New York State has been a laggard in adopting innovative approaches for completing public capital projects.  While other states partner resourcefully with the private sector on major infrastructure and building projects, New York’s arcane statutes limit its ability to complete major public works efficiently.  Design-build contracting adds flexibility to the public procurement process, allocates risks more efficiently, and has been demonstrated to be an effective approach for completing capital projects on time and on budget.  In 2011, State leaders attempted to make up ground by allowing certain State agencies to experiment with design-build contracting fora three-year trial period.  The trial period produced convincing results that merit permanently authorizing and extending design-build authority as a first key step in modernizing the State’s approach to public projects.

New York is Behind the Curve

New York’s procurement laws mandate that government construction projects proceed in a linear process known as design-bid-build. Once a capital project is approved, it is designed by architects and engineers, and these designs are then used to solicit bids from private contractors.  A qualified contractor offering the lowest bid is chosen to construct the project. The architect and the contractor have little, if any, communication, and problems with executing the designs only become evident once construction is underway.  These problems result in change orders that increase the cost and delay the progress of the project.

Under design-build, the design and construction of a project are bundled together in a single contract.  A single firm or consortium of firms bids on the contract, and the contract is awarded based on the lowest bid, or more commonly, the “best value.”¹ The winning bidder manages the design and construction process and subcontracts services as necessary.  The construction team collaborates with the design team to offer input on the feasibility and cost of executing the designs, and initial construction work, such as excavation, can commence prior to the completion of the design.  Typically, the design-builder commits to the costs specified in the contract, thereby assuming most of the risk associated with delay and cost.²

Design-build is used widely by the private sector, the federal government, and other states—not to mention other nations, such as the United Kingdom and Australia, which have used design-build for more than two decades.³ A recent analysis using proprietary data on the bid costs of close to one million private and public U.S. capital projects shows that design-build projects have increased from 29 percent to 39 percent of non-residential construction projects between 2005 and 2013.⁴

In 2014 all 50 states had authorized design-build on at least one public project, and in 41 states design-build is a widely permitted option.⁵ In states such as California, Florida, Colorado, and Texas, design-build is used extensively on public projects, particularly ones that are large, complex, or urgent. Examples include the construction of the $1 billion, 180-mile Houston “beltway,” which must maintain a tight timeline to facilitate access to major commercial development coming online;⁶ the reconstruction of Denver Union Station, a historic building at the center of a large-scale development project in downtown Denver;⁷ and the construction of Minnesota’s  $266 million  St. Anthony Falls Bridge, which was completed in 47 weeks (three months ahead of schedule) to replace the Mississippi River Bridge, which collapsed in 2007.⁸

Design-Build Has Demonstrated Results in New York

A large body of evidence shows design-build projects have superior outcomes than those completed under design-bid-build,⁹ and New York’s limited experience with design-build is also convincing.In 2011 the State granted design-build authority to State transportation and environmental agencies for three years under the Infrastructure Investment Act. The Thruway Authority, the Department of Transportation (DOT), the Office of Parks, Recreation and Historic Preservation, the Department of Environmental Conservation, and the Bridge Authority were eligible to use the approach for public infrastructure such as roads, highways, canals, dams, and parks.

DOT used design-build most extensively.   The emergency reconstruction of State Route 42 in Greene County was completed in four months using design-build, ahead of schedule and approximately 10 percent below budget. DOT estimated the project would have taken an extra six month to complete under the standard design-bid-build process.¹⁰

DOT also used design-build to complete 32 bridges as part of its Accelerated Bridge Program. Many of these bridges were bundled together in a single contract based on geographic region, which allowed design-build teams to efficiently deploy resources. Preliminary estimates indicate that design-build allowed DOT to save 27 percent relative to what the projects would have cost if done through design-bid-build.¹¹ In May 2014, Governor Andrew Cuomo announced a $555 million design-build contract to replace the eastbound span of the Kosciuszko Bridge by 2018;¹² DOT estimates the project will be completed 3.5 years sooner as a result.¹³

The Thruway Authority used design-build to undertake the largest capital project in the state: construction of the New NY Bridge to replace the Tappan Zee Bridge.  The State entered into a $3.1 billion design-build agreement with Tappan Zee Constructors in January 2013, and the agreement was $1.7 billion less than state and federal estimates of the project cost.¹⁴ Construction began in October 2013, and close coordination between the designers and construction contractors has already resulted in efficiencies that promise to keep the project on time and on budget for its 2018 opening.¹⁵

Finally, in 2013, the Office of General Services (OGS) used design-build to construct a new building on the campus of the South Beach Psychiatric Center in Ocean Breeze following damages to the facilities incurred during Superstorm Sandy. Although public buildings were not eligible for design-build contracting under the statute, the Governor signed an executive order authorizing use of design-build to fast track the project. The OGS estimates using design-build saved $2 million on the $42 million project and reduced the length of the project by two years.¹⁶

New York Needs to Catch Up

The authorization to use design-build ended in December 2014, and the State Legislature is now considering the Governor’s Executive Budget proposal to make design-build authority permanent.  New York’s experience demonstrates design-build’s effectiveness in delivering public construction projects on time and on budget, and the Governor’s proposal should be approved.

The Governor’s proposal would expand design-build authority to all State agencies and public authorities, the City University of New York, and the State University of New York and make public buildings projects eligible, as well.   It would also require any design-build contract estimated to be in excess of $50 million include a project labor agreement (PLA).  Projects could only be exempted from the PLA requirement if a feasibility study cannot determine a PLA would save at least 5 percent of costs.  PLAs are typically negotiated on a discretionary basis, as they were for the Tappan Zee and Kosciuszko Bridges, to change work rules and create efficiences. The PLA provision is meant to assuage concerns that savings on design-build projects will be achieved by allowing private contractors to avoid union labor, but the strict requirement to include a PLA may also erode the ability of agencies to achieve meaningful savings. Nevertheless, the requirement should not detract from supporting the broader statute, and the State should make feasibility studies for all projects public so their underlying assumptions can be evaluated.

Design-build arrangements are not controversial in most states, and most states have moved beyond design-build into more complex arrangements that take into account the operation, maintenance, and even financing of public projects.  Public-private partnerships are authorized broadly in 20 states, and an additional 10 states have provided limited authority to selected departments or for specific projects.¹⁷ New York is one of 17 states that do not allow public-private partnerships, although the State Asset Maximization Commission created in 2009 recommended their use.¹⁸ New York should aspire to move in this direction, and the first step is to approve a permanent design-build statute.