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Arrow Innovations - Design-Build Contracts: Fixed-Price

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Establishing finite budgets encourages contractor innovation

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. Highway agencies can focus on policy and planning, leaving the private sector to deal with cost efficiency and construction risk. Some agencies have found that 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. Other agencies have had success with small–to–medium D–B projects in which the scope of work is similar for various projects.

Fixed–price contracts between agencies and private partners on D–B projects are typically schedule driven, which fosters a cooperative working relationship between the designer and general contractor. This teaming environment encourages both design and construction innovation that can be rapidly incorporated into the project plan. Fixed–price selection processes can encourage the creativity of the bidders, who must consider factors such as project duration, team quality, and alternate designs carefully. Cost savings are also potentially available from reduced claims and litigation after project completion because issues are resolved by the D–B team members during the project. This reduces the potential for cost escalation due to one process impacting others downstream in the project.

Advantages of considering innovative D–B 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. 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. With the publication of a final rule making on December 10, 2002, design–build is now considered an operation contracting technique and SEP–14 approval is no longer required.

For More Information


Gerald Yakowenko
Team Leader, Contract Administration Group
Office of Infrastructure

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Jerry Yakowenko
Office of Program Administration

Updated: 11/23/2015

United States Department of Transportation - Federal Highway Administration