Las Vegas testing design-build concept

Friday, Feb. 21, 2003 | 4:17 a.m.

WEEKEND EDITION: Feb. 22, 2003

Las Vegas officials are hoping that a different type of construction contract can help the city avoid public project fiascoes such as the long-delayed and over-budget Regional Justice Center.

As they prepare to issue the region's first design-build contract, city leaders are watching their Clark County counterparts' struggle with the 3-year-old $185 million justice center. It's already $15 million over budget -- and counting -- and county officials estimate the project could require up to two more years to finish.

Las Vegas is counting on an approach known as "design-build" as a way to avoid similar construction quagmires.

Under the design-build approach, one contractor, usually a team of companies, is given all of the responsibility and all of the initial payment for what is typically a high-dollar project. In the case of public entities such as the city, it also negates the usual requirement that the construction contract be awarded to the lowest responsible bidder.

Design-build is a concept that has gained popularity in recent years because it provides strong incentives for completing projects on time and under budget.

It also, however, is a method of construction that can be fraught with problems if the contracts are not handled properly, experts said.

The Las Vegas City Council voted 6-0 last month for city staff to issue requests for proposals for a design-build team to construct a $17.5 million, 600-space parking garage on Third Street between Garces and Bonneville avenues. Mayor Oscar Goodman abstained because he owns nearby property.

"We believe design-build is best for this project because the city will get a fixed price and, if the project is not brought in on time, cost overruns and delays will cost the design-builder, not the city," said Richard Goecke, the city's director of public works.

If successful, other projects will likely go the design-build route, he said.

The design-build concept, which was approved for Nevada public projects by the Legislature in 1999, combines the design and construction contracts for a project into one massive contract to a team of companies that carries the bulk of liability and responsibility.

The traditional system that has long been used by the city and other entities involves design contracts and separate construction contracts under separate bids. By law the city is required to award those contracts to a responsible bidder who submits the lowest bid.

Under design-build, the city won't have to award the contract to the lowest bidder, although low cost must account for at least 50 percent of the decision. Instead, the city can take into consideration the experience, technical approach and track records of the bidders in determining who gets the contract.

Design-build wasn't an option for the county's 700,000-square-foot Justice Center at Casino Center Boulevard and Clark Avenue because the architectural contract was awarded in 1997, two years before Nevada law was changed to allow public entities to use design-build.

But at least two Clark County officials are skeptical about whether design-build could have helped anyway, and they're not looking at embracing it for any upcoming projects either.

"There is a high probability that design-build would have resulted in no change" in completing the project on time, Ted Olivas, assistant director of financing for the county, said.

"The reason is because the jury is still out on design-build. If it were such a tried-and-true method you'd think the construction community would be knocking on our door to do design-build projects. They're not."

Randy Walker, the county's director of aviation and overseer for the Justice Center project, said that given the nature of the project's setbacks and Nevada's rules for design-build, he does not believe that type of contract would have helped the Justice Center.

"As the design-build law is currently written, it is too cumbersome," Walker said. "It does not offer the same flexibility for government as it does for the private sector. We just don't use design-build."

Walker said there have been about $5 million in change orders for the Justice Center. However, he said, it is not uncommon for projects of that size to have up to a 10 percent increases in the original pricetag. In this case that would be an additional $12.35 million.

Funding for the city's garage project was approved last Oct. 16 as part of the council's approval of a $25 million building projects bond. The design-build portion of those funds is about $16 million. The city will absorb $1.75 million for the costs of permits, water connect fees and other similar services.

During the public hearing for the project last month, there was no discussion about the merits of design-build or its potential pitfalls.

One of the downsides to design-build, which has been used nationally for about a quarter of a century, is that the property owner puts a lot of power in the hands of a design-build team, so the property owner can lose significant control over projects.

Misuse of that power, such as contractors and designers scheming to illegally cut corners on materials to increase their profit margins, can lead to deadly consequences and lawsuits, experts say.

Proponents of design-build, however, say benefits far outweigh potential -- and preventable -- problems.

"Design-build is effective because it promotes efficiency by allowing the contractor and architect to work together, using innovative means to find solutions to technical problems," said Corey Boock, a Los Angeles attorney who represents the city of Reno for the state's first public design-build project.

That project, called "ReTRAC" (Reno Transportation Rail Access Corridor), is a 30-foot deep, 2 1/2-mile long trench that will allow freight trains to run below ground level to reduce traffic and noise problems. It is similar to the design-build Alameda Corridor 13-mile train trench project in California.

Boock, a member of the law firm of Nossaman, Gunther, Knox and Elliott, the representatives for the private design-build Las Vegas monorail project, said ReTRAC, approved in September, already is reaping benefits.

Construction has begun on the first half-mile while the design process continues on the bulk of the project, Boock said, noting that under traditional methods, that could not have been done because the entire design would have had to have been approved before a contractor was even sought. Although Boock is a proponent of design-build he admits there are pitfalls that have to be recognized before an entity jumps into the process.

"There sometimes is a feeling of loss of control of the project because, at an early point, you may have 30 percent of the project designed when it goes to the design-builder," Boock said. To address that issue a municipality can establish a review process to periodically check on progress, he said.

Gray Smith, a Philadelphia architect who has written papers on design-build and has provided expert analysis and testimony about the concept, says property owners can take two major steps to protect themselves from potential problems.

"Make sure contractors, designers and others on the team have extremely good reputations for integrity and have done quality work on prior design-build projects," Smith said. "Also, the city might want to hire a consultant who has experience in design-build and can thoroughly advise the city."

Smith said that if a city wants to try design-build, "a garage is a good start because it is one of the simpler things to build."

New York attorney Mary Jane Augustine, a member of the Construction Industry Practice Group who has been doing construction law for 27 years, warns that municipalities that do not have city attorneys with skills at drawing up design-build contracts may want to seek an experienced attorney.

"These (contracts) are extremely complicated in areas like scope of liability and scope of work," she said.

Noted Las Vegas builder Irwin Molasky, who has done design-build projects, says he believes the city is going in the right direction with the garage project.

"This will give the city a guaranteed maximum price, and there is a big need for this parking garage," he said.

Molasky is working with the city to build the new Internal Revenue Service building that has been approved for the western downtown area.

"From my relationship with the city's business development staff, I believe they will do a good job with this as a design-build project," he said.

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