Chapter 1 - California Projects & Delivery Systems

 Summary:

Concept to Delivery of California Infrastructure Projects. State, Local and Private Construction. The Range of Project Delivery Systems. Customary Duties of the Construction Manager, A/E’s, and General Contractors. Typical Project Relationships. Civic Leadership and Innovation. Ingrained Sources of Aggravation. Partnering and Team Building. Project Opportunities. Risks and Pitfalls.

 § 1.1 Dreams to Reality

This is a timely guide for turning civic dreams into reality.

 The United States, and California in particular, are in the midst of the largest surge of design and construction activity in our nation's history. Overall, US construction is a $1.3 Trillion Industry.

However, our public infrastructure is in serious jeopardy. There is a critical need for a massive expansion of US infrastructure expenditures. And broad bi-partisan support in Congress and state legislatures.

The U.S. National Academies of Sciences, Engineering, and Medicine recently warned:

Many Interstate highway segments are more than 50 years old and subject to much heavier traffic than anticipated. They are operating well beyond their design life, made worse by lack of major upgrades or reconstruction. They also are poorly equipped to accommodate even modest projections of future traffic growth, much less the magnitude of growth experienced over the past 50 years.

Not only did the U.S. fail to invest appropriately in the past, funding for the next 20 years is facing a fast closing window. This 20-year period coincides with the entire system reaching the end of its design life. At the same time, it overlaps with the onset of automated, electric and connected vehicles as well as the growing impact of climate change.

“The Future Interstate Report,” Special Report 329, 2019 (614 pp)

A thoughtful, skillful and efficient expenditure of federal, state and local funds is needed to improve America’s highway and transit systems. In many economists’ views, upgrades to such systems (as well as public schools, the electric grid, sustainable energy, and internet access) will make the United States far more competitive in the global economy. This most recent investment cycle will obviously continue these major increases in California’s public construction and the budgets of state and local governments.

According to economist David H. Wang, the social impact from such expenditures will be safer roadways and bridges, schools equipped with state-of-the-art science labs, libraries, and massive broadband access that experts predict will amplify learning and knowledge, particularly in poorer school districts.

Each potential project encompasses a unique blend of planning, architecture, engineering, project finance, construction management and inevitable conflicts and sticky dollops of state and local politics. There are winners and losers. These projects are the heart and soul of the public expenditure budget. The accomplishments of public projects are built to last, as are their mistakes, and, unlike many current government programs, will be paid for by future generations.

The creation of public infrastructure involves making tough choices about civic priorities. The public trough is not limitless. It takes careful stewardship of public funds to meet the essential public needs of transportation, safe water, education, law enforcement and healthcare. While the immediate beneficiaries of a project may be the local residents (neighborhood parks) or the region as a whole (airports), these projects should nurture a larger community and improve public safety, economic security and business prosperity.

Californians build these projects because they wish their lives to be enriched and enjoyed. Their elected representatives must honor the public trust and purse strings while making difficult decisions about project merit. They in turn employ consultants, designers and contractors who must bring professional competence, ethics and knowledge obtained from past projects.

The true costs of a public project range far and wide, although the ultimate cost is buried in reports and ledgers of accounts not readily available to the public. The low bid figure read at bid opening and reported in news accounts of the project cost is merely a down payment on the realistic project cost. The contractor’s bid does not include such “soft” costs as planning, project management, engineering and architecture, land and right of way acquisition, financing and, of course, long-term staffing and operating costs.

The careful study of a project will reveal large economic costs (as well as benefits) that are “external” to the project. They do not show up on spreadsheets or financial projections, but are quite tangible, nevertheless. Obvious examples include environmental impacts, view blockages and traffic congestion. At times, local businesses may get a huge boost from the construction of a transit station, mixed-use village or restored wetlands.

At other times, negative externalities cause nearby residents to protest the project as NIMBY’s (“not in my back yard”). These impacts are felt in local neighborhoods where the government plans large regional projects that bring noise (airports), congestion (sport facilities) or annoyance (large parking lots). In a perfect world, those local and distant gains and losses would be mathematically balanced and fairly allocated among all parties. Unfortunately, nearly every large project of merit may also have disproportionate impacts on a subset of local citizens.

One way unscrupulous developers attempt to repress fair discussion and debate is a so-called “strategic lawsuit against public participation” (SLAPP) which are subject to early dismissal on First Amendment grounds.

Where the burdens are truly disproportional, the affected residents can seek compensation through the law of condemnation (public taking) and inverse condemnation (resulting damage to private property), mitigation (sound walls along widened roadways, residential soundproofing near airports, etc.) or tax breaks for those most severely affected.

In fact, public agencies can be held strictly liable for obstruction of businesses during construction or land movement. However, those damages may be offset by the economic benefits of the projects.

Strict liability has also been asserted to recover resulting wildfire damage caused by utility infrastructure. Similar claims are pending against Pacific Gas & Electric in the Napa and Camp Fire cases.

An evaluation of true project cost must also reflect all of the considerable risks of these projects — the potential for human and economic tragedies ranging from the devastation of earthquakes, floods and gigantic wildfires, to catastrophic dam failures and aviation accidents, as well as frequent examples, such as crane and scaffolding collapses, roadway fatalities, and spectacular failures of public infrastructure, such as the kind of levee breaks, bridge collapses and the failure of the Orville Dam spillway in 2017 that resulted in 190,000 Northern California residents being forced to evacuate.

Every complex project attracts enthusiastic proponents and vocal detractors. A worthy project can be opposed by local neighbors who are adversely affected. A poorly evaluated or over-ambitious project can be pushed through by a short-sighted public agency without fully evaluating the costs and risks of the undertaking. An expensive project may be pushed through that is really just a blatant subsidy of private interests.

Or the architect creates a prize-winning model that the local citizenry recognizes as impractical, unaffordable or ugly! While exceptional public architecture may emerge from the brilliance of a single gifted mind, it can also widely miss the mark. As one expression goes: “Doctors bury their mistakes, architects plant ivy.” James Surowiecki's “Wisdom of Crowds” may in practice kill a grandiose or truly silly project when enough people oppose it.

One hundred and fifty years of California politics is typified by conflicts over the public checkbook. The battle rages on over what policies and projects will survive on such divisive issues as water, transportation, schools and seismic safety.

Our infrastructure will inflame California politics for years to come. In the forefront of these debates are the thinkers and doers — urban planners, architects, engineers, project managers, contractors, investment bankers and the bond finance community who are required for virtually any project. They sharpen their skills while competing for development schemes, projects or investment opportunities.

Often, a project will simmer for decades while the civic debate rages. Such is the fate of the proposed $10 Billion Auburn Dam in the Western Sierras just above the City of Sacramento. A thin arch concrete structure proposed in the 1960’s in the foothills above Sacramento was halted in the early phases of construction. It has remained a contentious eyesore for thirty years. Every few years, millions of taxpayer dollars are spent on further studies and evaluations. The environmental and seismic risk issues are raised and hotly debated. And once again, the project is shelved to be pondered and reshaped by future generations.

When a worthy project is identified, the stake holders, including elected public officials and staff, financers, entrepreneurs, engineering and architecture firms, contractors and suppliers, must create a project concept and process, provide impact studies, financial projections and then an execution plan — then perform their responsibilities to the highest professional and ethical level — to serve and protect the citizens and their budgets.

There are many emerging trends in project management, traditional bidding, Design-Build, Design-Build-Operate-Transfer (DBOT) and other public-private strategies. There are also a few lingering myths. This book seeks to explain these exotic project strategies as well as their pros and cons in an open and forthright discussion.

California is also undergoing a once-in-a-century revolution in the contracting strategies to accomplish public projects. After twenty-five years of experimenting with design-build projects, the State has now expanded the range of alternatives to include private financing, concessions and a broad variety of Public-Private Partnerships (P3 Projects).

The purpose of this manual is to better prepare elected officials, project managers, designers, and contractors to make better and more timely decisions about project evaluation, planning, construction management, risk identification and prevention, finance and contracting. It will arm the reader with a practical knowledge of the landscape, organizational structure and governing law of large public projects.

§ 1.2 The California Market

California ranks #1 in public construction. The State’s economy, on a global scale, is large enough to constitute the fifth largest national economy, rivaling that of the United Kingdom. The Los Angeles region comprises a population larger than the rest of the ten U.S. Western States combined. The population exceeds that of Canada.

California is the most populous and arguably the most culturally influential state in the U.S. The City of Los Angeles or L.A. (a nickname that employs only the last two letters of its original name, El Pueblo de Nuestra Senora la Reina de los Angeles de Rio de Porciuncula) and the San Francisco Bay Area are the second and fourth largest population centers in the U.S., respectively. They are also among the fastest growing regions in the nation and their infrastructures have simply not kept up with the expanding demands of their populations.

The State of California spends billions of dollars on infrastructure projects. For example, the California Department of Transportation (“CalTrans”) has more than 23,000 employees with a current annual budget of about $15 billion. Headquartered in Sacramento, the Department also has 12 district offices situated in Eureka, Redding, Marysville, Oakland, San Luis Obispo, Fresno, Los Angeles, Bishop, Stockton, San Bernardino, Santa Ana and San Diego (website: www.dot.ca.gov).

A 2019-2020 CalTrans budget of almost $14.7 billion — up more than 50% from 2017-2018 — is helping to repair and repave roadways across the state, including those in the San Francisco Bay Area, the East Bay Times reported. The 12-cent-per-gallon state gas tax increase passed in 2017 will contribute approximately $5.5 billion statewide this year, allowing CalTrans to repair or repave more than 17,000 miles of road surfaces in the next eight years, as well as fix 500 bridges and 55,000 culverts.

California is also exceptional in that the majority of the population resides where fresh water is not plentiful. So, the supply of water is a major focus of projects. As is flood protection. As they say, when it rains in California, it pours. The cyclic devastation of levee breaks, flash floods, debris flow and tidal conditions are legendary. California also leads in the protection of its natural resources. Many projects use advanced wastewater treatment, grey water reuse and groundwater injection to prevent saltwater intrusion into aquifers.

Along with these design challenges comes an inconvenient truth — California’s major population centers rest “… astride one of the most violent and dangerous earthquake zones in the world,” as stated by author Marc Reisner. The seismic risk of California is simply monumental. Whether the State’s design, construction and public agency professionals fully grasp that fact, or are taking the right mitigation steps, is a matter of significant debate.

Then, there is the balkanization problem: there are more than 7,000 separate local public entities in California. The vast majority of these entities participate in many aspects of public infrastructure. Their expenditures on design, construction and maintenance accounts for a large portion of their annual budgets, particularly cities and counties, airports, marine facilities, water districts, sanitary districts, bridge and highway districts, schools, and highway and mass transportation authorities. Unfortunately, every public works entity in California “marches to its own drum” on the specifics of their contracts, bidding and project administration.

This presents the design and contracting community with a “Tower of Babel” of conflicting and confusing public works programs. This book advocates greater consistency and uniformity in purpose and content in local government procurement practices.

Due to the State of California’s budget crisis, as well as the U.S. Federal Government’s growing substantial deficits, the public construction outlook is financially challenging and highly competitive. Former Governor Schwarzenegger estimated over $500 billion in infrastructure needs over the next twenty years.

The public works needs of California’s citizens will inevitably expand with the geometric population growth expected in coming years. As such, public works financing must become far more innovative, posing new risks and challenges.

The job of designers and builders is becoming even more politically complicated and technologically challenging. California public agencies must seek political and financial support for projects, starting early in the conceptual and design process. Unions, as well, are willing to support worthy projects that create jobs in their communities. A State of California Bill, SB 50, to permit high density projects near transit hubs, was quashed amid major local government opposition.

Opponents can weigh in against disfavored projects with a time consuming environmental impact lawsuit. A union may protest the low bid of a non-union contractor’s safety record (although such labor suits can suddenly be dismissed when a project labor agreement (PLA) is signed by the public entities and the contracting community.)

And once a project starts in earnest, public agencies and their attorneys appear far more willing to make allegations of false claims against contractors, and others, if they feel the public trust has been violated. Such claims are being made even after project contracts have been closed out and all parties have signed final project change orders.

Nevertheless, in view of the overall national economy, and the subprime lending crisis and related housing downturn, the California public construction market remains remarkably strong.

§ 1.3 The Mission Statement

An exemplary policy statement for public infrastructure is contained in the “CalTrans Mission Statement.” While CalTrans serves statewide transportation needs, its core mission and goals are applicable to any California public agency providing a public service. The Mission and Goals were issued on October 23, 2019:

MISSION: Provide a safe, sustainable, integrated and efficient transportation system to enhance California's economy and livability

VISION: A performance-driven, transparent and accountable organization that values its people, resources and partners, and meets new challenges through leadership, innovation and teamwork

Caltrans also laid out five new goals:

SAFETY AND HEALTH: Provide a safe transportation system for workers and users, and promote health through active transportation and reduced pollution in communities.

STEWARDSHIP AND EFFICIENCY: Money counts. Responsibly manage California's transportation-related assets.

SUSTAINABILITY, LIVABILITY AND ECONOMY: Make long-lasting, smart mobility decisions that improve the environment, support a vibrant economy, and build communities, not sprawl.

SYSTEM PERFORMANCE: Utilize leadership, collaboration and strategic partnerships to develop an integrated transportation system that provides reliable and accessible mobility for travelers.

ORGANIZATIONAL EXCELLENCE: Be a national leader in delivering quality service through excellent employee performance, public communication, and accountability.

Practice Pointer: Every public agency and private entity should inspire its employees with a Mission Statement and publicly commit to specific, measurable goals and guiding values that will ensure the long-term focus and accountability of their public works performance.

§ 1.4 Project Delivery Pathways

The State of California and local agencies employ a variety of methods for “Project Delivery.” A “Project Delivery System” is a unique pathway for project conception, planning, evaluation, design, financing, construction and start-up. This section presents the typical project delivery systems for public works projects and their relative strengths and weaknesses.

§ 1.4.1 Contracting Strategies & Methods

The major delivery methods for public entities considering a major project include: a) Design-Bid-Construct, b) Project Management (PM), c) Design-Build, d) Multiple Prime, e) Fast Track, f ) Turnkey Projects, g) Performance-Based Contracting, h) Design-Build-Operate Transfer (DBOT) and i) Partnering & Team Building.

§ 1.4.1(a) Design-Bid-Construct

The traditional project approach starts with engaging a design firm (A/E) and then, much later, selecting a general contractor (prime contractor) through competitive bidding. In this well-worn approach, an independent architect or engineer consults from soup to nuts, from concept through program, and into schematic and final design, including “Construction Documents.” The owner then advertises for interested general contractors and issues a fixed set of plans and specifications. The owner then solicits multiple bidders. The low bidder is selected, the successful general contractor is awarded the work and construction begins.1

§ 1.4.1(b) Project Management (PM)

Since most public owners do not have sufficient staff or expertise for the peak of project design and construction, they generally will retain a project management (PM) firm or Construction Manager (CM). This is typical for projects of more than $50 million regardless of the type of contracting method utilized by the owner.

Project managers are generally administratively oriented, often serving as an extension of the owner’s staff. Their key expertise is management, not design or field construction. In fact, in public construction, the independent CM or PM is often asked to refrain from design or construction duties.

Instead, the CM develops the selection process for designers, cost estimators and testing firms, performs extensive reviews of their expertise, develops and administers their contracts, provides expertise on constructability, manages relationships with funding and oversight agencies, and provides a system of communications, public information, emergency response, and policy advice for the owner.

An example is a major airport, where CM/PM firms manage the associated infrastructure from conceptual studies of aviation alternatives through the design and construction of the myriad of airside and landside facilities, maintain existing flight operations, assist with start-up and pursue any warranty work.

The CM/PM firms then overlap into the next cycle of conceptual design, at all times working to keep the elected representatives, the public entity staff and general public fully informed so they are ready to make key decisions from a comprehensive matrix of alternatives.

§ 1.4.1(c) The Design-Build Process

The Design-Build method begins with the selection of a single entity for design and construction services, so a single firm is responsible for all aspects of a project. Typically, a public entity will hire a design firm to conduct early studies and develop a conceptual or schematic level of design for the project. Then, a design-build contractor is selected to provide the design and construction of the project.

In rare instances, an architectural firm may act as the leader of a design build team, providing the design services and retaining a contractor for the construction phase. A/E firms are not typically the lead firm as they generally have difficulty supplying the required project financing and bonding. Where the architectural firm is the lead organization, it will be held contractually responsible for all aspects of the project.2

Typically, a general contractor is the lead entity and employs architects or engineers (directly, or on a consulting basis) for the design phase. The construction company then performs the construction phase of the project.

The design-build methodology in theory provides savings in cost and time because the entire project is managed and constructed by a single entity, thereby eliminating the difficulties of dealing with multiple entities on one project. The design-build approach is an emerging tool. Public agencies were largely prohibited from using this method in the past due to competitive bidding requirements.

Charter public agencies may utilize this approach if their charters so provide. Other public entities have specialized legislation, discussed later, that enables design build projects. The design build approach is available in California when a public project is privately financed, at least in part. Recent legislation has expanded the use of this tool in public projects.

§ 1.4.1(d) Multiple Prime Contracting

In this method of contracting, the public owner assumes the obligation of managing multiple prime contractors on the jobsite. The public agency thus assumes a traditional and critical role typically undertaken by a general contractor. It gives the public agency substantial control over the entire construction process.

Unfortunately, this means the public agency does not have a single contractor to assume the ultimate cost and schedule responsibility. The CM/PM hired to perform such a multiple prime project will often argue that their company should have no financial responsibility for escalations in the overall budget or delays in the schedule of the project. This leaves the public owner in the position of absorbing the majority of the risk for conflicts between the contractors and any resulting cost and schedule impacts.

§ 1.4.1(e) Fast Track Projects

In fast-track, or phased design and construction, schedule advantages are achieved in time-critical projects by beginning construction of civil works and foundations before the final drawings are completed for a project as a whole.

This technique is typically used where “time is of the essence” to the owner. (One example being the rush to build a stadium after the award of a sports franchise — where the looming playing schedule is at the heart of the project.)

In such a case, the project is built using drawings and specifications that can be released early, such as grading and foundations, while the designer pursues completion of the overall project plans and specifications. Certain later plans may be modified as necessary with or without price increases.

Unfortunately, this means there is no fixed price or firm schedule for the overall project at the outset. As the design of the project is being completed as concrete is being poured, there are few opportunities to fine-tune the design to maximize cost savings. Civil excavations, pier work, and caissons may be undersized or oversized, since the final structural design may not be complete. Often, a portion of the preliminary works will need to be modified or torn out. This method promotes significant savings in schedule, but at the risk of significant cost overruns.

§ 1.4.1(f) Turnkey Projects

The turnkey concept stems from an owner’s desire to buy or lease a completed project from a contractor who is essentially the developer of the project. The owner gives up large amounts of control over the day-to-day aspects of design and construction of the project. Multiple courts have described a turnkey project as “a project in which all the owner need do is `turn the key’ in the lock to open the building, with nothing remaining to be done and all risks to be assumed by the contractor.”

§ 1.4.1(g) Performance-Based Contracting

In this approach, the owner sets explicit criteria, such as the number of square feet of warehouse space, or the output of an electrical or steam co-generation plant, and leaves the details of the design and construction of the facility in the hands of the design build contractor or industrial vendor. Again, the looser the criteria provided in the plans and specifications, the greater the chance of dispute between the owner’s and contractor’s vision of an acceptable project design and construction quality. (Can you guess whose vision will cost more money?)

§ 1.4.1(h) Design-Build-Operate-Transfer (DBOT)

With the long delivery times associated with public projects, there is a trend toward public entities entering into long-term leases of “public facilities,” including in certain instances the operation of the facility and right to purchase the facility at the end of the lease term. Furthermore, these leases can extend to the actual operation of the facilities by private parties. Aspects of this approach are generically referred to as “privatization.”

Private firms engaged in wastewater treatment that have design, construction management and plant operations expertise, have actively pursued such projects. By applying industry expertise, worldwide buying power (from computer systems to chemicals), access to capital (certain engineering firm’s creditworthiness exceeds many public entities) and the diversity and quality of the staffs of these large enterprises, the public entity can achieve large cost savings and avoid large capital expenditures.

This is extremely useful to local public entities that are either strapped for cash or bond finance capacity, or where the public does not wish to approve outright funding for key facilities.

Many local agencies and labor unions see such DBOT arrangements as passing too much management authority and decision-making responsibility to a private entity. Thoughtlessly crafted agreements may bestow too much authority over essential public services — in contravention of the public trust.

Further, public unions are not pleased to see public jobs converted to private enterprise employment without comparable public sector retirement or fringe benefits. However, the economies of scale can make DBOT a popular approach for smaller public agencies with limited technical or financial resources that would otherwise be unable to finance vital services for their communities.

§ 1.4.1(i) Partnering and Team Building

Partnering and Team Building are established management practices on large projects. At the outset of a project, a partnering facilitator conducts a project-wide management meeting or retreat seeking to build understanding and trust among the owner, designer and construction staff.

The cornerstone of partnering is simple — knowing your colleagues as capable and trustworthy partners is a good thing. While knowing more about one’s counterparts in the public agency or contractor organization may not prevent a major project conflict from arising later, it can lay a foundation for the parties tackling any large problems in the job and will render small problems far easier to resolve.

Team building can be taken too far. It is probably fine to have a project-wide barbecue to celebrate an accident-free year of work. But it is obviously unprofessional and probably illegal for the contractor and public officials to get too chummy. It is likely a jailable offense for the contractor to invite the project inspector along on an expensive fishing trip, especially if the contractor just bought the inspector a new boat!

In one case, the aggrieved contractor asked in a court pleading that the public owner to share his losses since they were “partnering” under the agreement. (The Uniform Partnership Act defines “partners” as two or more persons or entities doing business for profit.) Also, true “partners” have fiduciary duties of disclosure and good faith. As such, wary owners, contractors and their lawyers understand that the word “partnering” can be a legally loaded concept, so instead they use the phrase “Team Building.”

§ 1.4.2 Pricing Methods

The public agency may select from a range of pricing mechanisms, including:

Lump Sum — where the price for an agreed scope and time is a fixed amount.

Reimbursable Cost (R/C) — where the contractor is compensated at cost with a fixed or percentage fee.

Time and Materials (T & M) — where hourly rates and material costs are fixed and charged as the services are incurred. (Often called Force Account).

Guaranteed Maximum Price (GMP) — where reimbursable cost payments are made up to an agreed maximum. So that a contractor does not overbill on such assignments, payments are often stated as being made based upon progress against a schedule of values, not to exceed actual costs.

Target Estimate — where the owner and contractor share in cost savings and overruns.

Unit Price — where the price of a measure of performance is fixed but the quantity is variable.

Project Manager “At Risk” — where the PM shares in cost and schedule risks.

Evergreen Contracts — where a contractor is retained for a series of long term assignments that are issued in individual Task Orders — often pre-negotiated and individually priced. This is often used to prepare for disasters and emergencies.

§ 1.5 Project Relationships

There are a wide variety of parties that participate in large construction projects. Since human beings run projects, their personal and legal relationships influence the success of the project. The fine points of these legal and contractual relationships, along with the money flows that surge between organizations during a project, provide the bone and flesh of California Construction Law.

§ 1.5.1 Usual Parties

It is important to recognize the legal relationships among the parties. For the design of a project, the owner generally contracts with independent design professionals for the construction of a specific project or contracts to buy a completed project from a contractor/developer.

An architect is defined as one who is licensed to practice architecture in the State of California.3 Anyone who offers or performs “professional services which require the skills of an architect in the planning of sites, and the design, in whole or in part, of buildings, or groups of buildings and structures” is engaging in the practice of architecture.4 The architect serves as an independent contractor preparing the plans and specifications for the project and often as the agent of the owner in construction phase services. The “name” statutes also prohibit the use of the term architect, engineer or consulting engineer, among other specified terms, by an unlicensed person.

An engineer is one who possesses education, training, and experience in engineering services and has special knowledge in various areas, including design of public or private utilities.5 The three primary areas of specialty within the engineering sciences are civil engineering,6 electrical engineering, and mechanical engineering.7 An engineer is usually retained by the architect as an independent contractor and is responsible for detailed calculations, drawings, and specification preparation.

A general contractor is an entity (individual, corporation, partnership, etc.) that constructs, alters, repairs, improves, moves, or demolishes any building, highway, or other structure.8 This definition applies to both subcontractors and specialty contractors.9

A construction manager10 is typically described as one who acts as a construction overseer, managing the day-to-day, on-site activities of the entire project. The construction manager generally does not perform actual construction services or provide any work with his or her own forces. The construction manager acts in the capacity of an agent of the owner and receives fees as his or her sole compensation. He or she negotiates contracts with the various contractors, schedules and coordinates their work so it will be in accordance with the project plans and specifications, and oversees cost management. In California, there is no general requirement for a construction manager to be licensed as an architect, engineer, or general contractor, but they must for State work.11

§ 1.5.2 Project Organization

§ 1.5.2(a) The Design Relationship (Architect or Engineer)

The relationship between the owner and the design professional is established by contract, statute and case law. The principal relationships that will occur during the course of the project among the architect, engineer, owner and contractor are established in the initial design agreement.

Every public agency has its own architectural and engineering services agreement. Many any of these are based upon the most widely utilized and accepted private standard agreement between an owner and an architect is the American Institute of Architects (AIA), Document B101 ©. Or the Federal Acquisition Regulations (FARs) standard agreements. The AIA standard form stems back to 1917, when it was drafted to shape the owner architect relationship. It contains many provisions that specify the duties and responsibilities of the design professional and the owner, and forms the basis of almost all contracts between owners and architects for residential and commercial building projects, as well as establishes the guidelines for the architect’s consultant agreements with its engineering and other associated firms.

However, the parties may choose to execute a contract that does not utilize the AIA B101 © standard form. In either situation, the contract governs the rights, duties and responsibilities of the parties. Thus, it is important that the owner determine exactly what those responsibilities will be when drafting the contract in order to avoid future disputes.

The services a design professional performs are varied and are determined by the contract executed with the owner. Services range from designing the structure itself and estimating the total project cost to assisting in the overall bidding process, inspecting construction, issuing change orders and giving final approval for all progress and final payments made to contractors by the public entity.

The design professional’s primary responsibility is to prepare and provide plans and specifications that the contractor can use to build the project; however, responsibility does not end once the plans and specifications are complete. It continues throughout the project with the design professional interpreting and revising the plans and specifications in order to address actual construction conditions the contractor encounters in the field.

The AIA B101 outlines the primary services that the architect will perform, generally for a fixed fee, and also lists other services, which are generally compensated on an hourly basis. It is important to budget the necessary construction-phase services, as well as other soft costs, such as appearances, before planning commissions and related architectural support services.

The owner also has responsibilities to the design professional.12 The most important obligation of an owner is to provide complete and accurate information regarding the site and the design objectives of the project. This information should include budget restraints, site conditions, and easement, zoning and land-use restrictions. In addition, the owner is obligated to pay the design professional for his or her services.

§ 1.5.2(b) General Contractor

On traditional projects, once the plans and specifications have been prepared by the design professional, the owner can solicit bids from general contractors through advertising.13 The public entity owner then awards the contract to the lowest responsible bidder.14

Once the requirements of bidding and awarding the public works contract have been satisfied, the contracts are signed, a Notice to Proceed is issued and the successful general contractor begins construction. Because all subcontractors are required to be listed in the general contractor’s bid package submitted to the public entity, the general contractor will have already negotiated subcontracts with its subcontractors.

The responsibilities of the general contractor encompass the entire construction phase of the project. The AIA Document A201 is a General Conditions form, containing standard legal boilerplate, and is widely utilized by public entities contracting with general contractors. However, due to the highly regulated nature of public construction, that form must be heavily annotated and modified for California public projects. As with most construction industry standard contracts, it is grossly inadequate for California public works without substantial modification and the addition of extensive statutory language, as discussed in Chapter 9.

The contractor is obligated to build the project in conformity with the plans and specifications, which means not only strictly adhering to the project design, as set forth in the plans and specifications, but also guaranteeing the material and providing quality workmanship. In addition, the general contractor must evaluate the project site, promptly bring to the attention of the design professional any errors or omissions discovered in the plans and specifications, determine the means and methods of construction, erect temporary works, assure job security and safety, coordinate all phases of construction with its various subcontractors and arrange for all inspections.

Each subcontractor is also obligated to perform in a good and workmanlike manner. The owner of the property can bring a direct action against the contractor, as well as the subcontractors for defects. Stonegate Homeowners Assn. v. Staben (2006) 144 Cal.App.4th 740.

The public entity owner is obligated to provide complete and accurate information to the general contractor, which is the same as its responsibility to the design professional. In addition, the public agency owner is typically required to obtain all necessary permits and approvals.

Payment provisions are typically based on the observed progress of construction. Similarly, the time periods for performance of milestones for the project are specifically set forth in the signature document and the Exhibits. Any other scheduling requirements, such as Critical Path Scheduling (CPM) reporting and any specified penalties for late performance, such as liquidated damages, are also fully set forth in the contract documents.

Generally, the benefits and burdens of a building permit remain those of the owner, even if delegated to an engineer or contractor. In a private permits case, Ciraulo v. City of Newport Beach (2007) 147 Cal.App.4th 838 (opn. ordered nonpub. May 23, 2007), the City denied an application for a variance for a deck larger than had been originally approved by the planning department. The Court found the owner was still legally responsible for removing the oversized deck, despite the fact the responsibilities for getting the permit had been delegated to the contractor by the homeowner and the City Inspector had approved the final construction.

§ 1.5.2(c) Construction Manager

A public agency owner may decide to employ a construction manager whose role is to act as agent for the public agency. Competitive bidding requirements do not apply to the retention of a construction manager; however, some agencies take the position that the contract must still be awarded to the lowest responsible bidder and adhere to all other competitive bidding requirements,15 despite the fact that the construction manager is acting as the owner’s agent. The construction manager has several responsibilities. These include design management, cost and schedule reporting, construction scheduling, design review, constructability, bid packaging, and, of course, day-to-day project management.

During the design phase of a public works project, the construction manager reviews conceptual designs and provides advice on construction feasibility and the selection of materials and equipment. In addition, the CM firm develops and updates the construction schedules, prepares the project budget and construction cost estimates, and prepares a bid analysis and award recommendations after the bidding process.

Once construction begins, the construction manager conducts on-site meetings with the various parties involved, updates the project schedule, implements the change order system and reviews proposed change order requests. Most importantly, they inspect the ongoing construction of the project, establish and implement procedures for expediting the processing and approval of shop drawings, provide progress reports to the owner and observe the progress of work performed by the various subcontractors involved in the project.