The New Highway Spending Bill and the Construction Manager Project Delivery Method

Most of the attention given to the  Moving Ahead for Progress in the 21st Century Act (“MAP-21”) highway spending bill that the Senate recently passed has been focused on the potential stimulating effect the bill with have on the construction industry in terms of dollars that will be allocated to certain projects.  Of interest to contractors working on Pennsylvania transportation project is the Bill’s potential effect on Pennsylvania’s competitive bid laws.

Section C of the bill is dedicated to “Acceleration of Project Delivery” and states that is “policy of the United States” that various recipients of Federal Transportation funds “accelerate project delivery and reduce costs.”  The Bill charges the Secretary of Transportation to develop best practices to achieve the goal of accelerating project delivery.

In order to achieve the goal, the Bill amends section 23 U.S.C. 112(b), which regulates bidding on Federal Highway projects, to allow for the use of the “Construction Manager/General Contractor” form of project delivery.  The Construction Manager / General Contractor (CM/GC) project delivery method allows an owner to engage a construction manager during the design process to provide constructibility input. The Construction Manager is generally selected on the basis of qualifications, past experience or a best-value basis. During the design phase, the construction manager provides input regarding scheduling, pricing, phasing and other input that helps the owner design a more constructible project. At approximately an average of 60% to 90% design completion, the owner and the construction manager negotiate a ‘guaranteed maximum price’ for the construction of the project based on the defined scope and schedule. If this price is acceptable to both parties, they execute a contract for construction services, and the construction manager becomes the general contractor. The CM/GC delivery method is also called the Construction Manager at-Risk (CMR) method in some states.

Because the CM/GC method of project delivery does not strictly comply with the lowest responsible bid requirements of Section 112, currently, the CM/GC project delivery method can only be used with the permission of the Federal Highway Administration under its “Special Experiment Project No. 14 – Innovative Contracting” program.”

Of note to contractors performing transportation work in Pennsylvania is the potential effect on how PENNDOT projects are bid.  Currently, the Pennsylvania Procurement Code requires PENNDOT to award a construction contract to the lowest responsible bidding in a competitive bid process.  See Pa.C.S.A. Section 512.   However, under the CM/GC delivery method, PENNDOT can negotiate a contract with the CM without utilizing the competitive bid process.  Moreover, the Highway Bill states that in selecting the CM PENNDOT can award the contract on the basis of (a) qualifications; (b) experience; (c) best value; or (d) any combination of these factors.

Therefore, under the Highway Bill, PENNDOT could theoretically solicit bids for construction management services and award the CM contract based upon a “best value” approach which Pennsylvania law does not currently allow.  Moreover, once the CM is engaged it can negotiate a construction contract with that CM with utilizing the Procurement Code’s competitive bid requirements at all.

Importantly, the new provisions of Section 112 do not create a carve out permitting state law to limit the use of the CM/GC project delivery method as it does with the design-build delivery method.   In light of the challenges to PENNDOT’s “Innovative Bidding” procedures in Brayman Construction Corp. v. PENNDOT, 13 A.3d 925 (Pa. 2011), it will be interesting to watch how this newly authorized project delivery method effect bidding on PENNDOT projects should the Highway Bill be signed into law.