“A New Approach for Public Sector Projects” Construction Reform 101” An Overview...

“Construction Reform 101”

An Overview of Construction Reform in theCommonwealth of Massachusetts

“A New Approach for Public Sector Projects”

Division of Capital AssetManagement

David B. PeriniCommissioner

New York City Bar AssociationJanuary 25, 2011

BACKGROUND

and

OVERVIEW OF KEY PROVISIONS

Construction Reform - What is it?

• The most comprehensive reform of state publicconstruction laws since the Ward Commission (1981)

• Modified several fundamental areas in these laws:

• Provides for use of Alternative Delivery Methodsfor vertical and horizontal construction projects.

• Changes thresholds governing general and filed sub-bids.

• Requires certification of filed sub-bid subcontractors.

• Makes owner prequalification of contractors widelyavailable/mandatory in certain instances (GCs, subs).

• Requires Owner’s Project Manager on certain projects.

• Extends MBE/WBE program requirements to statefunded municipal projects

Construction Reform- Key Changes

Chapter 193 of the Acts of 2004 instituted the following key changes:

• Alternative Delivery Methods (CM at Risk and Design-Build)

• General Bid & Filed Sub-Bid Threshold Changes

• Filed Sub-Bidder & General Bidder Certification

• General & Filed Sub-Bidder Prequalification

• Owner’s Project Manager Requirement

• Designer Selection Changes

• MBE/WBE Affirmative Marketing Program

Construction Reform - How Did We Finally Get Here?

• After years of trying, every major interest group cametogether to hammer out needed legislative change.

• Public Owners (DCAM, Massport, Municipalities)

• Office of the Inspector General

• General and Subcontractor groups (AGC, ABC, ASM)

• Architect and Engineer groups

• Organized Labor

• MBE/WBE groups

• The Legislature and the Administration

ALTERNATIVE DELIVERY METHODS

CONSTRUCTION MANAGER AT RISK

and

DESIGN-BUILD

(M.G.L. c 149A)

Overview of CM at Risk - Background

• Construction Reform in the Commonwealth created opportunity for use of alternative delivery methods on public projects.

• Per M.G.L. c. 149A, effective January 1, 2005, allows CM atRisk.

Overview of CM at Risk - Background

• Delivery method is optional for DCAM (and other public agencies)for building projects $5 million or more.

• Inspector General approval required on a case by case basis---exceptions are DCAM, Mass Port, MWRA, and MSCBA (which mustannually submit procedures for projects they choose to procure CMat Risk).

• DCAM’s procedures approved by IG.

• CM at Risk firm must be Certified by DCAM in the Category of“General Building Construction”.

• Laws governing prevailing wages, direct payment, prompt payment,unforeseen conditions, delays and contractor record keeping are allapplicable.

Overview of CM at Risk - Why Use CM at Risk?

Advantage - CM has broader scope (than General Contractor)from Pre-Construction to Construction Management Services,including but not limited to:

• CM provides cost estimation.

• CM provides design consultation.

• CM assists in preparation/coordination of bid packages.

• CM provides scheduling.

Overview of CM at Risk - Why Use CM at Risk?

• CM assists with cost control - value engineering.

• CM assists with prequalification and evaluation of trade/othersubcontractors.

• CM acts as general contractor during construction (includesholding trade contracts and other subcontracts).

• CM provides management and construction services.

Overview of CM at Risk - Procurement of CM Firm

Two-phase competitive proposal selection process:

• Phase 1 - “Prequalification” of potential CM firms throughRFQ process.

• Phase 2 - RFP to “prequalified” CM firms.

Overview of CM at Risk - Procurement of CM Firm

Phase 1 - RFQ Process

• Prequalification Committee established (1 rep. from designer, theproject manager, and at least 2 rep. from awarding authority).

• RFQ developed by awarding authority.

• Public notice of RFQ.

• Interested CM firms submit “Statement of Qualifications”.

• Prequalification committee evaluates “Statements ofQualifications” based solely on criteria set forth in RFQ.

•Must “prequalify” a minimum of 3 CM firms to proceed to RFPPhase (if not, re-advertise or revert to c. 149).

Overview of CM at Risk - Procurement of CM

Phase 2 - RFP Process

• Selection Committee established - 1 rep. from designer, theproject manager, and at least 2 rep. from awarding authority(can be the same as prequalification committee).

• RFP sent to “prequalified” CM firms only.

• Fee/cost proposals and technical proposals submitted by“prequalified” CM firms.

• Selection Committee prepares non-price evaluations basedsolely on the criteria set forth in the RFP.

• The most advantageous proposal selected considering bothtechnical and price proposals.

Overview of CM at Risk - Guaranteed Maximum Price (GMP)

• GMP is the guaranteed maximum price the awarding authority willpay for the project.

• GMP is comprised of the:• Hard cost of the work;• General conditions costs;• Fee payable to the CM firm

• CM may benefit from incentive clause for various performanceobjectives of up to 1% of the estimated construction cost.


GMP Shall:

• Be based on design documents (which are at least 60 percent complete).

• Be agreed to as written amendment to contract with awarding authority.

• Be executed before the commencement of major constructionwork.


GMP Shall Include :

• Detailed line item cost breakdown by trade.

• CM firm’s contingency, general conditions, and fees.

• Listing of all the drawings, specifications and other information onwhich the GMP is based.

• Listing of any assumptions or clarifications on which the GMP isbased.

• Detailed project schedule on which the GMP is based.

• Payment and performance bonds.

Overview of CM at Risk - Subcontractors

Prequalification of “Trade” Subcontractors:

• “Prequalification” process utilized to procure sub-bid classes ofwork subject to the filed sub-bid law (M.G.L. c. 149, § 44F).

• Prequalification Committee established to evaluate TradeContractors (consists of 1 rep. from designer, 1 rep. from CMfirm and 2 reps. from awarding authority).

• Public Notice/RFQ issued for trades with ECC > $20,000.

• Trade Contractors respond to RFQ with Statement ofQualifications.


• Trade Contractors evaluated by Prequalification Committee based solely on criteria set forth in RFQ (criteria limited to that

specified in c. 149A).

• CM prepares Trade Contractor bidding packages based on design documents.

• Only “prequalified” Trade Contractors invited to submit bid.

• Trade contracts awarded to lowest “prequalified” bidder.

• Trade contracts must be secured by performance and paymentbonds paid for by Trade Contractor.


Prequalification of “Other” Subcontractors:

• Separate selection process for all classes of work > $20,000(which are not subject to the filed sub-bid law).

• CM provides awarding authority a minimum of 3 subcontractors it believes to be qualified based on relevant factors including, but not limited to, price, quality ofwork, and MBE and/or WBE participation.

• CM requests bids from qualified subcontractors and selectssubcontractor.

• Selection of subcontractors subject to approval of awardingauthority.


Subcontracts with ECC < $20,000

Subject to approval of awarding authority, subcontracts withECC < $20,000 and subcontracts for supply ofmaterials/equipment (not including performance of labor inconstruction at the Project site) may be awarded by the CMusing any method selected by the CM.

Design Build (for Public Works Projects)

Effective January 1, 2005

• Awarding authority contracts with one firm that provides bothdesign and construction

• Available to construct public works projects otherwise subject toG.L. c. 30, sec. 39M, estimated to cost $5 million or more (e.g.,roadwork, site work, site remediation) with prior approval of theInspector General.• A 2 phase selection process is required:

• Prequalification via RFQ;• Formal proposals, including separate technical and price

components.• Exempt Agencies procedures are subject to IG review and

approval on an annual basis. Exempt agencies are MHD,MassPort and MWRA.

GENERAL BID & FILED SUB-BID THRESHOLDS

Bidding Threshold Changes to Ch. 149Public Buildings

Effective July 19, 2004

• General Bids – Four categories based upon estimatedconstruction cost (ECC):

3 Less than $10,0003 $10,000 - $25,0003 $25,000 - $100,0003 Over $100,000

• Sub-Bids - $20,000 or More

Bidding Threshold Changes

ECC Less than $10,000 – Public Building Project

• Seek three or more written quotes from firms customarilyperforming type of work sought.*

• Award to responsible firm providing lowest quote.

• Agency must keep records of:

• Firms that were solicited for quotes;

• Quotes submitted; and

• Date and amount of each quote.

• Awarding Authorities can use Operational Services Division (OSD)Trade Contractor List to identify firms from which to seek quotes.

• Not Applicable: DCAM Certification, Filed Sub-Bids or bid deposit.(*Note this was recently amended by Chapter 188 of the Acts of 2010 to require only use of “sound

business practices” where ECC<$10K)


ECC $10,000 to $25,000 – Public Building Project

• Public notification of scope, defining work and requirements andtime period for completion of work.

• Posting two weeks on agency website and Comm-Pass or CentralRegister and conspicuous place in primary office of awardingauthority.

• Written prices from firms customarily performing type of worksought.

• Award to responsible firm providing lowest price.

• Awarding authorities can supplement public notification bynotifying firms on OSD Trade Contractor List or other list of firmscustomarily providing work sought.

• Not Applicable – DCAM Certification, Filed Sub-Bids or bid deposit.


ECC $25,000 to $100,000 – Public Building Project (formerlyprojects $10,000 - $25,000) M.G.L. c. 30, §39M Process Applies

•Advertise two weeks in Central Register & newspaper of generalcirculation, Comm-Pass (recommended)

•Bid Deposit Required.

•Public Bid Opening.

•Award to lowest eligible and responsible bidder (eligible as definedin c. 30, §39M).

•Not Applicable: DCAM Certification or Filed Sub-Bids.


ECC over $100,000 – Public Building Project (formerly over$25,000) M.G.L. c. 149, §44A-44H Process Applies

•Advertise two weeks in Central Register & newspaper of generalcirculation, Comm-Pass (recommended).

•DCAM Certification Required of General Bidders with UpdateStatement.

•DCAM Certification of Filed Sub-bidders required with UpdateStatement (effective 1/31/05 - C. 507).

•Filed Sub-bid applies for trades in §44F with ECC of $20,000 ormore.


ECC over $100,000 (continued)

•Bid Deposit Required.

•Public Bid Opening.

•Award to lowest eligible and responsible general bidder.

•Pre-qualification of prime and sub-bidders:

• Optional for projects with ECC of $100,000 - $10 million,

• Mandatory for non-exempt awarding authorities on projectswith ECC of $10 million or more. Certain state agenciesexempt.


Filed Sub-Bids (effective July 19, 2004)

•New filed sub-bid threshold: ECC $20,000 (formerly $10,000).

•Same 17 trades listed in M.G.L. c. 149, §44F apply.

•Effective December 31, 2005 – Filed Sub-bidders must be DCAMcertified in specific trades.

NEW SUBCONTRACTOR CERTIFICATION

and

UPDATES TO GENERAL CONTRACTOR CERTIFICATION

Subcontractor Certification - Effective December 31, 2005

• Filed Sub-bidders must be certified by DCAM in order to bid onChapter 149 building contract work (Project ECC > $100,000,sub-bid ECC $20,000+).

• As of December 31, 2005 a DCAM Certificate of Eligibility &Update Statement will be required with every sub-bidsubmitted on a Chapter 149 building contract. (Chapter 507).

• DCAM has published an implementation schedule forapplication & certification of the 17+ sub-trades during 2005.

• See DCAM Website for up to date implementation and certification information and forms - www.mass.gov/cam

Subcontractor Certification

Effective December 31, 2005 (Chapter 507, Acts of 2004)

• DCAM reviews sub-bidder applications for certification in muchthe same way as prime contractors are certified, includingreview of applicants’ construction experience and financialcondition.

• As of December 31, 2005 every sub-bid for a building contractsubject to the filed sub-bid law (estimated cost of construction>$100,000) must include a copy of a Certificate of Eligibilityissued by DCAM & an Update Statement, containing updatedinformation since sub-bidders last application for certificationincluding new projects and projects currently under contract.

• Sub-bidders must certify under penalties of perjury thetruthfulness and completeness of the information in their sub-bid.



Sub-contractor certification is essentially the same as prime contractorcertification except:

• Projects evaluated over past 3 years compared to 5 years forprime contractors.

• Certificate of eligibility will not show single project andaggregate limits like the certificate for prime contractors.

• Certificate of eligibility will show the number of priorconstruction projects evaluated by DCAM, the averagenumerical value on those projects, and the number ofprojects given scores below the passing score established byDCAM (80%) over last 3 years.



• Subcontractor evaluations and responses to subcontractorevaluations are public records (this will apply to prime contractorevaluations as well).

• Public agencies that fail to submit to DCAM the sub-contractorevaluations forms together with any sub-contractor responses,within 90 days of project completion (certificate of occupancy) risknot being eligible for state funding.

• Indemnification of $1 million for representatives of public agenciesproviding sub-contractor evaluations with limited indemnification oflegal fees only, if the person is found to have acted in a willful,wanton or reckless manner in the evaluation (this is same as forprime contractors).

Changes to General Contractor Certification

• Not specifically mandated in Construction Reform legislation.

• Making GC Certification regulations more user-friendly byseparating those directed at the contractor from those directed atthe awarding authority.

• DCAM has incorporated new factors into numerical rating systemincluding criteria such as: termination, amount of litigation, directpayment claims history, OSHA penalties.

• A contractor’s single project limit will be based on the average ofthe largest two projects, rather than on just the single largestproject.

• Single project and aggregate limits reduced to 130% of theaverage of the two largest projects - 180% if the contractor hasdemonstrated the capacity in the opinion of the Commissioner.

• XXXXX

PREQUALIFICATION OVERVIEW

(FOR DESIGN-BID-BUILD PROJECTS)

Prequalification Overview (Design-Bid-Build Projects)

What is Prequalification?

Prequalification is part of a new two-phased procurementprocess utilized by public awarding authorities (on design-bid-build projects) which enables public awarding authorities to limitthe “bidding pool” to general bidders and sub-bidders who arequalified to do the work.

The Two-Phase Process:

•RFQ Phase – the awarding authority issues a RFQ and reviews information submitted to determine qualified bidders.

•RFP Phase – only “prequalified” bidders are invited to bid.

Prequalification Overview

Advantages of Prequalification

• Only prequalified contractors are in bidding pool.

• “Raises the bar” for quality of work.

• Price not the sole deciding factor.


When is “prequalification” required by awarding authority?

• Mandatory for all “non-exempt” public awarding authorities to“prequalifiy” all general contractors and filed sub-bidders forpublic construction projects with estimated construction costs of$10 million or more.

• Discretionary for all “non-exempt” public awarding authoritiesto “prequalify” all general contractors and filed sub-bidders whereestimated construction costs are between $100,000 and$10,000,000.

• Discretionary for “exempt” agencies. Division of Capital Asset Management, Mass Port Authority, Mass Water Resource Authority, Mass State College Building Authority, U Mass Building Authority.


Prequalification Steps:

• Prequalification Committee established.

• Public notice of RFQ.

• Statements of Qualifications submitted by GC and filed subs.

• Evaluation of Statements of Qualifications.

• Selection of “prequalified” bidders.

• RFP issued to “prequalified” bidders.


Composition of Prequalification Committee:

• 1 representative from design group.

• 3 representatives from public owner (OPM is 1 of the 3 if OPMrequired).

RFQ Requirements

• Public Notice – awarding authority must advertise RFQ in thenewspaper, central register and COMPASS system.

• Qualification Requirements/Points – awarding authoritymust set forth the qualifications and evaluations points in thepublic notice.


Public Notice of RFQ contains:

• Time and date for receipt of response; address to whichresponses should be sent; and timeframe that awarding authoritywill respond;

• General description of building project;

• Evaluation procedure and criteria for prequalification (includingthe point rating system and schedule for evaluation);

• Anticipated schedule and estimated cost for the building project;


Public Notice (continued)

• Listing of the project team, including awarding authority name,designer and owner’s project manager, if applicable;

• Statement that RFQ will be used to prequalify general contractors& subcontractors who will be invited to bid pursuant M.G.L. c.149, §44E/§44F;

• Prohibition against any unauthorized communication or contactwith the public agency beyond official pre-bid meetings;

• A limitation on the size and number of pages to be included in theresponse to the RFQ, if desired by the public agency.


Evaluation Criteria:

• Mandatory Requirements

• Management Experience (25/50 points required)

• References (15/30 points required)

• Capacity to Complete Projects (10/20 points required)


Mandatory Requirements

• Commitment letter from bonding company for payment andperformance bonds at 100% of estimated project value. (Onprojects with prequalification both general bidders and filed sub-bidders will be required to provide their own payment andperformance bonds and must carry the cost of the bonds in theirown bid prices); and

• DCAM Certificate of Eligibility showing capacity rating sufficientfor project and an Update Statement.


Management Experience - 25/50 points required

• Business owner’s experience

• Experience of management personnel

• Similar projects

• Terminations

• Legal proceedings

• Safety record

• MBE/WBE and Workforce compliance records


References - (15/30 points required)

• Project references

• Credit references

• Public project record over last 3 years

Capacity to Complete - (10/20 points required)

• Audited financial statements from general contractor for currentfiscal year (filed sub-bidders do not have to submit)

• Revenue under contract for next 3 years


Evaluation Process

• Statements of Qualifications not opened publicly but opened inpresence of 1 or more witnesses.

• “Register of Responders” prepared for public records.

• PQC evaluation based ONLY on criteria set forth in RFQ.

• minimum score of 70 required to be prequalified.

• minimum of 3 prequalified general contractors and filed sub-bidders in each trade required.


What if there are less than 3 prequalified general contractorsor filed sub-bidders?

• If < 3 prequalified & prequalification is mandatory, thenawarding authority must solicit additional responses to RFQ byreadvertising. After second solicitation if still <3 awardingauthority can either:

• issue RFQ again,• invite bids under c. 149 without prequalification, or• if at least 2 firms prequalified can solicit bids from

those firms. (under Chapter 507, Acts of 2004).

• If < 3 prequalified & prequalification is discretionary, thenawarding authority can either:

• issue RFQ again,• invite bids under c. 149 without prequalification, or

• if at least 2 firms prequalified can solicit bids fromthose firms. (under Chapter 507, Acts of 2004).


Review of Decision

• Upon inquiry, general contractors and filed sub-bidders areentitled to know their score.

• Decision of Prequalification Committee final and not subject toappeal (except where evidence of arbitrary, capricious, fraud orcollusion).


Resources:

• DCAM Website (www.mass.gov/cam)

• 810 CMR 9.00 (General Contractor Prequalification Regulations)

• 810 CMR 10.00 (Subcontractor Prequalification Regulations)

• DCAM Guidelines for Prequalification of General Contractors andSubcontractors to Work on Public Building Construction Projects

• Office of Inspector General Website (www.mass.gov/ig)

• Designing and Constructing Public Facilities (6th ed.)

OWNER’S PROJECT MANAGER

Improved Project Oversight - Owner’s Project Manager

Owner’s Project Manager

•Owner’s Project Manager (OPM) requiredon all projects with ECC of $1.5 millionor more.

•OPM Must be a registered Architect or Engineer with five yearsrelevant experience, or if not registered seven years relevantexperience.

•Hired before designer, serves as public agencies agent andconsultant throughout planning, design, procurement andconstruction including advice on selection of designer, design,value engineering, scope, estimating, general and subcontractorpre-qualification and selection, scheduling and construction.

Owner’s Project Manager (continued)

•Agency may assign an employee to serve as owner’s projectmanager if they meet qualification requirements.

•Owner’s Project Manager must be independent of designer,general contractor and sub-contractor.

•Qualifications based selection process required to procure OPM.

•Owner’s Project Manager Guidelines posted on DCAM website.www.mass.gov/cam

DESIGNER SELECTION

Designer Selection Changes

•Awarding Authorities may now utilize same designer thatconducted the feasibility study for the project final design withoutmandatory peer review.

•Municipalities must use standard designer selection form issued byDesigner Selection Board (DSB).

AFFIRMATIVE MARKETING PROGRAM

(MBE/WBE)

MBE/WBE Participation-Affirmative Marketing Program(revision to M.G.L. c. 7, §40N and c. 23A, §44)

•MBE/WBE goals set by DCAM

•Published in Central Register, currentlyDesign - 8% MBE, 4% WBEConstruction 7.4% MBE, 4% WBE

•Apply to all “state assisted building projects” includes projects bymunicipalities and political subdivisions when costs paid in wholeor in part by Commonwealth.

•DCAM and Supplier Diversity Office (formerly SOMWBA) developprocedures for adjustment of goals by awarding authority onindividual projects.

Affirmative Marketing Program (continued)

• DCAM and Supplier Diversity Office develop good faith effortswaiver procedure before award for use by awardingauthorities.

• Supplier Diversity Office monitors and reports for politicalsubdivisions Affirmative Marketing Program.

• DCAM monitors and reports for DCAM’s Affirmative MarketingProgram.

• DCAM & MassHousing currently undertaking new disparitystudy.

QUESTIONS AND ANSWERS

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