Statutory Update

Category | Briefing Papers

Introduction

Traditionally, Minnesota statutes have required that public projects be awarded to the contractor that submitted the lowest, responsible bid based on a fully developed set of plans and specifications prepared by an independent design professional. Recently, public entities have increasingly requested statutory authority to use a design-build delivery system in which both the design and construction of the project is awarded to one entity or joint venture. With some minor exceptions, design-build procurement of public projects used to be illegal in Minnesota, but recent legislation has significantly changed the public procurement landscape by approving the use of design-build procurement for a number of public entities.

This month’s Briefing Paper will discuss the new legislation that allows design-build procurement for projects involving the Minnesota Department of Transportation (“MnDOT”), the Department of Administration (“DOA”), Hennepin County, Ramsey County, the University of Minnesota (“U of M”) and Minnesota State Colleges and Universities (“MnSCU”). The author of this Briefing Paper was involved for many years in lobbying for several significant provisions in these new statutes on behalf of the Minnesota State Bar Association’s Construction Law Section.

The New Statutes

A. MnDOT

MnDOT was the first public agency to receive design-build authority in the 2001 legislative session. Found at Minn. Stat. § 161.3410, MnDOT’s new legislation was a result of industry, agency and bar collaboration. MnDOT’s procurement process involves two phases. In Phase I, the agency seeks requests for qualifications (“RFQs”) from interested bidders. A technical review committee reviews the RFQs and selects a short list of no more than five design-builders to proceed to the second phase. The RFQs are evaluated on such factors as construction and design experience, financial capability, personnel and equipment resources, and similar design-build experience.

In Phase II, the short-listed bidders submit responses to MnDOT’s Request for Proposals (“RFP”). The RFP contains the performance requirements for the project. The bidders’ proposal are separated into a technical proposal and a price proposal, which are independently evaluated and scored by different MnDOT teams. The bidder’s price proposal is then divided into the score given to the bidder’s technical proposal and MnDOT must award the project to the proposer with the lowest score.

The statute also allows time of performance considerations to be factored into the scoring and selection process. For smaller projects of $5,000,000 or less, MnDOT is authorized to award solely on the basis of low price once all bidder’s RFQs receive a passing score. This option is intended to prevent a bidder’s high RFQ score from overshadowing significant price differentials among bidders’ proposals.

Obviously, this new type of system allows public officials a great deal more discretion and judgment in selecting the successful bidder than traditional procurement methods that required that award be made to the lowest, responsible bidder. All involved in drafting this legislation, however, were very concerned about maintaining the procedural integrity of the process. Accordingly, the new legislation contains important safeguards and unique provisions.

First, according to the new statute, the assertion of claims on previous projects by a bidder cannot be used to evaluate or score a bidder’s “past performance” or “experience.” This important provision protects contractors who assert their legal rights from being penalized in the evaluation process for another project.

Second, the evaluation and award criteria for each phase must be clearly identified and then weighted in terms of importance. The award must then be made according to the scores obtained from evaluating the proposals according to the weighted criteria. This should help prevent awards from being justified on vague, after-the-fact statements that the successful proposal somehow represented the “best value” to the public. Instead, awards will have to be based on scoring criteria that are established and weighted before proposals are received.

Third, Phase II proposers will get a stipend to help defray the costs of preparing a design for the Phase II competition, which can be quite expensive. This should help small bidders compete on more equal footing with larger and better capitalized competitors.

Fourth, the Commissioner cannot use design-build procurement on more than ten percent of all transportation contracts awarded each year. In addition, before using design-build procurement, the Commissioner must satisfy several criteria intended to gauge whether use of design-build procurement will best serve the public on the particular project in question. These requirements should help ensure that traditional competitive bidding for MnDOT projects will not be immediately jettisoned in favor of design-build procurement.

Finally, the statute states that the “design service portion of a design-build contract must be considered a service not a product.” This provision could help prevent designers from being strictly liable if their design does not work. Instead, designers would be liable only if their “services” were negligently performed.

B. DOA, U of M and MnSCU

The construction industry and involved state agencies were not in uniform agreement on the type of design-build legislation that should apply to the DOA, U of M and MnSCU. Accordingly, this lack of consensus resulted in the statute being appended to the bonding bill. Therefore, the statute is applicable only to DOA, U of M and MnSCU projects funded in the current bonding bill. After the projects funded by the current budget are completed, this temporary legislation will either have to be made permanent or redrafted and re-enacted in order for the DOA, U of M and MnSCU to have permanent design-build procurement authority.

The DOA, U of M, and MnSCU legislation follows the same general process as the MnDOT statute (although with needlessly dissimilar language). The bill requires two phases, an initial Statement of Qualifications in Phase I and a Request for Proposals in Phase II for those bidders short-listed after the Phase I evaluation.

The legislation contains several of the MnDOT provisions that are intended to safeguard the integrity of the process. The past exercise of a bidder’s legal rights cannot affect its “past performance” or “experience” rating. Award criteria must be identified and their relative weight stated in the RFP, and award must be made according to the scores based on the weighted criteria. Several criteria have to be satisfied before the process can be used (although there is no cap on the number of projects that can be procured on a design-build basis.) Finally, the design portion of the design-build contract is considered a professional service and not a product.

The DOA/U of M/MnSCU legislation contains many significant differences from the MnDOT statute. First, there is only a discretionary, not a mandatory, Phase II stipend. If this discretion is not fairly exercised, the lack of a Phase II stipend could be a matter of great concern to the design and construction industry.

Second, the DOA has to utilize the state designer selection board to select the design-builder. Because of its apparent animosity toward the designer selection board, however, the U of M lobbied for and obtained permission not to have to use the board. Instead, the U of M can appoint its own selection committee, a majority of which are University representatives. Use of the designer selection board is intended to insulate the public owner from charges of favoritism in the selection process. Because the U of M can (and does) directly solicit private donations, requiring the U of M to use the designer selection board would seem particularly appropriate to maintain the integrity of the process. Nevertheless, it was not required.

Third, when procuring “renovation” work, the U of M can select design-builders based only on Phase I procedures. Arguably, most work at the University (such as the remodeling of Coffman Union) can be described as “renovation.” Phase I selection based on qualifications alone is very close to selection by resumé, without regard to design solutions and price. Therefore, the exemption gives the U of M a great deal of selection discretion for renovation work. Recently, the Star Tribune reported that the U of M adopted 75 suggestions by its general counsel and auditor to improve its procurement practices, which one Regent described as a culture of “terrible mismanagement.” See June 14, 2002, Star Tribune, Metro Section. It is therefore surprising that the University was given this degree of discretion if the institution itself is concerned about its own abuses of discretion.

Fourth, “clarifications” of proposals are allowed during the Phase II selection process, but the clarifications are defined as inquiries about clerical items and are not intended to encompass substantive negotiations. Nevertheless, it may be difficult to monitor whether “clarifications” become substantive modifications of proposals that could give one bidder an advantage over its competitors.

C. Hennepin County

Hennepin County received its own design-build authority this year in Minn. Stat. § 383B.158. The County’s procedures are similar to MnDOT’s and the DOA/U of M/ MnSCU’s two phase procurement process, but unlike the DOA/U of M/MnSCU statute (which applies only to buildings), the County’s legislation applies to buildings, bridges, and roads.

As with the other legislation previously discussed, a bidder’s “past performance” or “experience” rating cannot include past exercise of that bidder’s legal rights. The County must also make the award based on the weighted criteria specified in the Phase I RFQ and the Phase II RFP. Unlike MnDOT’s statute, however, a Phase II stipend is only discretionary, and the provision stating that the design portion of a contract is a service and not a product is absent from the County’s legislation.

D. Ramsey County

In 2001, Ramsey County amended its Charter to allow it to

“contract. . . in any manner determined by the county board, to serve the interest of the public in regard to cost, speed, and quality of construction. Alternative construction procurement methods include, but are not limited to: (1) the solicitation of proposals for construction on a design-build basis and subsequent negotiation of contract terms; or (2) the solicitation of proposals for a construction management agreement which may include a guaranteed maximum price.”

This charter appears to grant the county almost unfettered discretion in its use of and procedures for design-build and other types of procurement. It is uncertain, however, whether the state statute governing municipal and county procurement that requires “competitive bidding” (Minn. Stat. § 471.345) trumps Ramsey County’s Charter amendment.

Conclusion

There are now a bewildering array of public procurement options for public entities such as MnDOT, DOA, U of M, MnSCU, and Hennepin and Ramsey Counties. Moreover, each statute allowing design-build procurement authority to a particular entity contains unique provisions which create important legal rights and duties.

Design-build construction creates new areas of risk, not only between the owner and the design-builder, but also among members of the design-build team. Traditional insurance coverages and surety products need to be re-evaluated, and contracts need to be redrafted to account for the new risks and responsibilities associated with design-build construction. The new design-build procurement procedures also raise a host of bid protest issues. Clearly, these new statutes will significantly affect the design and construction landscape in years to come. Given our firm’s involvement in and knowledge about these new statutes, we would be pleased to provide any assistance you may need to navigate this new terrain.

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