Selection and Evaluation of Alternative Contracting Methods to Accelerate Project Completion (2008)

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3BACKGROUND To promote accelerated project delivery, reduce overall cost, and assure that the constructed facilities meet quality and safety standards, many state transportation agencies (STAs) have started implementing alternative contracting methods (ACMs). The implementation of alternative contracting in the Federal-Aid Highway Program began in the early 1980s. At that time, FHWA allowed the states to evaluate incentive/ disincentive (I/D) provisions for early contract completion through National Experimental Project and Evaluation No. 24. This program resulted in a change in FHWA policy, which had previously prohibited participation in bonus payments for early completion. In 1988, a TRB task force was formed to evaluate innova- tive contracting practices. This task force requested that FHWA establish a project to evaluate and validate the findings of Transportation Research Circular 386, Innovative Con- tracting Practices (1991). In response, FHWA initiated Spe- cial Experimental Project No. 14 (SEP-14)—Innovative Contracting (“Briefing . . . ” 2007). This experimental pro- gram has allowed the states to evaluate promising contracting techniques that do not fully comply with FHWA’s construc- tion contracting statutory requirements but still provide for open competition. The primary innovative practices originally approved for evaluation under SEP-14 were cost-plus-time bidding, lane rental, design–build contracting, and warranty clauses. After a number of evaluation projects utilizing cost-plus- time bidding and lane rental contract provisions, FHWA declared these techniques to be operational May 4, 1995. Later that same year, FHWA published an Interim Final Rule (August 25, 1995) for warranties. This policy allowed the states to use warranty contract provisions for specific construction products or features on National Highway System projects. After allowing the states to evaluate the design–build project delivery method on an experimental basis for more than 10 years, FHWA issued a December 10, 2002, Final Rule making design–build contracting an allowed project de- livery method (U.S. DOT 2002). On October 6, 2004, FHWA established Special Experimental Project No. 15 to encour- age tests and experimentation in the use of public–private partnership (PPP) projects (“New . . . ” 2004). This program is intended to increase project management flexibility, foster innovation, improve efficiency, and support new project rev- enue streams. In an August 14, 2007, Final Rule, FHWA issued revised design–build regulations to comply with Sec- tion 1503 of SAFETEA-LU. The revised regulation allows states to issue requests for proposals, award contracts, and issue notices to proceed for preliminary design work before the conclusion of the National Environmental Policy Act process. This regulation could accelerate the delivery of large transportation projects pursued under PPPs. STAs likely have different approaches to selecting ACMs. For example, based on its previous experiences, enabling legislation, and specific needs, an STA would select the method that would be the most beneficial to meeting a project’s objectives. However, this process is not always conducted in a methodological manner. The selection process often can be myopic and governed by arbitrary decisions to implement one method over another without a comprehensive assessment of advantages and disadvantages. Many factors guide the selection of ACMs. Although some factors are easily identified and assessed, others are less so. Even though such assessment can be difficult to conduct, some STAs have experienced personnel who can qualita- tively compare ACMs, as well as identify factors that govern the decision to use them. Such personnel can help evaluate the role of these factors in selecting ACMs. STUDY GOALS AND OBJECTIVES The overall goals of this study were to summarize the state of practice in selecting ACMs that can accelerate project com- pletion as well as to identify driving factors for selecting one type of alternative contracting technique over another. In this study, accelerated project completion is defined as earlier completion date through faster construction, expedited proj- ect development, shorter duration of project closeout, or a combination of these. The goals were achieved by accomplishing the following objectives: 1. Identify and describe ACMs, including their relation- ship to accelerated project completion; CHAPTER ONE INTRODUCTION

2. Identify and evaluate driving factors for the selection of specific ACMs; 3. Identify advantages and disadvantages of ACMs along with problems with implementation and lessons learned; 4. Assess the characteristics and performance of ACMs with respect to their application in highway industry; and 5. Assess the use of systematic processes in the selection and evaluation of ACMs. STUDY METHODOLOGY The study methodology was based on three sequential efforts. The first effort focused on the selection of contracting methods typically implemented with the intent to accelerate project completion. Initially, 17 methods were identified from the AASHTO Primer on Contracting for the Twenty-first Century (Primer . . . 2006). Next, a comprehensive review of the cur- rent literature regarding ACMs was conducted. This review focused on the 17 methods and also considered their potential to reduce schedule duration. Finally, an electronic survey 4 including quantitative and qualitative questions was developed and conducted using a website-based survey instrument. Selection of Methods The contracting methods studied were taken from the Primer, which describes 43 different methods related to contracting. The selection of the methods that were the subject of this syn- thesis was conducted through an iterative process, described in Table 1. As indicated, the final selection of contracting methods was derived from different sources. Table 2 categorizes the 19 contracting methods believed to accelerate project com- pletion that were considered in the study. Literature Review A comprehensive literature review included printed and on- line resources such as Transportation Research Information DescriptionSteps Initially, selected 15 of 43 contracting methods, Primer on Contracting for the Twenty-first Century (Primer… 2006) thought to accelerate project completion by synthesis authors. Divided the identified methods into three categories: 1: Directly related to accelerating project completion 2: Indirectly related to accelerating project completion 3: May be related to accelerating project completion Requested panel agreement for the first category and their inputs/comments regarding the other two categories. Obtained the panelís agreement for the 15 identified contracting methods together with two additional methods suggested by the Panel, making the total 17. Added three other contracting methods based on experience of STAs after receiving the surveys, making the total 19. Consolidated design–build–warrant method with the traditional design–build method based 1 2 3 4 5 6 on the panel’s suggestions. Note: Consolidating design–build–warrant with the traditional design–build method reduced the number “Recommended by Authors” to 14. TABLE 1 SELECTION OF CONTRACTING METHODS Recommended by Authors 1 2 3 Recommended by Panel Indicated by STAs Cost-Plus-Time Bidding Active management payment Design–build– maintain Contractor overhead costs Design sequencing Design–Build Construction manager at risk Early contractor involvement Alliancing Lump-sum bidding Incentives/Disincentives Flexible notice to proceed Public–private partnerships Liquidated savings Interim Completion Dates sr o t c a f yt i l a u Q la t n e R en a L gn i d d i B re t e m a r a P - i t l u M se v i t n e c n I es u c x E - o N Note: The contractor overhead costs method is an expanded version of the unabsorbed home office overhead costs method that is included in the Primer (2006). Design–build–warrant is included in the design-build method. TABLE 2 CATEGORIZATION OF CONTRACTING METHODS

5Services, Transportation Research Records, and the ASCE and STA websites. Among the documents reviewed, some de- scribed the state of practice, and others provided an initial eval- uation of the application of ACMs. In addition, several other publications contained information about the comparison of these methods and their impact on measures such as schedule, cost, and quality. Several articles summarized research de- scribing legal issues in regard to applying certain methods in certain states. Guidelines and selection criteria were among other valuable information extracted from STA websites. An- alyzing these references provided insight into ACMs, created sound knowledge of existing implementation issues and legal barriers, and established a platform for evaluation of the sur- vey data. A list of existing references regarding each of these alternative contracting techniques is included in Appendix C. Questionnaire The electronic survey was designed to gather information on aspects of applying ACMs. The electronic survey distinguished two categories of questions: (1) questions related to the general approach agencies take in application of ACMs and (2) ques- tions related to the experience agencies have with particular methods. These categories are depicted in Figures 1 and 2. As shown in Figure 1, information about the overall application of ACMs was collected in the first part of the survey. The questions posed to STA personnel concerned data collection process, potential implementation barriers, and previous ex- perience, as well as the existence of a separate business unit to manage alternative contracting. The first part of the survey ends with questions about tracking life-cycle performance of the projects. The second part of the survey (see Figure 2) is re- lated to application of specific methods, including enabling legislation, selection influencing factors, implementation problems, advantages and disadvantages, lessons learned, and impacts of each method on project performance. The survey was designed to include both questions with preselected answers and open-ended questions. Preselected answers were used only when there was some certainty that the suggested answers adequately represented the range of likely answers. The option to add an answer was provided. Open- ended questions were used when there was uncertainty as to the anticipated answer. The survey allowed respondents to add up to two additional contracting methods their agencies had implemented beyond the initial methods covered in the survey. A version of the questionnaire is provided in Appendix A. STATE TRANSPORTATION AGENCY PARTICIPATION The survey was distributed to the members of the AASHTO Subcommittee on Construction in all 50 states, the District of Columbia, and Puerto Rico. Two follow-up requests were made to nonrespondents asking them to participate in the survey. Other follow-up requests were made to selected survey respondents to collect documents regarding application of particular methods or processes implemented by STAs. Thirty STAs responded to the survey, as shown in Figure 3. Some STAs may not have responded to the survey owing to differing interpretations of the term “alternative contracting method.” For example, one STA staff person did not view cost-plus-time and lane rental as ACMs, only as contract stipulations that are bid to expedite the work. To clarify re- sponses further, the last request for participation included a list of the 17 methods covered in the survey with their de- scriptions taken from the Primer. ANALYSIS APPROACH The analysis approach focused first on the frequency of im- plementation. The expectation was that those methods likely to accelerate project completion would have the highest implementation frequency. Based on this assumption, three categories of implementation were established to represent the collected data. Frequencies were calculated when quanti- tative answers were provided. Histograms were developed to show these data. In the case of open-ended questions, an- swers were categorized where possible. When more than one agency provided a similar response, frequency of citing the similar response was noted. Open-ended question responses were summarized in tabular format with supporting text as well as with written text capturing key thoughts provided by STAs. Along with the data extracted from surveys, existing literature was used as supporting evidence in the analysis. REPORT ORGANIZATION This report is composed of five chapters. The first chapter in- troduces the subject area and covers scope, objectives, and study methodology. Chapter two discusses organizational bar- riers and the use of enabling legislation as a precursor to de- scribing the different contracting methods used by STAs. This chapter also presents perceived advantages and disadvantages of each contracting method. Chapter three presents key influ- encing parameters in selection of these contracting methods and their impact on project duration, cost, and quality. Im- plementation problems and lessons learned are highlighted. Chapter four covers issues regarding existing systematic processes for selection of ACMs. Finally, chapter five summa- rizes the information presented in previous chapters and offers conclusions and recommendations in regard to implementa- tion of ACMs to assist in accelerating project completion. The appendices provide important supplemental informa- tion. Appendix A contains a section of the survey question- naire on ACMs. Appendix B lists state governmental contacts and the ACMs used in their states. Appendix C provides a bibliography for the ACMs discussed in this study. Finally, Appendix D offers lists of states with legislation for PPP and design–build.

6Agency Information What Were The Barriers? Currently implementing Alternative Contracting Methods? How to access the documents? Does the agency have a business unit for Alternative Contracting Methods? Does it have a weblink? Does the agency have a systematic process for Alternative Contracting Methods? Organizational Legal Other Does the agency track life-cycle performance of the projets? Online Hard copy What are the performance indicators? Yes No Yes No Yes URLYes No Yes No STA System-Wide Approaches End No FIGURE 1 Overall application of alternative contracting methods by state transportation agencies.

7Number of times the method has been applied? Does the agency have enabling legislation for the method? What are the influencing parameters for selection of this method? What were the Implementation problems? What were the Advantages/ Disadvantages What were the lesson learned? What were the impacts? Quality Duration Cost Description No Size Complexity Type Critical Completion Date Yes Method-Related Questions Does your agency have experience regarding the selected method? I=Corresponding method to the value of I (with an initial value of 1) Yes No End I=17 No Yes I=I+1 FIGURE 2 Questions related to methods of using alternative contracting methods.

8FIGURE 3 States that responded to the survey.