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Specifying results instead of process leverages contractor creativity

In 1990, the Federal Highway Administration (FHWA) established Special Experimental Project Number 14-Innovative Contracting (SEP-14) to enable state transportation agencies to test and evaluate a variety of alternative project contracting methods.

Over the next 5 years, the investment needed to address the backlog in highway infrastructure repairs may reach $1.6 trillion, according to American Society of Civil Engineers estimates. Compounding the problem is highway agency downsizing, reduced funding, aging infrastructure, growing congestion, escalating material costs, and public resistance to tax increases. Innovative investment financing is an increasing need in the delivery of transportation infrastructure projects.

Design-build (D–B) is a method of project delivery in which the design and construction phases of a project are combined into one contract and awarded on either a low-bid or best–value basis. D-B projects allow for greater private sector participation in the delivery of transportation projects. Agencies can focus on policy and planning, leaving the private sector to deal with cost efficiency and construction risk, which it is in the best position to manage. Medium–to–large transportation projects are best suited to D-B project delivery because the agencies involved with larger projects typically have sufficiently knowledgeable staff to prepare the comprehensive contract documents required to clearly delineate roles, responsibility, and liability.

Performance specification contracts between an agency and private partner define only the end product or performance for the project, not the methods required to achieve results. Performance specification agreements significantly increase the opportunities for cost savings because they capitalize on a contractor's experience, technology, and procedural innovations, often resulting in accelerated schedules.

Performance specification contracts include the following:

• End-result specifications remove the majority of the procedural specifications, defining instead the desired end product. Once contractual criteria are met, the project is closed.
• Warranty contracts define contract success as achievement of specific metrics over time. For example, a full–warranty pavement project may establish metrics such as surface distresses, the Pavement Condition Index (PCI), pavement smoothness, and surface friction. The project owner assumes responsibility for operating and maintaining the asset once the project is completed, but the contractor has ongoing project performance obligations. Warranty contracts need to establish realistic measurement criteria that take into account factors the contractor cannot control, such as maintenance or traffic levels.

Advantages of considering innovative design-build contracts include the following:

• Single point accountability for the owner
• Opportunities for increased construction efficiency
• Reduced construction time
• Greater access to private sector experience
• Opportunities for innovation and cost savings
• Transfer of delivery risk to the private sector
• Fewer construction claims

In 1990, the Federal Highway Administration (FHWA) established Special Experimental Project Number 14–Innovative Contracting (SEP–14) to enable state transportation agencies to test and evaluate a variety of alternative project contracting methods. One method was design-build, which remains a core element of SEP–14. Between 1990 and 2002, nearly 300 projects totaling $14 billion were proposed for D–B contracting under SEP–14 by transportation agencies in 32 states, the District of Columbia, and the Virgin Islands.

For More Information

• FHWA Public-Private Partnerships, www.fhwa.dot.gov/ppp
• American Association of State Highway and Transportation Officials Center for Excellence in Project Finance, www.transportation-finance.org
• Design-Build Institute of America, www.dbia.org
• AASHTO Joint Technical Committee on Design-Build, www.designbuild.transportation.org
• State DOT Web sites (Colorado, Florida, Minnesota, Ohio, South Dakota, and Washington)
• Canadian Council for Public-Private Partnerships, www.pppcouncil.ca
• Canadian Design-Build Institute, www.cdbi.org
• FHWA Design-Build Effectiveness Study Final Report, www.fhwa.dot.gov/reports/designbuild/designbuild.htm
• FHWA Design-Build Program Guide, www.fhwa.dot.gov/construction/cqit/desbuild.cfm
• FTA Interim Guidance on Design-Build Project Delivery, www.fta.dot.gov/publications/circulars/leg_reg_4191.html

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