CMGC Working Group Recommendations
In 2013 MnDOT made the decision to begin using CMGC as a contracting method to deliver projects. A series of White Papers were written to help MnDOT define their CMGC processes and procedures. These
White Papers document some of the most successful CMGC practices used by highway agencies throughout the country and make recommendations for MnDOT to consider as they develop their CMGC processes and procedures. Although the White Papers include recommendations for many approaches to
CMGC, there are no “right or wrong” answers. What works for one agency, may not work for another due to differences in statute and policy. After internal discussions within MnDOT and two CMGC industry outreach meetings, that included FHWA, AGC and ACEC representation, the decision was made to organize technical working groups to vet the different approaches and summarize recommended positions for the following two key areas (1) Procurement and Selection Process and (2) Cost
Validation/Price Negotiation Process. The purpose of this document is to recommended positions on
CMGC processes to MnDOT management and the CMGC Advisory Committee based on successful practices that have been used by other agencies combined with input from local industry, FHWA, and the
CMGC working groups.
Finally, it should be noted that the draft MnDOT CMGC Manual and processes and procedures utilized for
MnDOT’s initial CMGC project will reflect the positions and approaches presented in this paper.
MnDOT’s final CMGC processes and procedures will likely evolve for subsequent projects based on lessons learned from the initial CMGC project.
1.1. Will MnDOT require a price component in CMGC selection or use a QBS (non-price) process? If so, what will be the threshold or metric that will trigger a price component?
RECOMMENDATIONS: This decision will be handled on a project-by-project basis. Early risk analysis should be done on each project to help guide this decision. For the Winona project,
MnDOT will use Best Value, two-phase (RFQ + RFP) selection process preceded by a Letter of
Interest used to gauge interest in the project. The RFQ will shortlist contractors based on contractor’s technical capability to perform the proposed work. During the RFP stage, a BV approach will focus on price components (overhead and profit, not direct construction prices) and typical CMGC qualifications such as key personnel experience, project approach,
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CMGC Working Group Recommendations collaboration, understanding of the CMGC process, and approach to estimating, and providing transparency and openness.
1.2. If MnDOT wants to include a price component, what will be the basis for this price (direct construction costs, preconstruction services fee, proposed profit percentage, etc.)?
RECOMMENDATIONS: Ultimately, this decision will be approached on a project-by-project basis based on each project’s unique characteristics. In general, when using Best Value, the
CMGC working groups are recommending that MnDOT use indicative pricing and score around an average. Pricing will typically be based on the contractor’s proposed CMGC fee (defined as profit plus overhead) rather than direct construction costs or preconstruction services fee. The proposed fee (profit and overhead) can be carried forth into price negotiations and are not expected to change throughout the life of the project. Consider eliminating bonding, insurance, and field indirect overhead costs from the proposed overhead rate since information needed by contractors to define these costs is unavailable during early CMGC procurements.
1.3. Since MnDOT statute allows either QBS or Best-Value, will a trigger or selection matrix be developed to better define this choice?
RECOMMENDATIONS: Use early risk analysis for larger projects to help guide this decision.
1.4. Establish expectations for including interviews with CMGC selections.
RECOMMENDATIONS: The use of interviews on all CMGC procurements is recommended.
Recommend establishing a set of questions that are asked of each proposer. Proposer’s responses to those questions will be evaluated as part of the CMGC selection process. Each proposer allowed the same amount of time to answer the questions.
1.5. Decide on standard CMGC Selection Panel. Should AGC and ACEC participate as a voting or not-voting member? What about involving consultants on the selection panel?
RECOMMENDATIONS: Use a standard selection panel consistent with P/T contracts. All selection panels shall include at least five members, one of which is a MnDOT Manager that is a licensed PE. Include appropriate functional groups serving as a panel member or advisor based on project characteristics. FHWA (when Federal funds are involved), AGC, ACEC shall be invited as oversight. Additional discussion needs to happen about whether or not to publish the selection panel members and potential scoring methods.
1.6. Develop boilerplate CMGC scoring manuals .
RECOMMENDATIONS: An example CMGC evaluation manual has been created for reference.
In addition, there are examples of evaluation manuals from DB projects procured by MnDOT.
Similar to the approach on a DB project, MnDOT will make sure that the selection panel is
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CMGC Working Group Recommendations trained prior and that scoring criteria is defined to eliminate scoring subjectivity and provide a solid, defensible, transparent decision.
1.7. Addressing protection of proprietary pricing information during the procurement process.
RECOMMENDATIONS : Under MnDOT’s data practices laws and starting August 1, 2013, any information provided to the Department becomes public once a contractor is awarded a contract.
As such, the RFP should avoid requesting any proprietary pricing information from the proposers.
1.8. Addressing unique conflicts of interest on CMGC projects.
RECOMMENDATIONS: CMGC projects often involve many different consultant and contractor entities. This presents unique conflicts of interest, particularly where the ICE is concerned. Any one party performing a critical role on a CMGC project is conflicted out of serving in another key role on the project. For example, the design consultant is not eligible to also serve as the ICE on the project. Also, if MnDOT and the CMGC Contractor are not able to successfully negotiate a
GMP and, therefore, MnDOT terminates the CMGC process in order to procure the construction project by some other method, the ICE or the ICE’s firm will be prohibited from participating in any way on any of the contractor teams pursuing the project.
1.9. How will DBE requirements apply to CMGC Projects?
RECOMMENDATIONS: CMGC projects have unique DBE issues, primarily due to the fact that there are not multiple contractors providing a competitive bid on the project. On CMGC projects,
MnDOT may include the DBE goal in the RFP to allow the contractor to assemble their teams.
During pricing milestones (OPCCs) and final GMP price negotiations, the contractor will be expected to demonstrate a “good faith effor t ” to meet the published DBE goal.
What are the self performance requirements for CMGC?
RECOMMENDATIONS: Per the current statute, the prime contractor is required to self perform work for a minimum of 30 percent of the negotiated cost. There is no proposal to increase this requirement.
ICE Procurement Process
RECOMMENDATIONS: MnDOT is working on pre-qualification process for ICE providers. In the interim and for their initial CMGC project, MnDOT will procure the ICE through an RFP process.
ICE proposers will be interviewed and evaluated as part of the selection process. To help emphasize the independent nature of the ICE, it is recommended that project level personnel
NOT be involved in the procurement of the ICE. Rather procurement of the ICE should come from some other CO function such as the CO’s Estimating Office.
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CMGC Working Group Recommendations
2.1. Define procedures for handling compensation for changed conditions after GMP.
RECOMMENDATIONS: Follow standard provisions for over-runs, under-runs, and change in scope as defined in MnDOT’s Standard Specifications 1402 & 1903. However, the final approach to handling these issues will be a function of what comes out of the risk analysis and risk assignment during the CMGC process.
2.2. Define acceptable ranges for the construction fee on CMGC contracts.
RECOMMENDATIONS: Construction fee should be a function of project specific factors such as complexity, risk, and schedule. Under a BV procurement process, fee would typically be set by asking contractors in the RFP to propose a fee, which would then not change as the project progresses. If BV is not used, fee should be addressed with the CMGC contractor early in the process and should not change as the project progresses. The ICE may be helpful in recommending a fee range appropriate to a particular project or market. Some historical values for fee used on other CMGC projects are provided by NCHRP.
2.3. Decide how to us the ICE vs. the engineer’s estimate in CMGC contracting. Which will be used as price justification?
RECOMMENDATIONS: The CMGC working group has recommended that MnDOT use two estimates to validate the price. An estimate would be prepared by the ICE per the CMGC statute and a second, independent estimate will be prepared by the CO’s estimating office. Both estimates would use a “bottom up” approach to estimating. The CMGC working group has recommend the following process for price justification.
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MnDOT hires an ICE to perform an independent cost estimate. The ICE reports to a Central
Office function (to be determined) and receives oversight from them, but the CO will not direct the ICE in order to keep the ICE’s estimate independent per the statute. Furthermore, the
ICE’s pricing is not seen by the project team or the contractor.
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MnDOT CO Estimating Office will provide MnDOT’s official “Engineer’s Estimate. They may perform this function themselves or they may solicit help from outside resources. After 30% design, by statute th e Engineer’s Estimate may not be seen by others outside of the
Estimating Office. The project team will be allowed to share the bidding assumptions, cost model, and risk register with the Engineer’s Estimator, but the Engineer’s Estimator will not directly interact with the project team or participate in pricing milestones. This does create potential for disagr eement between the ICE and the Engineer’s Estimate. On major projects,
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CMGC Working Group Recommendations it is highly recommended that the CO’s Estimating Office provide an Engineer’s Estimate at interim milestones along with the ICE and CMGC Contractor to make sure there are no major discrepancies between the ICE and Engineer’s Estimate.
 The ICE will be used to validate the contractor’s bid, per CMGC statute, and as with typical projects, the Engineer’s Estimate will be utilized to award the contract. As such, both estimates will ultimately be used as MnDOT’s justification for awarding a contract.
2.4. Define the level of agreement between contractor’s price and the owner’s estimate in order to accept GMP (a) during pricing milestones (OPCCs) and (b) at final bid in order to award a contract.
RECOMMENDATIONS
During OPCCs: During interim pricing milestones or OPCCs, contractor’s estimate will be compared with the ICE. The CO’s estimating office will perform the variance analysis using 10% variance as a benchmark. They will identify for the project team all bid items where variance between the ICE and the contractor’s OPCC is greater than 10%. They will also inform the project team if the overall price of the contractor’s OPCC is within 10% of the ICE. The ICE’s prices will be hidden or blind from both the contractor and the project team. The project team will hold cost reconciliation meetings at each pricing milestones where the project manager and the contractor will attempt to reconcile pricing differences for every item identified by the CO’s
Estimating Office as greater than 10% variance. Neither the contractor nor the project team will see actual prices. Rather, CO’s Estimating office will provide a list of those items that exceed the
10% variance benchmark. The ICE will be present at reconciliation meetings to hear the discussion and ask questions as needed to clarify, but the project team and contractor will not be allowed to influence the ICE.
At Final GMP Bid Submittal: During final GMP bid submittal, the contractor will submit a GMP bid to MnDOT following standard bid submittal procedures. The overall proposed bid price will be compared with the ICE by MnDOT’s CO Estimating Office. If the overall proposed GMP bid price is within 10% of the ICE, then the estimating office reviews the ICE for reasonableness using the
Engineer’s Estimate, and if they concur with the ICE they recommend the project for award. If the contractors GMP bid exceeds the Engineer’s Estimate by 10%, then key MnDOT staff
(including the Project Manager, the Estimating Office, and MnDOT management) will make a decision on how to proceed, which may include (1) award the project, (2) allow the CMGC
Contractor and MnDOT to reconcile differences and resubmit bids, or (3) terminate the CM contract and procure the project through another competitive process.
2.5. Establish guidelines for level of plan development expected when negotiating GMP.
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CMGC Working Group Recommendations
RECOMMENDATIONS: Proceed with GMP negotiations when risks have been appropriately mitigated and assigned to the responsible parties.
2.6. Define guidelines for the use of multiple GMPs.
RECOMMENDATONS: Must provide proof to MnDOT management the project is severable and stand-alone, as well demonstrating that packaging work results in a cost savings (or reduction is risk cost savings) or a significant benefit to the schedule. Provide GMP for the overall project or for all work packages at the time first work package is negotiated. The sum of the GMPs for all work packages must fit within the project budget. If multiple GMPs are anticipated on a project, the RFP should state MnDOT’s intent to use multiple GMPs on the project and provide clarification on anticipated work packages.
2.7. Define process for handling shared savings value clauses and value engineering proposals on CMGC projects.
RECOMMENDATIONS: Eliminate shared savings and VE clauses if there is no “guaranteed” price. It conflicts the CMGC contractor during the CM phase. If MnDOT uses a “guaranteed” price, MnDOT may want to allow a 50-50 split on construction cost savings.
2.8.
RECOMMENDATIONS: In CMGC, it is critical to document assumptions that support the cost model at each successive pricing milestone in order to have successful CMGC price negotiations. MnDOT’s CMGC contractor will be expected to be open and transparent with their cost model, which includes following an open book process to help MnDOT understand the contractor’s bidding assumptions and reconcile differences between the ICE and the contractor’s estimate. Since some of the open book data may include proprietary contractor data (such as labor rates, transportation costs, equipments rates, etc), the following guidelines are suggested to allow openness and transparency during interim and final pricing negotiations while still protecting the privacy of the contractor’s data.
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Price negotiation meetings will be limited to key MnDOT project management staff and estimating staff that are directly reconciling differences between the ICE and the contractor’s estimate.
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Pricing milestones are anticipated to occur at standard design review milestones (30%,
60%, and pre-bid). During the pricing milestones, the proposed pricing provided by the contractor to MnDOT as part of their Opinion of Probable Construction Cost estimates
(OPCCs) will be rolled up into unit costs or lump sum items to protect proprietary pricing data.
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CMGC Working Group Recommendations
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The OPCC provided by the contractor at each pricing milestone will include a cost model narrative that documents project specific means, methods, assumptions, and risks that were used to price the work. The following are considered typical cost model information that will be required in the cost model narrative including: project specific production rates, subcontractor quotes, crew size, shifts per day, hours per shift, risk assumptions, and assignment of risks. The narrative will also include a cost and resource loaded CPM schedule.
 As part of an “open book” CMGC process, MnDOT may ask the contractor to “share” or review with them certain proprietary materials that clarify how the proposed pricing was derived in order to help reconcile differences between the ICE and the contractor’s
OPCC. All materials of this nature will be returned to the contractor at the end of each meeting and the data remains the sole property of the contractor unless the contractor agrees to release it to MnDOT. MnDOT will not retain a copy of any proprietary data, either electronic or in hard copy. Proprietary pricing data is brought to the meetings but remains the property of the contractor to be done with as they wish after the project is awarded. Review of proprietary data is used to help gain an understanding of the contractor’s bidding assumptions and reconcile differences. MnDOT’s intent is to define a process to be implemented that allows the ICE and key MnDOT manager positions to review the contractor ’s pricing information in an over the shoulder format.
3.1. Decide the role of the ICE in awarding a construction contract vs. the role of the estimate provided by MnDOT’s estimating office. Is the ICE advisory or it used as the basis for awarding a contract?
RECOMMENDATIONS: This question is covered under the previous topic under section 2.3.
3.2. Modify standard MnDOT PT contract for ICE to turn over all proprietary and confidential financial information at the end of the project and not disclose any such information with competitors. Also, define the ability of the ICE to participate on contractor teams pursuing the project if GMP negotiations fail and MnDOT chooses to procure the project using other contracting methods.
RECOMMENDATIONS: Requirements for the ICE to protect the contractor’s proprietary and confidential financial information should be included in the ICE RFP as well as their contract. In addition, as outlined under Section 1.8 of this report, the ICE RFP should implicitly state that ICE or the ICE’s firm will be prohibited from participating in any way on any of the contractor teams
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CMGC Working Group Recommendations pursing the project if MnDOT and the CMGC Contractor are not able to successfully negotiate
GMP and the CMGC contract is terminated.
3.3. Modify standard MnDOT PT Conflict of Interest terms to require the ICE to disclose any conflicts of interest related to financial interest (stock ownership) or business relationships with the CMGC.
RECOMMMENDATIONS: Refer to MnDOT consultant services and AG’s office. Standard contract may already cover most of these issues.
3.4. Establish what constitutes a “fair” bid price that will allow MnDOT to award a contract.
For example, will MnDOT use 10% as the threshold because it is the percentage commonly used on design-bid-build (low bid) contracting?
RECOMMENDATIONS: This question is covered in greater detail under the previous topic under
Section 2.4. There was general consensus to accept 10% as a benchmark with additional clarifications about this benchmark as explained in Section 2.4.
3.5. Define requirements for CMGC to justify competitive pricing for subcontracted items of work. For example, will MnDOT require 3 competitive bids for each subcontracted item of work unless the CMGC Contractor can demonstrate why using a particular subcontractor has a unique advantage?
RECOMMENDATIONS: Require at least 2 competitive bids (ideally 3) for each subcontracted item of work unless the contractor can (1) demonstrate to MnDOT’s project manager that there is a unique cost advantage or other advantage to the project by going sole source or (b) demonstrate that it is unreasonable to get more than one bid (for example specialty items of work). The ICE will build their estimate based on the 2 competitive bid guidelines as well, unless the project manager, the contractor, and the ICE jointly agree on another approach.
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