Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance

committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports

if they are used for other purposes.

Current FIRs (in HTML & Adobe PDF formats) are a vailable on the NM Legislative Website (legis.state.nm.us).

Adobe PDF versions include all attachments, whereas HTML versions may not. Previously issued FIRs and

attachments may be obtained from the LFC in Suite 101 of the State Capitol Building North.

F I S C A L I M P A C T R E P O R T

SPONSOR Snyder

ORIGINAL DATE

LAST UPDATED

02/06/2007

HB

SHORT TITLE

Design & Build Minimum Construction Cost

SB 725

ANALYST Moser

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

Indeterminate

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

General Services Department (GSD)

Public Education Department (PED)

SUMMARY

Synopsis of Bill

Senate Bill 725 amends the Procurement Code to authorize a design and build project delivery

system to be used on a specific project with a minimum allowable construction cost of five

million dollars ($5,000,000). This change in the threshold from $10,000,000 to $5,000,000 will

increase the number of projects that qualify to utilize design and build project delivery systems

under the procurement code.

The bill provides that a maximum of the top five firms on the short-list, in accordance with

technical and qualifications-based criteria, will be paid a recompense not to exceed 1% of the

total project to cover actual proposal expenses for a proposal in excess of $400,000 and is for

those proposals not limited to either site improvements or adaptation for a pre-engineered

building or system. Payment shall not entitle an agency to ownership of the documents or ideas

represented in the documents.

The minimum construction cost requirement to a design and build project delivery system does

not apply to a project of the maximum allowable construction cost of $400,000 or less or those

Senate Bill 725 – Page

2

proposals not limited to either site improvements or adaptation for a pre-engineered building or

system.

FISCAL IMPLICATIONS

For projects using a design/build project delivery system, funding would have to be increased by

5 percent to pay up to 5 vendors for proposal preparation costs. A $10 million project (the

current limit), would require an additional $500,000 for these development costs. In lowering

the design/build delivery threshold to $5 million, additional costs would apply using design-

build. However, this additional expense may prove cost effective for large projects.

The PED indicates that there will be an increase in the costs associated with the designing and

engineering portions of school district projects due to the paid recompense not to exceed 1% for the

actual proposed expenses incurred by unsuccessful firms. Furthermore, PED believes that the amount

paid to the unsuccessful firms will discourage agencies in using the design/build process.

PED additionally points out that design build project delivery systems have several advantages to the

owner. These types of projects do not allow the designer and contractor to sue each other for design

errors or omissions and provide the owner with a higher level of service to ensure that construction

meets the project plans and specifications. The design/build team assumes all of the risk for project

completion and creates a single point of contact and responsibility for the entire project. However, the

owner no longer has the architect overseeing the contactor’s work and a lower quality product and

higher long-term maintenance cost may result due to the cost given for the design/build team to work

within.

SIGNIFICANT ISSUES

Under current law payment of a stipend to finalist firms is optional. SB 725 would require

payment of actual costs up to 1% of the total project cost. GSD indicates that this allowance

while encouraging competition might result in competing firms expanding their proposal and

presentation beyond what is required because they could be reimbursed. GSD state that in order

to protect against using project money to pay for show rather than substance, rule development

should limit that to the extent possible, including defining reasonable proposal expenses.

PED indicates that currently there is no requirement to pay a stipend not to exceed 1% for the

actual proposed expenses incurred by unsuccessful firms. It is PED’s opinion that when a

design/build project delivery system is used, a two-phased procedure for awarding design and

build contracts must be adopted and should include the minimum qualifications, a scope of work

statement and schedule, documents defining the project requirements, the composition of the

selection committee and a description of the phase-two requirements and subsequent

management needed to bring the project to completion.

Through the new standards-based process, the Public School Capital Outlay Council (PSCOC) is

currently trying to fund whole projects in lieu of phasing projects. It is PED’s opinion that by

funding whole projects and lowering the threshold more school construction projects may qualify

to be eligible to utilize a design and build system.

The Public School Facilities Authority (PSFA) notes that some advantages to the owner include

a single point of contact and responsibility for the entire project and the design/build team

Senate Bill 725 – Page

3

assumes all risk for project completion, which significantly reduces the role of the owner in this

process. Another advantage for the owner is that the designer and contractor cannot sue each

other for design errors and omissions.

PSFA also notes that a disadvantage to the owner is that the architect cannot oversee the

contractor’s work because the architect is not the owner’s agent. The design/build team will most

likely meet cost goals because it translates to profit for the team; however, the overall quality of

the project may be lower due to this reason.

TECHNICAL ISSUES

Recompensing firms on the short list who submit a response to a design build project delivery

system but prohibiting the agency from ownership of the documents submitted may conflict with

the Anti-Donation Clause of the Constitution.

In the case of the firm awarded the contract, the proposal documents and ideas in the documents

do become property of the state. It is not clear whether the selected firm would receive

compensation for proposal preparation or if only the unsuccessful firms would be paid. (See

amendments.)

OTHER SUBSTANTIVE ISSUES

Currently, the number of responses to requests for proposals for state public works projects

conducted by the Property Control Division (PCD) of the General Services Department (GSD)

varies from one up to ten, but averages between three and five firms submitting proposals.

AMENDMENTS

GSD suggest the following amendments:

•

On page 4, line 3, after “actual

", insert", reasonable

". This proposed amendment would

add ambiguity to the statute unless this term is further defined.

•

On page 4, line 3, after “expenses", insert “as defined by rule

".

•

On page 4, line 4, after “Payment", insert “to firms not selected

".

GM/nt