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Design-Build E ffectiveness Study

As Required by TEA-21 Section 1307(f)
Final Report
Prepared for:
USDOT - Federal Highway Administration
January 2006

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This chapter presents the program context for the assessment of design-build project delivery in the Federal-aid highway program. It describes the background and scope of Special Experimental Project Number 14 (SEP-14) - Innovative Contracting, under which state transportation agencies have been able to use design-build contracting approaches to deliver selected Federal-aid highway projects. It summarizes the composition of the SEP-14 program in terms of participating states; number, type, and size of design-build projects; and status of the program as of the end of calendar year 2002. This profile is representative of the SEP-14 program at the end of 2004 in that most of the projects currently in the program were proposed by the end of 2002.


The nation's highway program is one of the largest infrastructure programs in the world. Based largely on revenues derived from federal and state taxes on motor fuels, the nation's highway program provides over $100 billion per year for construction, improvement, maintenance, and operation of interstate, state, and local roads. About three-quarters of this total come from federal and state user tax revenues. The remainder comes from local governments, tolls, general funds, and bond proceeds. Over half of the program funds are spent on capital improvement projects, 94 percent of which goes to Federal-aid highways. The remaining half goes to maintenance, operations, and administration of federal, state, and local roads, most of which (72 percent) is spent on state highways.1 In the 2002 "Condition and Performance Report To Congress", the FHWA estimated additional highway program funding needs of $76 billion per year to maintain current conditions and $107 billion per year to bring the system up to appropriate standards2.

In an effort to close the widening gap between highway program needs and resources, there have been a number of initiatives taken at the federal and state levels to increase program revenues and improve the cost-effectiveness of highway programs and projects. These initiatives include developing and applying alternative funding sources and financing methods, streamlining traditional project delivery processes and practices, and fostering broader partnerships among private and public stakeholders - all aimed at leveraging scarce public resources, including both funds and staff.

During the past fifteen years, with the costs of needed highway renewal, improvement, and expansion growing faster than available revenues and prospects pointing to further decline in the adequacy of traditional funding sources, a variety of federal acts have granted state and local transportation agencies increasing flexibility and freedom to apply new funding and financing approaches. These include:


Since 1990, the FHWA has used a "test and experiment" process to encourage contracting agencies to try innovative approaches to project development and delivery as a way to expedite delivery of needed projects. Two examples of this are:

Special Experimental Project programs permit the application of alternative approaches to develop and deliver selected projects on an experimental basis. The SEP process enables both federal and state transportation agencies to test and then evaluate new and promising techniques that would otherwise be prohibited under current statutes and regulations at the federal level. Project tests determine the advantages, disadvantages, applicability, and criteria for success for the alternative approaches being applied. Based on these documented results and the enthusiasm shown by contracting agencies and stakeholders, federal and state agencies can determine whether to mainstream certain alternative approaches that are found to be effective and appropriate, and the criteria for determining projects applicability.

FHWA first established SEP-14 in 1990 specifically for the purpose of for testing and evaluating on an experimental basis innovative contracting practices that offer the potential to reduce the life cycle costs of projects while preserving product quality and reasonable contractor profitability. Entitled the Innovative Contracting Practices, SEP-14 identified a number of innovative contracting approaches for trial, including cost-plus-time bidding, lane rental, design-build contracting, and warranty clauses. Other innovative contracting concepts tested under SEP-14 include indefinite delivery/indefinite quantity (IDIQ) contracts, alternative pavement type bidding, no excuse bonuses, lump sum bidding, price/qualifications bidding, quality incentives, warrantees and guarantees, system integrator contracts, and performance-based specifications.

After five years of trial and evaluation, FHWA mainstreamed the cost-plus-time bidding approach and allowed warranty clauses in contracts for items under the control of the contractor. However, due to continuing concerns over the cost-effectiveness and fairness of design-build contracting, design-build was retained under SEP-14 in 1995 to allow for additional testing and evaluation by interested state and local transportation agencies. To date, approximately two-thirds of the states and a few metropolitan areas have participated in SEP-14, with about half of the states completing at least one design-build project under SEP-14 by the end of 2002.

FHWA established SEP-15 in October 2004 to expand the number of functions for which alternative approaches can be tested to expedite projects and leverage scarce public resources through expanded opportunities for public-private partnerships. In addition to contracting, SEP-15 permits the testing of innovative approaches to finance, planning, environmental clearance, and right-of-way acquisition for designated projects. This new SEP-15 program expands on SEP-14 by enabling state and local highway agencies to test a combination of innovative approaches to different aspects of a project to optimize the effects on project cost, duration, and quality.

The common element in SEP-14 and SEP-15 is the ability to apply alternative contracting approaches to deliver highway projects. Design-build is unique among the methods evaluated under SEP-14 since it may encompass both SEP-14 and SEP-15 objectives, particularly if participant financing is part of the approach. Franchise and concession agreements are included in the term if the agreement provides for the franchisee or concessionaire to develop the project using the design-build approach.


Since the focus of this study is on evaluating design-build contracting as it relates to the Federal - aid highway program, the SEP-14 design-build program was selected as the primary basis for developing information on design-build programs and projects administered by transportation agencies. SEP-14 provides a common framework for addressing the issues and concerns raised by Congress in Section 1307 (f) of TEA-21. These include:

The following pages provide an overview of the SEP-14 design-build programs and projects that have been proposed or completed through the end of calendar year 20023. This information reveals the extent to which transportation agencies have availed themselves of the opportunity to apply design-build contracting and indicates the types and size of projects that make up the program. It also indicates which states have been the most active in using SEP-14 to execute design-build projects and which types of projects various states have designated for design-build contracting.

Since its inception, STAs, toll agencies, and local public agencies in 32 states, the District of Columbia, and the U.S. Virgin Islands have established design-build programs under SEP-14. The latest summary of SEP-14 project information indicates there are 302 design-build projects in various stages of development, including proposed, active, and completed. Of these, there are 282 projects that have cost estimates or completion costs assigned to them.

Distribution of SEP-14 Projects by Type and Size

A wide variety of project types and sizes are included in SEP-14. For reporting purposes, SEP-14 results are grouped into the following project type and size categories:

Given the limited number of tunnel projects in SEP-14 and their significance in terms of project size, bridges and tunnels are combined into the same category for reporting purposes in this report.

Exhibit III.1 provides summary statistics describing the breakdown of the SEP-14 design-build program projects by type and size.

Exhibit III.1: Distribution of SEP-14 Design-Build Projects

Total SEP-14 Design-Build Projects - Proposed, Active, and Completed
Project TypeNumber%Cost ($M)%$/Project
Road - New/Widen7828%$9,390.567%$120.4
Road - Rehabilitate/Reconstruct3512%$2,447.818%$69.9
Road - Resurface/Renewal176%$105.11%$6.2
Project SizeNumber%Cost ($M)%$/Project
<$2 Million7627%$72.71%$1.0
$2-10 Million9734%$479.63%$4.9
$10-50 Million6523%$1,472.911%$22.7
$50-100 Million259%$1,683.812%$67.4
>$100 Million197%$10,242.673%$539.1

Source: Design-Build Projects Approved Under SEP-14, Federal Highway Administration, July 2003

The key characteristics of the SEP-14 program, as revealed by the figures in Exhibit III.1, are summarized below:

Appendix D includes four additional tables that provide the same breakdown of information by project type and size for subsets of the data reflected in Exhibit III.1. This includes tables for each of the following sample sets of projects:

Distribution of SEP-14 Projects by State and Timeframe

Exhibit III.2 shows the 32 states (plus the District of Columbia and the U. S. Virgin Islands) with design-build programs under SEP-14. Many of these states required special state legislation to use alternative procurement and contracting approaches for the delivery of highway projects. Also indicated is the number of design-build projects included in each state's program and how many of these were completed by the end of calendar year 2002.

As shown in Exhibit III.2, the states participating in SEP-14 are spread across the nation, with the most active states located in the east and southwest. Many of the Great Plains states have not yet participated in SEP-14.

Major SEP-14 Design-Build Program States

Among the 32 participating STAs, toll agencies, or local transportation agencies, four stand out with the largest number and dollar volume of design-build projects authorized under the SEP-14 Program. These four states include the following (showing the proportion of each state's overall design-build program completed by 2002 to the program proposed by 2002):

Exhibit III.2: State SEP-14 Design-Build Programs and Projects
(total and those completed by December 31, 2002 by STAs, toll agencies, or local public agencies)

This US map shows the number of State DOT or local public agency SEP-14 design-build projects completed by December 31, 2003 and the total number of SEP-14 projects proposed, underway or completed by each state. The first number is the number of completed projects; the second number is the total number of SEP-14 design-build projects in each state. Alabama 1/1, Alaska 2/4, Arizona 4/6, California 3/6, Colorado 3/6, Delaware 1/1, District of Columbia 1/5, Florida 18/66, Georgia 2/6, Hawaii 0/2, Indiana 6/9, Louisiana 0/1, Maine 1/2, Maryland 4/8, Massachusetts 0/1, Michigan 20/21, Minnesota 0/2, Nevada 0/1, New Jersey 8/8, New Mexico 0/2, New York 2/3, North Carolina 1/7, Ohio 38/59, Oregon 1/1, Pennsylvania 13/49, South Carolina 4/7, South Dakota 1/1, Tennessee 0/1, Texas 0/1, Utah 4/7, Virginia 1/5, Washington 1/1, Wisconsin 1/1, Virgin Islands 0/1.

Source: Design-Build Projects Approved Under SEP-14, Federal Highway Administration, July 2003

These four states constitute 65 percent of the total number of design-build projects in the SEP-14 program and 12 percent of the total value of these projects. Among the SEP-14 design-build projects completed by the end of 2002, these four states comprise 64 percent of the projects and 9 percent of the total value. Both Michigan and Ohio represent early participants in the program since more than half of their projects were completed by the end of 2002. Michigan completed 95 percent of its proposed projects and Ohio completed 63 percent of its proposed projects by 2002. Both Florida and Pennsylvania show growing involvement in the SEP-14 Program, with most of their proposed projects coming after 2002 (73 percent for Florida and 71 percent for Pennsylvania).

Exhibit III.3 displays the relative number of design-build projects in each of the four major states. Florida has the largest number of projects and is the most balanced in terms of project type. The largest number of projects is in the Roads-New/Widen category, followed by Bridge/Tunnel. The lack of Road-Rehabilitation/Reconstruct projects reflects Florida's decision to develop these types of projects using the more traditional approach. The other three states have a majority of their projects in the Bridge/Tunnel category. Both Pennsylvania and Ohio have more Road-Rehabilitation/Reconstruct projects than Road-New/Widen projects.

Exhibit III.3: Number of Design-Build Projects by Major State in SEP-14

Number of Design-Build Projects by Major State in SEP-14

Source: Design-Build Projects Approved Under SEP-14, Federal Highway Administration, July 2003

Exhibit III.4 shows the cost of design-build projects by type for the four major states. Florida has the largest overall design-build program in terms of cost, with Road-New/Widen and Bridge/Tunnel project types predominating. The other three states have significantly smaller design-build programs in terms of overall cost, with the largest program categories being Road-Rehabilitate/Reconstruct and Bridge/Tunnel. In Michigan, the ITS category stands out as an important type of project using design-build.

Exhibit III.4: Value of Design-Build Projects by Major State in SEP-14

Value of Design-Build Projects by Major State in SEP-14

Source: Design-Build Projects Approved Under SEP-14, Federal Highway Administration, July 2003

Exhibit III.5 shows proportional breakdown of design-build projects by type for each of the four major SEP-14 states, in terms of both number of projects and program cost. This exhibit reveals the following characteristics of these programs:

Exhibit III.5: Percentage of Projects by Number and Dollars Expended by Type of Project by Major State in SEP-14

Percentage of Projects by Number and Dollars Expended by Type of Project by Major State in SEP-14

Source: Design-Build Projects Approved Under SEP-14, Federal Highway Administration, July 2003

The remaining states with active programs have far fewer design-build projects. Seventeen states have less than five proposed design-build projects. Twenty-six states completed less than five design-build projects by the end of 2002. Some states have taken great advantage of the opportunity to apply design-build contracting, while many others are using the opportunity provided by SEP-14 on a much more selective, experimental basis.

This wide disparity in the use of design-build contracting between different regions of the country and different states could be due to a number of possible factors, including:

While half the states have completed at least one design-build project under SEP-14, the use of design-build as a contract vehicle for highway capital projects varies greatly from state to state. Some states, such as Colorado DOT, Virginia DOT, and certain toll agencies in California have gone beyond design-build by sponsoring construction projects featuring design-build-operate-maintain contracting, in which a project developer bears responsibility not only for the design and construction of a highway (often a toll road) but also operations and maintenance responsibility for a fixed number of years. New Mexico and Virginia have coupled design-build with performance-based warranty programs, in which design-build teams are responsible for repairing certain deficiencies in highway performance for a given period of time.

Another variation is the scope of design-build work. Some states, including Georgia, Minnesota, Colorado, Utah, and Washington, have utilized or are considering design-build for certain mega-projects, including redevelopment of Interstate arteries through such cities as Rochester, Minn., Salt Lake City, and Seattle. Massachusetts is completing its first design-build project, the $385 million, 21-mile expansion of Route 3 North, while Oregon will use design-build under new legislation and regulations permitting public-private initiatives to expedite bridge and other road projects as part of a recent $400 million bond issue for highway construction.

Other states have proceeded more cautiously. Missouri has considered design-build contracting on a pilot basis but has yet to initiate their program. Ohio has let design-build projects with decreasing frequency in recent years, limiting design-build contracting to bridge re-decking and replacement projects and highway lighting in FY 2002 and FY 2003, as noted earlier. In Michigan, enabling legislation permits design-build contracting but there are claims that the technique does not allow the transportation agency to achieve its primary goal of minimizing impact to motorists. The legislature in New Hampshire, among other states, has failed to approve design-build contracting for highway projects. Despite a legislative prohibition against design-build contracting, the Texas Legislature in 2001 allowed up to four pilot projects to be developed under an arrangement similar to design-build, called a comprehensive development agreement.

* * * * * * * * * *

This chapter demonstrates the diversity of programs and projects comprising the SEP-14 - Innovative Contracting program among the participating state and local transportation agencies. It also indicates the variety of approaches being taken by these agencies to apply design-build contracting, demonstrating the broad latitude individual state and local transportation agencies have to experiment, test, and apply design-build project delivery as part of their overall highway development programs.

Chapter IV presents the results of the design-build program and project surveys conducted during this study, as described in Chapter I. The findings derived from the survey responses provide the primary basis for addressing the issues and questions posed by Congress regarding the implications of design-build on the Federal-aid highway program, as expressed in Section 1307 (f) of TEA-21.


  1. Highway Statistics, 2002 - Table SF-21, USDOT/FHWA, 2003.
  2. FHWA. (2002) 2002 Status of the Nation's Highways, Bridges, and Transit: Conditions & Performance Report to Congress.
  3. FHWA (2002b). Design-Build Project Approvals under SEP-14 as of 12/31/2002,

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