The bidding process gives the city more control over the construction of an event center. But there is a big “but”

Officials concede greater risk ‘in terms of not having a guaranteed maximum price up front’

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A new bidding process for the design and construction of the Kingsway Entertainment District will give the city more control over the project, but leave the public more in the dark about its cost.

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In a Thursday media briefing, city officials explained the reasons for taking an approach known as a “phased design-build” approach to the event center contract, while admitting that this sourcing model has some drawbacks.

David Shelsted, director of engineering services, said the city initially pursued a “design-build” strategy, in which “you put out a call for tenders to a number of short-listed companies, and they each independently get the design to a point where they can bid a guaranteed maximum price.

In this scenario, the city can define certain parameters on the project, such as the number of rooms and the location of the main entrance, but otherwise has only minimal input into the design.

In the past, the city had estimated the cost of the Arena event center at $90 million to $100 million.

Progressive design-build, or PDB, is now the preferred course of action for a variety of reasons, Shelsted said, not the least of which is the current state of uncertainty regarding construction costs and material sourcing.

“There were several problems in the market because we initially put out a tender,” he said. “What we heard from the industry was inflation risk, supplier risk, labor risk, some contract risk. And a lot of the concerns were about providing a fixed price so early in the design, knowing that construction wasn’t going to start for another 10 to 12 months.

With PDB – as with design-build – the “designer and builder are one entity,” he said. “So it’s a team of architects, engineers and builders who are involved in the procurement and provide the design.”

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The difference with the progressive model is that the city becomes more of a partner in the process. “We work together upfront on an hourly basis, building the design together, and you get all the contractor input throughout the design process,” Shelsted said. “You progress the design, you progress the cost estimate – that’s why it’s called ‘progressive’ – and finally you arrive at a preferred design and a price that you all agreed on .”

The city, as the owner of the project, is aware of the “open book price,” Shelsted noted. “We see how this price is developed by the contractor, and we need to have expertise on our side in order to review the prices that are submitted.”

The PDB model has been used in the United States for a number of transit, wastewater treatment, and airport projects, but is relatively new in Canada.

“One of the first contracts we heard of was for a water treatment plant in Saskatchewan that was awarded in June 2020, but currently Infrastructure Ontario and Metrolinx have a couple of progressive design-build tenders “Shelsted said.

The main obstacle at PDB is that the price is not agreed until later in the process, although this can also be seen as an advantage, said the engineering director.

“We’ve listed this as both a disadvantage and an advantage,” he said. “In this type of market environment, one of the reasons it’s an advantage is that you can solve some of your supply issues… (and) you can also adjust your design based on your knowledge of the market. So moving the pricing point later in the design process really eliminates a lot of the procurement risk. »

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The risk of litigation during construction is also minimized, Shelsted said, because “you have all agreed to the plans, layout and structure, and the design-builder is one entity.”

Another big advantage, he said, is that the city has “many opportunities to participate in the design, and therefore can also have an impact on the final cost.”

The city can also suspend the deal mid-term if things don’t go as planned. “We have the option to make exits, basically change direction or choose to cancel the contract,” he said.

Traditionally, a contract will go to the lowest bidder, but in this case the focus is on “best project value,” Shelsted said. “And it’s a collaborative process.”

Shelsted admitted there is “more risk to the landlord (i.e. the city) in terms of not having a guaranteed maximum price up front”, but argued “you would pay for the eliminating that risk, and that’s where we didn’t see that we would get value through our current process.

Public confidence in the APB’s approach will likely be more difficult to gain, since the cost is determined by a gradual and negotiated process, as opposed to an initial tender.

“If you see a tender awarded to the lowest bidder, everyone understands the value the city is receiving,” Shelsted said. “When it’s a tender and you do a lot of selection based on quality, it’s harder for the general public to understand the process and make sure the city is getting what it wants. silver.”

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Unlike a traditional design-build with a fixed maximum price upfront, a progressive version works towards a target price and could exceed or fall below that mark as the process progresses. But there’s always an incentive to cut a project’s budget, Shelsted said, because the city and the contractor would split the cost savings.

“It boosts project efficiency,” he said. “But if there’s too much savings and potential for cost savings, there’s no incentive because ultimately all of those savings go to the landlord or the city. Conversely, in the event of an overrun, there is a risk shared by the city, but if it goes too far, it is up to the contractor.

Shelsted said the arrangement has been described as “pain sharing/gain sharing”, as both the owner and the contractor are affected by the savings or additional costs.

Unlike the traditional two-phase approach to tendering, the PDB has three stages. The first is the RFP process, followed by design development. The third and final phase is “essentially finishing the design and constructing the building,” Shelsted said.

A target price for the project would be agreed as this final phase approaches, he said.

Ian Wood, executive director of strategic initiatives, said City Council will be asked in July to approve a “total and comprehensive budget” for the project.

“They’ll tell us what they’re ready to approve, and that’s the envelope we’ll work with from then on,” he said. “If we get to a point where we can’t work within that envelope, then we have to come back to the board for guidance.”

Phase 2 (design development) would follow council approval of the budget, and site preparation, such as grading, could begin as early as this fall. Phase 3, which includes some final design changes and obtaining building permits, would also begin later this year.

“That would mean construction of the building itself could start in the spring,” Shelsted said.

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