BUILD OPERATE TRANSFER (BOT) AND OTHER

be disseminated or disclosed to any person or entity other than the intended recipient(s), and may not be reproduced, in any form, without the express written consent of the author or presenter.

The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

@BTLawNews

BUILD OPERATE TRANSFER (BOT)

AND OTHER CONSTRUCTION OPTIONS

Rick Hall

Partner

Barnes & Thornburg LLP

(317) 341-0044

rhall@btlaw.com

Paul Okeson

President

Garmong Construction

(317) 514-4843

pokeson@garmong.net

which may not be disseminated or disclosed to any person or entity other than the intended recipient(s), and may not be repro duced, in any form, without the express written consent of

the author or presenter. The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

Available Construction Methods

Design-Bid-Build (Indiana Code 36-1-12)

Design-Build (Indiana Code 5-30)

Construction Manager as Constructor (Indiana Code 5-32)

Build Operate Transfer (Indiana Code 5-23)

which may not be disseminated or disclosed to any person or entity other than the intended recipient(s), and may not be repro duced, in any form, without the express written consent of

the author or presenter. The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

Design-Bid-Build Method

Highlights of the process

• The governmental entity must hire an architect or engineer to

prepare detailed plans and specifications

• The governmental entity may not have plans and specifications that

“unduly limit competition” which may make it difficult to pre-qualify

bidders

• The governmental entity may also hire a construction manager, an

owner’s representative/clerk of the works or the architect/engineer

to supervise the construction

which may not be disseminated or disclosed to any person or entity other than the intended recipient(s), and may not be repro duced, in any form, without the express written consent of

the author or presenter. The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

Design-Bid-Build Method (cont’d.)

Highlights of the process (cont’d.)

• The governmental entity publicly bids the construction project

and awards the construction contract to the lowest responsive

and responsible bidder

• Minimum 15-day response period required, but may be longer

• Payment and performance bonds and retainage are required

• The timeline from the beginning of design to award of the

construction contract for a $1,000,000-10,000,000 project is

normally 4-7 months

which may not be disseminated or disclosed to any person or entity other than the intended recipient(s), and may not be repro duced, in any form, without the express written consent of

the author or presenter. The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

Design-Bid-Build Method (cont’d.)

Primary Positives

• This method has been used most often by local and state

governmental entities and has a long history

• The public bidding ensures the governmental entity is getting the

lowest bid by the bidding market on the day bids are received

• The architect, engineer, construction manager or owner’s

representative/clerk of the works provides the governmental entity

an objective third party to review the work being performed by the

contractor

• The governmental entity gets the benefit of any unused contingency

which may not be disseminated or disclosed to any person or entity other than the intended recipient(s), and may not be repro duced, in any form, without the express written consent of

the author or presenter. The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

Design-Bid-Build Method (cont’d.)

Primary Negatives

• The governmental entity may not be able to avoid using a

problem contractor if the contractor submits the lowest

responsive bid

• The governmental entity will incur the design fees earlier

• Change orders are common

• If there is a defect in the project, everyone is blaming everyone

else for the defect

• No measurable way to incentivize good performance or punish

bad performance

which may not be disseminated or disclosed to any person or entity other than the intended recipient(s), and may not be repro duced, in any form, without the express written consent of

the author or presenter. The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

Design-Build Method

Highlights of the process

• The governmental entity must hire an architect or engineer to

prepare and issue a Combined Request for Qualifications/Request

for Proposals (for projects costing $5,000,000 or less) or a Request

for Qualifications followed by a Request for Proposals (for projects

costing more than $5,000,000) in accordance with a public notice

• Minimum 37-day response period (for projects costing $5,000,000 or

less) or 15-day response period required (for projects costing more

than $5,000,000), but can be longer

which may not be disseminated or disclosed to any person or entity other than the intended recipient(s), and may not be repro duced, in any form, without the express written consent of

the author or presenter. The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

Design-Build Method (cont’d.)

Highlights of the process (cont’d.)

• The governmental entity creates a committee (containing a licensed architect

and engineer along with others) that scores all aspects of the responses

submitted except the sealed price proposals

• The governmental entity awards the design-build contract to the respondent

that provides the best value based on the respondent’s score relative to its

price

• The design-builder selected is responsible for both the design and the

construction of the project

• The contract can be either a guaranteed maximum price contract or a cost

plus percentage contract

• The contract may identify a contingency and how that is shared by the parties

which may not be disseminated or disclosed to any person or entity other than the intended recipient(s), and may not be repro duced, in any form, without the express written consent of

the author or presenter. The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

Design-Build Method (cont’d.)

Highlights of the process (cont’d.)

• Change orders permitted in only limited situations or if there

is a change in scope

• Payment and performance bonds are required in the amount

of the contract minus design service fees

• No retainage required

• The governmental entity may hire an owner’s

representative/clerk of the works to monitor performance of

the design-builder

which may not be disseminated or disclosed to any person or entity other than the intended recipient(s), and may not be repro duced, in any form, without the express written consent of

the author or presenter. The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

Design-Build Method (cont’d.)

Highlights of the process (cont’d.)

• The timeline from the creation of the Combined Request for

Qualifications/Request for Proposals to approval of the design-build

contract for a $1,000,000-5,000,000 project is normally 3-5 months

• The timeline from the creation of the Request for Qualifications to

approval of the design-build contract for a $5,000,000-10,000,000

project is normally 5-7 months

which may not be disseminated or disclosed to any person or entity other than the intended recipient(s), and may not be repro duced, in any form, without the express written consent of

the author or presenter. The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

Design-Build Method (cont’d.)

Primary Positives

• The scoring process, which involves an engineer and an

architect, provides for transparency and allows for a best

value award instead of a low bid award

• Limitations may be imposed on who may be an acceptable

respondent

• The upfront (but not overall) professional costs incurred

by the governmental entity are significantly less

• Usually few or no change orders

which may not be disseminated or disclosed to any person or entity other than the intended recipient(s), and may not be repro duced, in any form, without the express written consent of

the author or presenter. The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

Design-Build Method (cont’d.)

Primary Positives (cont’d.)

• Incentives and penalties can be included in the contract

• If there is a defect in the project (with certain exceptions

for latent defects such as soil defects), then the design-

builder is solely responsible for correcting the problem

at its cost

which may not be disseminated or disclosed to any person or entity other than the intended recipient(s), and may not be repro duced, in any form, without the express written consent of

the author or presenter. The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

Design-Build Method (cont’d.)

Primary Negatives

• The timeline for the process and the preparation to be

done by the respondents may reduce the pool of

respondents depending on the size of the project

• Some, or much, of the control of the governmental

entity over the design of the project may be lost

• The governmental entity may lose all or a portion the

benefit of a project coming in under budget

• Unclear whether there are really cost savings

• The timeline for the selection of the design-builder is

very similar to the Design-Bid-Build Method

which may not be disseminated or disclosed to any person or entity other than the intended recipient(s), and may not be repro duced, in any form, without the express written consent of

the author or presenter. The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

Construction Manager as Constructor Method

Highlights of the process

• The governmental entity must hire an architect or engineer to

prepare detailed plans and specifications like it would for the

Design-Bid- Build Method

• The governmental entity hires the Construction Manager

using a Request for Proposals process pursuant to a public

notice

• Minimum 15-day response period required, but may be longer

• The Construction Manager is selected by an evaluation

committee subject to governing body approval

which may not be disseminated or disclosed to any person or entity other than the intended recipient(s), and may not be repro duced, in any form, without the express written consent of

the author or presenter. The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

Construction Manager as Constructor Method

(cont’d.)

Highlights of the process (cont’d.)

• Unlike the design-build method, there is no specific requirement

regarding the composition of the evaluation committee

• After the Construction Manager is selected, the public bidding of

the construction contracts occurs by the Construction Manager

• The construction contracts are awarded by the Construction

Manager to the lowest responsive and responsible bidder for

each trade

• The Construction Manager, not the governmental entity, enters

into the contracts with the contractors

which may not be disseminated or disclosed to any person or entity other than the intended recipient(s), and may not be repro duced, in any form, without the express written consent of

the author or presenter. The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

Construction Manager as Constructor Method

(cont’d.)

Highlights of the process (cont’d.)

• The potential bidders may be pre-qualified if the pre-

qualifications are in writing and approved and published by

the governmental entity

• A guaranteed maximum price may be used, but not required

• Payment and performance bonds are required in the amount

of the Construction Manager’s contract

• No retainage required

• The governmental entity may also hire an owner’s

representative/clerk of the works or an architect/engineer to

supervise the construction on behalf of the owner

which may not be disseminated or disclosed to any person or entity other than the intended recipient(s), and may not be repro duced, in any form, without the express written consent of

the author or presenter. The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

Construction Manager as Constructor Method

(cont’d.)

Highlights of the process (cont’d.)

• The Construction Manager may perform construction

work on the project if it is approved by the governmental

entity, the work equals less than 20% of the total value of

the project and the Construction Manager can provide

evidence to the governmental entity that it is charging

less for that work than the lowest responsive and

responsible bidder for such work

• The timeline from the beginning of design to award of

the construction contracts for a $1,000,000-10,000,000

project is normally 4-7 months

which may not be disseminated or disclosed to any person or entity other than the intended recipient(s), and may not be repro duced, in any form, without the express written consent of

the author or presenter. The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

Construction Manager as Constructor Method

(cont’d.)

Primary Positives

• The governmental entity maintains control of the design

of the project

• The public bidding of the construction contracts ensures

the governmental entity is getting the lowest bid by the

bidding market on the day bids are received; however,

this is only economical beneficial to the governmental

entity in a cost-plus contract

• The governmental entity may pre-qualify and limit the

bidders for the construction work

which may not be disseminated or disclosed to any person or entity other than the intended recipient(s), and may not be repro duced, in any form, without the express written consent of

the author or presenter. The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

Construction Manager as Constructor Method

(cont’d.)

Primary Positives (cont’d.)

• The architect, engineer or owner’s representative/clerk of the

works provides the governmental entity an objective third

party to review the work being performed by the contractor

• The governmental entity may get the benefit of any unused

contingency

• Penalties and incentives may be included in the contract with

the Construction Manager and the contractors

which may not be disseminated or disclosed to any person or entity other than the intended recipient(s), and may not be repro duced, in any form, without the express written consent of

the author or presenter. The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

Construction Manager as Constructor Method

(cont’d.)

Primary Negatives

• The governmental entity will incur the design fees earlier

• The governmental entity may experience change orders

related to design issues

• If there is a defect in the project, everyone is blaming

everyone for the defect

• The governmental entity may lose all or a portion of the

benefit of a project coming in under budget if the

contract is a guaranteed maximum price contract

• The timeline for the project is very similar to the Design-

Bid-Build Method

which may not be disseminated or disclosed to any person or entity other than the intended recipient(s), and may not be repro duced, in any form, without the express written consent of

the author or presenter. The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

Build-Operate-Transfer (“BOT”) Method

• A governmental body may enter into a BOT Agreement for any public

facility for use by the governmental body.

• BOT Agreement must identify which costs for which developer is

responsible and costs for which governmental body responsible.

• Upon completion, developer/offeror must operate the facility for some

period of time before transferring it back to governmental entity (30 days

common, but could be much longer term).

• BOT Agreement may provide for the transfer of the public facility to the

governmental body by means of a lease or an installment purchase

contract. The lease payments or installment payments may be made from

any source legally available to the governmental body for such purpose.

which may not be disseminated or disclosed to any person or entity other than the intended recipient(s), and may not be repro duced, in any form, without the express written consent of

the author or presenter. The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

Build-Operate-Transfer (“BOT”) Method (cont’d)

Highlights of the process

• The governmental entity adopts the provisions of the BOT Statute

(I.C. 5-23)

• The governmental entity may issue a request for information (RFI) to

gain information (1) on factors involved in, the feasibility of, or

potential consequences of a proposed project, (2) to assist in

preparing a request for proposals (RFP), or (3) to evaluate any aspect

of an existing BOT Agreement or associated facility

• Responses to RFI confidential, unless waived by respondent

• No action required to be taken after receiving responses to RFI

• An RFI is not required as part of the BOT method, but may be helpful

which may not be disseminated or disclosed to any person or entity other than the intended recipient(s), and may not be repro duced, in any form, without the express written consent of

the author or presenter. The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

Build-Operate-Transfer (“BOT”) Method (cont’d)

Highlights of the process (cont’d)

• The governmental entity must solicit proposals through an RFP, which must

include:

– Factors/criteria to be used in evaluating proposals

– Statement concerning relative importance of price and other factors

– Statement concerning whether proposals must be accompanied by a certified

check or other evidence of financial responsibility

– Statement concerning whether discussions may be conducted with offerors for

the purpose of clarification to assure full understanding of and responsiveness

to the RFP

• Notice of the RFP published two times, 1 week apart, with second

publication at least 7 days before proposals are due.

which may not be disseminated or disclosed to any person or entity other than the intended recipient(s), and may not be repro duced, in any form, without the express written consent of

the author or presenter. The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

Build-Operate-Transfer (“BOT”) Method (cont’d)

Highlights of the process (cont’d)

• Once proposals received, discussions may be conducted with offerors for the

purpose of clarification if provided in the RFP

• The governmental entity can form an evaluation committee. There are no

requirements regarding the composition of a committee

• Eligible offerors must be accorded fair and equal treatment with respect to any

opportunity for discussion and revisions of proposals

• The governmental body must negotiate the best and final offers of responsible

offerors who submit proposals that are determined to be reasonably

susceptible of being selected for a BOT Agreement

• After best and final offers have been negotiated, the governmental body shall

either make a recommendation to the board to award the BOT Agreement to

an offeror or shall terminate the RFP process

which may not be disseminated or disclosed to any person or entity other than the intended recipient(s), and may not be repro duced, in any form, without the express written consent of

the author or presenter. The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

Build-Operate-Transfer (“BOT”) Method (cont’d)

Highlights of the process (cont’d)

• Once preferred offer selected, must publish notice of public hearing (10-days in

advance), hold public hearing on the preferred offer, and award BOT

Agreement to the preferred offer.

• If term of BOT Agreement is greater than 5 years, must also be approved by the

fiscal body of the political subdivision

• The BOT Agreement must provide for a payment bond in an amount not less

than 100% of the cost to design and construct the facility

• The BOT Agreement must provide for a performance bond in an amount not

less than 50% of the cost to design and construct the facility

• No retainage required

• The governmental entity may hire an owner’s representative/clerk of the works

to monitor performance by the selected developer.

which may not be disseminated or disclosed to any person or entity other than the intended recipient(s), and may not be repro duced, in any form, without the express written consent of

the author or presenter. The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

Build-Operate-Transfer (“BOT”) Method (cont’d)

Primary Positives

• The governmental body has the ability to negotiate best and final

offers with potential firms, and maintains control of selecting its

preferred proposal

• The governmental body holds a single contract with a developer

team

• Through RFP process, limitations may be imposed on who may be an

acceptable respondent

• The upfront (but not overall) professional costs incurred by the

governmental entity may be significantly less

• Penalties and incentives may be included in the BOT Agreement

which may not be disseminated or disclosed to any person or entity other than the intended recipient(s), and may not be repro duced, in any form, without the express written consent of

the author or presenter. The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

Build-Operate-Transfer (“BOT”) Method (cont’d)

Primary Positives (cont’d)

• If there is a defect in the project, the selected developer is

solely responsible for correcting the problem at its cost

• Generally requires less involvement in the project by the

governmental entity, compared to traditional design-bid-build

method

which may not be disseminated or disclosed to any person or entity other than the intended recipient(s), and may not be repro duced, in any form, without the express written consent of

the author or presenter. The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

Build-Operate-Transfer (“BOT”) Method (cont’d)

Primary Negatives

• The timeline for the process and the preparation to be done by the

respondents may reduce the pool of respondents depending on the

size of the project and the time allowed for responses

• Some, or much, of the control of the governmental entity over the

design of the project may be lost

• The governmental entity may not be able to provide satisfactory

objective information regarding why one qualified offer was selected

over the other proposals

• No public bidding required, so it’s unclear whether there are really

cost savings from delivery method

which may not be disseminated or disclosed to any person or entity other than the intended recipient(s), and may not be repro duced, in any form, without the express written consent of

the author or presenter. The information on this page is intended for informational purposes only and shall not be construed as legal advice or a legal opinion of Barnes & Thornburg LLP.

Build-Operate-Transfer (“BOT”) Method (cont’d)

Primary Negatives (cont’d)

• The governmental entity may lose all or a portion of the benefit of a project

coming in under budget if the contract is a guaranteed maximum price contract

• If developer team providing the financing,

– Embedded interest rate may be at a taxable borrowing rate, rather than much lower tax-

exempt interest rate at which governmental entity can borrow

– Developer financing usually has a 5-10 year term, with a balloon payment due at maturity,

which will need to be refinanced and creates interest rate risk

– Need to follow statutory procedures for incurrence of debt

– Might be subject to petition-remonstrance or referendum process

• Potential hidden costs in the form of developer fees, developer counsel fees,

spread or mark-up on actual interest rate received from developer’s lender