By Michael F. McKenna of Cohen Seglias Pallas Greenhall & Furman PC
and Jeffrey P. Valacer of Turner Construction Company
At the end of April 2021, the “Design-Build Construction Services Procurement Act” (the Act) became law in New Jersey. The Act brings important changes to how publicly-funded construction projects are awarded in the state by, most significantly, providing for the use of design-build contracting on publicly-bid projects.
Praised for their efficiencies and cost savings, design-build projects have skyrocketed in use across America. A recent Pennsylvania State University study found that design-build projects had a 6% reduction in change orders, were delivered 33% faster, and cost 6% less when compared to traditional design-bid-build projects. For more than 10 years, state agencies in New Jersey have had statutory authority to use the design-build model for procurement. The new act expands access to the design-build model to other state, county, and local contracting units.
Historically, public construction contracts in New Jersey were awarded through the design-bid-build system. Under that system, an owner separately retains an architect or engineer to design the project and then puts that design out for public bid. The project is then awarded to the responsible bidder with the lowest dollar value bid to build the project, as required by the Local Public Contracts Law (LPCL). The owner carries the highest level of risk for the project under this model because the owner is responsible to the contractor for the completeness and accuracy of the design.
By contrast, the design-build process allows an owner to contract with a single entity for both design and construction services. After a design-builder is chosen, that entity takes responsibility for both the design and construction of the project. Therefore, the owner assumes less risk. The design-build team, comprising a contractor and design professional, supplies a single point of contact for the owner, facilitating simplified project coordination and communication. The design-build approach also allows some construction activities to proceed while the design is still ongoing, through phased advancement of the work. For an owner, it is typically an uncomplicated, streamlined process.
Under the Act, if an owner can show why the design-build approach meets its needs better than the traditional design-bid-build approach, it is now public policy to permit the owner to enter into design-build contracts. In addition, and in contrast to the LPCL, the Act does not require owners to award a design-build contract to the lowest, responsible bidder. Instead, cost can be considered as only one factor in the design-build approach, along with other considerations such as experience, design, and time, to name a few.
However, public owners/agencies still need to be wary. The Act contains a litany of requirements and procedures that owners and design-builders must follow. For example, an owner must appoint a registered design professional to provide technical advice, construction review services, and professional expertise on the owner’s behalf. In addition, an owner must develop (with the assistance of a design professional) performance criteria and a scope of work statement that defines the project and provides prospective design-builders with adequate information regarding the owner’s requirements. Only after this point may an owner solicit proposals from design-builders. Importantly, an owner may only solicit proposals in accordance with the requirements of the applicable public procurement laws.
Furthermore, for evaluating bids, an owner must establish a “technical review committee,” which must consist of:
- A representative of the owner
- The owner’s project manager
- The owner’s authorized design professional
- The owner’s attorney
The technical review committee is responsible for evaluating bids based on rating and scoring proposals and evaluating design-builders based on their qualifications.
The Act also mandates specific factors an owner must use to evaluate design-builder proposals. These include:
- Specialized experience and technical competence
- Training certification of workforces
- Principal location of the company
- Capability to perform
- Safety modification rating
- Past performance of the individual members of the design-builder’s team in their respective capacities
- Other appropriate technical and qualification factors as determined by the owner
Each solicitation for proposals must establish the relative importance assigned to the evaluation factors and sub-factors to be considered. In addition, a solicitation for proposals must state the maximum number of design-builders that are to be chosen to submit proposals. The minimum number specified in the solicitation must be at least two and cannot exceed five. Based on the proposal, the technical review committee must select the most highly qualified number of design-builders specified in the solicitation and request the selected design-builders submit a second proposal and sealed bid.
Similar to the LPCL, the Act explicitly states what solicitations design-build contracts must include. In particular, solicitations must include, at least, the following information:
- The identity of the owner
- Procedures to be followed for submitting proposals
- Proposed terms and conditions for the design-build contract
- A description of the drawings, specifications, or other submittals to be submitted with the proposal
- A schedule for planned commencement and completion
- Budget limits, if any
- Affirmative action, disadvantaged business, or set-aside goals or requirements
- The required qualifications of the design-builder
- Bonding and insurance requirements for contractors
- A statement that all employees have graduated from a registered apprenticeship program
Clear requirements for design-build teams are also set forth in the Act. All design-build teams must include a licensed design professional, independent from the owner’s licensed architect or engineer. This professional must be identified in any proposal submitted to the owner. As with other public bidding laws, all design-build proposals must be sealed and cannot be opened until the end of the solicitation period. A proposal must list each person to whom the design-builder proposes to delegate responsibilities under the design-build contract. Importantly, design-build proposals must establish the cost of the design-build contract, which cannot be exceeded without a change order if the proposal is accepted. The maximum cost in the proposal may be converted to a fixed price by a negotiated agreement between the owner and the design-builder.
The post-submission and award process is also clearly outlined in the Act. No proposal can be considered until certification is issued by the design professional retained by the owner attesting that the proposal is consistent with the evaluation factors. No proposal for a design-build contract may be accepted until the owner determines that there was adequate competition for such a contract. An owner must accept the proposal that it considers most advantageous after a thorough review and scoring of both parts of a design-bid proposal by the technical review committee. Acceptance of a proposal must be made by written notice to the design-builder. At the same time the notice of acceptance is delivered, the owner must also inform, in writing, the other design-builders that their proposals were not accepted. The owner reserves the right to reject any and all proposals and must solicit any new proposals using the same evaluation factors, budget constraints, or qualifications. Interestingly, disappointed bidders are afforded an opportunity to gain clarity as to why their bid was rejected. Once a design-builder receives notification that its submitted proposal is not accepted, the design-builder may, within 30 days, request a written explanation of the selection process.
Although the expansion of the design-build process in public construction projects in New Jersey is an exciting development, parties to public design-build projects must be mindful of the numerous new statutory requirements as they adjust to the stark departure from traditional public procurement laws that have governed public bidding in the state for decades.