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Suggested Citation:"I. INTRODUCTION." National Research Council. 2023. Best Value Procurement for Highway Construction: Legal Issues and Strategies. Washington, DC: The National Academies Press. doi: 10.17226/27175.
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Suggested Citation:"I. INTRODUCTION." National Research Council. 2023. Best Value Procurement for Highway Construction: Legal Issues and Strategies. Washington, DC: The National Academies Press. doi: 10.17226/27175.
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Suggested Citation:"I. INTRODUCTION." National Research Council. 2023. Best Value Procurement for Highway Construction: Legal Issues and Strategies. Washington, DC: The National Academies Press. doi: 10.17226/27175.
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Suggested Citation:"I. INTRODUCTION." National Research Council. 2023. Best Value Procurement for Highway Construction: Legal Issues and Strategies. Washington, DC: The National Academies Press. doi: 10.17226/27175.
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Suggested Citation:"I. INTRODUCTION." National Research Council. 2023. Best Value Procurement for Highway Construction: Legal Issues and Strategies. Washington, DC: The National Academies Press. doi: 10.17226/27175.
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NCHRP LRD 90 3 BEST VALUE PROCUREMENT FOR HIGHWAY CONSTRUCTION: LEGAL ISSUES AND STRATEGIES Ghada M. Gad, California State Polytechnic University, Pomona, CA; Christofer M. Harper and Mohammed Mehany, Colorado State University, Fort Collins, CO; Christine Ryan, Nossaman LLP, Austin, TX; and Nancy Smith, Nossaman LLP, Los Angeles, CA I. INTRODUCTION is digest concerns legal issues and strategies for best value procurements, focusing on situations that may give rise to legitimate protests and steps that agencies may take to reduce the risk of protests and the consequent impacts to the procure- ment and the transportation agency. A national survey was conducted as part of this study to collect pertinent data from state departments of transportation (DOT) on their best value procurement processes, issues and protests, and best practices for eectively managing best value procurement. In addition, existing published literature, federal and state legislations and policies, as well as published protests, were reviewed and refer- enced in the relevant sections of this legal research digest. Agencies should be aware that it is not possible to eliminate the risk of protest completely and recognize that protests play an important role in protecting the integrity of public procurement by providing remedies for an agency’s failure to follow legal re- quirements applicable to procurements and for actions that are inconsistent with full and open competition. Notably, there are relatively few documented protests relating to best value pro- curements, and most such protests were resolved in favor of the procuring agency. ese cases are nevertheless worth reviewing to determine what types of actions may result in protests and what measures can be adopted to avoid them. Best value procurement is a process used by agencies to select the most advantageous oer for a contract by evaluating other key factors in addition to the price, with the goal of enhancing the long-term performance and value under the contract.1 is introductory section provides a basic denition of the best value procurement process. It also describes dierent delivery meth- odologies that may utilize best value procurements and provides an overview of legislation authorizing transportation agencies to use the best value selection process in their procurements. A. What is Best Value Procurement? e Federal Highway Administration (FHWA) denes best value selection as “any selection process in which proposals con- tain both price and qualitative components and award is based upon a combination of price and qualitative considerations.”2 In the transportation highway sector, the goals of best value selec- tion typically relate to the contractor’s/design-builder’s ability 1 See K. Molenaar and D. Tran, NCHRP Synthesis 471: Practices for Developing Transparent Best Value Selection Procedures, Transporta- tion Research Board of the National Academies, Washington, D.C., 2015. Available for download at: https://nap.nationalacademies.org/ download/22192. 2 23 CFR § 636.103. to provide innovative design and construction solutions, accel- erate project delivery within the agency’s budget, and enhance the long-term performance and value of construction.3 Factors considered may include “objective” elements such as contrac- tor record of completing comparable projects within schedule, timeliness and accuracy of submittals, and, depending on the data and scoring used, safety record. Certain other elements in- volving a greater degree of discretion in the evaluation may be considered “subjective,” such as eective management of sub- contractors, proactive measures to mitigate impacts to adjacent properties and businesses, training and employee development programs, corporate commitment to achieving customer satis- faction, and client relations.4 5 B. Why Best Value Procurement? Best value procurement combines elements of low-bid (which may result in the selection of a contractor with mini- mum qualications) and qualications-based selection (which does not include a price component as part of the selection) pro- curement methods, as it considers both cost and qualications/ performance as evaluation criteria.6 e agency determines appropriate selection criteria based on its assessment regard- ing matters relevant to the ultimate performance and overall cost of the completed facility or that contribute to eciently executing the work. When implementing alternative project delivery methodologies, one reason to use best value selection over low-bid is that, because of constrained stang and bud- gets, it is not possible for transportation agencies to “inspect” quality into the work. Excessive inspection may have a nega- tive impact on the project schedule and the contractor’s ability to implement innovative ideas and increase the likelihood of claims—contrary to the goals of using alternative project deliv- ery methods. erefore, a procurement process, like best value, 3 See D. Tran et al., Implementation of best value procurement for highway design and construction in USA, Eng. Constr. Archit. Manag. (2017). 4 D. Gransberg and J. Shane, NCHRP Synthesis 402: Construction Manager-at-Risk Project Delivery for Highway Programs, Transportation Research Board of the National Academies, Washington, D.C., 2010. Available for download at: https://nap.nationalacademies.org/ download/14350. 5 See S. Scott et al., NCHRP Report 561: Best-Value Procurement Methods for Highway Construction Projects, Transportation Research Board of the National Academies, Washington, D.C., 2006. Available for download at: https://nap.nationalacademies.org/download/13982. 6 P. Nguyen et al., Best value Procurement in Design-Bid-Build Con- struction Projects: Empirical Analysis of Selection Outcomes, J. Constr. Eng. (2018).

4 NCHRP LRD 90 Best value procurement in DBB allows the agency to assess fac- tors other than price, such as contractor qualications, extended warranties, design alternatives, trac control plans, and pub- lic outreach, which then enables the agency to justify awarding the contract to a proposer that did not submit the lowest bid.11 DBB procurements also frequently incorporate cost plus time bidding or “A + B bidding.” It is similar to best value since it involves evaluation of schedule, a non-price factor; however, it is generally considered consistent with low bid selection since the value of time is evaluated as part of the cost. When using best value procurement for DBB, the agency needs to develop a clear and concise RFP that eectively com- municates to proposers the submittal requirements for proposals and explains how proposals will be evaluated, including evalu- ation factors. Transportation agencies need to determine the components of the best value procurement process that provide value to a project other than price. While the design is complete in DBB procurements, the agency may adopt some of the ele- ments of best value procurements for DB projects, asking pro- posers to submit for evaluation during the procurement process the construction approach and team qualications, and even alternative technical concepts (ATCs) including design alterna- tives and innovations to gain potential project enhancements from proposers. 2. Design-Build (DB) DB is a project delivery method where design and construc- tion are awarded to a single contracting entity through an in- tegrated contract.12 Although DB contractor selection can be based on low bid, the procurement is more complex than an IFB for a DBB project since the contractor’s obligations include design, and the proposer must provide information demon- strating compliance with the agency’s technical requirements. Additionally, DB is oen used to accelerate the project sched- ule and to capture the benet of private sector innovation and technical solutions for complex projects. Accordingly, DB com- monly uses a best value approach that focuses on proposal sub- mittal requirements and evaluation criteria driven by specic project considerations. One of the most important aspects of a best value RFP is the creation of a fair and consistent evalua- tion system geared toward selecting the oeror with the highest probability of successfully completing the project on time and within budget. A best value DB procurement typically includes three pri- mary components: (1) the proposer’s qualications, including the engineer of record’s experience and capability of develop- ing a design that achieves the project’s technical requirements, along with the contractor’s experience and qualications; (2) the proposed design solution including ATCs, for example, con- crete versus asphalt, as well as the contractor’s plan for construc- tion of the project, including items such as QA/QC, safety, and trac control; and (3) the contract price, which must be aord- 11 See Tran, supra note 9. 12 See Molenaar, supra note 1. which considers value-related elements in awarding contracts, becomes appropriate.7 Some key benets of best value procurement for highway projects include improving quality through specic quality- driven criteria, reducing project duration, and allowing for in- novation in project planning and execution.8 9 us, best value oers an opportunity to determine, either through a tradeo process or a pre-set formula, whether a higher cost is justied by a higher quality product, accelerated schedule, reduced impacts, or other means of achieving agency goals. C. Best Value Procurement Use in Different Project Delivery Methods Although best value in transportation construction has been most commonly associated with xed price design- build (DB) projects, it is also used in traditional design-bid- build (DBB), progressive design-build (PDB), construction manager/general contractor (CMGC, also known as construc- tion management at risk or CMAR) and public-private part- nerships (P3). Table 1 identies various transportation agen- cies with best value authority for one or more project delivery methods. Figure 1 outlines the frequency of using best value procurement for various project delivery methods according to transportation agencies that completed a national survey questionnaire as a part of this study. A best value procurement may involve a one-step process with issuance of a request for proposals (RFP) or a two-step process initiated by a request for qualications (RFQ) for shortlisting proposers, followed by the issuance of an RFP to shortlisted proposers. Best value procurement procedures may dier depending on which delivery method is used. Under- standing those dierences and the approaches for each such delivery method helps the agency ensure the process is eec- tive and fair, reducing the likelihood of protests. e sections below describe these delivery methods and provide further information on using best value procurement with respect to each. 1. Design-Bid-Build (DBB) DBB is the most conventional project delivery method and requires the design to be completed before the construction contract is advertised.10 Typically, the agency issues an Invita- tion for Bids (IFB), including 100% complete engineering and design drawings and specications, and requests bids as well as other relevant information about the bidder, including mini- mum qualications for the job. Where a best value approach is used, the procurement may involve an RFP instead of an IFB. 7 See Scott, supra note 5. 8 S. Anderson and J. Russell, NCHRP Report 451: Guidelines for Warranty, Multi-Parameter, and Best Value Contracting, TRB, National Research Council, Washington, D.C., 2001. Available for download at: https://onlinepubs.trb.org/onlinepubs/nchrp/nchrp_rpt_451-a.pdf. 9 See D. Tran et al., Implementing Best value Procurement for Design– Bid–Build Highway Projects, Transp. Res. Rec. (2016). 10 See Molenaar, supra note 1.

NCHRP LRD 90 5 Table 1. Use of Best Value Procurement for Different Project Delivery Methods Transportation Agency DBB DB PDB CMGC P3 with Availability Payments P3 with Revenue Risk Arkansas Yes Yes Yes Yes Colorado Yes Yes Yes Yes Yes Connecticut Yes Yes DC Yes Florida Yes Yes Yes Yes Georgia Yes Yes Yes Idaho Yes Yes Yes Maine Yes Yes Maryland Yes Yes Yes Yes Yes Yes Massachusetts Yes Michigan Yes Yes Yes Yes Yes Yes Minnesota Yes Yes Yes Missouri Yes Yes Montana Yes Yes Nevada Yes Yes Yes New Mexico Yes Yes New York State Yes Yes North Carolina Yes Yes Ohio Yes Yes Yes Yes Oregon Yes Yes Yes Rhode Island Yes Yes Yes San Francisco Bay Area Rapid Transit District Yes Yes Yes Tennessee Yes Texas Yes Yes Utah Yes Yes Yes Yes Yes Yes Vermont Yes Virginia Yes Yes Yes Yes Yes Wisconsin Yes Wyoming Yes Yes able, realistic, and reasonable.13 e agency then considers price and other factors, using a tradeo (e.g., tradeo between cost and technical factors relevant to the project, see Figure 11 for an example), formula or another approach, to determine which proposal oers the best value. 3. Progressive Design-Build (PDB) PDB is a variation of DB that is increasingly used by trans- portation agencies. With PDB, the agency selects a design- builder using qualications-based or best value procurement at 13 See Scott, supra note 5. an early stage of project design.14 e design-builder and agency team progress the design together toward a nal design and contract price. As the design advances, the price is progressively developed to achieve an acceptable guaranteed maximum price (GMP). Agencies use third-party consultants to assist with cost verication. Furthermore, the agency can exercise the right to 14 See S. Greene et al., Early involvement of private developers in the consideration of long-term public-private partnership concession options: A discussion paper, (2017). Available for download at: https://intersector. com/resource/early-involvement-private-developers-consideration- long-term-public-private-partnership-concession-options-discussion- paper/.

6 NCHRP LRD 90 constructible design for the project that results in a reduced likelihood of construction claims.18 Once the design reaches an appropriate level, the agency and the CM then agree upon a GMP for the construction of the project and execute a construc- tion contract; if the parties fail to reach a GMP agreement, the agency may elect to put the project out to market for competi- tive procurement (e.g., o ramp).19 CMGC delivery permits an agency to consider qualications, past performance, and record of success when selecting the contractor. Although cost-related elements are considered (e.g., CMGC’s preconstruction phase fee) in a best value procurement, managerial competence and past performance factors are more important in the selection process than the hard bid aspects of the proposal. Procurement approaches for CMGC range from pure qualications-based selection (QBS) to combining qualications, proposed sched- ule, proposed fees, and unit prices for selected critical pay items. Where best value selection is used, the cost components to be considered include the preconstruction fee and may also include construction fee, general conditions, and elements of direct construction costs.20 One-step best value may resemble a one-step DBB best value procurement, except that the proposal will not include a xed price bid for the project. Aer receiv- ing the proposal, the agency evaluates the qualications and proposed fees and may also consider other aspects such as con- ceptual schedule and manufacturers’ catalog cuts. Two-step best value involves an initial RFQ followed by an RFP, similar to two- step DB best value procurements. As with other project delivery methodologies, it is important to establish clear requirements for the proposals and to communicate the evaluation factors to 18 See Construction program guide: Construction manager/general contractor project delivery, FHWA, (2017). Available for download at: https://www. wa.dot.gov/construction/cqit/cm.cfm. 19 See Molenaar, supra note 1. 20 See Gransberg, supra note 4. use a competitive procurement process to obtain a new contrac- tor if the initial design-builder and agency cannot agree to the proposed GMP.15 e best value PDB procurement resembles the best value DB procurement approach. A one or two-step approach can be used. A one-step approach could involve a best value selec- tion process (RFP) without shortlisting teams.16 In a two-step approach, the agency issues an RFQ to shortlist the potential design-builders that will receive the RFP based on best value selection. e same considerations of qualications and pro- posed design solutions from best value DB procurement are taken into account, while the price factor may include the fee for the design-builder’s services during the period from award until the GMP can be determined as the design is progressed.17 4. Construction Manager/General Contractor (CMGC or CMAR) e CMGC/CMAR project delivery method contemplates the agency will engage a construction manager/contractor dur- ing the development of the project design to provide input on scheduling, pricing, phasing, constructability, and other con- struction aspects to assist the agency with developing a more 15 K. Weisner, Progressive Design-Build. FDOT-FTBA Meeting (2020). Available for download at: https://cdn.ymaws.com/ba.site-ym. com/resource/resmgr/website_files/pdb_and_cmgc_webinar/6- 1-20FHWA-ProgressiveDB_-_F.pdf. 16 e Los Angeles Metropolitan Transportation Authority adopted a hybrid approach in selecting teams for pre-development agreements for the Sepulveda Transit Corridor project, and issued an RFP that included an initial step involving review of minimum qualications. See https://www.marvista.org/ncles/viewCommitteeFile/19835. 17 See Progressive design-build: Design-build procured with a progres- sive design & price. A design-build done right primer, Design-Build Institute of America, (2018). Available for download at: https://dbia. org/wp-content/uploads/2018/05/Primer-Progressive-Design-Build. pdf. 46% 53% 62% 74% 77% 90% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% CMGC/CMAR Design-Bid-Build PPP with Availability Payments Design-Build Progressive Design-Build PPP with Revenue Risk Figure 1. Frequency of transportation agencies using best value procurement with project delivery methods (n = 35 state transportation agencies).

NCHRP LRD 90 7 Appendix A includes information regarding state legisla- tion enabling state highway agencies and other transportation agencies to use best value procurement methods. In most cases, the authority is limited to DB, CMGC, and P3, but some agen- cies can use best value for DBB. Certain state statutes impose minimal constraints on the procedures to be followed, while other states have enacted cumbersome procedures making the process dicult to use. Regardless of whether they are speci- cally required by statute, certain procedures are appropriate to include in the procurement process to ensure the rationality and fairness of the selection decision.22 Section III provides an analy- sis regarding potential grounds for protest associated with the agency’s failure to follow statutory requirements. E. Impacts of Protests When a protest is led, the impacts on the agency can be signicant. Figure 2 illustrates the impacts best value procure- ment protests have on transportation agencies. is was col- lected from 21 transportation agency responses to the survey questionnaire conducted in this study. In addition, several state transportation agencies noted that bid protests, even unsuccess- ful protests, can damage its reputation and erode contractors’ trust in the process, thereby reducing competition in future best value procurements. Transportation agencies should recognize the following: Protests result in negative impacts to the transportation agency, which may include increased procurement costs and potentially project design and construction costs, schedule 22 See Scott, supra note 5. ensure that the reasons for the selection are readily apparent for a CMGC-delivered transportation highway project. 5. Public-Private Partnership (PPP or P3) P3 is a collaborative long-term contractual arrangement be- tween public and private entities to develop a project and pro- vide services to the general public for a specic time period.21 It is a project delivery method through which an agency might en- gage a private entity to provide nancing for the project, in addi- tion to potentially designing, constructing, operating and/or maintaining the project. Best value procurement for P3 projects typically involves a two-step process. In addition to the evalua- tion criteria commonly seen in DB procurements, the selection process for P3s will require the evaluation of a nancial pro- posal and factors relating to operations and maintenance. D. Current Legislation Authorizing the Use of Best Value Procurement State legislation has increasingly moved toward allowing best value procurements for state and local government projects, and the federal government similarly recognizes that the use of best value is appropriate for federally funded projects. e enabling legislation is state-specic and oen varies for dierent agencies within the same state. Federally funded projects are also subject to federal law and regulations adopted by the granting agency. FHWA regulations specically allow best value for DB projects (including P3s) and CMGC, with special approval required to use best value for DBB projects. 21 See J. Roehrich et al., Are Public-Private Partnerships a Healthy Option? A systematic literature review, 113 Soc. Sci. Med. (2014). 29% 33% 43% 52% 67% 67% 71% 76% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Reduction in the use of best value procurement Training provided to evaluation team Revisions to criteria weights/percentages Modifications to the evaluation and scoring process Litigation Modifications to process based on lessons learned Delays in starting the project Additional costs to the agency Percentage of transportation agencies acknowledging impact Figure 2. Impact of bid protests due to best value procurements (n = 21).

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Best value procurement is becoming more popular with transportation agencies because it allows them to consider factors other than cost. However, best value procurement is also more complex and can lead to protests if not conducted properly.

NCHRP Legal Research Digest 90: Best Value Procurement for Highway Construction: Legal Issues and Strategies, from TRB's National Cooperative Highway Research Program, addresses the best value procurement systems used for highway projects and notes the flexibility regarding selection criteria, rating systems, and award algorithms.

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