Dive Brief:

• The New York City Department of Design and Construction (DDC) has begun the process of finding contractors for four new jails in the city, each with a budget of more than $1 billion. The projects will be contracted via a Guaranteed Maximum Price (GMP) approach, according to a DDC press release.
• Four design-build teams will be selected for the jails in Brooklyn, Queens, the Bronx and Manhattan, each one an 886-bed high-rise detention facility with an anticipated budget of $1.5 to $1.8 billion, according to the release. Already, the DDC has initiated more than $400 million in early works projects at the sites, including the ongoing construction of a parking lot and community center in Queens.
• The GMP contracts will allow for a precision, two-step scoping and pricing process for the facilities, in which proposers offer a "target price" during the RFP stage, followed by a collaborative phase with the city to develop and commit to a buildable contract price, the release said. 

Dive Insight:

The city is hoping to use the new jails as a way to transition into what it calls "safer and fairer" facilities, according to the release. With the construction of these jails, the city will also close its Rikers Island correctional facility.

The new jails are a large part of the city’s 2019 criminal justice reform plan. By relying on GMP contracts, the city will be protected from cost overruns, said Thomas Foley, DDC public buildings deputy commissioner. Foley said that the DDC reached out to industry partners to understand what would be the best way to get the most participation by highly qualified firms.

"This has led us to modify our upcoming contracts from lump sum to a more flexible, collaborative Guaranteed Maximum Price format that we believe will be preferable for the industry while also protecting the city from unexpected cost overruns on these highly complex projects," Foley said in the release.

GMP contracts are attractive to customers because they shift a significant amount of risk to the party performing work and provide an easily understandable price that caps at a pre-negotiated level, according to Levelset.

Lump-sum contracts, on the other hand, offer an initial price that a contracting party will pay out, regardless of how much the project actually costs to complete, according to Levi Barrett, a partner at the New York office of Peckar & Abramson.

In addition, the DDC will also be able to "open the books" on the project and see how much money was actually spent on each part, from subcontractors to the actual construction of the project itself. In a lump-sum contract, this wouldn’t be an option, as the contractor would be able to keep savings earned on a project.

Barrett said that on top of these savings, there is nothing about the mechanism of a GMP contract that could be prohibitive to smaller contractors, but did note that the accounting involved would be different from any lump-sum contract.

"It’s like with any contract, really, understanding the deal that you're getting into is very, very important. If you've never done the design-build contract in your life, you need to be prepared to know what you don't already know," Barrett said.

The final price, despite the advertised budget, will be negotiated between the eventual contractor and the DDC, according to the release.