NYC is building $ 6 billion worth of new prisons with guaranteed high-price contracts

Diving letter:

  • The New York Department of Design and Construction (DDC) has begun finding contractors for four new prisons in the city, each with a budget of more than $ 1 billion. The projects are awarded using a Guaranteed Maximum Price (GMP) approach, according to a DDC press release.
  • Four design-build teams are in charge of the prisons in. selected Brooklyn, Queens, the Bronx and Manhattan, eEach has a high-rise detention facility with 886 beds and an estimated budget of $ 1.5 billion to $ 1.8 billion, the statement said. DDC has already initiated more than $ 400 million in early construction projects at the sites, including the ongoing construction of a parking lot and community center in Queens.
  • The GMP contracts allow for a precise, two-step scoping and pricing process for the facilities, with vendors offering a “target price” during the RFP phase, followed by a phase of collaboration with the city to develop a buildable contract and negotiate price , it said in the publication.

Dive Insight:

The city hopes to use the new prisons as a means of transition to so-called “safer and more equitable” facilities, the press release said. With the construction of these prisons, the city will too Rikers Island correctional facility closes.

The new prisons are a big part of the city 2019 Criminal Law Reform Plan. B.If you rely on GMP contracts, the city will be protected from cost overruns, said Thomas Foley, DDC deputy commissioner for public buildings. Foley said the DDC was reaching out to industry partners to find out how best to get high-quality companies involved.

“This has led us to move our upcoming contracts from lump sums to a more flexible, collaborative format of the guaranteed maximum price, which we believe is preferable for the industry while protecting the city from unexpected cost overruns on these highly complex projects,” said Foley at the Release.

GMP contracts are attractive to customers because they shift a significant amount of risk to the executing party and offer an easily understandable price that is limited to a pre-negotiated level. according to level set.

Flat-rate contracts, on the other hand, offer an initial price that either party pays regardless of how much the project actually costs, says Levi Barrett, a partner in Peckar & Abramson’s New York office.

In addition, the DDC can also “Open the books” about the project and see how much money was actually spent on each part, from the subcontractors to the actual construction of the project itself. With a flat-rate contract this would not be an option as the contractor could keep the savings made on a project.

Barrett said that in addition to those savings, there is nothing about the mechanism of a GMP contract that could be prohibitive to smaller contractors, but noted that the related bookkeeping would be different from any flat-rate contract.

“It’s really like any contract that it’s very, very important to understand the deal you are entering into. If you’ve never signed a design-build contract in your life, you need to be prepared to know what you’re doing. “I don’t know yet,” Barrett said.

According to the notification, the final price will be negotiated between the potential contractor and the DDC, despite the advertised budget.

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