CSO’S:PARTNERSHIPS CAN SAVE MONEY

AND PROVIDE SOLUTIONS

Eric S. PetersenPartner

Hawkins Delafield & Wood LLPNew York, NY

United States Conference of MayorsMayors Water Summit

Washington, DCDecember 9, 2010

Hawkins

Delafield & Wood LLP

OVERVIEW

Traditional Project Delivery and Alternative Delivery

Design-Build

3 CSO Competitive Design-Build Success Stories

The Business Case Approach to Selecting an Alternative Project Delivery Method

HAWKINS PERSPECTIVE

90 Attorney Municipal Contract and Finance Boutique

Leading Special Counsel Law Firm Practicing Nationally in Alternative Project Delivery

Water Contract Specialists

Municipal Representation Exclusively

Perspective of 80 Water Projects in 20 States

TRADITIONAL PROJECT DELIVERY: DESIGN-BID-BUILD

Separate Design Contract

Separate Construction Contract–Low Bid

Owner Retains Design Liability

Contractor Not Responsible for Project “Working”

Dispute Prone

No Collaboration

DESIGN-BUILD DESCRIPTION

Single Entity Contracts For Both Design and Construction: One Contract

Fixed Design-Build PriceCompetitive Proposal ProcessMultiple Evaluation Factors – Best ValueDesign RequirementsPerformance Standards5-10% + Savings in Time and MoneyGrowing Use in Public Sector

DESIGN-BUILD BENEFITSQualifications-Based SelectionShortens Project Delivery TimeIncreases CollaborationCompetition on Non-Price FactorsCuts Capital CostsEarliest Price CertaintyTransfers Performance RiskPromotes InnovationOne Point of ResponsibilityMinimization of Change Orders

DB CHALLENGES

Less Control Over Design DetailsLess Familiarity Possibility of Smaller Number of

CompetitorsMore Complex SelectionMore Involved Negotiations

DESIGN-BUILD-OPERATE-MAINTAIN

Single Entity Contracts for Design, Construction, Operation and Maintenance

Design Requirements and Acceptance Test

Long Term Operation and Maintenance

Long Term Repair and Replacement

Fixed Operation and Maintenance Fee

Performance Guarantees

Law Compliance

3 PROJECT PROFILES

THE CSO DILEMMA

CSO Projects Are Typically Procured Conventionally – DBB

Extensive and Expensive Planning and Design Efforts

Resistance to Regulators and Eventual Settlements

Many Cities Are Facing Unaffordable CSO Costs

CAN PARTNERSHIPS SOLVE THE CSO DILEMMAAND SAVE MONEY?

Yes!Design-Build, Design-Build-Operate-MaintainHow?Design CompetitionSelf-Selected, Collaborative D-B TeamsInnovative, Lower-Cost IdeasPerformance GuaranteesUseful Even for “Buried Infrastructure”

LYNN (MA)

CSO Judicial Consent Decree from 1990“Storage, Pump-Back” MandatedDEP, EPA Active AssistanceFirst In Nation “DBO” For a “CSO”All Technical Approaches AllowedVendors Proposed Total Sewer SeparationNew Sewers, Not New Storm DrainsSubsurface Risk ConstrainedSpread Out Construction Avoided “Rate

Spike”DBO Saved $100 M

SAN DIEGO COUNTYWATER AUTHORITY (CA)

Design-Build Contract

Lake Hodges to Olivenhain Pipeline Project

Design and Construction Requirements

Competition As To Means and Methods, Layout Within Right-of-Way

Cost Savings Against Design-Bid-Build Benchmark

Differing Site Conditions Relief Based on Geotech Report

Fixed DB Price; Concrete and Steel Adjustment

Transfer of Design Liability

Call-Back Warranty

HOLYOKE (MA)MA DEP-Mandated CSO Collection Facility

CSO Solution Involved CSO Facility, Treatment Plant Improvements, and Operations

Competitive, Collaborative RFP-Based Solution

Contractor Guaranteed Maximum of Four CSO Overflows for a “Design Storm”

Contractor Provided Partial CSO Financing

THE BUSINESS CASEAPPROACH TO SELECTING A PROJECT DELIVERY METHOD

BENEFITS OF BUSINESS CASE

Maximize “Value for Money”Allows Trade-Offs and Weighing of Qualitative

FactorsTies Goals, Cost and Risk Considerations

TogetherInvolves, Educates Owner’s Senior

Management and StaffProvides Strong Basis for Elected Officials

and Managers To Support and Defend a Decision To Use Alternative Delivery

MULTIPLE CRITERIA ANALYSIS

MCA Assesses Qualitative Considerations Pertaining to Each Selected Delivery Method

Thorough Canvassing of All Goals and Objectives For the Project

Weigh Each Goal Relative to the OthersDetermine Extent to Which Each Selected

Delivery Method is Likely to Achieve Each Stated Goal

Establish Ranking of the Selected Project Delivery Methods Based on Non-cost Factors

EXAMPLE BUSINESS GOALS (1)

Use a Procurement Method Familiar To OwnerExpedite ProcurementAvoid Bid/Proposal ProtestsExpedite Design and ConstructionAssure a Sufficiently Competitive Proposer

MarketMeet Project Quality ObjectivesPromote InnovationKnow the Construction Cost With Certainty As

Early As PossibleAvoid Construction Change Orders

EXAMPLE BUSINESS GOALS (2)

Shield Owner From Disputes Between Designer, Builder and Equipment Supplier

Maximize Effective Collaboration Between Designer, Builder, and Operator

Maximize CompetitionMinimize Capital MaintenanceAllocate Risk To Party Best Able To Manage

and Control ItMaximize Risk Transfer

COST PROJECTIONS

Project Projections For Each MethodExperience From Other Comparable

ProjectsTo What Extent Will Proposers Price

Transferred RiskLife Cycle Cost Projections

RISK QUANTIFICATION

For DBB and Each Alternative Option:Determine Whether the Risk is Likely To Be

“Retained” Or “Transferred”Determine Likelihood Of OccurrenceEstimate Percent Of Costs Impacted If Risk

OccursCalculate An Amount For The “Retained Risk”

For Each OptionAdd The Amount For Quantified Risk To The

Projected Cost For Each Alternative Option

RISK EXAMPLES

Delay In Construction• Delays Raise Construction Costs• DBB Has Higher Delay Risk• Burden DBB With Imputed Cost Of DelayProject Does Not Work As Intended• Costs Will Be Incurred To Fix It• In DBB, Owner Bears Cost• In Alternatives, Contractor Bears Costs• Burden DBB With Imputed Cost Of Fixes

EXAMPLE BUSINESS CASESCORING TABLE (CLARK COUNTY)

Weight Weighted Ranking

DBB CMAR DBRisk Allocation 9 36 54 81Project Quality 10 60 100 90

Schedule 10 50 60 100Regulatory Compliance 10 90 90 100

Level of District Control 9 72 90 63Market Viability 2 20 20 20Flexibility 5 40 50 45Predictability of Costs 8 56 80 72Legal Considerations 8 56 72 72Procurement Considerations 5 26 40 45Relative Costs 9 56 56 72

TOTAL 561 712 760

OWNERS USING A STRUCTURED, FORMAL DECISION PROCESS

Municipalities Phoenix, AZ San Antonio Water System, TX Washington, DCStates California New Jersey British Columbia (Mandated)

CONCLUSIONSConsider Alternative Project Delivery For Your

CSO Projects

Alternative Project Delivery Can Deliver Better “Value for Money” In Schedule, Cost And Performance

Make Sure Staff And Consultants Are Open To Alternative Delivery

Use a “Business Case” Approach In Selecting a Delivery Option

Conduct The Business Case Analysis Early In the Project Cycle

“All This, My Friend, Is Offered Merely For Your Consideration And Judgment, And Without Presuming To Anticipate What You Alone Are Qualified To Decide For Yourself.”

Thomas Jefferson

THANK YOU

Eric S. PetersenHawkins Delafield & Wood LLP

One Chase Manhattan PlazaNew York, NY 10005

(212) 820-9401epetersen@hawkins.com

www.hawkins.com