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PR- 291-08
July 28, 2008


Strategies to Encourage More Bidders on City Construction Projects and Reverse Perception that City is Difficult Client - in Order to Drive Down Costs

Savings of Over $300 Million Annually Possible

Mayor Michael R. Bloomberg today announced five reforms designed to increase competition to build the City’s infrastructure and drive the cost of City construction down.  The reforms include allowing contractors to collect damages on certain construction projects for delays caused by the City, cutting in half the time it takes the City to process certain change orders, and dedicating resources to develop accurate project scopes and cost estimates before capital dollars are committed. These reforms are designed to entice more construction contractors to bid on the City’s core infrastructure projects – streets, sewers, water mains and bridges – as well as other projects such as parks, police precincts, firehouses and courthouses.  Increased competition will drive down construction costs, which by some estimates, are rising one percent per month. The Mayor was joined at the announcement City Comptroller William C. Thompson, Deputy Mayors Edward Skyler and Robert Lieber, Department of Design and Construction Commissioner David Burney, Department of Citywide Administrative Services Commissioner Martha Hirst, Department of Environmental Protection Commissioner Emily Lloyd, Department of Transportation Commissioner Janette Sadik-Khan, Mayor’s Office of Contract Services Director Marla Simpson and Department of Parks & Recreation First Deputy Commissioner Liam Kavanagh. The Deputy Mayors are co-chairing the Capital Cost Containment Task Force, comprised of City agencies that will implement these initiatives, and determine whether they lead to increased competition and reduced costs to build the City’s infrastructure.

“As our population continues to grow, our aging infrastructure must be maintained and expanded,” said Mayor Bloomberg. “With construction costs rising, and given the City’s current economic outlook, we must do everything in our power to stretch every capital dollar, and encourage as many construction firms as possible to help us build and maintain the infrastructure needed to provide core City services – safe streets and bridges, clean water, spacious parks and hundreds of other public facilities throughout the five boroughs.”

“Today’s initiative is about increasing competition and decreasing costs. All of us here today have a common goal: striving to identify opportunities so that a broader pool of qualified contractors have a chance to improve this City,” said New York City Comptroller William C. Thompson, Jr. “As the Mayor has noted in PlaNYC, our City will encounter significant population growth and with that greater demands on our resources and infrastructure. We must look for innovative ways to address these future needs and encourage – not inhibit – opportunity along that path.”

“These reforms mark the beginning of an important shift in the way the City builds public works,” said Deputy Mayor Skyler. “Working with the construction industry, we have identified a number of ways to encourage more contractors to build City projects, in part by reducing the time it takes agencies to approve change orders, and by making the City accountable for delays that are within our control.  These changes can reduce construction costs without sacrificing safety or quality; we will implement them immediately and continue to work with the industry to make additional improvements later this year.”

“Investing in New York City's infrastructure is critical to our long-term, five borough economic growth, and the program announced today will help us do it by reducing construction costs and encouraging increased competition for our public works,” said Deputy Mayor Lieber. “Working with the private sector for more than a year, we have developed a strategy that should help mitigate rapidly rising construction costs, allowing our infrastructure projects to be completed more efficiently and predictably.”

The measures announced today were identified by the Construction Cost Study Group, chaired by Peter M. Lehrer.  The group found that much of the high cost of City-managed construction projects is attributable to the perception that the City is a difficult client who is slow to pay, particularly for change orders, and requires contract terms that contractors consider onerous and costly – particularly with respect to construction delays.  This perception reduces the number of contractors willing to bid on City projects and increases the price of bids that are offered.  An analysis performed in conjunction with the Construction Cost Study Group estimated that the addition of one bidder per project could reduce winning bid prices by two to three percent. The City estimates that if just two to three more contractors bid on every City project the City could save more than $300 million each year. The members of the Construction Cost Study Group will continue to work with the City to implement these and other initiatives.

 “The City has taken some great steps forward to reduce construction costs that will lead to a more competitive environment, said Peter M. Lehrer.  “These measures meet many of our recommendations and will make doing business with New York City more attractive and closely aligned with private industry practices. This will be good for everyone.”

“We are pleased the City is moving forward to address the issues raised by the Construction Cost Study Group,” said Denise Richardson, Acting Managing Director, General Contractors Association. “The inclusion of a damages for delay provision in City construction contracts is major shift in the City's approach to construction and through this and the other initiatives the City will reduce overall costs and project delays.”

The following reform efforts are being implemented immediately:

  1. Allow Damages for Delays Caused by the City.  The City’s standard construction contract does not currently allow compensation to contractors for construction delays that are due to the City’s actions, which reduces agencies’ incentive to prevent delays.  The Construction Cost Study Group found that as a result, many contractors will not bid on City work.  To test this finding, over the next 3 years, the City will bid-out 25 percent of construction contracts greater than $1 million with a provision that allows contractors to collect damages for certain delays they can prove result from the City’s actions.  The Capital Cost Containment Task Force will track the number of bidders, on-time performance and costs of these projects against projects that are bid-out using the current contract structure to assess the impact of this reform.  

  2. Early Project Scoping Program.  Many City projects come in late and over budget because they were not properly scoped and estimated prior to budget approval.  This fiscal year, $20 million in expense funding has been allocated to develop preliminary project scoping and cost estimating.  Projects with unclear scopes, new or unusual technical challenges, or complex regulatory issues will undergo 4 to 12 week scope development and cost estimating exercises, with the assistance of outside consultants, to enable the City to identify true costs and less expensive alternatives prior to capital commitment.  The program will include:
    • Parks Department’s Bronx Regatta Greenway
    • Fire Department’s EMS Midtown West Stationhouse
    • Transportation Department’s Staten Island Ferry Slip Racks
    • Transportation Department’s New Street Material Pallet    
    • Transportation Department’s Bus Rapid Transit System
    • Police Department’s 66th and 70th Precinct Stationhouses
    • Police Department’s Harbor Adam Doc

  3. Expedite Change Order Processing.  The current average time to process a change order – an agreement to alter a contract – on a City project is over 300 days.  Contractors either proceed at their own risk or wait for as much as a year for approval – at a time when the cost of doing the work has increased due to construction cost escalation. This uncertainty drives up the City’s costs by reducing the number of contractors willing to bid on City work.  This is true even for change orders where the need for the change is straightforward, such as unforeseen field conditions like poor soil quality or where building systems to be repaired have degraded beyond expectations. The City is streamlining its procedures to reduce change-order processing time by 50 percent – to 150 days or less – for changes caused by unforeseen field conditions, and will institute measures to hold agencies accountable for failing to meet this target.  By reducing change order processing times projects will be completed more quickly, contractors will get paid more quickly, and it is hoped that more contractors will bid on City projects and thus drive down costs.

  4. Operationalize Wicks Law & Pre-qualification Process Reform.  This past spring, the City succeeded in persuading the State Legislature to enact several key construction law reforms.  The first raised the threshold for triggering the Wicks Law mandate to use multiple prime contracts on City construction projects from the $50,000 level, set in 1961, to $3 million.  City agencies will now be able to bid out smaller projects, such as comfort station construction and library renovations, using a more efficient single contract structure which is expected to save $200 million over the next 10 years.  The second reform amended state law to permit the City to pre-qualify construction contractors, so that bidding can be focused on those whose experience, skills and compliance track records ensure that the resulting projects come in on-time and on-budget.  Together, these state legislative changes are expected to increase efficiency and reduce construction costs considerably and are being implemented by the Capital Cost Containment Task Force.

  5. Centralized Bid Tracking.  Effective immediately, the City will track all construction bids centrally, share bid information across the City’s construction agencies and use this data to inform procurement decisions.  Measurements will include the accuracy of the City’s pre-bid estimate versus the awarded bid, the number of bids and the cost of bids.  By aggregating all construction bids and performing rigorous statistical analysis, the City will be able to measure the impact of these reform efforts, be better able to predict industry trends and adjust future construction work based on emerging market conditions and increase accountability.

These reforms are being implemented by the City’s Capital Cost Containment Task Force that includes the Mayor’s Office of Operations, the Department of Design & Construction (DDC), the Department of Environmental Protection (DEP), the Parks Department, the Department of Sanitation (DOS), the Department of Transportation (DOT), the Mayor’s Office of Contract Services, the Law Department, the Department of Citywide Administrative Services (DCAS), and the Office of Management and Budget (OMB).  Collectively, DEP, DOT, DDC, DSNY, Parks and DCAS managed over 2,500 public works projects in fiscal year 2008 totaling over $7 billion.

The Capital Cost Containment Task Force, led by Deputy Mayors Skyler and Lieber, will continue to identify opportunities to reduce construction costs, including an evaluation of the City’s bonding requirements, which the Construction Cost Study Group found may inhibit contractors’ ability to bid on City construction projects. The Mayor has directed the Task Force to report back this fall with additional opportunities to reduce construction costs.

The Construction Cost Study Group is comprised of leaders in the construction industry.  The group conducted interviews with key capital and oversight agencies; reviewed metrics, project cost and schedule data of the City’s construction agencies; researched industry best practices; and held discussions with private sector construction management organizations to identify factors in the City’s control that result in the high price of City managed public works projects.  The Study Group was comprised of the following industry volunteers: Chair Peter Lehrer, Lehrer LLC; Co-Chair Richard Davis, Weil, Gotshal & Manges; Co-Chair Gary Hirsch, Elk Homes LLC; Co-Chair David Thurm, The New York Times; Michael Burton, URS Corporation; Robbie MacPherson, Thelen Reid Steiner; Arthur Silverman, Thelen Reid Steiner; Daniel Tishman, Tishman Construction Co.; Richard Tomasetti, Thornton Tomasetti Inc.; and Norbert Young, McGraw Hill.

In May, the Mayor announced the City would be stretching four years of City-funded capital program commitments into five years, thereby reducing the City-funded portion of the capital commitment program by 20 percent annually from Fiscal Years 2009 to 2012.  The City will now meet the City-funded capital goals it had set for itself one year later, in 2013, rather than in 2012.  The capital commitments for FY 2009-2012 total $55.7 billion with this reduction.  

These measures build upon innovations in procurement introduced as part of the City’s ambitious “Design and Construction Excellence Initiative” (D+CE).  D+CE, a multi-agency effort launched by the Mayor in 2004, introduced quality based selection to ensure better design decisions and high-quality construction documents that promote cost-effective project management. 


Stu Loeser / Jason Post   (212) 788-2958

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