The final report of the Georgia House of Representatives Study Committee on State and Local Construction Management

Georgia General Assembly House Budget and Research Office
This report is submitted pursuant the following resolution,
HR 284
which created the House Study Committee on State and Local Construction Management to which members were appointed by the Speaker of the House of Representatives.
Representative Dominic LaRiccia, Chairman

THE FINAL REPORT OF THE GEORGIA HOUSE OF REPRESENTATIVES STUDY COMMITTEE ON
STATE AND LOCAL CONSTRUCTION MANAGEMENT

COMMITTEE MEMBERS

Honorable Dominic LaRiccia, Chair Representative, District 169

Honorable Emory Dunahoo Representative, District 30

Honorable Jimmy Pruett Representative, District 149

Honorable Craig Gordon Representative, District 163

Honorable Bill Werkheiser Representative, District 157

Honorable Buddy Harden Representative, District 148

Mr. Jim James University System of Georgia

Honorable Chuck Martin Representative, District 49

Mr. Pat Schofill Georgia Department of Education

INTRODUCTION
House Resolution 284 (2017 Session) created the House Study Committee on State and Local Construction Management. The committee was formed to study the strengths and weaknesses of the Construction Manager at Risk construction delivery method compared to the design-bidbuild construction delivery method. The study committee was charged with making recommendations to be shared with state and local governments to promote quality construction management in Georgia and the efficient use of taxpayer dollars.
The committee was chaired by Representative Dominic LaRiccia (169th) and included eight additional members: Representative Emory Dunahoo (30th), Representative Craig Gordon (163rd), Representative Buddy Harden (148th), Representative Chuck Martin (49th), Representative Jimmy Pruett (149th), Representative Bill Werkheiser (157th), Mr. Jim James from the University System of Georgia, and Mr. Pat Schofill from the Georgia Department of Education. The House Budget and Research Office staff member assigned to facilitate the meetings was Ms. Sara Arroyo. The Legislative Counsel staff member assigned to the committee was Mr. Paul Higbee.
The committee held five public meetings in Atlanta, Georgia to hear from the Georgia State Financing and Investment Commission (GSFIC), the Georgia Department of Education, the University System of Georgia, Associated General Contractors of Georgia, Inc., together with testimony from various architect/design specialists, general contractors, and subcontractors.
The following individuals presented testimony to the committee:
September 6, 2017 Marvin Woodward, Deputy Director of the Construction Division at the Georgia State Financing and Investment Commission; Jim James, Vice Chancellor of Facilities at the University System of Georgia; Mike Rowland, Assistant Director of Facilities and Transportation at the Georgia Department of Education; and Mark Woodall, Director of Governmental Affairs for the Associated General Contractors of Georgia, Inc.
September 27, 2017 Marvin Woodward, Deputy Director of the Construction Division at the Georgia State Financing and Investment Commission; Jeff Lacks, Director of Procurement Services at the Georgia State Financing and Investment Commission; and Mike Rowland, Assistant Director of Facilities and Transportation at the Georgia Department of Education.
October 17, 2017 David Southerland, Executive Director of American Institute of Architects, Atlanta Division; Mike Collins, Principal at Collins Cooper Carusi Architects; Cheryl McAfee, CEO of McAfee3; Dave Cyr, CEO of Parrish Construction Group; Lyndy Jones, President of JCI Contractors; Keith Watson, President of Bowen and Watson, Inc.; Rick Torrance, President of Torrance Construction; Scott Clark, President and CEO of RW Allen; Jerry Harper, CEO of Harper & Company Builders; Jacob Patton, Owner and CEO of All-State Electrical; and Steven Aydelott, President of SOA Construction.
November 14, 2017 Mark Woodall, Director of Governmental Affairs for the Associated General Contractors of Georgia, Inc.; Marvin Woodward, Deputy Director of the Construction Division at the Georgia

State Financing and Investment Commission; Steven Aydelott, President of SOA Construction; Trey Anderson, President of Anderson Construction Company of Fort Gaines; Brian Newsome, Co-Founder & Executive President of Albion; and Paul Roesel, President of The Sack Company.
December 12, 2017 Marvin Woodward, Deputy Director of the Construction Division at the Georgia State Financing and Investment Commission; Mark Woodall, Director of Governmental Affairs for the Associated General Contractors of Georgia, Inc.; State Senator Mike Dugan; and Mike Rowland, Assistant Director of Facilities and Transportation at the Georgia Department of Education.
BACKGROUND
Over the past decade, project owners, such as GSFIC and local boards of education, increased their use of the Construction Manager at Risk construction delivery method; however, there are concerns that the qualifications-based aspect of Construction Manager at Risk discourages or excludes construction professionals, often small to medium rural firms, because they do not meet certain qualification thresholds. There is also concern regarding the qualifications-based aspect of Construction Manager at Risk; whereas, design-bid-build is a cost-driven construction delivery method because the low bidder wins.
FINDINGS
GENERAL OBLIGATION DEBT FUNDS
Each year the state of Georgia incurs debt to fund elementary and secondary schools, university buildings, libraries, correctional facilities, and more. The state must pay back this debt over a five-, ten-, or twenty-year period, and the payments are called "debt service." In Georgia, the constitutional debt service limit is 10 percent of the prior year's treasury receipts, although Georgia generally incurs between six and eight percent levels. Debt management is overseen by three international rating agencies. The state of Georgia has a AAA bond rating, the highest level, from Moody's Investor Service, S&P Global Ratings, and Fitch Ratings.1
State Debt Service as a Percentage of Prior Year Net Treasury Receipts2

Fiscal Year 2018 Est. 2017 Est.
2016 2015 2014 2013 2012 2011 2010 2009 2008

Highest Annual Debt Service
$ 1,391,596,968 1,289,557,709 1,293,491,829 1,282,438,777 1,231,358,905 1,219,674,733 1,228,532,291 1,314,870,945 1,278,325,792 1,307,062,392 1,173,214,321

Prior Year Net Treasury Receipts $ 24,106,305,464
23,476,964,891 21,557,498,539 20,256,765,495 19,539,691,059 18,316,797,048 17,546,376,094 16,251,244,423 17,832,365,614 19,799,134,318 19,895,976,650

Percentage 5.8% 5.5% 6.0% 6.3% 6.3% 6.7% 7.0% 8.1% 7.2% 6.6% 5.9%

1 https://gsfic.georgia.gov/rating-reports-go-bonds 2 The Governor's Budget Report, Fiscal Year 2018

The General Obligation Debt Sinking Fund is a line item in Georgia's appropriations act and includes a list of projects approved for appropriation. In FY 2018, $1.15 billion was approved for bonding with a total debt service of $119.6 million.3 While most projects listed in the budget are specific, local school systems receive bond funding under the Department of Education through four different capital outlay programs, through which earnings accumulate relative to the eligible need in each school systems' local facilities plan.4
GEORGIA STATE FINANCING AND INVESTMENT COMMISSION

The Georgia State Financing and Investment Commission was created in 1972 by a constitutional amendment and is comprised of seven members: the governor, the lieutenant governor, the speaker of the House of Representatives, the state auditor, the attorney general, the commissioner of the Department of Agriculture, and the state treasurer. GSFIC has two divisions: the Construction Division and the Financing and Investment Division. The Construction Division is responsible for the management of construction projects, to include receiving and reviewing bids and monitoring the progress of projects, where GSFIC is the project owner. The Financing and Investment Division is responsible for the bond procurement process, including all aspects of the bond sale and the investment of the bond proceeds. Also, GSFIC publishes the State Construction Manual (SCM), which outlines the processes and procedures for completing construction projects in the state of Georgia. The manual is a useful tool for state agencies, general contractors, subcontractors, and design professionals.

In June 2017, GSFIC sold bonds for $1.15 billion in construction projects. The bond proceeds are expended in three different ways. First, GSFIC provides financial oversight and payments to agencies when the project is complete; the largest example of this would be local school systems. This is generally 25 to 30 percent of the bond package. Next, GSFIC provides procurement assistance and contract negotiation for state agencies, when the state agency remains the owner of the project. These are typically smaller projects and make up five percent of the bond proceeds. Lastly, GSFIC procures and manages large construction projects. GSFIC's largest customers are the University System of Georgia and the Technical College System of Georgia, which make up 65 to 75 percent of bond package.

GSFIC PROJECTS-CURRENTLY OWNED5 Construction Delivery Method Number of Projects Cost

Design-bid-build Design-build

71

$298 .3 M

12

$71.6 M

Construction Manager at Risk

58

$1.192 B

Total

141

$1.562 B

Percent 19% 5% 76% 100%

GSFIC and state agencies list bid opportunities on the Department of Administrative Services' Georgia Procurement Registry.6 Firms must have an account on this registry to bid on projects
and receive notifications about bid opportunities. As required by law, there is a standard period

3 HB 44 (2017 Session) 4 O.C.G.A. 20-2-260 5 Testimony from Georgia State Financing and Investment Commission on September 5, 2017 6 O.C.G.A. 50-5-69

of public notice. Also, firms are strictly prohibited from communicating with any person associated with the project before a decision has been made. Local school systems typically list their bid opportunities in their local newspaper or on their school system website. CONSTRUCTION DELIVERY METHODS (GSFIC) There are three primary construction delivery methods available in Georgia: design-bid-build, Construction Manager at Risk, and design-build. Each delivery method sets up different relationships between the owner, architect, and contractor and each has advantages and considerations. To determine which construction delivery method to choose, the project owner will look at multiple factors, such as completion time frame, project complexity, and the agency's internal project management resources. Design Professional When GSFIC or a state agency is the project owner, a design professional is always chosen through a qualifications-based selection.7 The statute states that the qualifications-based selection must be done at a fair and reasonable fee. GSFIC testified that the design professional fee is often negotiated to a fair and reasonable price, often between four and six percent. Design-bid-build Design-bid-build is the most common delivery method used in Georgia and the State Construction Manual refers to it as the "traditional" option. In this delivery method, the architect and general contractor work directly with the owner and the design and construction process is described as linear.
7 O.C.G.A. 50-22-1 through 50-22-9

After the design is complete, the owner releases an invitation to bid for the general contractor based on the design specifications. Construction firms must meet a minimum set of qualifications to be considered for the bid opportunity, such as licensing and bonding. Submitted bids include cost details of the project and the lowest bid is selected. Select bid is a hybrid of design-bid-build and adds an additional step to the process. First, a short list of contractors is determined based on additional qualifications and project suitability. A panel of five individuals (two from the head agency, one from the local campus, and two from GSFIC) review and score the firms based on those suitability qualifications, including previous project experience. The four to six firms that score the highest move to the second phase of the process where they must now submit a bid that includes cost details and the lowest bid is selected. Advantages of design-bid-build include the design being complete prior to construction, bidding documents are prepared only one time by the architect, and there are often hyper competitive bid results; however, owners should be aware that low bidders may lack the necessary qualifications for a project, there may be an increased number of change orders, there is no design input from the general contractor, and there is no allowance for fast-track construction. Construction Manager at Risk Construction Manager at Risk is a newer delivery method available in Georgia. Under this delivery method, the design professional and construction professional work together for the owner during the design and construction process.
Under Construction Manager at Risk, the owner releases a request for qualifications (RFQ). For the initial RFQ, the owner is looking for a firm's stability, experience and qualifications, and suitability. The firm's qualifications will be scored by a five-person panel (with the same

composition as described for select bid). If the firm's score places them in the top four to six firms, they will move to the second phase. During the second phase, the top firms will receive a request for proposal (RFP) and will be interviewed by GSFIC. The same five-person panel will score the firms for relevance of team qualifications and experience, performance and references, and the quality of the proposed management fee. For the interview, the firms will be scored on methodology presented and overall impression. The firm that scores the highest is chosen. Subcontractors are then chosen through a sealed bid process, with a required three bids for each subcontractor trade. Advantages of Construction Manager at Risk include the price is established during the design phase, the construction manager selection is based on experience and performance, and early construction manager selection allows for the project to be fast-tracked. Also, value engineering is occurring throughout the project, and budget/cost estimates are provided along the way. Considerations of Construction Manager at Risk include general contractors may not be qualified construction managers, high owner time commitment, the requirement for multiple bid packages, and additional coordination by the design team. Design-build Under design-build the project owner hires a design builder (almost always a construction manager) through a qualifications-based process. The design builder has a contractual relationship with the architect and with construction subcontractors. This is the least used construction delivery method in Georgia and is often reserved for projects where the scope of work is not known before construction begins, such as renovations and rehabilitations.
When choosing to use design-build, the owner needs to consider that there are limited checks and balances with this delivery method. Information sharing is not as open because the owner

does not have a contractual relationship with the design professional and the construction subcontractors. When using this delivery method, GSFIC often asks how much experience the construction manager has with the design specialist they are choosing to ensure smooth project delivery; however, this is the fastest delivery method available and requires the least oversight management by the project owner.
CONSTRUCTION DELIVERY METHODS (LOCAL SCHOOL SYSTEMS)
In FY 2018, local school systems received $240.8 million in bond funds, 20.6 percent of the total bond package, for renovations of existing schools and the construction of new schools8. Bond funds for local school systems are earned through a capital outlay program prescribed in state Code.9 Under state Code, school systems earn and accrue entitlements for construction projects based on growth in student enrollment and other eligible needs defined in State Board of Education rule. Once funds are approved through the appropriations process, they are included in the bond sale. The funds are then passed from GSFIC to the school system as payment when the project is complete.
Unlike projects managed by GSFIC and other state agencies, school systems do not have to follow state Code in selecting a design professional; however, State Board of Education rule states that local school systems may select and execute the contractual architect of their choice, but a mandatory addendum to the "Owner/Design Professional Agreement" is required as an attachment to the contract. The contract must include a percentage fee and that fee cannot exceed more than six percent of the state eligible cost limitation.10
There are 180 school systems in Georgia and each has its own practices and processes in selecting an architect, choosing a construction delivery method, and managing the project. Like GSFIC, a school system's decision to use design-bid-build or Construction Manager at Risk is determined by a variety of factors, including completion time frame, project complexity, and the unique nature of the project site. Other deciding factors could include prior experience using a particular construction delivery method.
When utilizing design-bid-build a local school system must comply with state Code and State Board of Education rule, which provides rules and regulations for bidding; including written contracts, competitive sealed bidding, public advertisement, and prequalification.11 There are a large number of small, rural school systems that use design-bid-build exclusively; as stated above, this is the most traditional delivery method available.
When choosing the Construction Manager at Risk delivery method, the local school system must obtain a letter from legal counsel that states the bidding proposal has been reviewed and meets all the criteria required in O.C.G.A. 36-91-20 and 36-91-21, which governs bidding and competitive award requirements. The Department of Education testified that most large school systems use a combination of Construction Manager at Risk and design-bid-build. Larger school systems are able to perform preconstruction services because they have specialized staff on hand. There are also smaller, rural school systems that exclusively use Construction Manager at Risk, after having a bad experience with a design-bid-build project.
8 HB 44 (2017 Session); this does not include funds for school buses, vocational equipment, and the state schools 9 O.C.G.A. 20-2-260 10 State Board of Education Rule 160-5-4-.11 11 O.C.G.A. 36-91-20-21 and State Board of Education Rule 160-5-4-.18

RECOMMENDATIONS
The construction delivery methods currently used by GSFIC, state agencies, and local school systems should remain available and the decision on which delivery method to choose should continue to be at the discretion of the project owner.
All construction delivery methods should continue to use open, competitive, and transparent processes when awarding contracts.
GSFIC is directed to include input from the Department of Education and local school systems when updating the State Construction Manual, which is a collaboration spearheaded by GSFIC and USG. The state construction manual should serve as a best practices guide for GSFIC, state agencies, and local school systems. The guide should also include best practices for right-sizing projects.
GSFIC is directed to sponsor a workshop with the purpose of training firms on how to perform Construction Manager at Risk projects. The workshop should focus on those firms with little or no experience with construction management to increase participation and competitiveness. Further, GSFIC should eliminate the automatic disqualification of contractors because they have no Construction Manager at Risk experience.
The Department of Education should provide educational opportunities for local school systems on the development of contract documents and construction delivery methods.
State law should be changed to define "new contract opportunity" in the "Georgia Local Government Public Works Construction Law" in O.C.G.A. 36-91-1.
Local school systems should have the opportunity to use the Georgia Procurement Registry to advertise bid opportunities.