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MISSOURI DIVISION |
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PROCEEDINGS OF THE SEPTEMBER 2000 POST EARTHQUAKE HIGHWAY RESPONSE AND RECOVERY SEMINAR HELD IN ST. LOUIS MISSOURI
FEDERAL PERSPECTIVE BY GERALD YAKOWENKO
MR. MOSELEY: Next on the program is Gerald Yakowenko. He is currently a highway engineer in the Office of Program Administration with the Federal Highway Administration in Washington DC. Gerald is a 1977 graduate of Lehigh University and a licensed professional engineer in the State of Missouri. He has been with FHWA for the past 20 years and has served on the contract administration group since 1996. He also serves as the secretary to the AASHTO subcommittee on construction, contract administration task force and is currently a member of the TRB Committee A2F05.
MR. YAKOWENKO: Thank you, Bobby. I would like to say thanks to Missouri DOT and the FHWA Missouri Division Office for inviting me here. Today I would like to talk about these nontraditional contracting techniques and how they might be used in an emergency response situation.
As an overview I will cover a little bit about FHWA's participation basics on the FHWA 1998 survey on streamlined techniques and then I´ll talk a little bit about the history and background of Special Experimental Project #14 or SEP #14 related to contracting. I will also provide some information on design-build contracts: where that is going and where Federal Highway is going with the design-build regulations. And lastly, I´ll give you some resources for additional information on the subject.
For FHWA Emergency Relief program eligibility, the project must be on a federal-aid highways or federal-aid roads as defined under Title 23. To get 100 percent participation, it needs to be defined as emergency repairs and completed within the first 180 days after the disaster. By regulations we've defined emergency repairs as that which are necessary to restore essential traffic, minimize damage, or protect the remaining facilities.
We do have a detailed Emergency Relief Manual that's available: hard copy and on line on the FHWA homepage.
There is a lot of flexibility within the federal regulations. I know that's hard to believe, but at least in this area, there is. The regulations say that emergency repairs can be done by contract, negotiated contract, or public agency force account. However, permanent repairs are defined regulations and that requires competitive bids or low bids for permanent repairs unless another method is found to be more cost effective or an emergency still exits. You could be working with your local FWHA Division Office for this determination.
Back to 1998, our office completed a survey of the states and their ER programs. The data they had for that year spread over 38 disasters and 26 states. We were looking for the different types of streamlining techniques that were actually being used for contracting ER projects. Sixteen states at that time told us they were using some form of streamlined technique. A lot of these techniques are not considered innovative contracting, but they're just methods of expediting the program and getting projects out on the streets.
Very few states are actually using cost plus time, lane rental, design-build, or warranties, but look at the states that used reduced advertising periods. Out of more than 1,000 projects, 304 used some type of reduced advertising period. Normally we advertise for a three-week period.
They were also using abbreviated plans or existing as-built plans to rebuild.
Some of our speakers such as Glenn Clinton mentioned yesterday, that during the Northridge recovery they were using such things as short listing or invitational bids where you have a list of willing and able contractors ready to go to work and you can develop your competitive bids from this list.
They were also using area wide contracts or indefinite quantity of existing delivery type contracts where instead of having one location, we tell a contractor, we need to repair the traffic signals throughout this whole county. And they were also using change orders on existing construction contracts to widen the scope of work so more could be done with the contractors who were already staffed, equipped, and mobilized doing work somewhere.
So even in 1998, there were a number of techniques that were being used by the states to expedite these contracts.
I would like to tell you how non-traditional or innovative contracting techniques evolved and how they might be used in emergency circumstances. We've had this program now for about ten years and as a result of our scanning tours to Europe, some of our engineers came back with some good ideas on how contracting methods could be improved.
Originally there were four techniques that the states wanted to try, cost plus time bidding, lane rental, warranty procedures, and design-build. Today, three of those four techniques are operational. You can use them without FHWA Headquarters approval. We still need to approve the use of design-build.
They're all somewhat controversial as far as the construction industry is concerned. To illustrate this, I'll use what I call the equivalent Richter scale of controversy.
Cost plus time building or A plus B bidding...I would give perhaps a two or three out of ten on the Richter scale of controversy. For these, we award a contract, not only on cost but on time. Contractor bids A cost to complete the contract and he also bids B, the time it takes to complete critical work. We generally include a monetary incentive/disincentive amount that's based on completion costs to come up with that product, BX.
As an example from the state of Kentucky, we may have a $5,000 per day incentive/disincentive clause that was based on completion costs. Contractor three was actually the lowest bid for cost. Contractor two was the lowest bid for time. Contractor number one was the successful bidder and as a product of cost and time. His A plus BX product was the lowest of the three and he was awarded the contract.
Under SEP-14, we've had a number of states evaluating cost plus time bidding and we made it operational in May of 1995. Now states can use it with just FHWA Division Office approval. Since then, we've had more states evaluate it. The bigger states that are using it today are Maryland, New York, and Missouri has used it probably 25 or 30 times. It's very appropriate for certain types of projects.
The states looking at it because when dealing with the public they want us to get in there, get the work done, get out, and stay out for a period of 15 to 20 years. The less traffic disruption we cause, the better the public likes it. A plus B should only be used in the right situation. That is on projects that have a high road user cost or severe traffic impact. It should be reserved for projects that are of short duration and generally one construction season or less. The plans should be clean of complications and error free. You should have all of the right of way and utilities conflicts resolved. And most important of all, make sure there is little chance for field changes. The last thing you want to do in an A plus B contract is tell the contractor, we're going to modify and increase the scope. This opens the door for conflicts and claims.
We completed a survey a few years back on the actual I/D rates that states are using in contracts. Even though there may be high road user costs, a lot of states are reluctant to put an equivalent amount as incentive/ disincentive in contracts. So a lot of rates that are actually being used are in the $5,000 to $20,000 range. In Northridge CALTRANS used half of their estimated road user costs. So I urge some caution in this. Be careful on what you put in a contract because it just might scare competition away if it's their first A plus B job. You may be unwittingly limiting competition.
We had a researcher by the name of Herbsman. Mr. Herbsman went to the University of Florida and did some research on the early A plus B projects. He found there was a significant amount of time saved in the 1995 projects. Contractors were generally earning the maximum incentive but the overall costs performing the contract had very little significant increase. With the proper contractual incentives, contractors can reduce their construction time by maximizing the use of their resources. From the contractors I've talked to in Maryland, they actually like bidding A plus B jobs. It allows them to be more competitive and show off their skills. One of the key things to our recovery in the Northridge earthquake was the use of A plus B bidding contracts.
Lane rental is another technique which I would give a three or perhaps four on the Richter scale of controversy. It's not used quite as often. On these we're requiring the contractor to pay a rental fee per unit of time for each lane or shoulder that he takes out of service during construction. It forces the contractors to consider weighing his needs against disrupting the traveling public in his bid. Critical path method or CPM scheduling is important in this technique. Lane rental is commonly used in the United Kingdom. It hopped over to us on a scan report and in SEP-14 we had a number of states looking at lane rental. We declared it operational in May of 1995, just like cost plus time bidding. It's a good supplement to cost plus time bidding. In fact, Indiana bid it that way on a project. It was what they called A plus B plus C budget. A was the traditional and cost of performing the work. B was the time component using lane rental cost, and C was actually a warranty that they used for this project. In this particular case, E
& B Construction was the apparent low bidder for just the cost, a low bid of $5.1 million for the A component. However, when analyzing the time components with an incentive/disincentive of $13,800 per day for the peak lane closure period and a fee of $4,600 for the non-peak periods, the Milestone Construction became the best value for the Indiana DOT. They defined their peak period as 6 a.m. to 6 p.m. That was the heavy use period and they said, Mr. Contractor, if you're going to take a lane out service for that time period, we're going to charge you a lane rental fee of 13,800 per lane per period. If you take it off during non-peak periods we've only going to charge you $4,600. So the contractor had to schedule that into his C bid analysis part of his bid. And it worked very effectively for both Milestone and the Indiana DOT.
Moving up the Richter scale of controversy, another notch or two, are warranties. They have been used quite a bit by a number of states in recent years. But I would give the warranty a Richter scale of controversy number of five as far as the industry is concerned.
I want an assurance by the seller that the product will perform as specified for the buyer for a specific period of time. We've allowed it for use in the federal-aid highway program formally since the 1991 Intermodal Surface Transportation Efficiency Act which basically allows it on non-National Highway System (NHS) projects. For projects on the NHS, went through a rule making process in 1995 and 1996. For NHS projects, you can use warranties but they must be for specific products or features and can't be for routine maintenance. The items must be within the control of the contractor.
We've had a number of states evaluate warranties under SEP-14 and probably a few after that. We're up to about 24 or 25 states looking at various warranty items.
An NCHRP research study a few years ago, reported that the largest item being warranted was bridge painting. Michigan DOT was the leader in this area. Since that time, a number of states have looked into pavement markings and particularly asphalt or concrete pavement warranties. This gives you a national perspective. A lot of states are interested. The asphalt and concrete pavement warranties are extending anywhere from three to eight years.
We also looked at poured concrete cement, landscaping, ITS projects, and just a whole array of specific products that are covered by warranty provisions.
Lastly, jumping up the Richter scale another two notches, I would give this a seven or eight in terms controversy within the industry. It is a design-build. Why is design-build so controversial? Well, you combine some of the previous elements that I talked about and you're shifting that risk and responsibility to the designer-builder. Initially it was experimental for FHWA. We're required to do low bid for construction contracts by Title 23, section 112. That same section on quality requires us to do qualification based selections for engineering service contracts. When you combine both types of services into one contract, you're not fully complying with either section of the law. That's why it was experimental.
We had a number of states evaluate design-build contracting under SEP-14. In about 24 states and a few metropolitan areas, we have had about 140 projects over the last ten years that states have evaluated under SEP-14. We have had all types of projects from roadway construction to bridge replacements. ITS projects have been completed using this contracting technique.
The prime advantage of design-build contracts lies with the owners. A lot of it has to do with reduced staffing. But they're also looking at that single point of responsibility with the designer-builder. If a problem comes up with the design, it's no longer the owner or state's responsibility. If there is a design error, it has to be resolved by the designer-builder.
A number of states are looking at design-build to increase quality, perhaps put some innovation that wasn't in the process before. Certainly you get that when you have eight months opportunity to work with a design. The constructability or value engineering aspect that might not have been done in the bidding process before has the potential of getting done in a design-build contract. There is a great potential for saving time and some for saving costs. We're experiencing anywhere from 5 to 10 or more percent time reduction. Cost savings, I can honestly say I don't know at this point. We've seen some cost savings on some projects but on other projects cost savings have not been realized. On the owner's part, there are lower less risks. He's sharing that risk with the designer-builders. There is earlier knowledge of project costs because of the lump sum nature of design-build contracts where the project cost is determined up front. We know exactly what that project is going to cost subject to scope changes. There's also a reduced incidence of change orders and from the owner's perspective, there's reduced staffing or project administration required for design-build contracts.
In many cases the design-build quality control (QC) and quality assurance (QA) effort is reduced for the owner. Others complete the verification and some form of acceptance testing. Under SEP-14, we've seen a number of variations on design-build projects. From low bids to the total bids; to 35 percent complete plans where the design-builder's role is merely to complete the design and construct the project. We've also seen other best-value award bids, adjusted bids, modified bids, and bids where quality and prices are considered in the award process. With best value, subjective, qualitative and quantitative factors are considered. These types of contracts are awarded on the basis of cost and other factors resulting in a best value position for the owner. Under SEP-14 we can also get into sole source, negotiation and Brooks selection, which goes back to where quality qualifications are the sole basis of selection. Under SEP-14 today, our experimental program, we require that cost be a major consideration where construction is a major component of the scope of work.
TEA 21 requires that we stipulate to developing a design-build regulation. We have no choice in this. We've been given three years by congress to develop a final rule. They have also told us that we must go out and coordinate with the industry, prior to the rule making process. We've taken that requirement very seriously. We went to AASHTO, ETC, ARPO, ACEC, and TEIA. We asked for views at building industry conferences. We asked for briefing and position papers from them. We've taken this very seriously trying to get the states and industry perspective on this issue. We are now in the process of developing or drafting proposed rulemaking. Hopefully, it will be on the streets later this fall. Once it becomes final, this rule will apply to what congress says are qualified projects: ITS projects over $5 million and other projects over $50 million. Projects with contract amounts less than that will still be covered by SEP-14. We have to report back to the congress on the effectiveness of design-build by June 9, 2003.
One of the first design-build projects for South Carolina DOT was the project for replacing the Enoree River Bridge and the Reedy River Bridges that were destroyed by Tropical Storm Jerry in August 1995. It was awarded on the cost and other factor consideration. They incorporated cost plus time bidding. Cost was worth 55 points; qualifications and experience were worth 25 points; and completion time was worth 20 points.
Even though this was their first design-build project, they actually had seven proposals ranging in cost from $2.8 to $4.6 million. There was a substantial variance in time to complete the project. The successful proposal was not the low bidder for cost. It was the one with the best combination using the criteria for A plus B. He was actually the second low bidder in time. In summary, South Carolina DOT said they saved about $200,000 on this $3.2 million project. They included in their estimating, the cost for their engineering and contingency funds. They shared this with the design-builder in the event of a differing site condition arose. The South Carolina DOT did say that it saved money and they saved about 8 percent in total time for completing their process. Here was a case where we did save both time and cost with design-build.
Best practices for innovative contracting and design-build can be found on our web page at Utah State University. And if you're really interested in starting this design-build process, the state of Washington has come up with an excellent resource guide for sorting out the design-build process and has it on their web page. Thank you.
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