ON MARCH 20, 2023, THE SENATE ADOPTED AMENDMENT #2 AND PASSED SENATE BILL 273, AS AMENDED.
AMENDMENT #2 rewrites this bill to establish the "Transportation Modernization Act of 2023," makes numerous changes to existing law governing "design-build contracts," and adds "performance-based asset maintenance contracts" to authorize the Tennessee department of transportation to solicit proposals and award contracts.
DESIGN-BUILD AND PERFORMANCE-BASED ASSET MAINTENANCE CONTRACTS
Under present law, selection criteria for a design-build contract must include the cost of the project and may include design-build firm qualifications, time of completion, innovation, design and construction quality, design innovation, or other technical or quality related criteria, as determined by the department. The department is authorized to award a stipulated fee to design-build firms that submit responsive proposals but are not awarded the design-build contract. The department must not be required to award a stipulated fee, but if it elects to award the fee, the amount of the stipend and the terms under which stipends are to be paid must be stated in the request for proposals.
The department's authority to use design-build contracting procedures as provided in this section is subject to the following limitations:
(1) The department may initiate up to 15 design-build contracts in any one fiscal year, if the contract has a total estimated contract amount of less than $1 million;
(2) The department may not initiate more than five design-build contracts in any one fiscal year, if the contract has a total estimated contract amount in excess $1 million; and
(3) If the proposed design-build contract has a total estimated contract amount in excess of $70 million, the department must specifically identify the project as a proposed design-build project in the transportation improvement program submitted annually to the general assembly in support of the commissioner's annual funding recommendations.
The department is required to prepare a report on the effectiveness of design-build contracts and submit it to the chairs of the transportation and safety committee of the senate and transportation committee of the house of representatives upon the completion of three design-build contracts that have a total contract amount in excess of $1 million. The department may establish agency policy, or the department may promulgate rules in furtherance of these provisions.
This amendment authorizes the department to award performance-based asset maintenance contracts in addition to design-build contracts. A performance-based asset maintenance contract is defined as an agreement, typically long-term, that provides for managing and performing the inspection and reconstruction, repair, or maintenance of multiple highway facility components for specific roadway corridors or within a geographic area, where the contract sets specific performance standards, rather than prescriptive work tasks and deadlines, and may include incentive or disincentive provisions to promote achievement of the desired outcomes. Such contracts may also include third-party damage repair and claim management services, and may also provide for design, right-of-way acquisition, regulatory permit review and approvals, or utility relocation activities. Types of projects not suited for performance-based asset maintenance contracts include, but are not limited to, resurfacing and
bridge repair projects.
This amendment deletes the limitations to the department's authority to use design-build contracting procedures, and instead requires that prior to executing a design-built contract, the commissioner must send written notice to the chair of the transportation and safety committee of the senate and the chair of the transportation committee of the house of representatives.
This amendment deletes the requirement that the department prepare a report on the effectiveness of design-build contracts upon the completion of three design-build contracts that have a total contract amount of more than $1,000,000. This amendment requires instead that if a proposed design-build contract has a total estimated contract amount in excess of $100,000,000, then the department must specifically identify the project as a design-build project in the transportation improvement program submitted annually to the general assembly in support of the commissioner's annual funding recommendations.
USE OF CONSTRUCTION MANAGER/GENERAL CONTRACTOR AND PROGRESSIVE DESIGN-BUILD SERVICES
Under present law, the department of transportation is authorized to use the project delivery method of construction manager/general contractor services (CM/GC). This method allows the department to engage a construction manager during the design process to provide input on the design. During the design phase, the construction manager provides advice, including, but not limited to, constructability review, scheduling, pricing, and phasing to assist the department in designing a more efficient and well-designed project. The construction manager/general contractor may subsequently construct the project if the department and the CM/GC reach agreement on a guaranteed maximum price for construction. The department will select CM/GC projects based upon generally accepted industry criteria that include factors such as fostering innovation, mitigating risk, improving design quality, improving cost control, and optimizing construction schedules. Projects suited for the CM/GC process include instances where the department needs feedback during the design phase due to complex components that require innovation. Other projects that are suited for CM/GC are projects that have public involvement, third-party considerations such as acquisition of right-of-way or utility relocation issues, or other factors that impact the overall schedule. Projects not suited for the CM/GC process include routine maintenance and resurfacing projects or other construction projects that present a low level of technical complexity, a low level of risk management, and simple traffic phasing, and that do not have any compelling need for project acceleration. Before using the CM/GC method of project delivery, the commissioner must send written notice to the chair of the transportation and safety committee of the senate and the chair of the transportation committee of the house of representatives. The written notice must identify the project and the reasons for deciding to use the CM/GC method.
This amendment further authorizes the department to use the progressive design-build (PDB) method as a delivery method for procuring transportation project services. Progressive design-build method is defined as a transportation project delivery method in which the department procures a design-builder to provide pre-construction services and may subsequently complete the final design and construct the project, or part of the project, if the department and the design-builder reach agreement on a guaranteed maximum price.
This amendment deletes the requirement that before using the CM/GC method the commissioner must send written notice to the chair of the transportation and safety committee of the senate and the chair of the transportation committee of the house of representatives.
Under present law, the department's authority to use the CM/GC method is subject to the following limitations:
(1) If a proposed CM/GC contract has a total estimated contract amount in excess of $70 million, then the department must specifically identify the project as a proposed CM/GC project in the transportation improvement program submitted annually to the general assembly in support of the commissioner's annual funding recommendations; and
(2) The cumulative cost of the CM/GC projects awarded in any single fiscal year must not exceed 25 percent of the total amount of construction contract awards made in the previous fiscal year, except as the general assembly may otherwise approve in accordance with the annual appropriations act.
This amendment deletes these provisions, instead requiring that prior to executing a contract, the commissioner must send written notice to the chair of the transportation and safety committee of the senate and of the chair of the transportation committee of the house of representatives. If a proposed CM/GC or PDB contract has a total estimated contract amount in excess of $100 million, the department must identify the project as a CM/GC or PDB project in the transportation improvement program submitted annually to the general assembly in support of the commissioner's annual funding recommendations.
Under present law, if the commissioner determines that the CM/GC method of procurement is appropriate for the project, the commission must establish a multi-phase process to select the CM/GC that is the most responsive and responsible proposer. Phase 1 of the process is the appointment of the selection committee. Phase 2 is the development and issuance of the request for proposals. Phase 3 is the CM/GC "Selection-Design Phase." Phase 4 is the "CM/GC Selection-Construction phase.
The selection committee, for Phase 1, must have eight members. The commissioner must appoint five department employees to the selection committee based on their qualifications and experience, including at least one employee who is a licensed professional engineer in this state. The commissioner must also appoint three members who are not employees of the department, all of whom are residents of this state, with one member appointed from and residing in each grand division of the state. At least two of these three must have a minimum of ten years of construction or highway engineering design experience, and at least one of these two members must have a valid professional engineering license. The other one of these three members must have either a minimum of ten years of construction or highway engineering design experience or a minimum of five years of employment experience in a banking, finance, accounting, surety, or insurance position.
This amendment renames Phase 3 to the evaluation and selection phase. This amendment also adds "PDB" after any reference to "CM/GC" in the four phases.
This amendment also deletes the requirements for the selection committee under Phase 1. Instead, this amendment requires that the selection committee consists of five members to be appointed by the commissioner as follows:
(1) Three department employees, including at least one employee who is a licensed professional engineer in this state; and
(2) Two members who are not employees of the department, each of whom must be a resident of this state. At least one of the members must have a minimum of ten years of construction or highway engineering design experience, and at least one of the members must be a licensed professional engineer in this state.
Under present law, Phase 3 requires that upon completion of the evaluation process, each member of the selection committee must independently review and score the proposals. Each member must score the proposals pursuant to the scoring matrix that the department provides in the RFP and based on the RFP's evaluation criteria. The scores will be tallied and averaged according to the procedure established in the RFP; provided, however, that the scores of the two selection committee members giving the highest and lowest scores on a proposal must be excluded when computing the average score for each proposal. Upon completion of the scoring, the proposals will be ranked in order of the highest aggregate score to the lowest aggregate score. The proposer whose proposal receives the highest aggregate score will be considered the best-evaluated proposer.
The proposals must be submitted in rank order to the commissioner. The commissioner may either accept the selection committee's recommendation of the best-evaluated proposer, or the commissioner may reject all proposals and proceed with construction of the project through any lawful method for procuring a construction services contract. The department must send all proposers a written notice of award to the best-evaluated proposer, or a written notice that all proposals have been rejected. If the department issues a written notice of award, the notice must include a copy of the scores from each member of the selection committee for each RFP proposal.
This amendment deletes the present law requirements for scoring and ranking the proposals after completion of the evaluation process under Phase 3. Instead, this amendment requires that upon completion of the evaluation process, each member of the selection committee must independently review and score the proposals. Each member must score the proposals pursuant to the scoring matrix that the department provides in the RFP and based on the RFP's evaluation criteria. The scores must be tallied and averaged according to the procedure established in the RFP. Upon completion of the scoring, the proposals must be ranked in order of the highest aggregate score to the lowest aggregate score. The proposer whose proposal receives the highest aggregate score must be identified as a first-tier proposer. In addition, another proposer whose proposal receives an aggregate score within five percent of the proposal with the highest aggregate score, where five percent is measured as a percentage of the highest aggregate score, must also be identified as a first-tier proposer. The proposals of the first-tier proposers must be submitted in alphabetical order to the commissioner without an evaluation ranking. The commissioner may select a first-tier proposer, or the commissioner may reject all proposals and proceed with construction of the project through a lawful method for procuring a construction services contract. The department must send all proposers a written notice of award to the selected proposer, or a written notice that all proposals have been rejected. If the department issues a written notice of award, then the notice must include a copy of the scores from each member of the selection committee for each RFP proposal.
Under present law, Phase 4 requires that once the design has been completed, or has been sufficiently developed to allow the CM/GC to prepare a proposed guaranteed maximum price for the construction of the project, or part of the project, the department must conduct the following steps before proceeding with any construction on the project:
(1) Prepare and compile the contract plans, specifications, special provisions, and other requirements which will comprise the contract for construction of the project;
(2) Prepare a detailed construction cost estimate to evaluate the appropriate price for construction of the project as designed; and
(3) If directed by the commissioner, have an independent third-party estimator prepare a detailed construction cost estimate to confirm the appropriate price for construction of the project as designed.
The department's detailed construction cost estimate, and any construction cost estimate prepared by an independent third-party estimator, must not be disclosed to the CM/GC, and must remain confidential and not subject to public disclosure until after award of the contract for construction of the project. The contract must require the CM/GC to self-perform a portion of the construction work comprising at least 30 percent of the total cost for construction, excluding specialty items. The cost for pre-construction services must not be considered part of the 30 percent but may be considered a specialty item. Based on the contract plans, specifications, special provisions, and other contract terms and conditions compiled by the department, the CM/GC must prepare a guaranteed maximum price (GMP), including any authorized contingency, for construction of the project. When completed, the CM/GC's proposed GMP must be submitted to the department for review. The CM/GC's proposed GMP must otherwise remain confidential and not subject to public disclosure until after award of the contract for construction of the project.
The department is required to compare the CM/GC's proposed GMP with its own confidential construction estimate, and with any construction estimate prepared by an independent third-party estimator. If the GMP does not exceed the department's estimate, or the independent third-party estimate, by more than 10 percent. the commissioner may, but is not required to, award the contract for construction of the project to the CM/GC. If the commissioner rejects the proposed GMP, the department may continue to conduct contract discussions with the CM/GC to develop an acceptable GMP for the project as designed. Alternatively, the department may direct the CM/GC to provide additional pre-construction services as needed to assist in the further development of contract plans, terms, or specifications for the purpose of repeating the Phase 4 process steps. If the CM/GC and the commissioner are unable to reach agreement on the GMP, the commissioner may proceed with construction of the project through the low bid procurement process.
This amendment adds to what occurs if an agreement on the GMP cannot be met, requiring that if an agreement on the GMP is unable to be reached for a PDB, then the PDB must relinquish and assign ownership of its design work product to the department, the department must take ownership of an assume liability for the design work product, and the commissioner may:
(1) Employ the PDB's design consultant or another design consultant to complete the final design and proceed with construction of the project through the low bid procurement process; or
(2) Use the PDB's design consultant's work product, or a part of it, to proceed with construction of the project through a design-build procurement process and, if another design consultant or design-builder completes the final design, the other design consultant to design-builder must assume responsibility for the final design.
TENNESSEE MODERNIZATION ACT
FUNDING AND REPORTING
This amendment establishes a fund to be known as the "transportation modernization fund" that is a segregated account within the state treasury. Subject to appropriation in the general appropriations act, the fund is to be composed of:
(1) A sum of $3 billion to be divided into sums of $750 million for projects within each region of the department;
(2) A sum of $300 million to be distributed to local governments as grants, as determined by the commissioner, provided, that a local government must not use grants distributed from the sum to supplant other state or local moneys appropriated or allotted for building, maintaining, or improving county roads or bridges;
(3) Other revenues or moneys that the general assembly may appropriate to the fund; and
(4) Other moneys received by the department for the purposes of the fund that are not otherwise allocated to the department by law.
This amendment requires that the fund be administered by the department of transportation and be kept separate and apart from all other funds, including the state highway fund. Amounts remaining in the fund at the end of each fiscal year do not revert to the general fund. This amendment authorizes that the fund can be used for the following purposes:
(1) To fund strategic transportation