A Risky Proposition Guillermo Gordillo, PE, PMP Ben Asavakarin, PE Mohammed Dohdar, MSPM, PMP, CCM

Ben Asavakarin, PE Vice-President

A RISKY PROPOSITION: RISK AND CONSTRUCTION PROJECT MANAGEMENT AT THE BACK-RIVER WASTEWATER TREATMENT PLANT HEADWORKS PROJECT

Background

Johnson, Mirmiran, and Thompson

Guillermo Gordillo, PE, PMP

Program Manager Johnson, Mirmiran, and Thompson

Mohammed Dohdar, MSPM, PMP, CCM Engineer Baltimore City Department of Public Works

The 466-acre Back-River Wastewater Treatment Plant (BRWWTP), constructed in 1907, is owned and operated by the City of Baltimore (Department of Public Works, 2021). To comply with the Environmental Protection Agency’s Wet Weather Consent Decree mandate, the Department of Public Works (DPW) committed to eliminate sanitary sewer overflows (SSOs) by December of 2020. DPW developed and adopted a comprehensive wet weather management plan that identified hydraulic restrictions causing mileslong sewage backups in the sewer system and contributing to the SSOs. Johnson, Mirmiran & Thompson (JMT), a local engineering consulting firm, was hired as the Engineer-of Record (EOR) to design a comprehensive modification to the Headworks Facility at the BRWWTP to eliminate the hydraulic restrictions and to increase the plant hydraulic capacity from the historical 425 million gallons per day (MGD) to more than 650 MGD.

Case Study

The application of sound project management principles and practices provides the foundation to managing the complexities and risks associated with a large-scale project. That point was clearly illustrated throughout the course of the City of Baltimore’s $430 Million Headworks Improvements and Wet Weather Flow Equalization Facilities at Back River Wastewater Treatment Plant (BRWWTP) project (SC-918H). Traditionally, management of a project’s cost, schedule, quality, and risks starts when the contractor is given a Notice to Proceed (NTP), the contractual time start date; however, for SC-918H, critical management began during the procurement process.

Who Actually Owns (Pays) for the Risks?

Construction is an industry where managing a project requires meticulous handling of risks. GMP is established. The GMP also includes contingencies for unforeseen circumstances. The CMAR provides professional services and acts as a consultant to the owner in the design development and construction phases, thereby mitigating common risks that contractors typically add into their bid items (this would naturally have meant that the owner actually paid for the risk). In addition to acting in the owner’s interest, the CMAR must manage and control construction costs so as not to exceed the GMP. Contractually, any costs exceeding the GMP that are not owner-initiated change orders are the financial liability of the CMAR. Risk is transferred to the CMAR, and the CMAR becomes the risk owner. In return for assuming this risk, the CMAR can share in ultimate cost savings below the GMP, which was true for this contract.

A “Risky” Alternative Delivery Method

As with any other approach, CMAR has its own limitations such as additional cost and time for the preconstruction phase. Additionally, it is difficult for the owner and engineer to evaluate the GMP and determine if the best price has been achieved.

In this particular instance, and for the first time in the City’s construction history, the CMAR was nonetheless deemed to be the best project delivery vehicle for addressing and assigning the inherent risks associated with large complex projects such as costs, schedule, and other contingencies. Additional reasons for this choice were found in the following:

1. Evaluation: The City of Baltimore charter requires contractors with the lowest bid to be selected for its traditional design-bid-build project. In this CMAR project, the City was able to participate in the interviews and selection of the most qualified general contractor team based upon technical and financial qualifications, previous similar project experience, and proposed project planning/schedule, not just low bid. The risk of not achieving the required cost, time, and quality is therefore greatly reduced.

During the pre-construction phase, the City was able to set up a partnership along with the CMAR and the EOR to evaluate and develop Value Engineering (VE) measures to establish a

Guaranteed Maximum Price (GMP).

2. Pre-Qualification: Since the CMAR is at risk and gives a GMP prior to submitting a cost proposal, the CMAR agreement enabled the CMAR to prequalify subcontractors and tailor packages to fit the availability and skills of the local subcontractor market.

Selections were made based on the overall best interests of the project — not simply on low price — which should generally result in lower long-term costs, higher quality, and fewer claims because only pre-qualified contractors would be performing work. The

CMAR was then able to leverage the established GMP to secure competitive bids on the work packages generated by the Project

Team (City’s DPW, CMAR, and EOR).

Conclusion

In the project comprising our case study, the high bid cost resulting from the initial design-bid-build bidding process compelled the City to implement a better risk handling strategy as a necessity. The reconsideration of the procurement method and management of the risks by selecting CMAR as a delivery method not only reduced the project cost by 20% but also provided the following benefits to the City:

• The project schedule outperformed historical design-build projects of this size and complexity and could be fast-tracked because of earlier work package generation.

• Ability to handle change orders and claims was improved.

• Communication was improved among the Project Team components since the owner shared cost liabilities with the contractor.

• With clearer objectives and cooperation, Quality was increased and Rework was reduced.

The key processes used in this project were identification of risk and performance of quantitative and qualitative risk analyses to aid in the creation of the project management plan. To summarize, by applying risk management techniques and principles, such as procurement planning, early in the project stages, we were able to maximize our schedule and select the best project delivery method to achieve our goals.

Identifying risks and performing quantitative and qualitative risk analyses are typical processes during the planning phase. Regardless of the strategies, risk always translates into time and money. The pertinent question is, who pays for this risk? After the original design, the bids for construction of SC-918H prohibitively exceeded the City’s planned budget. Through market research the City’s project feasibility team identified that the inflated bids were a direct result of the general contractors accounting for the complexities, time constraints, and risks associated with a project of this magnitude. As such, a delivery method was needed where risks could be identified, quantified, and allocated more precisely. Utilizing the developed risk matrix and other project documents, plus expert judgement from subject matter experts, the City conducted an evaluation of alternative project delivery methods to identify an approach which would allow the project to move forward while navigating budgetary and scheduling constraints. This would require changes to the classical project management plan and project document requirements. (Project Management Institute, 2017) The City considered the following options: Progressive design-build, lump sum design-build, and Construction Manager at Risk (CMAR).

CMAR Was The Right Answer

Following the market outreach effort to solicit input from contractors and other industry personnel, as well as an internal review of the project status with leadership and stakeholders, the City decided to proceed with the CMAR model.

The CMAR is a delivery method which entails a commitment by the Construction Manager (CM) to deliver the project within a Guaranteed Maximum Price (GMP) which is based on the Construction Documents and Specifications at the time the

“The key processes in this project were to identify risks and perform quantitative and qualitative risk analyses.” “Regardless of the strategies, risk always translates into time and money. The pertinent question is, who pays for this risk?”

3. Maximized Schedule: As the SC-918H project is a key component of the City’s Consent Decree program, the CMAR delivery maximized schedule benefits by allowing early work packages to be generated and executed. To ensure that the project deadline was achieved, the City introduced interim milestones.

In collaboration with the CMAR, the Project Team successfully removed the hydraulic restriction in the collection system ahead of the interim milestone date. Under the CMAR delivery method, the City gained greater cost certainty through the GMP. Included in this GMP were contingency line items for: bid overages, reasonably inferred items, and other project related factors that could justifiably arise during construction. By establishing a GMP prior to the cost proposal, the CMAR assumed the risk of costs coming in higher as it was contractually bound to deliver the project per the plans and specifications within the GMP, plus any additional contingency allowances as defined.

References:

Department of Public Works. (2020, June 10). Baltimore City Department of Public Works. https://publicworks.baltimorecity.gov/pw-bureaus/water-wastewater/wastewater/ back-river

Project Management Institute. (2017). A guide to the Project Management Body of Knowledge (PMBOK guide) (6th ed.). Project Management Institute.