Construction

Prerequisites for a Successful Design/Build/Warranty Highway Construction Contract

A Report to the U.S. Department of Transportation
Federal Highway Administration
Washington, D. C.

March 1993
L. G. (Gary) Byrd, P.S.
Consulting Engineer
Alexandria, Virginia

Assisted by
Albert A. Grant, P.E.
Consulting Engineer
Potomac, Maryland

Chapter One

Introduction

Over the last several years there has been a national focus on developing innovative contracting practices in the U. S. highway construction program. One concept, which is the subject of this report, is the use of design/build/warranty (DBW) contracts for the building of highways or highway components.

In January, 1988, a Transportation Research Board (TRB) Task Force (A2T51) was formed to study innovative contracting processes. The Task Force included members from the full spectrum of participants in the highway construction industry: highway agencies, construction contractors, engineering design firms, trade associations, academia, and bonding and surety companies. The Task Force report, innovative Contracting Practices (1), published by the TRB in December 1991, presented innovative concepts for improving contracting processes.

At the request of the Task Force, the Federal Highway Administration (FHWA) initiated Special Experimental Project (SEP) No. 14 - Innovative Contracting Practices, in February, 1990. The objective of SEP 14 is to identify, for trial evaluation and documentation, innovative contracting practices that have the potential to reduce life-cycle costs to state highway agencies while maintaining product quality and an acceptable level of contractor profitability.

In the fall of 1990, a joint industry-highway agency tour of Europe, the European Asphalt Study Tour, generated interest in exploring the adaptation to U. S. practice of some of the observed innovative contracting systems being employed in other countries. Concepts discussed and suggested for U. S. evaluation included: the combined use of time, quality, and costs factors for determining low bids; the use of design/build contracts; the incorporation of quality-incentive payments for constructed products exceeding, specified minimum standards; the use of warranties or guarantees by the contractor for the performance of the constructed product; and innovation-inviting specifications in the form of performance requirements rather than method and material controls.

On a broader mission, in October, 1990, a task force of the Civil Engineering Research Foundation (CERF), comprised of U. S. engineers and scientists, visited Japan (2) to learn more about the role of research in Japan's construction industry and how new technology is transferred into practice there.

In the summer of 1992, another U. S. delegation of highway engineers, contractors, and officials, toured European concrete highways and returned with interests in further exploring the applicability of European practices to U. S. programs.

Study Objectives

The Task Force, Study Tours, SEP 14, and other activities have led to only a limited amount of experimentation by the highway agencies in the U. S. to date, but to a growing interest in exploring

innovative contracting features. In order to further advance that interest and to provide some initial information on the limited domestic experience already realized in the use of DBW concepts for highway procurement, this study was initiated by FHWA. The study had as its objectives:

• To advance the use of the design/build/warranty method of contracting within the Federal-aid highway program by:
• Identifying the prerequisite technology and steps required by the highway Industry to successfully implement this method, including any legal and economic impacts: and
• Assessing the value and benefits which could be derived by the use of DBW methods of contracting.

Study Implementation Plan

From a search of the published literature and other reference documents on DBW systems, a list of issues was compiled and categorized on an Interview Form for use in the information gathering and reporting process.(See Appendix A.) To develop information on the limited experiences that have been gained in the use of DSW system in the U. S., and to discuss potential processes that may be used to successfully employ this procurement system, contact lists of representative construction contractors, engineer designers, highway agencies, surety companies, and associations were developed and initial letters sent to 25 individuals in these categories. Initial letter contacts were followed up by telephone interviews and, where promising, by personal visits. over 45 individuals (Appendix B) were contacted during the study.

Potential Benefits of Design/Build/Warranty Systems

The processes required to use DBW Systems for the procurement of highway construction products are complex, innovative, and largely undeveloped in U. S. practice. In concept, these systems are straightforward and promising. A single contract would be entered into by the highway aqency-owner for the design, construction and warranting of the resulting product by the contracting agency. The contract term would control the basic configuration and function of the highway product, certain design standards, the period of time for which the warrant is required, and the performance requirements to be met during the warranty period. The contracting organization would be given the freedom to provide the design, choice of materials, construction procedures, and other decisions within the limits of the criteria and standards set by the contract documents.

The range of conditions and provisions under which DBW projects can be carried out is large. DBW projects may include major now location highway construction, where the contractor is responsible for design, construction, quality control, and operation of the facility for 20 years or more with a specified condition of the facility warranted at the and of that period. A 30 mile toll road in Colorado is being built under such a contract at a cost of several hundred million dollars.

At the other end of the spectrum, Missouri and Nevada have let DBW contracts for the resurfacing of existing highways, with the contractor responsible for the design of the resurfacing mixture, the construction work and the warranting of the resurfacing for periods varying from two to five years (as shown in Appendix C).

DBW contracts offer several potential advantages. They expedite the procurement and delivery processes by assigning design and construction to a single party at one time, and allowing some construction work to begin before the final design details are completed. They can eliminate potential

external conflicts between the designer and the builder, since both are a part of the same team. DBW contracts permit the contracting organization to employ innovative designs, materials, and construction

systems in the work to maximize efficiency, reduce costs, increase durability and achieve other positive advantages of the latest technology available. The systems also can reduce some of the inspection and quality control activities and costs usually borne by the owner, since these can be required of the contractor and enforced by the performance warranty obligations.

Successful experience in using design-build contracts in other areas of public works construction such as buildings, transit system, water and waste water treatment plants, and toll roads and bridges, is another factor in the interest generated in the highway community. Product warranties by manufacturers also are an accepted and integral part of many procurement program conducted by public agencies including highway agencies. Vehicles, tires, construction and maintenance equipment, luminaires, reflective sheeting, energy attenuation devices and other item are often purchased with service life or performance warranties. The potential for translating these experiences into highway construction contracting program is of growing interest to U. S. highway agencies, particularly in light of the successful highway experience in Europe.

Chapter Two

Potential Barriers and Impediments

Offsetting the interest in design/build/warranty systems, there are, particularly in the design and construction industries, a number of concerns, some of which may be actual barriers and some of which are largely perceptual. An overview of the significant barriers which surfaced in this study will serve to provide a reference point for the subsequent discussions in this report. Many of these also have been delineated in detail in a comprehensive synthesis report draft under review for publication by the Transportation Research Board (3).

Low Bid Laws and Regulations

The Federal regulations under which FHWA provides Federal aid for highway projects require that state highway agencies conduct appropriate competitive bidding procedures for the award of contracts for Federal aid construction projects. Most state laws also require that the state agencies award construction contracts on the basis of the lowest responsive and responsible bid.

Although it is not the objective of DBW procurement systems to by-pass or eliminate competitive bidding processes as the basis for contract awards, many in the contracting industry think this is the case, and in part have based their opposition to DBW Systems on this misconception.

While competitive bidding is an integral part of DBW contracting procedures, the selection process may include a combination of construction costs, design features and delivery time to determine the "lowest and best" bid. (FHWA has cautioned state agencies to use the most objective, quantifiable criteria available for those items other than bid costs that are used in the selection process.)

Brooks Bill

Under Federal law, the procurement of professional engineering services for Federal aid projects must be based upon a selection process using professional qualifications and experience as the criteria for determining the best candidate for the design contract, with costs negotiated after the completion of the selection process (the Brooks Bill). Those contacted in the professional engineering design community (Appendix B) expressed concern over the prospects of violations of the Brooks Bill when a design firm, serving as a part of a construction team, is engaged in price competition for a design/build contract. FHWA,s Assistant Chief Council noted (4) the U. S. Comptroller General's opinion that a highway agency may decide that the prime contract in a design-build award need not be restricted to a professional engineering firm and thus the Brooks Bill procedures do not apply.

Subordination of Design Professionals

Professional engineering design firms expressed concern that, if they are subcontractors to construction contractors, they could be placed in professionally-difficult positions in satisfying the contractor's desire for a competitive design, and the highway agency owner's desire for a high quality facility. They believe that this problem would be compounded if, as a subcontractor, they lost the opportunity for direct contact and interaction with the highway agency professional staff. Partnerships, joint ventures, and other alternative desiqn-build teaming arrangements to address this concern are discussed in Chapter Three, Overcoming Barriers.

Financial Burden of Preliminary Design

Another concern of the professional engineering design firm contacted in this study is the substantial financial burden represented by the development of preliminary designs. Designers have estimated that the development of designs in sufficient detail to permit construction quantities and bid costs to be estimated represent from 20 to 30 percent of the full design effort. The burden of these costs, if borne by competing design firms, only one of which will be reimbursed under a winning contract, represents a major problem for the typical engineering firm already struggling to hold down overhead costs and maintain profitability.

Warranty Time and Performance Requirements

Warranty periods of two to five years were used for the warranted projects identified in this study and listed in Appendix C. It appears that five years is considered the maximum period feasible for warranties under most institutional, technical and economic conditions encountered by State DOT's (although Michigan is currently planning a major DBW pavement rehabilitation project with a proposed 10-year warranty period).

The bonding capacity of many contractors would be expanded rapidly by extended warranty periods; traffic, loading, and environmental factors would be more difficult to predict and evaluate as a condition of warranted performance for extended periods; and an accumulation of warranted projects at various stages in the warranty period could become an administrative burden to monitor, evaluate and administer for a State transportation agency under a program of extended warranties.

However, while short term warranties may be used, the underlying objective is to obtain assurance from the contractor that the product will perform as planned for its full service life rather than the brief initial period under the warranty. In order to determine the full service life of the constructed highway product by observations during the first few years, a specification is needed that measures those initial characteristics or features of performance that predict service-life performance. Such specifications are largely undeveloped and the potential use of unproven measures as a basis for accepting or rejecting warranted highway products is of concern to the contracting industry and highway owners alike.

Tort Liability Burdens

Under the best of circumstances, tort liability threats are today a major concern to highway designers, construction contractors and owners. The possibility that warrants could further increase the implied liability of contractor teams and their exposure to such legal risks is of much concern. While this has not proven to be a problem in the limited experience of state and other agencies involved in DBW projects noted in this study, it must be a factor for careful consideration in the risk-sharing arrangements documented by the contract provisions for DBW contracts.

Bond and Warranty Availability

Traditional bonding company responsibilities are limited to assuring the completion of the contracted work for which the bond was issued. Bonding companies have long-established criteria for assessing contractors abilities based on financial condition, past performance record, management stability and other factors. They are not as knowledgeable about the criteria that would indicate the contractor's ability to deliver a product that meets performance standards for a period of several years. Contractors, on the other hand, fear the possibility that, even if they were able to get backing for the required warrants, their bonding capacity would be expended quickly by multi-year warrants on completed projects and they would not be able to continue construction activities until earlier warranties expired.

Small Contractors Disadvantaged

Trade associations representing the contracting industry also expressed concern about the negative impact Of DBW procurement systems on small contractors. They are alarmed in part by the reports on European experience where the highway construction work is said to be performed many countries by small groups of large contractors. They believe that the added burdens of design responsibilities and warranty requirements will be too great for many of the small, local, family-owned contracting firms that make up the majority of the contracting industry in the U. S., and the work will fall more and more to the large, multi-disciplinary, national or international construction firms.

Transfer of Risk

Contracting firms are apprehensive about the potential for a substantial imbalance in risks assigned to the DBW contractor. Contractors feel that there are many unknown environmental, geological, operational, political, and other problems that should not be transferred to their responsibility by the warranty provisions of a contract. There is a concern that highway agencies will see warranties as a means of passing on to the contracting community many of the burdensome problems and responsibilities that are inherent in modern highway programs.

Also, contractors are concerned about the complexity and reliability of DBW contract provisions and the ability of many transportation agencies to administer them effectively. They feel that many transportation agencies at the state and local level are not proficient in such contracting procedures and not staffed to administer projects in a reliable and uniform manner if DBW requirements were incorporated in construction contracts.

Chapter Three

Overcoming Barriers

Out of the discussions with members of the highway community about the opportunities, objectives, concerns and benefits of DBW contracts, a number of activities have been identified that appear to be desirable for the successful employment of this innovative contracting procedure. Those are listed below and discussed in the following sections in no priority order, since all of them are important to overcoming barriers to DBW contracts for highway construction program.

• Establish criteria for project selection and program balance.
• Expand pre-bid selection and contract award processes.
• Broaden and balance risk sharing between owner and contractor.
• Promote improved contract team and owner relations through partnering concepts and other cooperative efforts.
• Develop appropriate contract documents and model procurement code.
• Balance warranty requirements with incentives for innovation and quality.

Establish Criteria for Project Selection and Program Balance

One of the barriers to broad acceptance of DBW contracting is the perception among many designers and contractors that DBW systems will be imposed on all highway projects, including those that may not lend themselves to DBW contracting provisions. To overcome this barrier and perception, guidelines for selection of projects most amenable to DBW procedures should be developed so that the highway industry , and particularly the small contractors, recognize that there will still be many opportunities for conventional bidding projects. The following concepts should be considered in developing guidelines:

• Projects which have unresolved right-of-way, environmental, political, or other complex problem should not be candidates for DBW contracts. One reason for eliminating such problem projects as DBW candidates is the consideration that no benefit in time savings is likely to be achieved, since delays are inevitable and concurrent progress in design and construction would be highly unlikely. Another argument against DBW contracts for problem projects of the type mentioned is the likely need for direct public agency involvement in the problem solving activities. This may require continuous direct involvement by the public agency in the planning and design activities, which could reduce the efficiency and innovation of a DBW contract.
• Highway projects on new locations on already-acquired rights-of-way might be ideal for DBW contracts because of the reduction in external complexities and pressures.
• Another type of project that lends itself to DBW contracts is a now bridge or replacement bridge project. many highway agencies are already familiar with the use of alternative designs in steel and concrete for major bridges to permit competitive construction bids to be invited in either or both materials. The use of DBW contracts is in sow respects simply a modification of that practice with a warranty requirement added.
• The use of DBW for simple resurfacing projects needs careful consideration. There is little for the contractor to design on the project and the benefit in assigning that responsibility to him may be small. However, DBW contracts which permit the contractor to design the asphalt paving mix and to assume the early repair responsibilities should premature failures occur, may provide opportunities for innovation to the contractor and useful benefits to the owner.
• Finally, project selectivity provides a means of balancing conventional and DBW projects in the construction program and moderating any potential disbenefits to the small contractor. The number of DBW projects, if limited in the early periods of this experimentation, can avoid disruption of the contracting industry and can provide for an orderly evolution of the contracting process should DBW be determined to offer advantages that justify its increased use in future years.

Expand Pro-bid Selection and Contract Award Processes

The competitive processes preliminary to the award of a DBW contract can be critical to the successful use of this concept. Aside from simple resurfacing or similar projects where the design effort is minor, consideration should be given to a multi-phase award process.

Prequalification. An initial prequalification process should be considered to select the most highly qualified team for the costly desiqn/bid competition, to avoid the expense and industry turbulence that can be generated by an unrestricted competition among all willing bidders for a DBW project(5). Project announcements should invite all interested parties that have or wish to form a design/build team to submit qualification statements for that team to the owner. The qualification criteria to be provided should be spelled out in the announcement along with a statement of the evaluation procedure to be used and the schedule for the selection of the prequalified candidates. This should not be a costly or difficult phase of the competition since most engineering design firms are well acquainted with the qualification-based selection processes used by clients to chose engineering consultants and most contractors are familiar with the prequalification requirements for submitting bids in many states (and to obtain bonding).

Preliminary Design Competition. From the qualification submissions, the owner can select the team to be issued invitations to participate in the design/cost competition. The selected teams can be determined by choosing those that met or exceed a minimum score in the qualification rating system. The objectives of this selection process should be to assure the selected competitors that they have a reasonable chance to win the contract before they invest in the preliminary design and bidding process.

Where the project complexity or magnitude represents a design effort estimated to be in excess of one-third to one-half million dollars and presents an opportunity for substantial innovation, a small number of candidate teams with the highest qualification scores should be selected and invited to enter into a desiqn/cost competition with a standard lump sum fee paid to each team to underwrite part of the preliminary design costs. The lump sum design fees could approximate ten to fifteen percent of the estimated full design costs (half of the 20 to 30 percent estimated for preliminary design), to recognize the investment required of the competing team and to share part but not all of those costs.

While the cost sharinq concept was supported strongly by the design professionals, with the exception of Florida where the design-build program included cost sharing with design teams invited to compete for projects, no other State contacted in this study had advanced its DBW concepts to a point where cost sharing options were reported as being considered.

Contract Award Processes. Selection of the lowest and best bid for for a DBW project should be based at a minimum on the quality of the design and the bid cost for the project. A number of transportation agencies have included a time factor in the bid evaluation process as well. The concept of A+B (time and cost) contracts can be merged into DBW contracts and can add to the flexibility of the contractor in including scheduling options with his design and construction innovations. Regardless of whether or not the contract award system includes more than design and cost elements, the process should be fully delineated in the initial public bid invitation documents and should be based upon quantifiable criteria for each item rated and a rational formula for computing the final bid values on which the award is made. The Florida criteria shown in Appendix D offers an example of the concepts used to achieve this objective.

Broaden and Balance Risk Sharing Between Owner and Contractor.

Several issues need to be addressed in successful risk-sharinq provisions in DBW contracts. The contracting industry is adamant about its reluctance to "bet the firm" on a DBW contract. The industry fools that the unknowns and uncontrollable factors in the success of a project should continue to be the responsibility of the highway agency as they have been historically. At the same time there is acknowledgement that the warranty obligation needs to be sufficient to assure a good faith effort by the contractor to achieve the quality and performance specified by the owner.

Several alternative means to accomplish this may be used in DBW contracts. One alternative requires the contractor to warrant the performance (defined in terms of physical condition) of the constructed product for the two to five year warranty period by assuming responsibility for repairs to the product during that time period. Repairs caused by accidents, excess loads, and acts of God, should be excluded from the contractors responsibility.

Another alternative requires the contractor to warrant the condition of the constructed product for the specified time period by either posting a bond or by allowing the owner to retain part of the contractor payments for the warranty period. In these instances, any needed repairs may be made by the owner with reimbursement from the contractor up to the retained or bonded amount. The size of the warrant required of the contractor should be sufficient to provide a strong economic incentive for quality performance by the contractor, and to protect the owner from undue risk, but moderated to encourage active contractor competition.

The key consideration in risk sharing is that the contractor must assume a significant but not "fatal" share of the risk and only for those things that the contractor can control, if this new opportunity and responsibility is to be assimilated by the construction industry in a reasonable and orderly manner. This objective should not be in conflict with the objectives of the highway owners. They should be seeking a new level of opportunity for innovation and responsibility for quality from the contractor, not a transfer of the many other risks (such as encountering hazardous wastes or other undetected adverse subsurface conditions, or unexpected legal or political barriers to the orderly progress of the project) that are inherent in modern highway programs.

Promote Improved Contract Team and Owner Relations Through Partnering Concepts and other Cooperative Efforts.

Contractor Team Models. Many models of contract teams can be used in DBW projects. Major international construction firms often have a substantial in house engineering department capable of providing much of the general engineering design and design supervision of subcontract design firms. A typical small highway contractor may have very limited in-house engineering capability and will need to rely upon an outside engineering design firm or firms for most of the design responsibilities encountered in DBW contracts. The internal organizational relationships between the contractor and the engineering team vary considerably with joint ventures, partnerships, prime subcontractor, and in-house engineering organizations being the most commonly used in design-build projects.

External Relationships. The relationship between the design team and the owner need to be defined as a part of the DBW contract. In all instances in which the construction plans prepared by the contractor require by State or Federal law or regulation, the seal of a registered Professional Engineer, the contractor should designate a Professional Engineer, responsible for the design activities and products, with whom the owner can communicate directly and continuously throughout the contract period, and with whom rests the authority to make design decisions for the project.

The other side of the relationship --- owner engineering representation -- is equally important. Where transportation agencies do not have experienced in-house engineering staff or staff availability is limited by staff size and other obligations, consideration should be given to retaining outside professional engineering expertise to represent the owner in dealing with the contracting team. Whether in-house or outside representation is used, it is important that the owner's decision making and review processes are clear, expeditious and unambiguous. DBW contracts seek to expedite the delivery of highway products, and contractor estimates for DBW work are likely to be time-sensitive. The owner's ability to help expedite the project is essential to its success.

Partnering. DBW projects lend themselves to partnering because of the close owner/designer/builder relationships that are required. As partnering concepts develop and succeed, DBW projects should become less formidable to the design and construction communities. The value of partnering concepts was mentioned by a number of highway agencies, reflecting the recent endorsement of this process given by the American Association of State Highway and Transportation Officials (AASHTO).

The partnering concept is a straightforward one in which the various entities involved in or affected by a construction project are brought together at the outset of the project and periodically during its development to discuss and agree upon the project objectives, the critical path to its completion, constraints (such as maintenance of traffic), problem areas, the lines of communication, management and decision processes, the areas needing coordination and the arrangements to achieve it, and all of the other technical, operational and administrative processes required to achieve a successful project for all parties.

Out of the partnering workshops a team spirit is sought under which all parties to a project can work together efficiently, toward common, well defined, clearly understood goals and objectives. In some instances, participants in the workshops have been assisted by professional facilitators who can provide expertise and third party objectivity in advancing the workshop discussions and conclusions.

Develop Appropriate Contract Documents and Model Procurement Code

Carefully constructed contract documents are essential to successful DBW contracts. They are critical in obtaining competitive, responsive bids for the work and in ensuring the equitable administration of the contract when awarded.

Design criteria controlling the project design needs to be specified as precisely as necessary to assure conformance to owner requirements for capacity, operating characteristics, service life and other mandatory controls, but open to innovative approaches to achieve these objectives through innovative design and construction techniques and material selections.

Length-of-warranty requirements need to be specified in quantifiable terms. Typically, the length on experimental projects reviewed in this study was specified in calendar periods. Generally, the warranty requirements were for two to five years after completion. Where projects involved partial completion and opening to traffic of portions of the project in stages, the contract administration called for warranty periods to start with the opening to traffic on a section by section basis, rather than a single warranty period for the full project after final completion. Some contracts called for the continuation of the warranty on repairs made by the contractor for an additional period equal to the original warranty period. This would serve to assure the quality of repair work, particularly when it might suffer otherwise in the waning months of the original warranty.

Quantifiable terms are essential also for the physical conditions or performance requirements that are being warranted. Most experimental projects relied heavily upon physical measurements such as skid resistance, rutting, cracking, spalling, ravelling, and roughness of pavements. It is important to specify how, where, and when such measurements are to be made, what level of condition triggers the warranty obligation, and how that obligation is to be met (including how quickly).

Members of the contracting industry suggested that to reduce the diversity of ways in which DBW contracts will be drafted without some overall direction, it would be useful for FHWA or AASHTO to undertake the development of a set of uniform or model contract provisions for most typical types of projects that might be undertaken by DBW contracts. Such model documents could include the best available performance specifications including those emerging from the Strategic Highway Research Program (SHRP) for pavements and other components. Model documents could be drafted for alternative warranty requirements including retainage, bonds, repair responsibilities and others.

Balance Warranty Requirements with Incentives for Innovation and Quality

Some of the industry organizations contacted in the study suggested that the concept of a warranty on the quality of the constructed product -- which they translated to be a "penalty" for lower quality work -- would be more favorably received if combined with a reward for higher quality work. Some States have experimented with quality incentives and contracts with provisions for bonus or premium payments for achieving higher than minimum quality levels on designated highway products. No combination of this concept with DBW contracts was noted in this study but it might be feasible to do so if the required quality could be, well defined and measured, and if the value of excess quality could be demonstrated and justified as a basis for premium payments.

Chapter Four

Conclusions

While the limited U. S. highway experience with DBW contracts available for study at this time makes it difficult to draw specific conclusions about the feasibility and impact of this concept, there are some general observations that merit attention.

There is an opportunity for enhanced Federal outreach programs to eliminate misconceptions about DBW systems, to establish a clear position for FHWA on the place for and method to be followed in the use of DBW contracts, and to encourage transportation agencies to continue to explore this innovative contracting process in a cautious, balanced, and equitable manner.

The most reliable and quantifiable benefit to be realized from DBW projects at this stage of experience appears to be time savings in the delivery of the constructed product (6). This is not a benefit that is readily translated into significant cost savings or reduced budget requirements for highway agencies. It is a benefit that is significant, recognized and quantifiable for the highway user, however, to whom the highway agency's mission is addressed.

Significant gains in quality, reductions in costs or introductions of innovations through the use of DBW projects have not been clearly documented by the early experiments in the U.S. This is not surprising at this stage in the introduction of DBW contracts to the highway community. The private design industry has been retained, historically, not to offer innovation but to supplement public highway agency in-house staff capacity and to follow relatively rigid standards set by the highway agency for the production of detailed construction plans and specifications. The construction contracting industry has been required, historically, to follow rigid specifications for the materials and appurtenances used, and to adhere to detailed method specifications for the construction of highways according to pre-set plans. Any significant change from these ingrained patterns will take time and will require cooperation with and cultivation of these industries, along with a commitment at a national and State level to a program of carefully selected DBW projects sufficient to encourage industry to invest in this new contracting system.

While there is resistance to DBW projects by some in the design and construction communities contacted in this study, the engineer and contractor participation in the Florida design-build demonstration program, the DBW projects in Michigan, Missouri and Nevada and the strong interest in the California and Colorado toll agency projects suggest that, over an adequate period of time with favorable profit incentives, reasonable risk-sharing by owners, and regular opportunities to compete on a relatively consistent, uniform basis in DBW projects, it is likely that the progressive members of the design and construction industries will respond with ingenuity and leadership.

The potential for significant benefits in innovative quality achievements, cost and time savings, and profitability for the highway industry , using the suggestion for overcoming barriers included in this report, justify, a continued and enhanced effort at both national and state levels to fully test the DBW concept.

Chapter Five

Recommendations

Based on the foregoing suggested activities and conclusions regarding the experimental DBW contracting program, it is recommended that the FHWA seek positive external contributions to the development effort to complement its internal staff activities.

The cooperation of the States and progressive industry representatives will be important to the effort to move the DBW experimental program forward. Advisory task groups of representatives from the design, construction, and surety industries, State and local highway agencies and the American Association of State Highway and Transportation Officials, could provide an effective means to address and accomplish the following action items:

Development of Model Procurement Code. The need for a reasonable degree of consistency in the administration of DBW contracts should be addressed by the development at the national level of a simple model procurement code, or at least some standard contract provisions. With most design firms and contractors competing for contracts in several states if not nationally, uniformity in DBW practices would expedite the effective participation of these key groups in the DBW program. At the same time, the availability of standard provisions or codes would encourage and guide highway agencies in experimenting with this alternative contracting method.

However, a single set of standard provisions or codes should not be adopted and made mandatory for DBW projects at this time. Instead, it is recommended that standards and codes be developed for several alternative conditions for DBW contracts, and that these alternatives be made optional for highway agency use. This would achieve a degree of consistency for the standard options selected, without restricting the development of the varied experiences in DBW projects needed to make a reliable evaluation of their merits and deficiencies.

Policies on Preliminary Design Competition and Compensation. The significant and justifiable concern in the private sector about preliminary design costs in competing for DBW projects suggests that consideration should be given to a new policy of Federal-aid support for payments by the States to invited teams for preliminary design competition. The University of Florida evaluation (6) of the Florida demonstration program of eleven desiqn-build projects, the most extensive encountered in this study, supported such payments. It is recommended that these payments, under specified conditions, be eligible for consideration as a part of the State highway agency's matching funds for Federal-aid highway projects. The conditions for eligibility should: 1) permit the highway agency to limit the number of invited designer-bidders based upon prequalification ratings, 2) require that the full design cost estimate exceed a pre-established level ( suggested: one-third to one-half million dollars), and 3) stipulate that the payment to each invited preliminary design competitor be the same and not exceed a given percent (suggested: 10 to 15 percent -- about half of the actual preliminary design cost) of the estimated full design costs.

Project Selection Criteria. To provide for program balance and consistency in project selections for DBW projects, it is recommended that a policy on the types of projects suitable for DBW contracts be developed. Project types-should include: projects with opportunities for innovation in materials, design or construction processes; those without potential delays or controversies over environmental or location or other sensitive issues; and projects with a beneficial, readily-applied warranty system (such as repair responsibility for resurfacing).

Clarification Of Risk-Sharing and Owner Responsibilities.

Guidelines to delineate positions on the issue of risk sharing could be developed. It is important for the contracting team attracted to bid on DBW projects and the highway agencies preparing DBW contract documents, that a clear recognition of the principles of risk sharing be understood and incorporated into DBW contracts. Two basic principles are: 1) Risks for conditions over which the designer/constructor has no control should not be assigned to the contractor. 2) Performance/quality guarantees should be of sufficient magnitude to give the contractor a strong incentive to achieve quality, but not such that failures in spite of good faith efforts will result in catastrophic losses to the firm. 3) The responsibilities of the highway agency in the administration of the DBW contract should be spelled out, including State approval procedures required for the contractor to advance the project.

Accelerated Testing and Performance Measures. DBW projects should serve as a catalyst for the further development and incorporation of performance specifications in contract documents. The need for performance specifications has been recognized and discussed for a number of years as a means to achieve innovation and open up opportunities for new technology to find a place in the highway market. DBW contracts are dependent upon some form of performance specification if they are to realize the objectives of innovation, quality, and economy. With performance specifications emerging from the Strategic Highway Research Program and other national studies, and some developed at the state and local level, it is recommended that an effort be undertaken to assemble available performance specifications, evaluate the merits of those specifications, identify the gaps in needed specifications and plan a program for addressing and closing those gaps.

Summary of Recommendations. In summary, while some insight has been gained from early design build and DBW experiments, additional experience and information is needed to fully assess the value of DBW contracts for highway projects. That process can be expedited by aggressive State and FHWA leadership, in consultation with industry representatives, in pursuing activities including those recommended in this report:

Barriers and Concerns Action

The potential to awaken and benefit from the innovative resources of the large and capable design and construction communities in providing high quality, cost effective highway for our nation justify this continuing effort.

References

1. Innovative Contracting Practices, Transportation Research Circular Number 386 Transportation Research Board, National Research Council, Washington, D.C., December, 1991
2. Transferring Research Into Practice: Lessons From Japan's Construction Industry, A Report by the Civil Engineering Research Foundation Japan International Research Task Force, Civil Engineering Research Foundation, Washington, D. C., November, 1991
3. Hancher, Donn E., Use of Warranties in Road Construction, unpublished draft report, National Cooperative Highway Research Program, Synthesis of Highway Practice, Project 20-5, Topic 23-07, Transportation Research Board, Washington, D. C.
4. Aikens, L. Harold, Jr., Internal Memorandum to William Weseman, Chief, Construction and Maintenance Division, Federal Highway Administration, April 29, 1991
5. Design-build job stokes tempers, ENGINEERING NEWS RECORD, September 28, 1992
6. Ellis, Ralph; Herbsman, Zohar; Kumar, Ashish, Evaluation of the FDOT Design/Build Program, University of Florida, Engineering and Industrial Experiment Station, Gainesville, Florida, August, 1991