Design-Build: the ‘New, New Thing' in L.A. County-Wow!

I've got three titles for my presentation today; I wasn't able to decide about which one I would go with. The first one was connected with the med center. It goes like this. "I'm having a mid-life crisis, I don't feel needed anymore, and why that's a very good thing."

...The beautiful thing about this is that we are very diverse and different types of customers that we have to deal with, getting capital projects done, delivery, and the types of buildings that we have to do. There's no one size fits all in terms of approach for our capital projects program.

I had to fly up to Stanford a couple of weeks ago to give a presentation to some grad students up there. You know, the Stanford campus is a very effete type of an environment, so I had to come up with a different title for the Stanford presentation. For Stanford, I simply call it, "A sustainable framework for project delivery," and everyone liked that. The third title is a little bit more mysterious, it comes from my background, my father was a musician, and I always wanted to be a jazz musician as a kid. With that, plus my love of project management over the last 25 years practicing it, I came up with the third title, which I'm not satisfied with, but I'll throw it out there anyway: "A Blues for Bugsy Siegel."

First let's talk about the capital projects arena. We used to do design, bid, construct processes. We call it low-bid. Going to design-build wasn't an immediate success story for me. It was a couple of failures and then a big success. The first two failures were, sequentially, failing to convince my previous superiors that we should do this. They said, "Oh no, we're not going doing that, we're not equipped to do that, we're not trained we're not knowledgeable enough to do that, we're sticking with design, bid, construct." After two retirements, I didn't have anyone else to ask, and we just plowed into it. We did the paradigm shift at L.A. County of moving from low-bid (i.e., design, bid, construct) to design-build. It was a result of my own personal experience, which is over many years of delivering small, medium, and large capital projects.

There was one thing that was very consistent in terms of my experience between all of those different types of projects that I worked on: I was constantly in a crisis-management mode. That crisis management mode was very frustrating...So we came up with some ideas to deal with that. We said, let's put in more project controls. Let's ramp up schedule controls. Let's ramp up our cost controls. Let's ramp up our procedures and processes. We did that over the course of two or three years. At the end of those two or three years, the crises didn't go away, we just knew a lot more about them because we had project control. That was really the long and short of it. It's very frustrating, and we still are searching for a way out of that reality.

That's what really led us to collaborate with some key people in the private sector who have moved into a different mode of operation for their private businesses, beginning to emulate what the private sector was doing with design-build...

..We had to go through a fairly significant paradigm shift. Our staff throughout the county was terrified of the idea of changing from low-bid to design-build, so we did a huge training exercise for both our consultants and our county staff. We advised them on the disadvantages of the model we'd been using in the context of the flexibility and advantages that we saw in design-build. Those advantages are the capital under which we have begun to change that crisis management model of operation of L.A. County for our capital projects program.

The problem that we began to understand was our relationship with the key provider-the contractor. That relationship was strained, very adversarial, very negative, and fraught with delays and overages in budget. If you look at how that relationship emerges, it's called bid day. On bid day, for about an hour, general contractors line the halls, making phone calls so they can submit a bid at the last minute from random subcontractors all across town for giving them their last and final price a few minutes before midday. That's why general contractors refer to bids as a "wild-ass guess." There isn't a relationship there when we select using low-bid, and that's part of the problem. It's just-who is the cheapest? As it turns out, that tends to be an atrocious way to choose someone that you're going to be in bed with for a year-plus, doing millions if not hundreds of millions of dollars, or in the case of the LAC-USC Medical Center project, a billion dollars.

The difference with design-build is that it's a multi-faceted selection process that doesn't occur over a day. It occurs over 30, 60, 90 days, with continuous collaboration with the proposers, where they ask us what we expect that isn't adequately or completely articulated in the solicitation documents. We ask them questions about how they see certain predictions of problems that we perceive are part of the project. We get to establish an expectation of quality. We get to have a dialogue with them on the length of the project. It's a relationship building exercise that is replacing low-bid procurement, where by the time 90 days have gone by, you have a very good relationship with all three of your short-listed proposals. That, quite frankly, makes all the difference in the world. You don't have an adversary; you're not choosing on the basis of the cheapest price. Cost is a factor, but you're looking at their management plan; you're looking at their schedule plan, their staffing, their resources, and their track record. You're looking at their aspirations as a company; you're looking at their corporate culture. You're evaluating them holistically, in a very multifaceted way, which gives you a much better impression as to whether they are the best suited for the delivery of your product-of your $100 million project or your $1 billion project. That relationship forms much better this way from a public policy prospective than with a traditional delivery model.

We didn't understand the benefits we would see when we launched design-build. We kind of figured that, like our low-bid projects, we would have to wait to register the benefits. We started accumulating data to tell the world how great it was or how if it wasn't going to work. We started to register incremental benefits. We started to see improvements that we took advantage of long before we ever finished a project. In fact, we saw those improvements day one. We have a project out in Harbor-UCLA Medical Center in Carson. That is a $322 million project that involves the expansion of the surgery and emergency functions at Harbor-UCLA. The county is a fairly good fiscal planning organization, but actual urban planning has not been all that great over the years. It's getting better now, but Harbor-UCLA is one of those examples of poor planning...

...We had set up this $322 million dollar hospital expansion project with no expansion of parking. This was the planning "who-ha" that was conscious by the county from the standpoint of fiscal conservation. Through design-build, guess what happened? We had that 90-day period during which we actually spoke with our providers. We attracted very capable providers that would never have worked with us if it had been a low-bid project, so there is benefit number one. We were attracting a much higher caliber of company to work with L.A. County because they weren't competing in a low-bid environment.

The bids came in, the proposals came in, and we went through our evaluation of those proposals using the format of best value-a multifaceted, holistic review process and collaboration. We got to ask them about aspects of their proposals, talked to them even after the proposals came in, and continued to build the relationships that we had formed in the selection process. Hensel Phelps turned out to win the selection process. Leo Bailey was the architect that provided the rigid documents. We were about to award the contract and Hensel Phelps said, "One of the things that we'd like to do is build a parking structure out here, because you don't have one."

Fast forward a little bit, we have a two/three story parking structure out there with solar panels on it. Now, I just want to back up. Not in our wildest dreams would we have ever gotten a parking structure in that format using low-bid. It just couldn't happen. You'd have to reject and readvertise the whole project because you "changed your mind." Hensel Phelps was able to say, "We've got a need for parking for our staging. You've got a greater need for parking for your hospital. We're going to include that as the value-added item in our proposal," which didn't go unnoticed as we evaluated the proposal. It did point out that there was something happening in this partnership that does not happen in those partnerships were low-bid is involved. We are dealing with each other as three-dimensional entities rather than someone you bid to.

There was an obvious attempt by Hensel Phelps to impress the county with their value-added nature for repeat business. Now this repeat-business idea that the private sector enjoys quite a bit-we'd like to enjoy that same energy. The best-value selection process allows us to have an institutional memory about how our providers perform. That turns out to be our second great value: now the providers care about how we feel about their proposal and their performance, whereas the low-bid environment does not require any of those things to happen at all.

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This is serious business for a public agency, because you are managing risk. If you can't get your most powerful partner on the same page as you're on, your risk is exponentially higher. We also learned something about risk allocation and management for a public agency in terms of doing projects that were complicated and high-cost and highly-charged politically-about how to allocate risk. Design-build taught us that. In low-bid, the agency pretty much carries all the risk. The contractor carries some risk, but at the end of the day, if you find something wrong, you have to ask for a change order for it. In design-build, it's a different risk structure, a much more intelligent risk structure. In design-build, you're going to give a single contract for both design and construction with the design-builder. The design-builder carries the risk of design. Now, this is not a "government agency shedding risks" idea. This is something like the following: Whoever in the contract has the best expertise and the best business position to manage a certain type of risk should have that risk. If you're not doing the construction yourself, you shouldn't have the construction risk. That's basically what it is.

In design-build, the design-builder carries both the design and construction risk. The agency carries the risk of unforeseen conditions associated with using the land that we own. We carry the risk of discretionary changes that we might make. We retain those risks. But we're no longer carrying the risk for which we really aren't the best prepared to discuss and manage. That's probably, from my CEO's perspective, that's the number one benefit. From our eyes its one of the top three.

Avoidance of protracted schedule delays. This has been a real issue for the county. When a bid comes in, if that bid is substantially over your estimate, it's a huge problem. In the low-bid days, you'd have to reject that bid, go back to the drawing board, rescope the bid plans and specifications, and start over by going back out to bid. You're going to lose six to 12 months by doing that. That's a huge, huge hit for a project where constituents are waiting for that hospital, they're waiting for that library, they've been promised that these facilities will be delivered to them on time. When we bid at Martin Luther King Jr. Hospital, it came in $30 million dollars over budget. That would have been a backbreaking blow had we been using design-bid-build, which my staff advocated for on that project. Because we were using design-build in a hybrid format, that $30 million simply became a 30-day exercise of looking for ways to reduce the project cost without reducing quality. The CEO said, "I'll step in for $10 million of the $30 million, find me $20 million." We got the $20 million out in 30 days, through sitting in a room like this, working it out as a team.

These are incremental benefits that we've, we're nowhere near either starting or finishing the project, and we're getting incredible benefits in our ability to continue moving the project forward without experiencing a protracted delay for something that happens with a fair amount of routine. Bids come in over budget with a fair amount of routine, depending on what is happening in the market. Having a business model that easily accommodates that, expects that it will happen with a fair amount of routine, and incorporates it into the process of value engineering, is a huge benefit for the county. I can't overstate over the last 25 years how many protracted delays I've witnessed simply because a bid came in higher than the budget and not having the ability to simply down scope with the contractor. That's just been an amazing improvement for us.

Public policy. Mark Ridley-Thomas is now Supervisor of L.A. County, and has brought a different agenda from what I've experienced on capital projects over the last 15-20 years. There are new terms-not new, but much more serious-about local worker hire, project labor agreements, and small business enterprise engagement. We're being asked to introduce those things in the actual scope of our projects now. So for example, if you were a design-builder, you'd be asked today on a 2nd District project, to make a 35 to 40 percent commitment for local worker hire. And you'd be expected to go above that. These things that are happening turn out to be much easier integrated into a design-build project.

To talk to a person across a table and explain what you're criteria are, how you expect to go about it, and what they need to make that happen before we commit in contract with one another, is an amazing benefit. We've been getting a great deal of support and information from our private sector partners on how best to do those sorts of programs within the confines of their business, so that we can configure those programs accordingly.

The Harbor-UCLA surgery-emergency expansion project is an interesting story. This project was about to be bid before the economy turned down. Back in those days, we were lucky if we got one bidder on a project. Try to remember that, those were the wondrous days. But for a government agency, they were hard because we were having trouble attracting bidders. This project we got to the pre-qualification phase, and there was only one pre-qualified proposal, McCarthy. And we couldn't attract anyone else. Everybody was busy. We had this bright idea, by now we had moved head strong into moving into design-build, but this project predated our design-build entitlement, and it had been moving along a parallel path for a little bit. But when we got one pre-qualified proposer, we asked our counsel, "Can't we negotiate this, because no one will be harmed, because there is no one else participating, because we only got one pre-qualified proposal?" Now, one out of 90, 100 times, county counsel says yes. On this occasion, they conceded the point, and we got our counsel to agree that we could negotiate with McCarthy.

We spent about a month, a month and a half, negotiating with McCarthy, and we converted it from a low-bid project to a guaranteed maximum price. Through that couple months we did up front, we completely revised the project could be mobilized, how we were going to launch, and a lot of the start criteria-all because of the ability, all of a sudden, to talk to McCarthy. To make a long story short, the project came in six months ahead of schedule, and $1 million under budget.

Back to my mid-life crisis. On the LAC-USC Medical Center project, that $1 billion, low-bid project, we worked with Karp, McCarthy and Hunt, HOK, LBL did the plans and specs for us. This was an incredible tour de force of design and construction for a public agency. Just a magnificent, raised the bar for public health facility for L.A. County, no question. That hospital has no shortcuts in it. On the project management and delivery side, it was a low-bid project, and I remember the day when David Jansen, then-CEO of L.A. County, after our first multi-million dollar interim settlement on the low-bid project, he said, "Jacob, the happy days for this project are over." And I said, "I know." The Board was reacting to the million dollar changes that we kept coming to the board for, wondering why the numbers were starting to go up. By the time that we came in for our second multi-million, and I don't mean five for ten million, I mean tens of millions of dollars, interim settlements, risk management on a local project is a very different thing, it was true that the happy days were over. But because of what it was, it was just a tremendous amount of human energy and determination to get that project done in the best way possible given the tools that we had. I really have to take my hat off to HOK-LBL, Karp, McCarthy and Hunt, and Jacobs Engineering. They did a fabulous job with a delivery model that was designed to fail.

By the time we finished the project off, with our third and final settlement, which kept us out of court and litigation, and thank god I was able to tell them, "We have some design-build projects in the future, that, if we don't have too many problems with litigation on this project, you can participate on those." It worked. We actually finished the project off in good stead; we were $100 million in change orders. That was a successful low-bid project.

For Martin Luther King, we have two phases to the project: in-patient tower (IPT), and the new MAT for outpatient services. The IPT is a highly charged project because of the deadline that we imposed on ourselves to get this hospital fully back up. It will be the first public-private partnership for a major hospital owned by the county. The U.C. Regents, L.A. County, and a not-yet-identified private provider will operate the hospital. Over 90,000 square feet for the IPT, we are renovating a currently base-sized layered, four to five story structure that was originally built as a trauma center. This is really $55 million worth of value. The second phase, the MAT, will be design-build as well.

The IPT was going to go low-bid, and when I found that out, I almost had a heart attack. There were three reasons that my staff felt that they should do low-bit for that project, because they were so far into the bridging guidelines. Of course the best practices to do design-build with bridging documents minimize, so the design-builder can show their stuff doing design and construction. We agree with that paradigm, but as a public agency in a transitional phase, most of the projects that we had were already committed to a low-bid model, so in those instances where we were able to intercept and convert them into a design-build model, those projects have been what we call hybrid: part design-build and part stipulated specs. It's a mix, but we get the most of the values of design-build, like best value, and a collaborative approach to delivering the project.

For the County Data Center, if you've seen the county's existing data center, you know why we need this data center. This data center started at $60 million. I think it's up to about $120 million now. What's been happening is as the realization increases as to how much better this facility will be, more and more county departments are asking for space there, asking to join in and locate their servers there as well, which is a good thing because the County Data Center that's in Downy right now on Imperial Highway is a scary place.

High Desert MAT, $120 million. Are we doing the design-build? Hall of Justice. The Hall of Justice is the third portion of my presentation, which I've titled "A Blues for Bugsy Seigel." I'll tell you why I was suggesting that. The Hall of Justice is probably the historical building for L.A. County with the most cache, historically speaking. It's played host to a who's-who of California Americana over the years: Sirhan Sirhan, Charles Manson, Evil Kinveil. Marylyn Monroe and Robert Kennedy's bodies were autopsied there. If you've ever heard the story of Bugsy Siegel, which I'm sure all of you have, you'll know that Bugsy Siegel was tried here in the ‘40s for murder, and he beat the rap. He was so upset by how that tarnished his reputation that he decided to go straight and become a developer.

He is acknowledged to be the father, the mentor, and the visionary for Las Vegas, where he developed the Flamingo Hotel.

If I go back to my framework for sustainable project delivery theme, which is from the Stanford lecture, it works in this context as well. Because, as you know, Bugsy Siegel paid the ultimate price for not having a framework for sustainable project delivery. He was millions of dollars over budget and a year or so behind schedule, and they shot him for it. It's the truth! When I realized that that was what happened to him, I decided that one of the sub-themes of my presentation in honor of my love of project management and modern delivery methods that will sustain us all in our endeavors and deliver service to the public, named, at least in part, "A Blues for Bugsy Siegel."