CMGC White Paper
Business Case & Project Selection
CMGC White Paper Topic No. 4:
Business Case and Project Selection for CMGC
1. Introduction to Alternative Delivery Methods
The Minnesota Department of Transportation (MnDOT) has a variety of project delivery methods
available to deliver its increasingly larger array of design and construction projects. The use of
alternative delivery methods is essential to meet the growing demand for faster, safer, more
efficient project delivery. Design-build (DB) and construction manager/general contractor (CMGC)
are the two most commonly used alternative delivery methods.
The Federal Highway
Administration’s (FHWA) 2002 DB Rulemaking (Title 23 C.F.R. Part 636) 1 moved DB project
delivery from experimental to approved status for Federally-funded projects. MnDOT has used
the DB delivery method since 1996 and awarded over $1 billion in DB projects.2 Similarly in
2012, MAP-21, the Moving Ahead for Progress in the 21st Century Act (P.L. 112-141),3 moved
CMGC project delivery from experimental to approved for Federally-funded projects. Approval for
MnDOT to deliver projects through CMGC was written into state legislation in May of 2012.4 Both
DB and CMGC are being strongly encouraged by the FHWA’s Every Day Counts II (EDC II)
initiative and, in fact, have monetary incentives for use in MAP-21.5 However, MnDOT has yet to
take full advantage of CMGC project delivery.
2. Description of Delivery Methods
2.1. Design-Bid-Build: Design-bid-build (DBB) is the traditional three-phase project delivery
method. The process begins with a state DOT creating a design (either completed inhouse or by a consulting engineer), followed by a bidding process (most commonly
through a low-bid selection) and is completed with project construction via the lowest
responsible or best value bidding contractor. The DBB process, according to the EDC II
initiative, often leads to extensive delays stemming from the process’ sequential order
and lack of communication between the designer and contractor.
http://www.fhwa.dot.gov/construction/cqit/desbuild.cfm
http://www.dot.state.mn.us/designbuild/
3 http://www.fhwa.dot.gov/map21/
4 http://www.dot.state.mn.us/const/tools/cm-gc-overview.html
5 http://www.fhwa.dot.gov/everydaycounts/
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Business Case & Project Selection
2.2. Design-Build: In the DB process, a state DOT identifies the scope of work through
performance criteria and communicates these requirements to design and construction
firms through a request for proposal (RFP). The DOT reviews the qualifications and
proposals to select a DB entity to perform both design and construction. The DB firm
accepts risks and responsibility for project design and construction, including any design
errors and omissions proposal and final construction drawings. The DB process
shortens overall project time by adding contractor input to the design process to
minimize design errors and improve the constructability of the design. Awarding only
one contract also shortens the project delivery. According to the EDC II, DB can
frequently reduce the overall project delivery schedule of a project by at least one year.
2.3. CMGC: The CMGC delivery method is a two-phase contractual process that allows
contractor feedback during design to improve construction efficiency and reduce project
duration. The first phase of the CMGC contract is the design phase. The contractor who
is contracted to the owner usually under a pre-construction (professional services)
contract provides input to the designer on the subjects of constructability, innovation,
and cost/time saving approaches. When the project design is nearing completion, the
owner and contractor begin to negotiate a construction cost for the project (EDC II); this
is typically a Guaranteed Maximum Price (GMP). The GMP, as stated in the Association
of General Contractors Project Delivery Systems for Construction (2011), 6 is a
contractual agreement between the owner and general contractor that sets a limit on
how much the owner will pay for a project and transfers the potential risk of exceeding
the project budget to the general contractor. Projects delivered through CMGC typically
experience the benefits of design innovation, mitigating project risks, improved design
quality and cost control, and optimizing project schedule (EDC II). As of December
2012, 14 states have legislature in place to allow their respective DOT to use the CMGC
project delivery method, see Figure 1 below. However, only five state DOTs have
actually completed highway projects through CMGC – Arizona, Colorado, Florida,
Oregon, and Utah as of January 2013.
AGC of America, 2011, Michael Kenig, ISBN Number: 978-1-936006-28-1
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Figure 1: States with enabling legislation for
CMGC
Source: FHWA EDC II
3. Project Delivery Method Selection Criteria
According to the National Cooperative of Highway Research Program (NCHRP) Synthesis 402, 7
if state law permits the use of CMGC, owners should consider their own capabilities as well as
project characteristics to decide a project delivery method. The Synthesis continues by stating
that “a documented procedure for project delivery selection may also prove helpful.” The
Colorado DOT (CDOT) utilizes a project delivery selection matrix that was developed through the
FHWA Pooled Fund Project that accomplishes both of these essentials. 8 The project delivery
selection matrix considers eight factors as either opportunities or obstacles to determine an
appropriate project delivery.
These eight factors are being considered by MnDOT as the
selection factors for choosing a project for CMGC delivery.
3.1. Delivery Schedule: Delivery schedule is the overall project schedule from scoping
through design, construction, and opening to the public. This factor assesses time
considerations in getting the project started or funding obligated. The CMGC method
http://onlinepubs.trb.org/onlinepubs/nchrp/nchrp_syn_402.pdf
http://www.colorado.edu/ceae/TCM/Index.html and
http://www.coloradodot.info/business/designsupport/innovative-contracting-and-design-build
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has the opportunity to accelerate the delivery schedule when compared to DBB because
the contractor is on board before the entire design is complete and can assist in phasing
construction to meet schedule constraints. The CMGC method also provides a shorter
procurement schedule than DB. The risk of not reaching a GMP, however, can lead to
delays in the project as the project would need to be publically bid if a GMP cannot be
reached.
3.2. Project Complexity and Innovation: Project complexity and innovation is the potential
applicability of new designs or processes to resolve complex technical issues. While
CMGC can be utilized on projects of all levels of complexity, incorporation of highly
innovative processes is made more achievable with CMGC through increased early
collaboration of the designer, contractor, and owner. The process of adding innovation
depends heavily on the relationship between contractor and designer, as well as, the
facilitation of the process by the owner.
3.3. Level of Design: Level of design is the percentage of design completion at the time of
the project delivery procurement. With the CMGC method, not only does the state DOT
control the design, the design can later be used for DBB in the event of an unsuccessful
price negotiation. The constructability of design is also optimized as the contractor can
provide input when incorporated early in the design phase. CMGC is most opportunistic
if the design has not advanced too far (e.g., >25%) and the three-party collaboration
process can begin early in the project.
3.4. Cost: Project cost relates to meeting budget restrictions, early and precise cost
estimation, and control of project costs. Lowest project costs can be achieved through
the owner, designer, and contractor collaborating early to begin the risk management
process. Innovative designs and processes developed by the designer and contractor
can also provide cost efficient strategies to project delivery by CMGC. The cost in a
CMGC project will typically be known earlier than DBB as well.
3.5. Initial Risk Assessment: Risk is an uncertain event or condition that, if it occurs, has a
negative effect on a project’s objectives (e.g. schedule, budget). Risk allocation is the
assignment of unknown events or conditions to the party that can best manage them.
An initial assessment of project risks is important to ensure the selection of the delivery
method that can properly address them.
An approach that focuses on equitable
allocation of risk will be most successful. Input from owner, designer, and contractor to
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Business Case & Project Selection
the risk management process begins early in the CMGC method and this provides the
opportunity to allocate risks earlier and recognize unknowns in the design. Issues, such
as those relating to right-of-way and third party risks, are addressed by input from the
entire project team and can be mitigated or reduced more efficiently. CMGC can also
present innovative methods of risk pricing and risk allocation (e.g., schedule, means and
methods, phasing).
3.6. Staff Experience/Availability (Owner): Owner staff experience and availability impacts
the choice of a project delivery method. The DOT can improve efficiencies of a project
when using CMGC by having knowledgeable project managers on staff. Being that
CMGC is a new delivery method to most DOTs, a limited available staff with experience
may be an obstacle when utilizing CMGC on a project. The existing staff may also
require additional training to adjust to their traditional roles.
3.7. Level of Oversight and Control: Level of oversight involves the amount of agency staff
required (or desired) to monitor the design or construction.
It also relates to the
preference of agency control in the delivery process. Preconstruction services involving
a contractor increase the oversight of a CMGC project because the owner is provided
with an integrated design/construction process. The DOT does require a staff
experienced with CMGC projects to appropriately oversee a project. However, getting
additional input on enhancing innovations of the process by the contractor can assist the
owner.
3.8. Competition and Contractor Experience: The level of competition, experience and
availability in the marketplace and its capacity is a consideration in project delivery
selection. The level of contractor experience is determined through the qualifications
predetermined by the owner when selecting a contractor in the CMGC method. The
competition of the contractors may be limited though, as there is not currently a large
pool of contractors with extensive CMGC experience.
4. Major Risks and CMGC
An advantage of the CMGC method is that it provides a forum to communicate and discuss
construction risk in the design phase. These risks can then be allocated to the party most able to
control them to optimize project cost.
A report on critical risk factors in selection of project
delivery methods found the major risks to potentially affect a project are unexpected utility
encounter, third-party delays during construction, geotechnical investigations, issues involving
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Business Case & Project Selection
right-of-way, and delays in reviewing and obtaining environmental approvals. CMGC can identify
construction issues related to utilities earlier and better generate design resolutions in response
to issues involving encountering utilities. The opportunity for phased construction can also
provide a means of solving utility issues without delaying construction progress. The team
collaboration put in place by early implementation of the contractor allows for quicker resolution of
delays in construction when delivering a project with CMGC. Contractor input to the risk
management process begins earlier in the CMGC method than in DBB or DB and also presents
innovative means for handling, allocating, and pricing the identified project risks. This earlier
identification and allocation of risks allows CMGC to more efficiently manage risks associated
with third-parties and environmental delays. Input from the contractor to the designer early in the
design phase can also deal with geotechnical issues that the project may face.
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