The California Report

1. The California Report Glenn Ballard Lean in Public Sector Construction Karlsruhe, Germany December 11, 2009

2. Topics • California Healthcare Facilities Project • Flexibility & Challenges in bringing Lean to California Public Agencies • University of California San Francisco’s ‘Best Value’ Pilot Projects • California Department of Transportation’s Last Planner Pilot Project

3. California Healthcare Facilities Project Workshop #1, October 1, 2006

4. The objective of the California Healthcare Facilities Project is to improve how California hospitals are designed and permitted.

5. Phased Plan Review “Phased Plan Review (PPR) is the process that engages the Office of Statewide Health Planning and Development, Facilities Development Division (FDD), at its sole discretion, early in the project design, continuing through the development and submission of documents during the conceptualization, criteria design, detailed design, implementation documents, agency review, construction and closeout phases.” “Within each phase, milestone(s) will be established at which point(s) specific, agreed upon segments and/or elements of the design and/or building systems are completely designed and/or are defined in their entirety. FDD will provide an agreed upon level of review allowing for written conditional acceptance of these elements and/or systems. For example, a floor plan that is not complete may still be reviewed for proper occupancy separations.”

6. Projects Suitable for PPR “In concept PPR lends itself to projects employing numerous forms of highly collaborative project delivery methods. However, PPR generally is not suitable for the traditional Design-Bid-Build project delivery approach.” “Projects with significant uncertainties in program or budget are poor candidates, since significant changes in the project scope are likely, thus reducing the benefits of early review efforts.”

7. Goals of PPR “The goals of phased review include facilitating the opportunity to design, review, approve and build a hospital project as efficiently and in as timely a manner as possible while achieving code compliance. Earlier involvement by FDD staff should result in eliminating major code deficiencies before they become embedded in the design, fewer back checks, shorter review times and an earlier approval and permit for the first increment of work. However, PPR is not a cure all for schedule crises, for a lack of planning or a lack of team collaboration. In fact, early, intense, thorough planning and collaboration is essential for PPR to be successful.”

8. Segment Elements

9. Segment Elements

11. Results to Date • Substantial reduction in added project duration to accommodate permitting. PPR project team members at the 12th workshop in November, 2009 reported reduction from 18 months to 6 months. A survey of PPR projects is now underway to get more solid measurement data. • Widespread adoption of lean concepts & methods and integrated project delivery in the U.S. healthcare sector—well beyond California. • Major hospital projects using PPR have yet to be completed, but early indications are that they will complete in less time and substantially under market cost; in the 10-20% range.

12. Flexibility and Challenges in Bringing Lean to California Public Agencies March 26, 2009 P2SL David Gehrig, Esq. Hanson Bridgett Linda R. Beck, Esq. McDonough Holland & Allen

13. What’s the problem? Well-established features of California public works clash with Lean principles.

14. What’s the Problem? Many agencies are required to: • Award design services agreements based on “demonstrated competence and the professional qualifications necessary for the satisfactory performance of the services required.” • Award construction contracts to the lowest responsible bidder.

15. What’s the Problem? • Construction and contract docs must be complete before bids. • Must award to lowest bidder, can’t select best. • Must accept bids from all “responsible” bidders. • Can’t negotiate with contract terms. Thus, can’t award a single contract for both design and construction services without specific authority.

16. What’s the Problem? • Basic IPD principles clash with the current system: • One agreement for all project team members (owner, design professionals, general contractor, and trade contractors) • negotiating equitable allocation of risks and rewards at the outset of the project • early, continuous collaboration among the owner and project team members • optimal use of BIM, which requires early collaboration • developing relationships that survive a single project and benefit from lessons learned • reward participants on overall project success

17. Why does California do public works this way? • Eliminate favoritism, fraud and corruption. • Avoid misuse of public funds. • Stimulate advantageous market place competition.

18. What’s the Fix? Find Flexibility in the System? Change the System?

19. What’s the fix? Existing statutes that offer flexibility: • Development Agreements under Subdivision Map Act: • Facilities necessary for public health or safety. • Facilities required for orderly development of surrounding area.

20. What’s the fix? • Privatizing Sewer and Wastewater Facility Financing, Construction and Operation • Contract for design, construction, finance, operation, etc. of sewer and wastewater operations. • Award contract through a competitive process not based solely on price.

21. What’s the fix? Infrastructure Financing Act • authorizes “local government agencies” to award a contract for any combination of: • study, plan, design, construct, develop, finance, maintain, rebuild, improve, repair or operate • for “fee producing infrastructure facilities” • award based on competitive negotiation • primary selection criteria = “demonstrated competence and qualifications” • projects are exempt from compliance with Public Contract Code requirements

22. What’s the fix? • Joint Powers Authorities (JPA) • Public agencies can enter into agreements to jointly exercise common powers. • JPA selects restrictions on contracting applicable to one party; if one JPA member is authorized to do alternate project delivery, the JPA can use the same process.

23. What’s the fix? • Design-Build authority: • Now available to large categories of public agencies and some special agencies. • Statutes are very structured: • Minimum $$ • Agency to define project scope • Prequalify design-build entities • Select based on low bid, best value or most advantageous • Modified subcontractor listing requirements • Labor compliance program

24. What’s the fix? • “Multi-prime” project approach (aka modified CM at Risk): • “multi-prime” approach allows flexibility for those agencies which are stuck with authority for lowest responsible bidder • true CM at risk requires statutory authority which only UC has • CM contract awarded on basis of “demonstrated competence and experience” • trade contracts are bid separately to lowest responsible bidder • trade contracts bid on combination of hourly rate for preconstruction consultation, and general conditions and fee during construction • IPD concepts can be incorporated: early involvement of trade contractors; incentives for successful project outcome; BIM

25. What’s the Fix? Which project delivery methods accommodate what Lean principles?

26. What’s the fix? Wild Card Agencies • Charter Cities and Counties • County Water Districts • Service Authorities

27. What’s the fix? • Colorado IPD statute: • “Integrated Delivery Method for Public Projects Act” • Agency must determine that IPD is “timely” or “cost effective alternative • Authorizes contract award to a single entity for any combination of: • design, construction, alteration, operation, repair, improvement, demolition, maintenance, or financing • Award on an RFP basis, after RFQ and short list

28. What’s the fix? Colorado IPD (cont’d) • Final award to proposal “most advantageous” and “best overall value to the state” • Statute more akin to a P3 than IPD • Compatible with many IPD principles

29. What’s the fix? • Draft California IPD legislation: • Applicable to “any state or local agency” for “building or modernizing energy efficient facilities that include sustainable design features” • Project must achieve basic LEED or CHPS formal certification to use IPD

30. What’s the fix? • Draft California IPD legislation (cont’d): • Legislation contemplates award to a single entity for combination of architectural, landscape architectural, engineering, environmental, land surveying, contracting, or construction project management services • Award of contract based on “demonstrated competence and professional qualifications” • Fee negotiation required for all state agencies, pursuant to P.C.C. 6106

31. What’s the fix? • California IPD legislation (cont’d): • RFQ process, followed by discussions with at least three firms • Compatible with many IPD principles: • early involvement of trade contractors and continuous collaboration with designers and owner is possible • flexibility with compensation, so rewards based on overall project success possible • negotiation not only allowed, but required

32. What’s the fix? • Proposed California legislation: • AB 405 would provide design/build authority for all county health care districts • AB 153 expanding authority for the California High Speed Rail Authority to allow P3 • AB 958 would authorize metropolitan water districts to use design/build on some contracts • Idea: revise Infrastructure Financing Act to remove requirement that project must construct “fee producing infrastructure facilities”

33. What’s the fix? • Statutory changes alone are not enough • Need to address institutional factors – education is critical • Protect public confidence that contracting process is fair and open

34. Design/Build (1)

35. Design/Build (2)

36. Public Private Partnerships

37. CM at risk

38. Job Order Contracting

39. Informal Bidding, Lease Lease-Back & Best Value