27 CAR pt. 92, Appendix H. Stipend Determination

89 September 2015 APPENDIX H STIPEND DETERMINATION In the more traditional Design-Bid-Build Development (DB-B) process, the Department does not normally reimburse the unsuccessful bidders; however, in the Design-Build (D-B) process, it is widely accepted that a partial reimbursement, or Stipend, from the Department to the unsuccessful Short-List Proposers is an acceptable method to encourage capable firms to respond to the RFP. Providing the Stipend is an incentive considered an appropriate way for the Department to pay for a portion of the development cost while encouraging the industry to participate in the process. The Stipend value can typically range from 0.02% of the Project construction cost for very large projects up to 0.2% of the Project construction cost for smaller projects. In no case, should the Stipend amount be large enough to compensate the competing Proposers for the entire cost of participating in the overall selection process including preparation of the Proposal. The Department should consider the following information when determining the actual Stipend amount: The operating structure and overhead system for most contractors and designers have evolved in response to the requirements of the typical DB-B process. What the companies do, how they do it, and how their accounting mechanism operates is well established. The D-B process introduces a different set of rules that guide the selection and contracting processes. Since D-B has been utilized on only a small percentage of transportation projects to date, the contractors and designers have not evolved new structures and systems unique to the D-B method. Instead, these firms use their existing systems in new ways that result in costs that are outside their normal metrics. In DB-B, design firms typically receive a fee of 6% to 10% of anticipated construction costs for design services. The cost of proposing, interviewing and contracting design projects typically average 3% to 7% of the value of the design contract. The amount a contractor spends on business development efforts varies with the complexity of a project and the emphasis placed on innovative ways of accomplishing the work. A contractor’s cost of preparing a DB-B bid could range from 0.1% to 1.0% of the anticipated construction cost; however, a D-B selection process usually requires a more complex Statement of Qualifications (SOQ) in response to the Request for Qualifications (RFQ) document and a more complex Proposal in response to the Request for Proposals (RFP) document. While a contractor is usually the prime firm in a Proposer organization, or Proposer Team, to pursue a D-B project, the designer usually is better equipped to prepare the initial documents, which can easily add 20% to 50% to the cost of a typical D-B pursuit. A D-B Proposal usually requires that some minimum amount of engineering work be performed to demonstrate an understanding of the Project, understanding the issues surrounding the Project and to develop sufficient information to prepare a reasonable Price Proposal. The typical Department development may average in the range of a 10% to 30% design; however, the Short-List Proposers will advance the design further towards Final Design to get sufficient information on which to develop a wide range of potential Alternative Technical Concepts (ATC) and prepare a competitive Price Proposal. In addition, because D-B is an extremely competitive selection   90 September 2015 process, the Proposer may want to develop other aspects of a design to evaluate ways to deliver the Project more efficiently using different means, methods or materials. The designer would provide designs and analyses to support the contractor’s alternative ideas. The additional costs fall into two categories: 1. Additional efforts required by the Design-Build selection process; 2. Efforts related to the Short-List Proposer innovation efforts attempting to produce a higher Technical Score and/or a lower D-B Proposal Price. The second category is part of the business deal between the contractor and the designer and is often a basis for agreement regarding cost and profit sharing. The first item is the focus of the Stipend and these additional costs created for the Short-List Proposer are a direct result of the requirements associated with the selection process and documents. Other projects, with different size and complexity, could require more or less effort, so the historical ranges of Stipends have a wide variance, but typically fall between 0.02% to 0.2% of the overall Project cost. The Department D-B process recognizes that offering a Stipend is useful in attracting comprehensive proposals. When establishing a Project specific Stipend, the generic D-B Proposal general requirements should be reviewed for Project specific details, to determine a fair and equitable Stipend for the Project.