widely as possible, (b) to do so at a reasonable cost, (c) to apportion this cost in an equitable manner, (d) to allow for broad participation by the private sector in competing for highway contracts, (e) to ensure that qualified contractors win the jobs, and (f) to ensure that the price paid for their services is both fair to the contractors and a responsible use of public funds. This context helps explain some of the challenges to innovation in the highway industry:

  • The decentralized nature of the industry: Fifty states and thousands of local governments own and operate highways, each having its own procurement regulations, specifications, organizational structure, and specific scope of responsibility. There are also thousands of private firms of all sizes, from local to international, that provide products and services to these government entities. This characteristic of the industry slows widespread implementation. While efforts to centralize product testing and evaluation facilitate the use of innovations, they do not guarantee that individual state and local agencies will accept the results or use the products.

  • The low-bid system: The practice of awarding highway contracts to the lowest qualified bidder tends to leave little room for a contractor to introduce innovation. If an innovation costs more, the contractor will not win the bid even if improved performance justifies the greater cost. Innovative procurement approaches are being used, but they raise issues of risk allocation, impact on the competitive position of some traditional or smaller firms, and potential misunderstanding by the public when contractors receive nontraditional payments (such as incentive payments) under such innovative schemes.

  • Materials and methods specifications: Typically, the low-bid system utilizes materials and methods specifications. These prescriptive specifications ensure that all bids are for the same end product and provide a basis for determining whether that product has been delivered. If an innovation fails to follow the specifications precisely, it is not allowed. A way to overcome this difficulty is to develop and use performance specifications that indicate the performance desired instead of prescribing the technologies to be used. However, it has been challenging to establish measures of performance for complex, long-lived facilities.

  • First-cost criterion: Traditionally, agencies have focused on the “first cost” or construction cost of a facility in determining the low bidder. This



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