Innovative Contracting Techniques In Highway Sector

INNOVATIVE CONTRACTING TECHNIQUES IN HIGHWAY SECTOR

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PAPER ON INNOVATIVE CONTRACTING TECHNIQUES IN HIGHWAY SECTOR

PREPARED BY SAMBA SIVA RAO.P PGD ACM 22nd Batch 2008 – 2010

NATIONAL INSTITUTE OF CONSTRUCTION MANAGEMENT AND RESEARCH PUNE

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NATIONAL INSTITUTE OF CONSTRUCTION MANAGEMENT AND RESEARCH

DECLARATION

I declare that the Paper “INNOVATIVE CONTRACTING TECHNIQUES IN HIGHWAY SECTOR” is completed by Samba Siva Rao .P (SA “MBA”) under the guidance of Prof. SANJAY BHOYAR.

Samba Siva Rao.P (221131)

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NATIONAL INSTITUTE OF CONSTRUCTION MANAGEMENT AND RESEARCH CERTIFICATE This is to certify that the research Paper entitled “INNOVATIVE CONTRACTING TECHNIQUES IN HIGHWAY SECTOR” is the bonafide work of Mr. Samba Siva Rao.P (221131), in the partial fulfillment of the academic requirements for the award of Post Graduate Programme in Advanced Construction Management (PGP ACM). This work is carried out by them, under my guidance and supervision.

Date: Guide

Prof. Sanjay Bhoyar SOCM, NICMAR, Pune

Counter Signed by Prof. Anil Agarwal, Head-PGPACM, SOCM, NICMAR, Pune.

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NATIONAL INSTITUTE OF CONSTRUCTION MANAGEMENT AND RESEARCH

ACKNOWLEDGEMENT I express sincere and heartfelt thanks to Dr. M.G. Korgaonker, Director General, NICMAR, Pune ,Prof. Ajit Patwardhan, Dean, SOCM, NICMAR, Pune and Dr. Anil Agarwal,Head-PGPACM,SOCM,NICMAR,Pune for giving us an opportunity to undertake this research subject for study. I express a deep sense of gratitude to Prof. Sanjay Bhoyar,SOCMNICMAR, Pune for their constructive support, constant encouragement, guidance and challenging our efforts in the right direction without which this Paper would not have attained the present form.

I also thank the Librarians of NICMAR, Pune for giving us access to the valuable facility.

Samba Siva Rao.P ACM-22nd Batch

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EXECUTIVE SUMMARY Since 2000, innovative contracting techniques have been implemented on a variety of roadway construction projects throughout all the countries. This report details the results of the A+B, Lane Rental, Incentives/Liquidated Savings, Pay for Performance, and Warranties that were constructed (or are currently being constructed) during this timeframe. Innovative contracting techniques have been effective in reducing construction time and impacts to motorists with A+B bidding, lane rentals and incentives, and improving quality through Pay for Performance measures and warranties. 1) A+B BIDDING: To date, in USA 125 projects have used A+B bidding. The projects ranged from small pavement rehabilitation projects to major reconstruction and expansion projects. The size of the projects ranged from $.600, 000 to $.15.6 million, with a total let amount of $.93.8 for the 15 projects. Approximately $.671, 300 has been paid in incentives. Comments: •

Considering Indian Contracting system, A+B has been an effective tool for reducing contract time. Contractors are bidding (on average) 15% fewer days compared to the maximum allotted time by NHAI.

•

The use of incentives has been an effective method for further reducing contract time. On average, a contractor completes the project 17% faster than the original bid time if an incentive is included in the contract. This compares to 6% for non-incentive contracts.

•

A+B bidding does not appear to greatly increase the bid cost of the project. On 100 of the 125 projects, the low bid was under the engineer’s estimate. The other 25 projects were 1, 3, 5 and 8% over the Engineer’s Estimate.

•

Contractors are using additional crews, longer hours and resources to complete the work faster than normal projects. This pace has strained NHAI staffing and fatigued contractor staff, which has the potential to decrease quality and jeopardize safety.

•

It appears that this method of bidding is requiring the contractor to look more closely at the constructability of the project during the bidding process.

•

The ‘B’ portion of the process has not changed the bid outcome, meaning the contractor with the lowest ‘A” portion has been awarded the bid even if he did not have the lowest number of bid days.

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Recommendations: •

Develop more guidelines to help project engineers determine if A+B bidding is appropriate for their projects.

•

Provide state-wide training on A+B projects to construction and design engineers. Examine the existing contract administration methods to make sure they can be applied to A+B projects.

•

2) INCENTIVES/LIQUIDATED SAVINGS: To expedite construction timelines, DOT-US has offered incentives and liquidated savings on several projects throughout the state. DOT-US has recently incorporated the use of incentive/disincentives on five roadway and bridge projects. Two projects offered liquidated savings, a concept in which the contractor can obtain an incentive equal to the amount of DOT’s contract administration fees for early completion. Comments: •

On projects with incentives (except those with liquidated savings), the contractor used extra effort to complete the project early in order to obtain the bonus.

•

There is currently not enough data to determine if contractors are adjusting their bids in anticipation of obtaining the bonus to offset costs.

•

On projects with incentives, the contractor used aggressive schedules that placed some strains on NHAI oversight staff.

•

Contractors did not appear to expedite construction times when liquidated savings was offered as a bonus.

Recommendations: •

Continue to promote the use of incentives on projects and encourage districts to cap incentives.

•

Develop guidelines on appropriate incentive amounts and special provisions.

•

Continue to encourage the liquidated savings concept statewide and on a variety of project types. Contractors in other districts may see liquidated savings as a significant incentive to reduce contract time.

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3) LANE RENTALS: The lane rental concept is used to encourage contractors to minimize road-user impacts. The contractor is required to pay a rental fee for closing lanes or shoulders during construction. If a contractor exceeds the proposed time within their bid, they are assessed a penalty in the amount of the rental fee rate. Often, the contractor is awarded an incentive for any un-used hours of their bid. The lane rental concept has been applied to sixty (60) projects since 2000 in USA. Comments: •

Lane rental is an effective tool to reduce the amount of lane closures on projects.

•

Without good specifications and enforcement, the use of lane closures may decrease safety.

•

Awarding incentives for early completion also helped reduce lane closure impacts.

•

Some field personnel believe that lane rentals may also decrease quality of work. Contractors will work more night hours when lane rental times are typically lower.

Recommendations: •

Develop guidelines for using lane rentals on NHAI and local projects.

•

Continue to monitor lane rental use on NHAI projects.

4) PAY FOR PERFORMANCE: Pay for Performance is used measure the final performance of an item compared to performance criteria established in the contract. Unlike traditional specifications where the owner assumes the risk if the contractor is in compliance with the specification but the final outcome is not acceptable, pay for Performance requires the contractor to correct any deficiencies. Comments: Pay for Performance may be an effective tool to improve quality, but there is not enough data at this time to evaluate its effectiveness. Recommendations:

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•

Monitor the Pay for Performance pavement marking items in all the Highway Projects which are executing in India.

•

Identify additional items and projects where Pay for Performance can be used.

5) WARRANTIES: The goal of instituting warranties on projects is to improve the quality and durability of products by allowing a longer timeframe to accept work constructed by contractors. This process is also aimed to encourage contractors to improve their construction techniques and use better equipment to meet the warranty requirements. With warranties, there is potential to decrease the level of inspection required by NHAI. Bituminous and grading warranties have been applied to 11 design-bid-build projects in US. More comprehensive warranties have been applied to all the design-build projects. Comments: •

Except for two projects (both design-build and design-bid-build), projects with warranties have not experienced any significant issues since construction.

•

No significant changes to the bituminous construction practices were identified by field personnel on projects with two-year warranties.

•

There are no trends to suggest that contractors are bidding higher bituminous unit costs on warranty bid items compared to non-warranty bid items. Contractors are likely including potential corrective actions costs within the mobilization item.

Recommendations: •

Continue to monitor the 2-5 year warranties on the design-build and designbid-build projects currently in effect in USA and then apply to Indian Highways.

•

Continue to monitor the effectiveness of short term (2-5 year) and long term (20-year) bituminous warranties in other countries.

•

Develop additional threshold and corrective action guidelines for implementation on future design-build and design-bid-build projects. The guidelines should also clearly define when the warranty period begins.

•

Gather input from the industry on the use of warranties, including bonding and contractual issues.

6) DESIGN-BUILD: NICMAR

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Design-build differs from traditional methods by overlapping design and construction, allowing construction to begin after only a portion of the design has been completed. Typically, design-build contracts are awarded after NHAI has completed the layout (30% design), the environmental process is complete (or nearly complete) and rightof-way is in the process of being secured. Design-build also has a different approach to risk management and project responsibilities. The contractor often has more responsibility for Quality Control (QC) and Quality Assurance (QA) of the project; NHAI provides verification. Comments: By using Design-Build Concept, • Shortened completion time by overlapping design and construction. • Construction can begin before all design details are final. • Greater innovation in selecting design, materials and construction methods. Recommendations: •

Gather input from the industry on the use of Design-build concept.

•

Develop guidelines for using Design-build on all Highway projects in India.

•

Continue to monitor projects which are of Design-build type in other countries.

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INDEX Declaration Certificate Acknowledgement Executive Summary………………………………………………………...01 Acronyms List………………………………………………………………14

CHAPTER 1: INTRODUCTION…………………………………………15 1.1: Introduction……………………………….............................................15 1.2: Background.............................................................................................16 1.3: Innovative Approaches………………………………………………....17 CHAPTER 2: INNOVATIVE CONTRACTING TECHNIQUES……..18 2.1: A+B Bidding….......................................................................................18 2.1.1: Description 2.1.2: Benefits 2.1.3: Drawbacks 2.1.4: Project Selection 2.1.5: Implementing A+B projects 2.2: Lane Rental……………………………….............................................22 2.2.1: Description 2.2.2: Benefits 2.2.3: Drawbacks 2.2.4: Safety Considerations 2.2.5: Assessing Lane Rentals (Incentives/Disincentives) NICMAR

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2.2.6: Project Selection 2.2.7: Implementing Lane Rental in your Projects 2.3: Incentive / Disincentive Projects …........................................................25 2.3.1: Description 2.3.2: Benefits 2.3.3: Drawbacks 2.3.4: Project Selection 2.3.5: Types of Incentive / Disincentive Contracts 2.3.6: Incentive / Disincentive Amounts 2.3.7: Contract Administration Considerations 2.3.8: Special Provisions 2.4: Design-Build …......................................................................................27 2.4.1: Description 2.4.2: Benefits 2.4.3: Drawbacks 2.4.4: Project Selection 2.5: Warranties………………………….......................................................28 2.5.1: Description 2.5.2: Benefits 2.5.3: Drawbacks 2.5.4: Project Selection 2.5.5: Warranty Period 2.5.6: Warranty Enforcement 2.5.7: Warranty Dates 2.5.8: Warranty Criteria 2.5.9: Warranty Specifications 2.5.10: Contract Administration Considerations 2.6: Liquidated Savings Projects …………...................................................31 2.6.1: Description 2.6.2: Benefits NICMAR

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2.6.3: Drawbacks 2.6.4: Project Selection 2.6.5: Liquidated Savings Amounts 2.6.6: Special Provisions 2.7: No Excuse Bonus …………...................................................................32 2.7.1: Description 2.7.2: Benefits 2.7.3: Drawbacks 2.8: Pay-For-Performance …………………………………………………..32 2.8.1: Description 2.8.2: Benefits 2.8.3: Drawbacks 2.9: CPM schedules …………………………………………………….. ..33 2.9.1: Description 2.9.2: Benefits 2.9.3: Drawbacks 2.9.4: Project Selection 2.9.5: Contract Administration Considerations 2.10: Decision Tree………………………………………………………….33

2.11: Factors to Be Considered In Innovative Contracting…………………33

CHAPTER 3: HISTORICAL DEVELOPEMENT.............................. .....37 3.1: Milieu………………………………………………………… ……....37 3.2: Innovative Approaches …..………………………………………….…38 3.3: Current Innovative Contracting Resources ………................................38

CHAPTER4: CASE STUDIES: INNOVATIVE CONTRACTING NICMAR

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TECHNIQUES IN USA…………………… …………………………………………………….40 4.1: A+B Projects 4.1.1: Purpose ……………………………………………………...40 4.1.2: Project Types ……………………….……………………….40 4.1.3: Award of Contracts …………………………………….…..40 4.1.4: Time Impact Analysis…………………………………….…40 4.1.5: Incentives and Disincentives………………………………..41 4.1.6: Lessons Learned…………………………………………….41 4.1.6.1: Applications of A+B 4.1.6.2: Contractors Approach 4.1.6.3: DOT Staffing 4.1.6.4: Safety and Quality of Work 4.1.6.5: Incentives 4.1.7: Comments…………………………………………………….42 4.1.8 Recommendations / Next steps…………………………….....43

4.2 Incentive/ Disincentives Projects………………………………………...43 4.2.1: Purpose ………………………………………………………43 4.2.2: Project Types …………………………………………...……43 4.2.3: Project Costs and Incentives Payouts ………………………43 4.2.4: Comments…………………………………………………....43 4.2.5: Recommendations / Next steps……………………………...43 4.3 Lane Rentals……………………………………………………………..44 NICMAR

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4.3.1: Purpose ……………………………………………………...44 4.3.2: Project Types ……………….………………………………44 4.3.3: Impact on Safety ……………………………………………44 4.3.4: Impacts on Quality………………………………………..…45 4.3.5: Benefits on lane rentals……………………………………...45 4.3.6: Lessons learned……………………………………….…..…45 4.3.7: Comments……………………………………………….…..45 4.3.8: Recommendations………………………………….……….46

4.4 Pay for Performance…………………………………………………..46 4.4.1: Purpose ………………………………………………………46 4.4.2: Applications …………………………………………………46 4.4.3: Benefits ……………………………………………………..46 4.4.4: Drawbacks…………………………………………..………46 4.4.5: Comments………………………………………………..….46 4.4.6: Recommendations…………………………………………...47 4.5 Warranties……………………………………………………………....47 4.5.1: Purpose ………………………………………………….…...47 4.5.2: Types of Warranties …………………………………………47 4.5.2.1: Bituminous Warranties 4.5.2.2: Excavation and Embankment 4.5.2.3: Route and Crack Sealing NICMAR

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4.5.3: Warranty Benefits …………………………………………..48 4.5.4: Cost Comparisons……………………………………………48 4.5.5: Lessons Learned……………………………………………..48 4.5.6: Comments……………………………………………….…...48 4.5.7: Recommendations…………………………………………...49

4.6 Other Innovative Contracting Techniques…………………………….49

4.6.1: Flexible Starting Dates ……………………………………....49 4.6.2: Constructability Reviews……………………………………..49 4.6.3: Construction Manager at Risk………………………………..49 4.6.4: Lump Sum Projects………………………………………..…50 4.6.5: Bid Averaging Method………………………………………50 4.6.6: Multi-Parameter Bidding Including Quality (A+B+Q) …......50 4.6.7: No Excuses Incentives……………………………………….50

4.7 States Which Are Used Innovative Contracting Techniques in USA ………50

CHAPTER 5: CASE STUDIES ON INNOVATIVE CONTRACTING TECHNIQUES IN UK........................................................54

5.1: Case 1 - Eaves Green Link Road Contract ……………………………54 5.2: Case 2 - Framework Contract for Remade in Lancashire Works ……..55

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CHAPTER 6: CONCLUSION & RECOMMENDATION……………..56 6.1: Concluding Remarks …………………………………………………..56 6.2: Recommendations ………………..........................................................59 REFERENCES……………………………………………………….……61

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LIST OF TABLES

Table No.1-States which are used Innovative Contracting Techniques in USA…….51

LIST OF FIGURES

Fig No.1- Selection of Innovative Contracting Techniques………………….…….35

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ACRONYM LIST AASHTO ADB C.P.M DBOM DOT EU FCA FHWA I/D ITS LCC LTAP NCHRP NHAI NWDA QA/QC RFP ROI RUC SEP SHA SOO SOW TMC TRB WB

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– American Association of State Highway Transportation Officials – Asian Development Bank – Critical Path Method – Design-Build-Operate-Maintain – Department of Transportation – European Union – Final Construction Acceptance – Federal Highway Administration – Incentive/Disincentive – Intelligent Transportation Systems – Life-Cycle Costs – Local Technology Assistance Program – National Cooperative Highway Research Program – National Highway Authority of India –The Northwest Regional Development Agency(UK) – Quality Assurance/Quality Control – Request For Proposal – Return On Investment – Road-User Cost – Special Experiment Project – State Highway Agency – Statement Of Objectives – Statement Of Work – Traffic Message Channel – Transportation Research Board – World Bank

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CHAPTER-01 INTRODUCTION

1.1 INTRODUCTION: The highway sector is perhaps the most conservative segment of the construction industry. Although highway contractors have implemented many new construction technologies, owner-contracting methods until recently have remained the same. NHAI have traditionally awarded highway projects to the lowest bidders after the design was completed and approved. This design-bid-build approach while providing a level playing ground for contractors has its limitations. For example, focusing on low bids sometimes leaves too little emphasis on product quality and time, factors that affect long-term performance of the system. The approach is slow and does not favor a life cycle cost approach to projects. Rehabilitation, resurfacing, reconstruction, or restoration works have, since the 80’s, characterized a majority of highway construction projects. These types of projects require a high-quality product and timely completion to minimize the negative impact to the public, such as safety impacts, traffic delays and economic loss. The above factors and the limited amount of resources for highway construction and maintenance accelerated the search for alternatives to traditional design-bid-build contracting in the highway industry. In traditional highway construction contracting, cost is generally the one criterion that determines a winning bid. But in recent years, all the highway agencies around the globe strive to meet customer needs, factors other than cost have also emerged as important: quality, delivery time, social and economic impact, safety, public perceptions, life-cycle costs, and use of improved technologies. So a new approach in contracting system came into existing. In order to accelerate highway construction and minimize the strain on highway agencies' resources, the Federal Highway Administration (FHWA) created Special Experimental Project No. 14 (SEP-14) in 1991 to investigate innovative contracting methods. In general terms, any contracting method that deviates from the traditional, prescriptive method can be considered innovative. Four innovative contracting methods mainly have emerged as the primary alternatives to the traditional contracting methods (main methods): warranty, design-build, cost-plustime bidding (A+B, multi-parameter bidding), and lane rental. The main thrust of these approaches is to minimize construction time and cost, improve quality by either providing specifications for quality control and inspection or warranties, and most importantly, transfer some risk from the public agency to the contractor. Contractors have been hesitant to assume this risk in a traditional contracting setting in which the client gives the contractor detailed specifications about method and materials. Performance-based specifications address the issues of risk transfer and contractor liability in highway construction contracts. In such NICMAR

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contracts the client specifies the criteria for performance while providing the contractors with more freedom and responsibility to meet the criteria. In India the client generally NHAI defines performance-specification-based contracting as structuring the contract around the desired results rather than the method that should be used to accomplish these results. Quantifiable performance measures, such as having a predetermined surface roughness or a certain level of strength, are included as performance specifications. This is a departure from traditional contracting because it specifies characteristics of the desired product rather than the method by which the end product is achieved, which is the traditional approach. Performance-based contracting allows the opportunity for innovation by giving the contractor freedom to choose the construction method and materials to be used, as long as the end product meets the performance measure(s) stated in the contract. 1.2 BACKGROUND: The genesis for the FHWA's SEP-14(began in 1988, with the establishment of a Transportation Research Board (TRB) task force to evaluate Innovative Contracting Practices. The task force consisted of 23 representatives from State highway agencies in U.S.A, all segments of the industry, and others. Its mission was to: •

Compile and research information on contracting practices used by agencies in the United States and other countries;

•

Assess how current practices affect quality, progress, and cost; and

•

Suggest measures for improving contracting practices and promoting quality in construction.

The task force investigated four major areas: • • • •

Bidding procedures Materials control Quality considerations Insurance and surety issues.

Recommendations were made by TRB for each of the four major topic areas. Some of the more significant recommendations included: •

The cost-plus-time bidding concept should be considered for wider implementation.

•

The potential for use of warranties or guarantees and the design-build contracting concept should be investigated;

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•

Attention should be given to the use of constructability testing during the design of projects.

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A nationwide effort should be initiated to transition from method specifications to performance-related specifications and the performancerelated specifications should include incentive and disincentive provisions to encourage better quality;

•

A national clearinghouse should be established for information on new materials/processes and the establishment of a national center, or regional centers, for product evaluation should be investigated.

•

Value engineering concepts should be investigated to identify ways to promptly approve successful innovative techniques.

The objective of SEP-14 is to evaluate "project specific" innovative contracting practices, undertaken by State highway agencies that have the potential to reduce the life cycle cost of projects, while at the same time, maintain product quality. The intent of SEP-14 is to operate within this administrative flexibility to evaluate promising non-traditional contracting practices on selected Federal aided, A.D.B aided, W.B aided and respective nation’s government aided projects. 1.3 INNOVATIVE APPROACHES: Several "project specific" innovative contracting techniques are currently being used and evaluated by a number of highway agencies round the world. These include: • • • • •

Cost-plus-time bidding Lane rental Incentive / Disincentive Projects Design-build contracting Warranty clauses.

Other than this there are other methods/techniques in Innovative Contracting like No Excuse Bonus, Liquidated Savings, CPM Schedules, and Pay for Performance. But the techniques/methods listed above are having good scope compared to these methods/techniques. Initially, various concerns on the part of some members of the highway industry round the world prompted FHWA to proceed cautiously in allowing countries to experiment with the Design-build concept. However, in recent years, FHWA has witnessed an increased interest from the countries like Australia, Canada, Canada, England, Estonia, and USA in the design-build concept. As a result of this interest, FHWA continues to allow the use of the design-build concept on an experimental basis. Other innovative contracting techniques have also been used by a select number of countries like Finland, The Netherlands, New Zealand, Norway, and Sweden. NICMAR

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CHAPTER-02 INNOVATIVE CONTRACTING TECHNIQUES

This chapter addresses all Innovative Contracting Techniques in Details. 2.1 A+B BIDDING: 2.1.1 Description: Cost-plus-time bidding, more commonly referred to as the A+B, factors-time plus cost, to determine the low bid. Under the A+B method, each bid submitted consists of two components: ‘A’ - Traditional Rupee/Pound/Euro/Yen (what-ever it maybe) amount for the contract items ‘B’ - Days bid to complete the work The number of ‘B’ days is multiplied by the road user cost furnished by the owner and added to the ‘A’ component to obtain the total bid. (A) + (B x [Road User Cost / Day]) = Total Bid This formula only determines the lowest bid for award, not the payment to the contractor. 2.1.2 Benefits: 1) Improved coordination between prime and sub-contractors 2) Reduced construction time minimizes impacts to users. 3) Contractors are required to put together a well conceived schedule. 2.1.3 Drawbacks: 1) Contract changes are magnified; too many changes nullify the advantages of A+B. 2) Acceleration techniques may require more resources for contract administration. 3) More hours and over-time budget required from contractor. 4) Negotiations for additional work are more intense since time being a bigger issue. 2.1.4 Project Selection:

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A+B bidding should focus on projects with significant impacts to motorists, businesses, emergency services, or other groups that will be directly impacted by the project. a) Good Candidates:

· Mill and Overlay · Un-bonded concrete overlays · Detour projects · New construction and reconstruction (grading and structures) · Bridge painting · Intersection upgrades · Bridge rehabilitation (if confident with quantities) b) Poor Candidates:

· Traffic Management System-TMC · Steel fabrication (minimal benefit to public) · Concrete rehabilitation (due to high probability of overruns) · Signal systems · Landscaping (minimal disruption to traffic) · Signing Projects 2.1.5 Implementing A+B projects: Follow these steps to implement A+B bidding: STEP 1: Is My Project a Good Candidate for A+B? a) Right Of Way: 1) Will all right-of-way be secured prior to letting date? 2) If not do the staging plans allow the contractor to sequence work around the conflicts and is a right-of-way time determination schedule in the special provisions? b) Plans: 1) Is there high confidence in the design? 2) Has a thorough field review been conducted? 3) Has design coordinated with construction at various stages (e.g. 30%, 90%)? 4) Has a constructability and bid-ability review been conducted by design and construction? c) Utilities: 1) There is little or no chance that utilities will significantly delay the contractor. 2) Are utility conflicts clearly identified in the plan and special provisions? d) Third-party agreements: 1) Will all permits be secured by the letting date? 2) Will all municipal agreements be secured by the letting date?

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e) Program Impacts: Have you considered the district wide impacts of using an accelerated schedule? Have you considered the potential cost and delivery to other projects? f) Soil Conditions: There is little risk of contaminated or poor soils adding significant extra work. g) Traffic Conditions: Do construction traffic impacts relate to any of the following conditions? · Lengthy detours (A roundabout roads) · Significant delays to motorists · Significant impacts to businesses, schools, or emergency services h) Staffing considerations: 1) Do you have the staff available if the contractor has an aggressive schedule? 2) Do you have the budget for any additional overtime? If the answer is YES to most of the above questions, the project may be suitable for A+B. If you answered NO to some of the questions, your project may still be a good candidate for A+B, but give careful consideration to the items with a NO response. STEP 2: Determine How to Use A+B A+ B techniques can be applied to many aspects of a project. Determine how you can best use A+B on your project. a) Entire contract length b) Intermediate dates 1) Detour duration 2) Interchange closure period 3) Lane closure timeframe 4) Stages c) Multiple timeframes (A+B+C) d) Any other project aspect STEP 3: Determine Road User Costs 1) Obtain Road-User Costs (RUC) from NHAI Office. 2) Project engineer/supervisor needs to weigh how the RUC may affect the bid to determine the appropriate balance between the ‘A’ and ‘B’ portions of the bid. Adjust the RUC if necessary. Example: RUC calculated by NHAI = Rs.75, 000 per day Bidder #1: Rs.1, 000,000 at 50 Days (A+B = Rs.4, 750,000) Bidder #2: Rs. 1,500,000 at 40 Days (A+B = Rs.4, 500,000) – Awarded Contract Question: Are you willing to spend an extra 50 percent to complete the project 10 days early? Adjusting the RUC may minimize this effect. NICMAR

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STEP 4: Determine Contract Time 1) Perform a constructability review on the plan set. 2) Assess the time, manpower and equipment impacts to other projects in the area. 3) Determine the Contract Type · Working Days (recommended for projects <100 working days) · Calendar Days (recommended on multi-year projects) · If using a CPM schedule, use Calendar Days. 4) Determine the amount of contract time and any intermediate dates. Use this as the maximum amount of time NHAI would allow. Note: If you calculate an overly aggressive schedule, you might not see a significant reduction in the days bid, or you may see an increase in the Rs. portion. STEP 5: Determine Incentives and Disincentives a) Incentives (Optional): Do I want to include an incentive? Check with management. Determine incentive amount · Often equal or less than RUC · Incentive should be capped by the days and/or Rupee amount) · Total incentive < 5 percent of the engineers estimate b) Disincentives: Recommended for all projects Determine disincentive amount · No limit is recommended · Often equal to RUC · Should not exceed RUC Note:

Assess the feasibility of assessing a disincentive with a high value. The disincentive can be a different amount than the RUC to determine the bid.

STEP 6: Draft Special Provisions 1) Use standard template on the Innovative Contracting Website: http://www.dot.state.mn.us/const/tools/innovativecontract.html 2) Inform the design squad so that contract time can be added as a bid item. STEP 7: Construction Considerations 1) Consider using a CPM Schedule to help administer contract time. 2) Prepare staff for aggressive contractor schedules. 3) Obtain frequent schedules updates if needed. 4) Resolve issues proactively to reduce owner delayed time. 5) Minor work orders, supplemental agreements and change orders need to be processed in a timely manner. NICMAR

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6) Minor work orders, supplemental agreements and change orders need to be address contract time extensions/reductions. 7) Work with the contractor to revise the schedule if plan additions occur Consider safety impacts to the roadway user, contractor personnel and NHAI staff during construction. 8) Consider impact to clear zones during construction, drop-off requirements, and lane-closure requirements.

2.2 LANE RENTAL: 2.2.1 Description: Lane rentals encourage contractors to minimize road-user impacts. Contractors pay a rental fee for closing lanes and shoulders to do construction work. A rental fee is included in the contract. Lane-rental fees are based on the estimated cost of delay or inconvenience to the roaduser during the rental period. The fee is assessed for the time that the contractor occupies or obstructs part of the roadway, and is deducted from the monthly progress payments. Lane Rental should NOT be used to reduce overall contract time but to focus on the time that roadways users are impacted by construction traffic. 2.2.2 Benefits: 1) Better coordination of prime and sub-contractors 2) Minimized impact to traveling public 3) Better public perception due to fewer un-utilized lane closures 2.2.3 Drawbacks: 1) Extra effort by staff to monitor lane rental 2) Negotiating lane rental adjustments can be difficult with contract changes 3) Potential added costs to the project 2.2.4 Safety Considerations: Safety needs to be addressed with every lane-rental project. Plans and specifications should identify cases when lane closures (clear-zones, drop-offs) will be required to reduce the chance that contractors will take safety risks to reduce lane-rental charges. 2.2.5 Assessing Lane Rentals (Incentives/Disincentives): On a lane-rental project, the contractor bids a lump-sum amount for lane rental. NHAI specifies lane rental rates and the contractor estimates the number of hours in each lane-rental category.

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Lane-rental use is tracked by the project personnel as the project progresses. At the end of the project, contractors receive either an incentive or disincentive as determined below: a) Incentive –An incentive is usually paid for the difference between the lump-sum bid amount and actual lane-rental use. The incentive encourages contractors to reduce traffic impacts during construction. b) Disincentive –A disincentive will be charged if the contractor exceeds the lumpsum bid amount. 2.2.6 Project Selection: Lane rental should be used on projects with significant impacts to motorists. Here are general guidelines for using lane-rental. a) Good Candidates:

· Bituminous mill and overlay (short duration only) · Two-lane roadways with flagging operations · Intersection impacts · Grading projects with intermittent TEMPORARY lane closures o Temporary widening with lane closures o Traffic switches o Striping (permanent or temporary) o Lane closures for delivery of goods and equipment · Guardrail projects · Signing projects · Striping applications · Bridge painting · Crack sealing · Signal systems · Traffic management projects (ITS) b) Poor Candidates:

· Concrete rehabilitation (high probability of overruns) · Detour projects (use A+B instead) · Projects with long-term PERMANENT lane closures (use A+B instead) · Bridge re-deck or overlays (Consider A+B) · New construction projects (off alignment) · Long-term projects that would be difficult for contractors to accurately bid the number of lane- rental hours. 2.2.7 Implementing Lane Rental in your Projects: Use the following procedure to incorporate lane rental in your project.

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STEP 1: Is My Project Suitable for Lane Rental? a) Contractor Bidding: Can the contractor accurately predict the duration of activities that will impact a lane? b) Third-Party Agreements: There are little or no utility or third-party impacts that can delay aspects of the project relative to lane-rental? c) Traffic Considerations: Traffic restrictions or lane closures with no or limited alternate routes that result in a high user cost. Or Opportunities exist to reduce closure times (e.g. staging or construction of temporary work that will impact traffic). Or User fees are substantial enough to offset the potential cost increase. d) Safety: The plan and/or special provisions can accurately insure that the safety of the construction operations will not be jeopardized by using lane-rental. e) Design Uncertainties: Confidence that plan additions and significant overruns that may impact lane closure times have been minimized If the answer is YES to most of the above questions, the project may be suitable for lane rental. If you answered NO to some of the questions, your project may still be a good candidate for lane rental, but give careful consideration to the items with a NO response. STEP 2: When and where do I Use Lane Rental? a) Determine locations for lane-rental • Mainline • Shoulders • Ramps • Turn lanes • Signal systems impacted b) Determine time-frames for lane-rental • Peak hour (recommendation: do not allow lane rental during this time) • Off-peak hour • Weekends • Nights STEP 3: Determine Road User Costs

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1) Obtain Road-User Costs (RUC) from NHAI’s Office. 2) Hourly road-user costs should be applied to various times and locations. Example: Mainline closure on an interstate highway Peak hours No Lane Closure Allowed* 7:00 to 9:00 PM RUC = Rs.3, 000/Hour 9:00 PM to 6:00 AM RUC = Rs.1, 000/Hour Weekends RUC = Rs. 1, 000/Hour Shoulders RUC = Rs.500/Hour * Lane rentals may be allowed in peak hours where traffic levels are low. STEP 4: Estimate Contractor Bid Amount Estimate the hours that a typical contractor will bid. Provide this number to NHAI’s estimate unit for inclusion in the Engineer’s Estimate. STEP 5: Draft Special Provisions Use standard template on the Innovative Contracting Website: http://www.dot.state.mn.us/const/tools/innovativecontract.html

STEP 6: Construction Considerations 1) Consider using a Critical Path Method (CPM) Schedule to help administer contract time. 2) Prepare staff for monitoring the lane-rental schedule. 3) Review the requirements with the contractor at the pre-construction meeting. 4) Work with the contractor to revise the schedule if plan additions occur. 5) Consider safety impacts to the roadway user, contractor personnel and NHAI staff during construction. Consider impact to clear zones during construction, drop-off requirements, and lane closure requirements.

2.3 INCENTIVE / DISINCENTIVE PROJECTS: 2.3.1 Description: Incentive/Disincentive is a process where the contractor is paid an incentive for completing a project earlier than the time specified in the contract. If the contractor completes the project later than the time allowed, disincentive money is subtracted from payments due. Incentive/Disincentives can be used in a wide variety of projects. It is best applied when NHAI is willing to pay the contractor to expedite the work to reduce the contract time. It is similar to the A+B in that it works well with urban reconstruction and bridgerelated projects. NICMAR

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2.3.2 Benefits: 1) Reduced construction time 2) Potential for lower contract administration costs 3) Improved public relations by information businesses/residents that you are committed to completing the project as quickly as possible. 4) Better control of project acceleration compared to A+B 2.3.3 Drawbacks: 1) May require additional funding 2) Contract changes can lead to disputes regarding incentive payments 2.3.4 Project Selection (Project Types): Here are general guidelines for using Incentive / Disincentive. a) Good Candidates: · Projects with high road-user or business impacts o Urban reconstruction projects o Bridge replacement projects o Detour projects o Urban pavement rehabilitation projects (if confident with quantities) o Interstate (high volume) projects with major traffic impacts · A+B projects · Bridge rehabilitation projects · Projects with commitments to open a roadway as quickly as possible. b) Poor Candidates: · New construction projects with minimal impacts to road users · Projects where right-of-way or utilities are not clearly identified · Traffic Management System (TMC) · Steel fabrication (minimal benefit to public) · Landscaping (minimal disruption to traffic) 2.3.5 Types of Incentive / Disincentive Contracts: a) Linear –Contractor receives the same daily amount regardless of the number of days completed, early or late. b) Non-Linear (Escalating) – The earlier a job is completed, the greater the daily amount paid to the contractor.  Escalating Example: •

For each day that all work under this contract is completed before August 1, 2006, the contractor will obtain an incentive in accordance with the following schedule:

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1-5 Days 6-10 Days Over 10 Days •

Rs.0 per calendar day Rs.5, 000 per calendar day (Maximum of Rs.25, 000) Rs.10, 000 per calendar day (Maximum of Rs.100, 000)

Incentives will not be paid cumulatively. For example, if a contractor completes the work 13 days early, the maximum amount of incentive is Rs.100, 000. The contractor will not receive an additional incentive of Rs.25, 000 for completing the project within the 6-to 10-day incentive period.

2.3.6 Incentive / Disincentive Amounts: •

Incentives should be based on items such as Road-User Costs (RUC). Contact NHAI Office for a RUC.

•

Incentives must be sufficient to encourage contractor interest, stimulate innovative ideas, and increase profitability of meeting tight schedules. Recent experience indicates that daily incentives between Rs.5, 000 and Rs.10, 000 with caps in excess of Rs.50, 000 are substantial amounts for contractors.

•

If incentives are not sufficient to cover the contractor’s cost for the extra effort, there is little motivation for the contractor to accelerate production.

•

Maximum incentive should not exceed 5 percent of the total contract amount.

•

Incentive should be equal to or less than the disincentive rate.

•

A maximum incentive should be specified.

2.3.7 Contract Administration Considerations: • • •

Consider using a CPM schedule. Time extensions should not be given unless overruns occur on critical path. Prepare staff for an aggressive contract schedule.

2.3.8 Special Provisions: Use standard templates on the Innovative Contracting Website: http://www.dot.state.mn.us/const/tools/innovativecontract.html

2.4 DESIGN-BUILD: 2.4.1 Description:

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a)

Design-build differs from traditional methods by overlapping design and construction, allowing construction to begin after only a portion of the design has been completed. Typically, design-build contracts are awarded after NHAI has completed the layout (30% design), the environmental process is complete (or nearly complete) and right-of-way is in the process of being secured.

b) Design-build also has a different approach to risk management and project responsibilities. The contractor often has more responsibility for Quality Control (QC) and Quality Assurance (QA) of the project; NHAI provides verification. 2.4.2 Benefits: a) b) c) d) e) f)

Shortened completion time by overlapping design and construction Construction can begin before all design details are final Greater innovation in selecting design, materials and construction methods Reduced claims due to design errors Accelerated response time and dispute resolution through a team effort Single contact point for quality, cost and schedule from design through construction g) Shortened project delivery time which can reduce user costs h) Use of best-value project award selection criteria which evaluates both technical and financial elements 2.4.3 Drawbacks: a) b) c) d)

High learning curve because design-build changes stakeholders' roles Parties are familiar with traditional methods Bidding process more expensive for design-build teams Coordination is more challenging due to faster pace

2.4.4 Project Selection (Project Types): •

NHAI’s design-build program is currently tailored to large construction projects, but can be modified for smaller projects.

•

For projects being considered for design-build, contact NHAI’s Design-build director as soon as possible. The district and the design-build director will need to coordinate efforts to define the scope of work and begin the designbuild team selection process. The selection of the design-build team often requires an extensive Request for Qualifications (RFQ) and Request for Proposal (RFP).

Good Candidates:

a) Projects that need to be “fast-tracked” for public safety or political reasons b) Projects that allow for innovation in the design and construction efforts c) Projects with funding “sun-set” dates where traditional bid-build delivery may not be able to achieve these dates d) Projects where in-house staffing cannot meet the project demands e) Emergency projects with tight time constraints NICMAR

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2.5 WARRANTIES: 2.5.1 Description Warranties require contractors to guarantee all or portions of a construction project to be free of defects in materials and workmanship for a period of time. The contractor is required to correct deficiencies that occur during the warranty period. 2.5.2 Benefits: a) Quality and durability of selected work items guaranteed for a specific time b) Longer timeframe for acceptance means agency can ensure contractor is performing high-quality work. c) Decreased inspection level on warranty projects allows states to allocate resources elsewhere 2.5.3 Drawbacks: a) Owner must ensure that warranty guidelines are reasonable and enforceable b) Warranty may not be collectable if guidelines are too restrictive or place undue burden on contractor c) Requires additional staffing to monitor the warranty after construction 2.5.4 Project Selection (Project Types): Warranties can be used on a variety of different construction items. Listed below are a few items that are good candidates for warranties. Warranty Candidates: • Bituminous • Grading (settlement) • Culvert (settlement) • Route and seal • Concrete pavement

2.5.5 Warranty Period: a) The length of the warranty period can vary on each project and warranty item. b) The longer a warranty, the more difficult to enforce. • Recommended warranty length is to 2-3 years. • Maximum warranty length: 5 years. 2.5.6 Warranty Enforcement: Monitoring the warranty is the responsibility of the State R&B and not NHAI’s specialty offices such as the bituminous or concrete office. Specialty offices may NICMAR

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assist with assessing the products during the warranty period, but the ultimate responsibility is with the State R&B. 2.5.7 Warranty Dates: a)

Establishing a clear date when the warranty begins is essential to enforcing the warranty. •

Recommendation: Warranty start date (Final Construction Acceptance [FCA]) should start when construction is complete and the roadway is open to the public without restrictions. b) For Long Term (Multi-Stage Projects) Consider starting the warranty at the completion of various stages  Example: A 3-year construction project has 2-year bituminous warranty. Contractor completes concrete paving on 1st stretch in Stage 1 and switches traffic over to the new pavement. Two years later, the contractor completes 2nd stretch during Stage 2 and opens the roadway to un-restricted traffic. The warranty should be broken into two segments: 1st stretch – Warranty period should begin at the end of stage 1 2nd stretch – Warranty period should begin at the end of stage 2 c)   Vague terms such as “substantial completion” or “all work is completed” should not be used in the contract. These are items that are open to interpretation and can significantly change the FCA date. 2.5.8 Warranty Criteria: Warranty threshold criteria must be established within the contract in order for the warranty to be enforceable. In addition, NHAI may also want to indicate corrective actions required if the threshold limits are exceeded. a) Warranty criteria should be developed in conjunction with NHAI’s specialty offices (e.g. Bituminous or Concrete Units). b) Warranty criteria should be compared to other past projects. Enforcing a warranty will be difficult if criteria changes from project to project. 2.5.9 Warranty Specifications: • •

Warranty specifications should be similar in format. Several examples are available on DOT’s (Department of Transportation) Innovative Contracting Website (www.ic.usu.edu). Contact the specialty office or director of innovative

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contracting to obtain the latest specifications if you are using an established warranty specification item.

2.5.10 Contract Administration Considerations: a) Establish a firm and clear date when the warranty period begins b) Notify the contractor of the date that the warranty period begins. c) Notify the Contract Administration Engineer prior to award to insure that the warranty bond is submitted. d) Notify NHAI maintenance of the warranty. This will preclude maintenance from doing work that will void the warranty. e) Identify a district person to monitor the work during the warranty period. f) NHAI specialty offices will not monitor the work during the warranty period. g) Review work periodically during the warranty period. Document deficiencies. h) Notify Contract Administration Engineer if you need to invoke the warranty bond during construction.

2.6 LIQUIDATED SAVINGS PROJECTS: 2.6.1 Description: •

Liquidated savings is a process where the contractor is paid an incentive equal to the amount of NHAI’s contract administration fees for early completion. If the contractor completes the project later than the time allowed, liquidated damages are subtracted from payments due.

•

Liquidated savings can be used on a wide variety of project types. It is best suited when NHAI is willing to pay the contractor to expedite the work to reduce the contract time

2.6.2 Benefits: • •

Reduced construction time Potential for lower contract administration costs

2.6.3 Drawbacks: • • •

May require additional funding Contract changes can lead to disputes regarding incentive payments Incentive value may not be significant enough for the contractor to accelerate work.

2.6.4 Project Selection (Project Types): a) Good Candidates:

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• • •

Smaller urban and rural rehabilitation and reconstruction projects Smaller bridge rehabilitation projects Projects with reduced contract administration time because staffing resources need to be utilized on other projects.

b) Poor Candidates:

• • •

Large construction projects – liquidated savings may be too small of an incentive Projects with minimal traffic impacts Projects with minimal staffing concerns

2.6.5 Liquidated Savings Amounts: • •

Liquidated saving amount should equal the liquidated damage amount. Liquidated savings amount does NOT need to be capped at a maximum.

2.6.6 Special Provisions: Use standard templates on the Innovative Contracting Website: http://www.dot.state.mn.us/const/tools/innovativecontract.html

2.7 NO EXCUSE BONUS: 2.7.1 Description: •

A no-excuse bonus reduces contract time by tying a bonus to the completion of construction activities by a set date, which may or may not be the contract completion date. Except for delays directly attributable to NHAI, all other claims for time extensions are to be viewed as project risk under this clause.

•

No Excuse Bonus should only be used on unique projects.

2.7.2 Benefits: • • •

Reduced construction time Increased contractor concern for the project schedule Better coordination between the owner, contractor, and subcontractors, the use of more innovative techniques and the development of more realistic bids

2.7.3 Drawbacks: •

Increased cost. Any risk will result in increased bid prices by the contractor and the clause could be subject to challenges by the contractor if disputes arise

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• • •

during construction. Experts expect at least an additional 5 percent increase in bid costs. Quality of work may suffer when a contractor rushes to meet a bonus date. No-excuse clauses can strain owner-contractor relations. Difficulty in negotiating owner-initiated change orders and supplemental agreements due to the fixed timeline

2.8 PAY-FOR-PERFORMANCE: 2.8.1 Description: •

Pay for Performance is a process where the contractor is paid for work on a graduated scale based on the quality and longevity of the work over time. Payfor-performance specifications rely on final outcomes that can be measured against performance criteria set forth in the contract. If the contractor fails to meet minimum performance criteria, payment is withheld and corrective action is required.

•

Unlike traditional specifications when NHAI prescribes the methods and/or means of producing or constructing an item, if the contractor complies with specifications, but the final outcome is not acceptable, the contractor is not responsible for corrective action.

2.8.2 Benefits: • • •

Eliminates blame when there is a problem with the quality of a specific work item Shifts the risk of providing a quality product to the contractor Provides higher quality products for a longer duration

2.8.3 Drawbacks: • • • •

Time is needed after project completion to ensure product performance Longer project close-out (completing finals) Product monitoring and inspection is time-consuming Contractor may be required to finance a portion of the work during the performance period.

 Pay-for-Performance Example Pavement markings – Measured reflectivity over time

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Critical Path Method (CPM) schedules are excellent tools for both the contractor and NHAI to monitor contract time during a construction project. Unlike a traditional bar chart schedule, CPM schedules use logic to link activities and define the critical path and project duration. 2.9.2 Benefits: • • • • •

Improved tool to monitor contract time Tool to assist with quantifying and mitigating project impacts Contractors are required to put together a well thought-out schedule. Provides an opportunity for owner “buy-in” Identifies sufficient weather and duration contingency

2.9.3 Drawbacks: • • • •

Requires experienced personnel to oversee the contractor’s schedule. Requires experienced contractor personnel to develop a schedule Owner acceptance of the schedule may assume unnecessary liability Additional contract requirements to enforce

2.9.4 Project Selection: CPM should be used on complex projects or projects with critical timelines. Due to the level of experience required for both the contractor and NHAI, CPM schedules are not recommended on lower cost, simpler projects, at this time. The schedule should contain a level of detail as to communicate a well thoughtout plan that matches the complexity of the job. Good Candidates:

• • • • • • •

New construction and reconstruction projects (>Rs.5, 000,000). Time-sensitive projects when commitments have been made. Phase or staged construction. Multi-year projects Projects with significant claim potential. A+B (+C) projects. Early completion incentive projects.

Poor Candidates:

• •

Projects that do not require continual work effort. Projects that do not significantly impact the public a) Traffic Management System (TMC) b) Mill-and-Overlay Projects c) Signal systems d) Landscaping

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2.9.5 Contract Administration Considerations: •

Consider hiring a consultant to help with administering CPMs. This is highly recommended on large, complex projects that will require significant staffing. • NHAI staff should be properly trained in administering a CPM schedule. If not administered properly, a CPM schedule could significantly hurt NHAI during a claim. • Be consistent with administering the CPM special provision. • Work with the contractor to revise the schedule if plan additions occur 2.10: DECISION TREE: For using Innovative Contracting techniques first of all we have to define project objectives and then choose the Innovative contracting techniques which are effective and efficient. Fig-1: Selection of Innovative Contracting Techniques What is the primary Objective?

Expedite project completion?

1) Design / Build 2) A + B 3)Incentive / Disincentive 4)Innovative Construction Practices

Minimize Delays

User

1)Incentive / Disincentive 2)Innovative Construction Practices 3)Lane Rental

Improve quality?

1)Innovative Construction 2) Warranties

Minimize cost?

Traditional Design / Bid / Build

2.11 FACTORS TO BE CONSIDERED IN INNOVATIVE CONTRACTING: The primary goal of Innovative Contracting is to provide timely delivery of a quality project or facility with limited User & Social Impacts. Any way the main factors to be considered are listed below Third Party Conflicts: NICMAR

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Utilities, Environmental, Political Legal. (Innovative Contracting should not be used in any case where a third party conflict exists) Project Complexity: Routine, Complex Design, Complex Construction, Technical Integration

Availability of Funds: Emergency Project, Timing of Funds, Local, State, National, Bonding, Toll Fees Time Constraints: Event, Emergency, Public Perception, Limited Resources Road User & Social Impacts: High Accident Rates/Safety in Work Zones, Impact to Businesses, Traffic Control, High Road User Costs (Delays, Inconvenience), Air Pollution Product Quality: Smoothness, Extended Serviceability

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Life,

Maintenance

Objectives,

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CHAPTER-3 HISTORICAL DEVELOPEMENT 3.1 MILIEU: The genesis for the FHWA's SEP-14 began in 1988, with the establishment of a Transportation Research Board (TRB) task force to evaluate Innovative Contracting Practices. The task force consisted of 23 representatives from State highway agencies, all segments of the industry, and others. Its mission was to: •

Compile and research information on contracting practices used by agencies in the United States and other countries;

•

Assess how current practices affect quality, progress, and cost; and

•

Suggest measures for improving contracting practices and promoting quality in construction.

The task force investigated four major areas: •

Bidding procedures;

•

Materials control;

•

Quality considerations; and

•

Insurance and surety issues.

Recommendations were made by the task force for each of the four major topic areas. Some of the more significant recommendations included: •

The cost-plus-time bidding concept should be considered for wider implementation;

•

The potential for use of warranties or guarantees and the design-build contracting concept should be investigated;

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•

Attention should be given to the use of constructability testing during the design of projects;

•

A nationwide effort should be initiated to transition from method specifications to performance-related specifications and the performancerelated specifications should include incentive and disincentive provisions to encourage better quality;

•

A national clearinghouse should be established for information on new materials/processes and the establishment of a national center, or regional centers, for product evaluation should be investigated; and

•

Value engineering concepts should be investigated to identify ways to promptly approve successful innovative techniques.

The task force's findings are documented in Transportation Research Circular Number 386, entitled, "Innovative Contracting Practices," dated December 1991. The task force chairman, Dwight Bower, subsequently requested that FHWA establish a project to provide a means to evaluate some of the task force's more project specific recommendations and SEP-14 was initiated. The objective of SEP-14 is to evaluate "project specific" innovative contracting practices, undertaken by State highway agencies that have the potential to reduce the life cycle cost of projects, while at the same time, maintain product quality. Federal statutes and regulations do set forth specific Federal-aid program requirements; however, some degree of administrative flexibility does exist. The intent of SEP-14 is to operate within this administrative flexibility to evaluate promising non-traditional contracting practices on selected Federal-aid projects. 3.2 INNOVATIVE APPROACHES: Several "project specific" innovative contracting techniques are currently being used and evaluated by a number of State highway agencies. These include: •

Cost-plus-time bidding,

•

Lane rental,

•

Design-build contracting, and

•

Warranty clauses.

After an evaluation period, FHWA approved cost-plus-time bidding, lane rental, and warranty procedures as non-experimental contracting procedures. Initially, various concerns on the part of some members of the highway industry prompted FHWA to proceed cautiously in allowing countries to experiment with the Design-build concept. However, in recent years, FHWA has witnessed an increased interest from the countries in the design-build concept. As a result of this interest, FHWA continues to allow the use of the design-build concept on an experimental basis. Other innovative contracting techniques have also been used by a select number of countries NICMAR

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3.3 CURRENT INNOVATIVE CONTRACTING RESOURCES: FHWA currently has a contract with the Utah State University - Local Technology Assistance Program (LTAP) to conduct a study on the best practices for certain innovative contracting techniques. The LTAP center has developed a web page to collect information from the states and share best practices. The LTAP center has provided guidance concerning contracting technique applicability, criteria for project selection, current use, and example special provisions. The site can be accessed at the following address: (http://www.utaht2.usu.edu/projects/innovativecontracting/ICSearchpage.html). In April 1998, AASHTO, the highway industry and FHWA conducted a Symposium on Innovative Contracting in Orlando Florida. The symposium provided a national forum for highway industry representatives to express their opinions concerning the advantages, limitations, and potential disadvantages of innovative contracting techniques. The representatives at the conference debated the use of non-traditional contracting techniques to achieve common goals and increase quality. Participants discussed past successes and failures, present trends, and future directions for innovative contracting. A summary of the Symposium presentations and individual copies of presentations are available at the conference web site (http://www.technautics.com/Orlando98/mins.htm).

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CHAPTER-4 CASE STUDIES: INNOVATIVE CONTRACTING TECHNIQUES IN USA This Chapter highlights how the innovative contracting techniques made Highway projects efficient in all the countries of U.S 4.1 A+B PROJECTS: Since 2000, several DOT district have used A+B bidding. In total, fifteen (35) projects have been let in five districts. Listed below is a summary of these projects and results observed throughout the state Minnesota. 4.1.1 Purpose: The purpose of A+B projects is to reduce impacts to the public (road user costs) by selecting a contractor with the best combination of price and time. Each contractor submits a bid consisting of two components: a) “A” Component – Traditional bid for the contractor items and is the dollar amount for all work to be performed under the contract b) “B” Component – The contractors ‘bid” of total number of calendar days required to complete the project The “B” Component is multiplied by the road user cost furnished by the DOT and added to the “A” Component to obtain the total bid. (A) + (B x Road User Cost/Day)

4.1.2 Project Types: Projects selected for A+B bidding had major impacts to the traveling public. The majority of projects were pavement rehabilitation projects. 4.1.3 Award of Contracts:

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On all fifteen (35) contracts, the contractor with the low bid ‘A’ Component was awarded all of the contracts. On five contracts, the contractor awarded the project also had the lowest bid number of days. 4.1.4 Time Impact Analysis: DOT specified in the special provisions the maximum number of days the contractor would be allowed to complete the work. It was anticipated that the contractors would bid less than this in order to obtain the bid. Listed below are some average statistics: • •

15% Time Savings – Low Bid days versus DOT max in the Special Provision. 11% Additional Time Savings – Actual construction time versus bid days + extensions a) 17% Time Savings on projects with incentives b) 6% Time Savings on projects without incentives

Note: The project involving the claim is not used in the analysis below due to complications with contract time involved with the claim. On projects with incentives, contractors made additional efforts to complete the project earlier. Of the four projects without incentive, only two projects were completed before the bid days. The other two projects were completed within the maximum allotted time. 4.1.5 Incentives and Disincentives: The following bullets are general statistics regarding the use of incentives on A+B Projects. • 10 of the 35 projects allowed for incentives. • Incentives ranged from $3,100/Day to $10,000/Day According to the FHWA Technical Advisory Report (Incentive/Disincentive (I/D) For Early Completion), the maximum amount of incentive should not exceed 5% of the contract cost. The FHWA report also recommends that the cap be substantial enough to encourage the contractor to increase productivity to meet the project schedule. All of the projects had incentives within the FHWA guidelines. Project No. 2738-20 was a project with a relatively low dollar amount ($601,000), but had major traffic impacts. The project required reducing traffic to a single lane over the Crow River where the AADT exceeded 70,000. In this case, increasing the maximum incentive above 5% was justified by the decrease in roadway user impacts. 4.1.6 Lessons Learned: Listed below are the lessons learned: 4.1.6.1 Applications of A+B:

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Overall, the engineers agreed that the A+B process is a great tool for using on projects with anticipated high road user delays. Many engineers felt that this process could be applied to a wide variety of projects and not necessarily rehabilitation projects. Some engineers felt that A+B should not be used in the following areas: • High potential for poor soil overruns • Poor design plans where negotiating additional time may become an issue • Utility conflicts or relocations may impact schedule • DOT staffing limitations could jeopardize safety and quality of work

4.1.6.2 Contractors Approach: Most of the contractors approached the A+B projects with additional crews and longer hours in order to meet the completion deadlines and/or obtain the incentives. 4.1.6.3 DOT Staffing: In some cases, aggressive schedules often placed a heavy burden on DOT staffing during these projects. In some districts, the contractors’ aggressive schedules placed a heavy burden on staff to keep up with the number of crews and long work hours. 4.1.6.4 Safety and Quality of Work: Some engineers felt that the aggressive schedule created long work hours that may have influenced the quality of work for both the contractor and DOT staff. The aggressive schedule and fatigue of crews may have compromised safety for both workers and motorists within the construction zone. 4.1.6.5 Incentives: The engineers had mixed feelings regarding the use of incentives. • Contractors should already be bidding the minimum number of days, so why should the contractor receive an incentive. • Others felt that incentives were a benefit for even earlier completion. 4.1.7 Comments: • • • •

Engineers felt that the A+B process was a good tool for projects with high anticipated roadway user cost delays. A+B bidding does not appear to greatly increase the bid cost of the project. The engineers estimate is generally falling between the low and high bids. A+B has been an effective tool for reducing contract time. Contractors are bidding on average 15% fewer days compared to the maximum allotted time by DOT. The use of incentives has been an effective method for further reducing contract time. On average, a contractor completes the project 17% faster than

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•

• •

the original bid time if an incentive is included in the contract. This compares to 6% for non-incentive contracts. Contractors are using additional crews, longer hours and resources to complete the work faster than normal projects. This pace has strained DOT staffing and fatigued contractor staff, which has the potential to decrease quality and jeopardize safety. It appears that this method of bidding is forcing the contractor to look more closely at the constructability of the project during the bidding process. The ‘B’ portion of the process has not changed the bid outcome, meaning the contractor with the lowest ‘A” portion has been awarded the bid even if he did not have the lowest number of bid days.

4.1.8 Recommendations / Next steps:

• • •

Develop Additional Guidelines on when and where to use A+B Bidding Provide Additional tools for the project engineer to learn more about A+B bidding Examine existing contract administration methods to make sure they can be applied to A+B Projects.

4.2 INCENTIVE/ DISINCENTIVES PROJECTS: 4.2.1 Purpose: To expedite construction timelines, DOT has offered incentives and liquidated savings on several projects throughout the state. DOT has recently incorporated the use of incentive/disincentives on several roadway projects to expedite construction timelines. Two projects implemented Liquidated Savings, a concept in which the contractor can obtain an incentive equal to the amount of DOT’s contract administration fees for early completion. 4.2.2 Project Types: The project Types are Daily Incentive, Liquidated Savings, Intermediate Incentive 4.2.3 Project Costs and Incentives Payouts: On four projects, the low bid came in under the engineers estimate. The other projects were 5% and 8% over the engineers estimate. There is currently not enough data to determine if contractors are adjusting their bids in anticipation of obtaining the incentive to offset costs. 4.2.4 Comments: •

On projects with incentives (except those with liquidated savings), the contractor used extra effort to complete the project early in order to obtain the bonus.

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• • •

There is currently not enough data to determine if contractors are adjusting their bids in anticipation of obtaining the bonus to offset costs. On projects with incentives, the contractor used aggressive schedules that placed some strains on DOT oversight staff. Contractors did not appear to expedite construction times when liquidated savings was offered as a bonus.

4.2.5 Recommendations: • • •

Continue to promote the use of incentives on projects and encourage districts to cap incentives. Develop guidelines on appropriate incentive amounts and special provisions. Continue to encourage the liquidated savings concept statewide and on a variety of project types. Contractors in other districts may see liquidated savings as a significant incentive to reduce contract time.

4.3 LANE RENTALS 4.3.1 Purpose: The lane rental concept is used to encourage contractors to minimize road-user impacts. The contractor is required to pay a rental fee for closing lanes or shoulders during construction. DOT established a rental fee rate which is dependant on the number and time lanes are closed. The contractors are required to submit their proposed lane rental times with their bids. Similar to the A+B method, the amount of the total lane-rental charges a contractor proposes can be combined with the cost for the work items to determine the successful bidder. During the project, the fee is assessed for the time that the contractor occupies or obstructs part of the roadway and is deducted from the monthly payments. If a contractor exceeds the proposed time within their bid, they are assessed a penalty in the amount of the rental fee rate. Often, the contractor is awarded an incentive for any un-used hours of their bid. 4.3.2 Project Types: The below ones are the type of projects will come under Lane Rental Bit Mill And Overlay, Culverts, Signal , Grading, Bit Paving, Signals, Bridge , Bituminous Overlay , Bridge Painting , Bridge Painting, Bituminous Mill And Surfacing The lane rental concept has been applied using different methods on several of these projects. Listed below are the types of applications that several districts have applied to the lane rental concept. • Reduce Impacts to Intersections NICMAR

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• • •

Reduce flagging operations time Reduce long-term (24 hour) lane closures Reduce lane closures on multi-lane highways

4.3.3 Impacts on Safety: The impact of safety needs to be addressed with all projects, especially on projects with accelerated schedules. Contractor’s set-up lane closures not only to protect the traveling public, but to protect the safety of their workers. There was some concern regarding contractor taking more safety risks to reduce lane rental costs. This included working at nights instead of the day and reducing buffers distances between operating equipment/workers and the traveling public. To combat the potential safety issues, DOT provided guidelines to the contractor on when lane closures would be required. The plans included details on the distance and height of drop-offs adjacent to traffic, backfilling requirements, and minimal work zone safety areas required. 4.3.4 Impacts on Quality: Similar to the comments received on the A+B projects; many field staff believed that the lane rental concept may have reduced the quality of work. Lane rentals work was often done at night when lower rental fees occurred. The increased rate of production may have also compromised some quality of work. The extended work hours also placed on strain on DOT and contractor personnel. 4.3.5 Benefits on lane rentals: Many field personnel observed many benefits of using the lane rental tool: • Contractors were faster at taking down lane closures • Contractors were required to think more about reducing contract time during the bidding process • Inspectors saw a reduction in lane closures where no/minimal amount of work was being done • Incentives for limited lane rentals encouraged contractors to reduce lane closure times. 4.3.6 Lessons learned: Many field personnel also provided input on the difficulties of administering lane rentals: • In some cases, the extra work was occurring along with the normal construction operations that made it difficult to assess if lane rental charges should be invoked. • On a moving operation, it was sometimes difficult to monitor the lane rental impacts. • Further guidance in specifications on turn lane closures needs to be addressed. 4.3.7 Comments: NICMAR

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• •

• •

Lane rental is an effective tool to reduce the amount of lane closures on projects. Without good specifications and enforcement, the use of lane closures may decrease safety. To reduce lane rental expenses, contractors may be hesitant to install lane closures when they may be needed to protect workers and/or motorists. Awarding incentives for early completion also helped reduce lane closure impacts. Some field personnel believe that lane rentals may also decrease quality of work. Contractors will work more night hours when lane rental times are typically lower.

4.3.8 Recommendations: • •

Develop guidelines for using lane rentals on DOT and local projects. Continue to monitor lane rental use on DOT projects.

4.4 PAY FOR PERFORMANCE: 4.4.1 Purpose: Pay for Performance is used measure the final performance of an item compared to performance criteria established in the contract. Unlike traditional specifications where the owner assumes the risk if the contractor is in compliance with the specification but the final outcome is not acceptable, pay for Performance requires the contractor to correct any deficiencies. 4.4.2 Applications: DOT has instituted the Pay for Performance specification on only one project, design/build project in the Metro Division in the state of Minnesota. Pavement striping performance will require a product’s retro-reflectivity and color to meet or exceed established durability and quality standards, as specified by the warranted values. The performance period is five years. The specifications outline the method of evaluating reflectivity and measuring reflectivity during the warranty period. The contractor will be required to replace any defective pavement markings not meeting the specified criteria in the contract. Since this project is still under construction, no evaluation of the pavement markings has occurred. 4.4.3 Benefits: A level of risk is shifted from the owner to the Contractor. The contractor then reduces his/her risk by providing a quality product that will last a longer duration. NICMAR

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4.4.4 Drawbacks: The use of Pay for Performance often requires DOT to monitor the effectiveness of the product over a longer period of time. This increases DOT’s monitoring costs. This system may place a financial burden on the contractor if they have to finance a portion of the work for the duration of the performance period. 4.4.5 Comments: Pay for Performance may be an effective tool to improve quality, but there is not enough data at this time to evaluate its effectiveness.

4.4.6 Recommendations: • • •

Monitor the Pay for Performance pavement marking items on the Highway Projects. Identify additional items to apply Pay for Performance specifications. Identify projects to apply Pay for Performance items and specifications.

4.5 WARRANTIES: 4.5.1 Purpose: The goal of instituting warranties on projects is to improve the quality and durability of products by allowing a longer timeframe to accept work constructed by contractors. This process is also aimed to encourage contractors to improve their construction techniques and use better equipment to meet the warranty requirements. With warranties, there is potential to decrease the level of inspection required by DOT. Since the mid 1990’s, DOT has been working to incorporate warranties into roadway and bridge construction projects. Since this time, DOT has developed specifications and implemented pavement and other warranties on design-build and design-bid-build projects. 4.5.2 Types of Warranties: 4.5.2.1 Bituminous Warranties: • • •

Warranty bonds generally were in the amount of 20% of the total bid amount for the warranted bituminous pavement items DOT conducted pavement distress surveys to monitor the pavements The 2-year warranty period covered transverse and longitudinal cracking, debonding, raveling, flushing, rutting and pop outs.

4.5.2.2 Excavation and Embankment: NICMAR

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• • • •

Warranty on subgrade excavation embankment and aggregate base placed on the roadway below the pavements, including over culverts and utilities Established threshold limits for differential settlements and recommended correction actions. 2-year warranty period No special bonding requirements

4.5.2.3 Route and Crack Sealing: •

Warranty covers 100% of the cost of removing and replacing defective material • Performance bond required for the duration of the warranty period • Failure to comply results in forfeiture of performance bond and banned work on DOT saw and seal projects for 1 year. 4.5.3 Warranty Benefits: • • • •

Increased product quality (lower life-cycle costs) Encourages innovative construction techniques and methods to improve quality Potential reduction in agency staffing during construction Lowered risk to owners by shifting responsibility to contractor to maintain

4.5.4 Cost Comparisons: An analysis was performed to determine if contractors are bidding significantly higher prices on warranty bituminous items compared to similar non-warranty items. The analysis examined: • •

Projects that had both warranty and non-warranty items with the same mix design and, Non-warranty projects with similar bituminous bid items that were let within 3 months of the warranty projects in the same district.

There were no apparent trends in the data to suggest that the unit bid prices for warranty items increased compared to non-warranty items. Please note that this analysis did not account for constructability constraints, quantity differences and/or truck hauling costs that differ between the projects. Based on information provided by DOT Estimating Unit, contractors are likely including costs to address warranty corrective actions within the mobilization item. 4.5.5 Lessons Learned: • • •

There does not appear to be any significant changes in the way bituminous pavements are constructed with a 2-year warranty. Warranties require additional effort by the districts to monitor the performance of items during the warranty period. There did not appear to be significant added value with 2-year bituminous warranties.

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4.5.6 Comments: • • • •

• •

Additional time is required to assess the effectiveness of long term (5-year warranties) on many of the design build projects. Except for two projects (both design-build and design-bid-build), projects with warranties have not experienced any significant issues since construction. Costs – add something here following the analysis. Several design-build projects specified warranties, but provided no guidelines on the threshold criteria or corrective action process required. This may lead to difficulty enforcing the warranty if a concern arises during the warranty period. No Significant changes to the bituminous construction practices were identified by field personnel on projects with two-year warranties. The implementation of long term (20 year) warranties of bituminous pavements is currently not a cost effective tool for DOT to implement at this time.

4.5.7 Recommendations: • • • •

Continue to monitor the effectiveness of short term (2-5 year) and long term (20-year) bituminous warranties in other countries. Continue to monitor the 2-5 year warranties on the design-build and designbid-build projects currently in effect in Minnesota. Develop additional threshold and corrective action guidelines for implementation on future design-build and design-bid-build projects. The guidelines should also clearly define when the warranty period begins. Gather input from the industry on the use of warranties, including bonding and contractual issues.

4.6 OTHER INNOVATIVE CONTRACTING TECHNIQUES: In addition to the innovative contracting techniques stated above, DOT has in the past used other techniques to decrease construction time and road user impacts. Listed below are some additional alternatives: 4.6.1 Flexible Starting Dates: Allows the contractor to pick the starting date of a project. This technique provides the contractor more time to plan and schedule the use of equipment and manpower to the start of construction. Scheduling problems that may delay contract time completion are avoided. DOT currently uses this tool on certain projects. 4.6.2 Constructability Reviews: On projects with multiple staging or methods for innovative construction, the use of constructability reviews with members of the construction industry can be a valuable NICMAR

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tool. Constructability reviews are done at various times during the design. In a 1999 AASHTO study, countries that use constructability reviews have reported fewer change orders, better plans, fewer claims, reduced contract time, reduced impacts to motorists and better understanding of the project by construction personnel prior to construction. 4.6.3 Construction Manager at Risk: Under this procedure, DOT would select a design and Construction Management (CM) consultant on the basis of qualifications, experience, fees and prices for the target cost of construction. During the preliminary design phase the construction manager provides input into the project to help control cost and achieve the project objectives. At some point during the design (typically 60-90% of completion), the owner and the CM negotiate a Guarantee Maximum Price (GMP). The CM must complete the project within this price. The CM assumes all the risk by holding all of the sub-contracts. The Florida DOT currently uses this procedure. The CM is selected based on Florida’s standard consultant selection process. 4.6.4 Lump Sum Projects: A contractor is provided a set of bid documents and is required to calculate the quantities and develop a lump sum bid for all work. Costs associated with changed or unforeseen conditions as well as added or deleted work is negotiated using standard practices. 4.6 5 Bid Averaging Method: Florida-US currently uses bid averaging to contractors to bid a true and reasonable cost for a project. This method allows the contractor to bid what the actual project will cost without “needing” to be the lowest bidder. Bid averaging is not used on federally funded projects. If 5 or More Bids are received, the Department excludes the high and low, then averages the rest and selects contractor closest to the average. If 3 or 4 bids are received, the Department averages all bids and selects contractor closest to the average. If less Than 3 Bids are received, the Department rejects all bids and readvertises the project. 4.6.6 Multi-Parameter Bidding Including Quality (A+B+Q): Similar to A+B, but the contractor also bids the number of warranty years. A contractor is given a credit for every year that he bids on the warranty. Maryland and Kentucky have used this method. 4.6 7 No Excuses Incentives:

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Several countries have implemented a No Excuses Bonus or “drop-dead-date” for completion of a phase of work or the entire project. If work is completed in advance of the date, the contractor receives an incentive. If the date is not met, liquidated damages are assessed (but not a dis-incentive). There are no excuses such as weather delays, quantity overruns, or changed conditions.

4.7STATES WHICH ARE TECHNIQUES IN USA:

USED

INNOVATIVE

CONTRACTING

Table-1: States of USA which are used IC Techniques

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1 State

SEP-14 CostPlusTime (A+B )

Lane Rent al

Other than SEP-14 W arra nty

INNOVATIVE

Desig nBuild

Design- Design- Ot C Lane Warra BuildBuildhe ostRental nty Maintai Operate r Plus CONTRACTING TECHNIQUES IN HIGHWAY SECTOR n Maintai T n ime ( A+ B)

Alaba ma

X

Alask Arizo na

X X

Arkan sas

X

Califo rnia

X

Color ado

X

DesignBuildWarrant

X X X

X X

X

X X

X X

Other

X

X

X

X

X X X

X

X

X

Conn ecticu t Dela ware

X

X

Distri ct of Colu mbia

X

X

Florid a

Georg ia

X

Hawa ii

X

X X

X

X

X

X

X

X

Idaho

X

Illinoi s

X X

Iowa

X

X

X

X

Kansa s Kentu cky

X

X

India na

Bid Avera ging, Lump Sum Biddin g, No Excus e Bonus

X

X

X

X

X

X X

X

Louis iana Main e

X

Maryl and

X

X

X

X

X

Mass achus etts

X

Constr uctabil ity Revie w, Syste m Integra tor

X

X

X

X

X

X

X

X

X

ID/IQ

X

Lfe56 Cycle Cost, Alt. Pavem ent

X

Michi gan

X

Minn esota

X

Missi ssippi

X

Misso X NICMAR uri

X

X

X

X

X

X

X X

X

X

X

X

INNOVATIVE CONTRACTING TECHNIQUES IN HIGHWAY SECTOR

(Source: FHWA Initiatives to Encourage Quality through Innovative Contracting Practices, Special Experimental Projects No. 14 – (SEP-14), October 23, 1998.)

CHAPTER-05 CASE STUDIES ON INNOVATIVE CONTRACTING TECHNIQUES IN UK 5.1 Case 1 - Eaves Green Link Road Contract: Eaves Green Link Road, which was completed in November 2006, comprises of 1.5km of single carriageway road, with one major structure, running to the south west of Chorley. The contract for the construction of the scheme was a conventional contract, awarded to Birse Civils Limited (BCL), on the basis of lowest price (£4.1m).However, the construction works were notable for the working relationship developed between BCL and the County Council, which contributed to the scheme opening 15 weeks early, within budget, and with the adoption of innovative and sustainable engineering solutions. This was achieved through a partnership approach to the contract. Although the contract did not contain any contractual requirement for partnering, BCL and the County Council agreed that a partnering approach should be adopted. A Partnering Workshop involving all BCL and County Council staff involved in the construction of the scheme was held before work started on site. At this workshop, key objectives NICMAR

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essential for the success of the project were identified, along with key issues and solutions, culminating in a Project Charter committed to by all staff. This led to an environment of trust and openness, working as one team, with improved co-ordination and planning, better management of Health and Safety, increased innovation and better communication. The energies of both parties were focused towards achieving a successful project. BCL and the County Council shared the same site office accommodation and administrative staff throughout the contract period. In the spirit of partnering, throughout the construction period, BCL used their expertise in construction techniques and materials to identify possible changes to the works as designed, leading to financial, time and environmental benefits. These included their proposal to treat the soft clay excavated from the site with lime and cement stabilization, to render it suitable for re-use in the works. The 24,000 cubic meters of material involved would have been taken to landfill off site, and a similar quantity of suitable material would have been imported for the new construction. The cost saving of about £175k was shared equally between BCL and the County Council. Further benefits included the removal of 6,000 wagon journeys from the local roads, reduced carbon missions, preservation of natural resources and avoiding using scarce landfill capacity. Similarly, the County Council worked together with BCL, to review the original design to achieve solutions to buildability problems and to maximize the use of recycled materials in the works. Work to assist and communicate with local residents, businesses and the large school next to the site were also addressed proactively and jointly, including regular ‘surgeries’. The scheme recently received a Sliver Award through its high performance in the national Considerate Constructors Scheme. 5.2 Case 2 - Framework Contract for Remade in Lancashire Works: The Remade project is a 7 year NWDA funded scheme, set up with the objective of reclaiming 334 hectares of derelict land on 46 sites, for ‘soft end’ uses, such as sports facilities, play areas, recreation, safe routes for cycling and walking, and parks and gardens. The construction works required include earthworks, landscaping, infrastructure works and general civil engineering works. It is anticipated that over the next 4 years about 25 works contracts will be awarded, most contracts being in the £250,000 to £750,000 range. It was considered that the best means of delivering these projects would be through a framework contract with 3 contractors, rather than going out to tender for each works contract individually. The framework contract was advertised, and competed for, in accordance with the EU procurement rules. The 50 contractors who responded were required to make a NICMAR

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Quality submission, to determine the best 11 contractors. These were then required to complete a schedule of rates for the items of work likely to be required under the contract, and the 3 lowest were appointed as the Framework Contractors. The individual works contracts within the framework contract will be shared between the three on the basis of 60% of the work (by value) to the lowest, and 20% each to the other two. The works contract price is determined by applying the contractor’s schedule of rates to the designed works and negotiating a Target Cost for the work, taking account of, and agreeing ownership of, all identified risks to the project delivery. This gives much greater certainty of the final cost of the project. The works contract also includes a gain-pain arrangement, where any overspend or under spend in relation to the target cost is shared equally between the County Council and the Contractor. This encourages innovation and keeping costs to a minimum. The Framework Contract provides a platform for maximizing the value and quality of Remade works by establishing a strong and open working relationship between the County Council and the Contractors. It is anticipated that a close, long-term relationship will deliver real benefits for the both parties including: • The creation of an environment of trust • Contractor becomes part of the team • More opportunity for innovation • Better coordination and planning • Improved management of Health and Safety • Shared objective to solve problems and provide value for money • Contractor’s skills and experience utilized in project development/design • Understanding and sharing of risk is managed proactively • Opportunity to deliver continuous improvements • Cost forecasting and certainty improved • Greater certainty of margins for contractors. A further benefit of the Framework approach is the opportunity to involve the Contractor at an early stage in the scheme’s development, known as Early Contractor Involvement. This allows the County Council to make use of the Contractor’s expertise to advice on alternative solutions, materials, buildability and health and safety issues. Performance monitoring is a key tool in driving continuous improvement over the lifetime of the Framework Contract. The Contractor’s performance is measured against several Key Performance Indicators which are included in the Framework Contract.

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CHAPTER-06 CONCLUSIONS AND RECOMMENDATIONS This Thesis intends to synthesize information on the traditional design-bid-build contracting approach to highway construction projects, identify the benefits of innovative contracting approaches, and make recommendations for using innovative contracting approaches. The Thesis Report is based on extensive literature review of published material and meetings with NHAI officials, contractors, research organizations, and academic experts on the subject matter. The key findings and concluding remarks are presented below. 6.1 CONCLUDING REMARKS: •

Design-bid-build has been and continues to be the default contracting approach used by NHAI for highway construction projects.

•

Major limitations of this approach include little or no opportunity for contractor to use experience, innovation, and new technology; the process is slow and lengthy; the risks associated with quality of the final product and maintenance are not the contractor's responsibility.

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•

The impetus for alternative contracting approaches to address some of these limitations includes reducing construction time; deploying advanced and improved technologies relating to materials, construction equipment and methods; encouraging contractor innovation; and reducing impacts to the public.

•

SHAs (USA) have tried several innovative contracting approaches since 1990 through an FHWA initiative. These approaches include warranties, design build, cost-plus-time, and lane rentals. A combination of these contracting approaches has also been used by some SHAs. The benefits of innovative contracting approaches include the following:  Warranties, fixed price maintenance contracts – incentive for the contractor to deliver high quality since the contractor is responsible for the maintenance and repair of the finished product  Design build – significant reduction in overall project duration, which could be attributed to overlap better coordination between design and construction teams  Cost-plus-time – significant time reduction because there is cost incentive to the contractor to use new and innovative construction techniques and equipment for early project completion  Lane rental – reduction in construction time and consequent reduction in public impacts.

The underlying hypothesis of the study was that innovative contracting results in reduced costs, time, and improved quality of the final product. Case studies of highway construction projects were used to illustrate the impacts of innovative contracting on the three measures of cost, time, and quality. In addition, data from other civil construction projects, other industries, and experiences in all the states of USA with performance-based outcomes were also reviewed. While the case studies and literature point to the hypothesis as being valid, limited quantitative data precludes a detailed evaluation of the hypothesis as it pertains to highway construction industry. The primary driver for using innovative contracting approaches as used by SHAs is reduction in time and resources from project planning through construction phases. Like that in India (NHAI) also we can use these Innovative Contracting techniques. The case studies estimated that as much as 50 percent time reduction in project duration can be achieved compared to the traditional design-bid-build approach. Also, significant cost savings ranging from 6 to 40 percent in using performance-based outcome approaches can be achieved.

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However, evidence from civil constructions indicate that alternative innovative contracting approaches provide better quality of the finished product compared to the traditional approach as the contractor is held responsible to a larger degree. It was concluded that very few truly performance-based outcome projects have been executed in the highway construction industry in the United States. The concept is relatively new in the highway construction industry. Success stories have been reported in other branches of government, such as outsourcing water and waster water management plants, defense contracting, welfare service, correctional facilities, and emergency services. The idea of performance measurement and alignment of incentives has become popular in these branches of government. Eight to fifty percent contract cost savings was reported. It is recognized that the characteristics of these industries are distinctly different from the highway construction industry. Therefore, inferences based on other industries cannot be directly applied to the highway construction industry. It is also recognized that some of the examples reviewed use contracting alternatives that are not strictly performance-based outcomes and that the variables involved in highway construction are different. However, it can be concluded that departures from the traditional design-bid-build approach that encourage innovation and are performance oriented result in construction time reductions, cost, and comparable or better quality. In other words, any contracting approach that departs from the traditional design-bid-build approach offers benefits in terms of cost, time, and quality. The degree of benefits, however, depends on several factors, including the type and nature of the project and the type or combination of types of innovative contracting approaches employed. Notably, SHAs in USA are satisfied with the quality, timeliness and cost effectiveness of projects executed using innovative contracts so far. It was also observed that short warranties are the most common form of innovative contracting used by SHAs in USA for highway construction projects. Long-term warranties and fixed price maintenance contracts are just being considered as viable alternatives in the highway construction industry. The probable reasons for limited usage of these innovative contracting approaches include lack of experience and knowledge in the benefits of alternative contracting approaches, lack of confidence in contractors’ ability to manage the roadways over long-term, and bonding agencies concern about risks of long-term warranties. It is also concluded that performance-based specifications are easier to implement with innovative contracting approaches whereby the risks of ensuring a high quality product are shifted to the contractor. Consequently, contractors are encouraged to use the best construction techniques and materials to ensure that the desired quality is achieved and maintained over a specified period.

6.2 RECOMMENDATIONS: NICMAR

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The following recommendations are designed to encourage the use of innovative contracting approaches to highway construction in India •

The benefits of innovative contracting approaches have to be demonstrated to all Contractors in India by NHAI using examples with quantitative data to illustrate the real benefits. The use of substantive evidence from completed highway construction projects to demonstrate the value of innovative contracting is expected to be a convincing approach.

•

It is recommended that NHAI using innovative contracting approaches be encouraged to track benefits using a database of costs, time, and quality of such projects. These data will serve as references for future projects. The NHAI also need to keep similar records of “traditional” contract projects to aid comparative studies.

•

Encourage all the states in India to consider innovative contracting for especially for projects with time, cost, resource constraints, and of critical value to the states.

•

Provide incentives to all the States that are progressive and have shown benefits due to innovating contracting. Nationally, encourage public-private sector partnerships in financing and managing highway construction and maintenance projects. This implies cost and risk sharing. In this way NHAI (i.e., public sector) will be more amenable to undertake long-term warranties knowing that the risk is shifted to the contractors while maintaining control of the public asset.

•

•

Promote information exchange among States, contractors, and the research community. This can be achieved through seminars, workshops, specialized conferences, newsletters, and websites where experiences with innovative contracting approaches can be shared and questions and concerns expressed and addressed.

•

Conduct research to establish the different types of highway construction and maintenance projects to which the various innovative contracting approaches are most suitable. The result of such a research effort would provide guidance to NHAI in selecting contracting methods or a combination of methods for the different projects so that maximum benefits are derived.

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REFERENCES References: 1)

Asphaltic Pavement Warranties: Three-Year Progress Report, Wisconsin Department of Transportation, 1998.

2) Briefing: FHWA Initiatives to Encourage Quality through Innovative Contracting Practices, Special Experimental Projects No. 14 – (SEP-14), October 23, 1998. 3) Donn e. Hancher, university of Kentucky; “Contracting methods for highway construction”, October 2001 4) Federal transit administration - U.s. Department of transportation, May 2000; “Role of innovative contracting in the delivery and operation of major transportation infrastructure projects” 5)

FHWA Press Release. FHWA Cites Utah I-15 Project as Example of Innovative Way to Build Roads, January 28, 1999.

6) FHWA, Office of International Programs. 2001 Contract Administration Scan, Executive Summary available at http://international.fhwa.dot.gov/pubs.html. NICMAR

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7) Hancher, D.E. Contracting Methods for Highway Construction, Transportation Research Board, Washington DC, November 1999. 8) Hardy, P. Australia Roads Review of Performance Contracts: The Potential Benefits of Performance Contracts, available at www.zeitlow.com. 9) Herbsman, Z.J. and C. R. Glagola. Lane Rental: Innovative Way to Reduce Road Construction Time, ASCE Journal of Construction and Engineering Management, Vol. 124 No. 5, pp. 411-417, 1998. 10) Innovative Contracting journal- national audit office, 1991. Management of road maintenance. 11) Office of construction and Innovative contracting-DOT; “Innovative Contracting Guide lines”, April 2003 12) Mónica altamirano; “Innovative contracts in road infrastructure in Finland and the Netherlands”, Network Industries Quarterly, vol. 9, no 4, winter 2007 13) Performance-Related Specifications: Next Step in Pavement Quality http://www.fhwa.dot.gov/construction/fs02006.pdf. 14) Pekka a.Pakkala (Finnish road administration), Dr. W. Martin de jong (Delft University of technology), Juha äijö (ramboll Finland); “International overview of Innovative contracting Practices for roads”, July 2000. 15) Stuart d. Anderson & Ivan damnjanovic (Texas a&m university College station, Texas); “Selection and evaluation of Alternative contracting methods to Accelerate project completion -A synthesis of highway practice”, August 2003 16) Utah Department of Transportation. I-15 Corridor Reconstruction Project, Design- Build Evaluation, 2000 Annual Report, June 2001. E-References: www.asce.org www.dot.state.mn.us www.fhwa.dot.gov www.ic.usu.edu www.nhai.org www.sha.state.md.us

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