OVERSIGHT OF TRADITIONAL DESIGN-BUILD PROJECTS - 6829

(New: 04/2025)

 

There are two phases to a project using the traditional design-build delivery process:  performance criteria (which includes soliciting for design-builders) and design-build.  Requirements to start and complete each of these phases, as well as the process to award a design-build contract, are described within this section.  The discussion in this section applies to projects that are overseen by PWB and Finance.

Performance Criteria Phase

What are performance criteria?  Performance criteria, defined in Section 3.00 of the Budget Act and Government Code Section 13332.19(a)(6), are the documents prepared by a state-contracted Criteria Team that set forth the scope and stipulated sum of the project.  Section 1.80 of the Budget Act provides one year to encumber performance criteria authority.

Performance criteria are based on the information contained in the COBCP and budget package and includes  project characteristics and specifications that are necessary for establishing minimum requirements and may also include concept drawings which are schematic drawings or architectural renderings that illustrate the state’s needs.  During this phase, a Request for Qualifications (RFQ) is issued in order to evaluate and shortlist potential design-build teams.  The shortlisted teams will then compete for the design-build contract upon release of the RFP.  The performance criteria may include the size, type, and desired design character of the project, and specification for quality of materials, equipment, finishes, and any other information necessary to describe the needs of the department.  The compiled data in the performance criteria becomes the basis for the Request for Proposal (RFP) that is issued to the shortlisted design-build entities. 

Beginning of phase:  If a department contracts with DGS for project management, the performance criteria phase starts with the request to Finance to release funds for performance criteria using a Form 22 or Form 220.  Departments that manage their own projects should use a DF-14D to encumber performance criteria funding if they do not have their own equivalent to the Form 22 or Form 220.  For projects that are not defined in a Budget Act or legislative appropriation, PWB must approve an action to define the cost, scope, and budget of a project prior to the start of performance criteria. 

Client department’s role:  The client department is responsible for obtaining PWB review and approval of performance criteria prior to expenditure of appropriated funds for the design-build phase.  Section 13332.19(c) of the Government Code requires that any appropriated amounts for design-build must be reverted should the design-build phase start prior to the approval of performance criteria.  Time-frames for submitting requests for performance criteria approval to board staff are presented in Section 6821 and can be found on the State Public Works Board Calendar at www.spwb.ca.gov. 

Finance/PWB’s role/restrictions related to performance criteria approval:  Section 13332.19(b) of the Government Code requires PWB to approve performance criteria for all major capital outlay projects to ensure that projects proceeding to the design-build phase are consistent with legislatively approved cost and scope.  Finance approval is required before release of the RFP.  Section 13332.19(h) requires Finance to notify the Legislature with respect to approval of performance criteria if the estimated cost of the project exceeds 20 percent of the amount recognized by the Legislature. 

Best Value, Stipulated Sum, and Enhancements:  Design-build projects are generally awarded based on best value for the state.  Best value is defined in Section 10187.5(a) of the Public Contracts Code as a value determined by evaluation of objective criteria that relate to price, features, functions, life-cycle costs, experience and past performance.  Many design-build projects do not have a competitive price component, but rather rely on a stipulated sum, which is a fixed price for the design-build contract meeting the base requirements specified in the RFP.  The stipulated sum is established by the department, or DGS on behalf of the department for DGS-managed projects, with the concurrence of Finance.  Competing teams would then be evaluated on their design, enhancements to the base requirements, and other RFP responses.

Value engineering:  If a project is expected to exceed project costs based on the performance criteria estimate or comments received from the design-build teams, PWB typically requires value engineering be conducted to determine cost saving strategies to allow the project to meet its stipulated sum. The principle concepts which underlie the value engineering methodology are function, cost, and worth.  The approach is to analyze the functional requirements of a project’s materials, methods, components and subsystems in order to explore alternate solutions which improve project efficiency without reducing program value.  During this process, all expenditures relating to design, construction, maintenance, operation, replacement, etc., are considered to ensure that any value engineering is cost effective and practical for the useful life of the facility. 

PWB agenda package for performance criteria:  When submitting requests for approval of performance criteria, the client department provides the following:

1. All information requested in Section 6822, such as the standard fiscal reporting requirements and the agenda package.
2. A copy of the performance criteria, preferably electronic, along with an executive summary.
3. Notification of the method to be used for selecting the design-build entity (i.e. best-value, low-bid, or a hybrid) as required in Public Contract Code Section 10190.
4. For proposed cost increases, the information required in Section 6833.
5. For proposed scope changes, the information required in Section 6834. 
6. Evidence of CEQA compliance (Section 6826) such as a copy of the filed Negative Declaration or a link to the project within the state clearinghouse at https://ceqanet.opr.ca.gov.
7. A Summary of Conditions Letter or other document demonstrating the completion of Project Due Diligence (Section 6827).
   

Performance criteria presentation meeting:  Client departments must meet with PWB staff to present the performance criteria before PWB staff will consider a request for performance criteria approval.  The purpose of the meeting is to verify that the project, including all value engineering or enhancements, is within scope based on document review.  After the meeting, if the project qualifies, PWB may opt to delegate performance criteria approval.  Otherwise, this meeting should occur prior to the screening meeting for that month’s agenda.

After the PWB has approved performance criteria:  Finance will sign the DF-14D to approve performance criteria, and if design-build authority is available, Finance will also approve the release of the RFP.  Once the performance criteria are approved, Government Code Section 13332.19(c) requires that a substantial change shall not be made without written approval of Finance.

Solicitation of Design-Build Bids or Proposals

Obtaining approval to solicit design-build bids or proposals: Prior to releasing the RFP for the design-build project, the client department must request Finance approval to solicit design-build bids or proposals. This request is generally submitted concurrently with approval of performance criteria, if the design-build funding has been appropriated.  To obtain Finance approval, the client department must:

1.   Have a design-build appropriation:  A design-build appropriation for the project must be authorized (chaptered budget act and/or legislation) prior to advertising the project or issuing the bid. 

2.   Confirm availability of non-state funds:  For any projects that include non-state funds, the client department must provide proof that those funds are either available (local or private partners) or committed (federal), including a reasonable augmentation reserve, typically 20 percent of the non-state share of total project costs. If the non-state funds are from a federal program that restricts augmentations, the client department must specify the nature of the restriction.

3.   Obtain approval of bid alternates:  While the design-build completion is usually based on the best value selection method, in some instances, a low bid may be used as a selection criterion.  In this case, Public Contract Code Section 10126 allows bids to be accepted on additive or deductive alternates up to 10 percent (10%) of the estimated cost of the base project.  Government Code Section 13332.19(c) requires Finance approval of bid alternates.  Bid alternates cannot be so substantial as to create a scope change.  Deductive alternate need to follow the guidelines for value engineering (Section 6828) in which the deduction is cost effective and practical for the useful life of the facility.

The purpose of bid alternates is two-fold.  If a project comes in over budget, deductive alternates can help avoid the need to re-bid the project.  Conversely, if bids come in under budget, additive alternates can allow project improvements.  Bid alternates (which must be bid separately from the main contract) must include all proposed deductive items in priority order followed by all additive items in priority order.  For project relying on a competitive cost component, Finance encourages submittal of at least three deductive alternates to ensure a successful contract award in the event that all bids submitted exceed budget.

4.   Obtain PWB approval for combined bids:  Public Contract Code Section 10127 authorizes DGS to receive bids for the construction of several projects, treated as a single project for bidding purposes as long as those projects are within 100 miles of one another.  PWB must approve any request to combined bids.  Departments are required to assign costs to the various projects and appropriations and to maintain separate cost accounting for each project.

5.   Reporting requirements for approval to solicit design-build bids or proposals: 

a.   Standard fiscal reporting requirements as defined in Section 6822.

b.   If proposed, a list of additive and deductive alternates in priority order.

c.   If the request includes a request for combined bids, an agenda package as defined in Section 6822 and an explanation of the benefits of combined bids in this situation; and

d.   If the request includes non-state funds, proof that those funds are either available (local or private partners) or committed (federal).

After Finance signs the DF-14D, the client department notifies DGS to solicit proposals.

What occurs during the design-build solicitation process:  For design-build project using the best-value methodology, the process starts with the release of the RFP, and typically a stipend agreement, to each of the shortlisted design-build teams.  Each team develops proposals demonstrating how they will meet the requirements of the RFP, as well as any enhancements outlined in the RFP which will be included in their final proposal.  Once the proposals are submitted, the department, or DGS for DGS-managed projects, will score the proposals to determine which design-build team would provide the best-value for the state.

Design-Build Phase

What is the design-build phase:  The design-build phase is defined in Section 3.00 of the Budget Act and Government Code Section 13332.19(a)(5) as “the period following the award of a contract to a design-build entity in which the entity completes the design and construction activities necessary to fully complete the project in compliance with the terms of the contract.” The design-build phase may also include departmental costs for agency-retained work related to the project.  Section 1.80 of the Budget Act provides three years to encumber design-build authority.

Beginning of phase:  Awarding the contracts initiates the design-build phase.  Should design-build funds be expended prior to the approval of performance criteria, Section 13332.19(c) of the Government Code requires that any appropriated amounts for construction be reverted.

Information requirements to release design-build funds.  After proposals have been received and a winning design-build team is selected, the client department requests Finance to authorize award of the contract.  The client department provides the following information with this request:

1. The standard fiscal reporting requirements specified in Section 6822.
2. Transfer Request (Form 22 or 220).
3. Results of the design competition.
4. Verification that legal requirements have been met for the lowest bidder (this can be included on the bid tabulation).
5. A list of accepted additive or deductive alternates, if applicable.
6. A PWB agenda package for augmentation (Section 6833), if applicable.
7. A PWB agenda package for reversion of bid savings, if applicable. 
   

Steps following release of funds:  Once Finance signs the DF-14D to award the contract, Finance will authorize the encumbrance of the design-build funds.  For DGS managed projects, a Form 22 or 220 is used.  With this approval, an official award of the contract may be made.  Following execution of the contract, the contractor is provided formal notice to proceed with the design-build phase.  Any changes must be by contract amendment, and in some cases, Finance must concur with those changes (see following change orders).  The phase ends when construction is complete and accepted, and DGS or exempt department (Section 6832) files a Notice of Completion.

What are the cost elements of design-build? 

1. Design-build contract: This is the actual amount of the contract award and consists of both direct costs, often referred to as construction hard costs, and indirect costs such as architecture and engineering fees, Division of State Architect fees, and utility permits and connection fees.
   
   1. Change orders are formal contract amendments executed during the course of the design-build phase as required to address issues such as unforeseen site conditions and client department requests. Change orders are typically funded from the contingency line item of the project budget, discussed in the following text. When a proposed change order potentially modifies project scope or would exhaust contingency, thereby requiring a project augmentation, the client department must discuss the desired change with Finance before executing the change order to determine whether or not PWB action is required. (See Section 6833 for augmentations and Section 6834 for scope changes.)
      
2. Contingency: Contingency is a set percentage of the design-build contract amount budgeted for unforeseen costs identified after the design-build phase commences.
   

   Standard design-build contingencies are limited to 3 percent of the construction portion of a design-build estimate/bid.  However, in some cases, a different contingency might be justified.  Any deviation from the standard requires Finance concurrence. A construction contingency is included in the budget so the project can proceed with minimal interruption for non-scope changes or modest cost overruns.  Generally, the project manager approves the use of contingency funds.
   

3. Design-Build Project Administration: The term project administration is applied to all project expenses incurred during the design and construction of the facility, other than costs in the design-build contract or contingency. The major cost items are inspection, construction management, architect/engineer review, technical peer review, building commissioning, stipend agreements, and special consultants—primarily for materials testing and hazardous materials abatement monitoring. Each cost is delineated in the Project Cost Detail Estimate (Section 6822).

Project Completion:  See Section 6832.