often bundled together into Multiple Award Construction Contracts (MACC), and only those contractors that consistently earn outstanding performance evaluations are allowed to participate.

"MACC contracts provide a strong incentive for customer satisfaction, since they can range as high as $500 million," Robbins said. "The MACC concept allows the Navy to award outstanding performance with future commissions and to exclude teams that perform poorly."

Robbins Jorgensen Christopher and Soltek Pacific were subsequently awarded two more projects worth about $38 million at Twenty Nine Palms.

In an even bolder move, the Navy has begun to hire design-build teams based solely on an evaluation of qualifications. These teams are directed to work shoulder-to-shoulder with their customers to design to a specific, pre-determined budget. Utilizing open book accounting practices, the Navy's customers are enlisted as full partners in the design process, prioritizing their needs on the basis of project component costs.

Robbins reports that many public agency/owners are retreating from the facility development business altogether, concentrating more on their core service mission and outsourcing development to private sector entities. At local, state and federal levels, public agencies are developing public/private partnerships to develop new facilities.

These partnerships can take the form of build-to-suit projects for public agencies, or they may involve ground-leases to private entities in exchange for non-traditional revenue sources. These partnerships may involve private development financing as well. Governments can frequently provide a revenue stream over time, and they recognize that private enterprise can do the rest.

John Turpit, director of corporate and developer services at Robbins Jorgensen Christopher, sees a growing role for private enterprise in public facilities. Turpit cited the example of the San Diego County Water Authority headquarters in Kearny Mesa, a 66,000-square-foot facility that was recently developed by Lennar for $135 per square foot. Working with Turpit and Lennar, the Water Authority designed, built and ultimately purchased the building, taking possession when the project was completed.

"By letting the private sector carry the ball, we were able to get the building we wanted at a pre-negotiated price, on the date we requested," said Maureen Stapleton, general manager with the San Diego County Water Authority. "This allowed us to maximize the public benefit while minimizing the Water Authority's risk."

Robbins Jorgensen Christopher believes that the trend toward privatization through public/private partnerships is the wave of the future. "Governmental agencies everywhere are under pressure to do more with less," he said. "The increasing use of private financing and development expertise is inevitable. The good news is, that in addition to speeding the delivery of much needed public facilities, the end product is of even higher quality and better meets the public need for the long-term."

 

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Grove is president of The Grove Agency Inc.