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NATIONAL NCHRP REPORT 561 COOPERATIVE HIGHWAY RESEARCH PROGRAM Best-Value Procurement Methods for Highway Construction Projects

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TRANSPORTATION RESEARCH BOARD 2006 EXECUTIVE COMMITTEE (Membership as of June 2006) OFFICERS CHAIR: Michael D. Meyer, Professor, School of Civil and Environmental Engineering, Georgia Institute of Technology VICE CHAIR: Linda S. Watson, Executive Director, LYNX--Central Florida Regional Transportation Authority EXECUTIVE DIRECTOR: Robert E. Skinner, Jr., Transportation Research Board MEMBERS Michael W. Behrens, Executive Director, Texas DOT Allen D. Biehler, Secretary, Pennsylvania DOT John D. Bowe, Regional President, APL Americas, Oakland, CA Larry L. Brown, Sr., Executive Director, Mississippi DOT Deborah H. Butler, Vice President, Customer Service, Norfolk Southern Corporation and Subsidiaries, Atlanta, GA Anne P. Canby, President, Surface Transportation Policy Project, Washington, DC Douglas G. Duncan, President and CEO, FedEx Freight, Memphis, TN Nicholas J. Garber, Henry L. Kinnier Professor, Department of Civil Engineering, University of Virginia, Charlottesville Angela Gittens, Vice President, Airport Business Services, HNTB Corporation, Miami, FL Genevieve Giuliano, Professor and Senior Associate Dean of Research and Technology, School of Policy, Planning, and Development, and Director, METRANS National Center for Metropolitan Transportation Research, USC, Los Angeles Susan Hanson, Landry University Professor of Geography, Graduate School of Geography, Clark University James R. Hertwig, President, CSX Intermodal, Jacksonville, FL Gloria J. Jeff, General Manager, City of Los Angeles DOT Adib K. Kanafani, Cahill Professor of Civil Engineering, University of California, Berkeley Harold E. Linnenkohl, Commissioner, Georgia DOT Sue McNeil, Professor, Department of Civil and Environmental Engineering, University of Delaware Debra L. Miller, Secretary, Kansas DOT Michael R. Morris, Director of Transportation, North Central Texas Council of Governments Carol A. Murray, Commissioner, New Hampshire DOT John R. Njord, Executive Director, Utah DOT Sandra Rosenbloom, Professor of Planning, University of Arizona, Tucson Henry Gerard Schwartz, Jr., Senior Professor, Washington University Michael S. Townes, President and CEO, Hampton Roads Transit, Hampton, VA C. Michael Walton, Ernest H. Cockrell Centennial Chair in Engineering, University of Texas at Austin Thad Allen (Adm., U.S. Coast Guard), Commandant, U.S. Coast Guard (ex officio) Thomas J. Barrett (Vice Adm., U.S. Coast Guard, ret.), Pipeline and Hazardous Materials Safety Administrator, U.S.DOT (ex officio) Marion C. Blakey, Federal Aviation Administrator, U.S.DOT (ex officio) Joseph H. Boardman, Federal Railroad Administrator, U.S.DOT (ex officio) Rebecca M. Brewster, President and COO, American Transportation Research Institute, Smyrna, GA (ex officio) George Bugliarello, Chancellor, Polytechnic University of New York, and Foreign Secretary, National Academy of Engineering (ex officio) Sandra K. Bushue, Deputy Administrator, Federal Transit Administration, U.S.DOT (ex officio) J. Richard Capka, Federal Highway Administrator, U.S.DOT (ex officio) Edward R. Hamberger, President and CEO, Association of American Railroads (ex officio) John C. Horsley, Executive Director, American Association of State Highway and Transportation Officials (ex officio) David H. Hugel, Acting Administrator, Federal Motor Carrier Safety Administration, U.S.DOT (ex officio) J. Edward Johnson, Director, Applied Science Directorate, National Aeronautics and Space Administration (ex officio) Ashok G. Kaveeshwar, Research and Innovative Technology Administrator, U.S.DOT (ex officio) William W. Millar, President, American Public Transportation Association (ex officio) Nicole R. Nason, National Highway Traffic Safety Administrator, U.S.DOT (ex officio) Julie A. Nelson, Acting Deputy Administrator, Maritime Administration, U.S.DOT (ex officio) Jeffrey N. Shane, Under Secretary for Policy, U.S.DOT (ex officio) Carl A. Strock (Maj. Gen., U.S. Army), Chief of Engineers and Commanding General, U.S. Army Corps of Engineers (ex officio)

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NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM NCHRP REPORT 561 Best-Value Procurement Methods for Highway Construction Projects Sidney Scott, III TRAUNER CONSULTING SERVICES, INC. Philadelphia, PA Keith R. Molenaar UNIVERSITY OF COLORADO Boulder, CO Douglas D. Gransberg UNIVERSITY OF OKLAHOMA Norman, OK Nancy C. Smith NOSSAMAN GUTHNER KNOX ELLIOTT LLP Los Angeles, CA Subject Areas Transportation Law Highway and Facility Design Materials and Construction Research sponsored by the American Association of State Highway and Transportation Officials in cooperation with the Federal Highway Administration TRANSPORTATION RESEARCH BOARD WASHINGTON, D.C. 2006 www.TRB.org

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NATIONAL COOPERATIVE HIGHWAY NCHRP REPORT 561 RESEARCH PROGRAM Systematic, well-designed research provides the most effective Price $45.00 approach to the solution of many problems facing highway Project 10-61 administrators and engineers. Often, highway problems are of local ISSN 0077-5614 interest and can best be studied by highway departments individually ISBN: 0-309-09858-0 or in cooperation with their state universities and others. However, the Library of Congress Control Number 2006929074 accelerating growth of highway transportation develops increasingly 2006 Transportation Research Board complex problems of wide interest to highway authorities. These problems are best studied through a coordinated program of cooperative research. In recognition of these needs, the highway administrators of the COPYRIGHT PERMISSION American Association of State Highway and Transportation Officials Authors herein are responsible for the authenticity of their materials and for obtaining written permissions from publishers or persons who own the copyright to any previously initiated in 1962 an objective national highway research program published or copyrighted material used herein. employing modern scientific techniques. This program is supported on Cooperative Research Programs (CRP) grants permission to reproduce material in this a continuing basis by funds from participating member states of the publication for classroom and not-for-profit purposes. Permission is given with the Association and it receives the full cooperation and support of the understanding that none of the material will be used to imply TRB, AASHTO, FAA, FHWA, Federal Highway Administration, United States Department of FMCSA, FTA, or Transit Development Corporation endorsement of a particular product, method, or practice. It is expected that those reproducing the material in this document for Transportation. educational and not-for-profit uses will give appropriate acknowledgment of the source of The Transportation Research Board of the National Academies was any reprinted or reproduced material. For other uses of the material, request permission requested by the Association to administer the research program from CRP. because of the Board's recognized objectivity and understanding of modern research practices. The Board is uniquely suited for this purpose as it maintains an extensive committee structure from which NOTICE authorities on any highway transportation subject may be drawn; it The project that is the subject of this report was a part of the National Cooperative Highway possesses avenues of communications and cooperation with federal, Research Program conducted by the Transportation Research Board with the approval of the Governing Board of the National Research Council. Such approval reflects the state and local governmental agencies, universities, and industry; its Governing Board's judgment that the program concerned is of national importance and relationship to the National Research Council is an insurance of appropriate with respect to both the purposes and resources of the National Research objectivity; it maintains a full-time research correlation staff of Council. specialists in highway transportation matters to bring the findings of The members of the technical committee selected to monitor this project and to review this research directly to those who are in a position to use them. report were chosen for recognized scholarly competence and with due consideration for the balance of disciplines appropriate to the project. The opinions and conclusions expressed The program is developed on the basis of research needs identified or implied are those of the research agency that performed the research, and, while they have by chief administrators of the highway and transportation departments been accepted as appropriate by the technical committee, they are not necessarily those of and by committees of AASHTO. Each year, specific areas of research the Transportation Research Board, the National Research Council, the American Association of State Highway and Transportation Officials, or the Federal Highway needs to be included in the program are proposed to the National Administration, U.S. Department of Transportation. Research Council and the Board by the American Association of State Each report is reviewed and accepted for publication by the technical committee according Highway and Transportation Officials. Research projects to fulfill these to procedures established and monitored by the Transportation Research Board Executive needs are defined by the Board, and qualified research agencies are Committee and the Governing Board of the National Research Council. selected from those that have submitted proposals. Administration and The Transportation Research Board of the National Academies, the National Research surveillance of research contracts are the responsibilities of the National Council, the Federal Highway Administration, the American Association of State Highway and Transportation Officials, and the individual states participating in the National Research Council and the Transportation Research Board. Cooperative Highway Research Program do not endorse products or manufacturers. Trade The needs for highway research are many, and the National or manufacturers' names appear herein solely because they are considered essential to the Cooperative Highway Research Program can make significant object of this report. contributions to the solution of highway transportation problems of mutual concern to many responsible groups. The program, however, is intended to complement rather than to substitute for or duplicate other highway research programs. Published reports of the NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM are available from: Transportation Research Board Business Office 500 Fifth Street, NW Washington, DC 20001 and can be ordered through the Internet at: http://www.national-academies.org/trb/bookstore Printed in the United States of America

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COOPERATIVE RESEARCH PROGRAMS CRP STAFF FOR NCHRP REPORT 561 Robert J. Reilly, Director, Cooperative Research Programs Crawford F. Jencks, NCHRP Manager Timothy G. Hess, Senior Program Officer Eileen P. Delaney, Director of Publications Kami Cabral, Editor NCHRP PROJECT 10-61 PANEL Field of Materials and Construction--Area of Specifications, Procedures, and Practices Steven D. DeWitt, North Carolina DOT (Chair) Elizabeth Boswell, Texas DOT Kevin J. Dayton, Washington State DOT Phillip S. Dunston, Purdue University Scott Jarvis, California DOT Robert Latham, Associated Pennsylvania Constructors Steve Massie, Jack L. Massie Contractors, Inc., Williamsburg, VA Donald J. Miller, Wisconsin DOT Kevin B. O'Buckley, New York State DOT James M. Winford, Jr., Louisiana Road and Bridge Company, Inc. Gerald Yakowenko, FHWA Liaison Frederick Hejl, TRB Liaison

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FOREWORD By Timothy G. Hess Staff Officer Transportation Research Board This report contains tools for use in awarding best-value highway construction contracts. This report will be of immediate interest to professionals involved in the procurement of high- way construction contracts. Legislative requirements in most states require that highway construction contracts be awarded using a low-bid system. Under a low-bid system, contractors submit bids based on plans and specifications prepared by the highway agency or a private engineering firm hired by the agency, and, except under extraordinary circumstances, the contractor submitting the lowest bid is awarded the construction contract. In all but a few cases, experience levels of the contractor, quality issues, and other criteria are not taken into consideration in awarding these contracts. Best-value procurement methods allow various elements to be considered in selecting a contractor on the basis of performance. Objective elements include contractor experience with similar projects, completion within schedule, compliance with material and workman- ship requirements, timeliness and accuracy of submittals, and record of safety. Subjective elements include effective management of subcontractors, proactive measures to mitigate impacts to adjacent properties and businesses, training and employee development pro- grams, corporate commitment to achieving customer satisfaction, and client relations. These elements not only affect the ultimate performance and overall cost of the completed facility, but also contribute to the efficient execution of the work. Efficiency is very impor- tant to contracting authorities that are interested in a high level of public acceptance. It is also recognized that, because of constrained staffing and budgets, it is not possible for state agencies to "inspect" quality into the work. Therefore, a procurement process is needed that considers value-related elements in awarding contracts. Under a "best-value" selection process, the low-bid concept can be modified by adding quality issues to the bid evaluation process. The low-bid concept is still a part of this selection process, but it is weighted with other elements to determine a best value that reflects quality, as well as cost issues. Several governmental organizations, including the Army Corps of Engineers, have used the best-value concept to award construction contracts. Public-sector organizations using the low-bid procurement process face constant pressure for improved quality, faster turnaround, and reduced overhead costs associated with project delivery. At the same time, private-sector organizations are recognizing the need for improved quality in their products to remain competitive. A best-value bid award system can provide a means for both public- and private-sector organizations to achieve common objectives and to include quality in the competitive procurement process. These provisions would be of interest to all organizations in the highway industry that are committed to providing a quality product.

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Under NCHRP Project 10-61, "Best-Value Procurement Methods for Highway Con- struction Projects," Trauner Consulting Services, Inc., developed procurement methods, award algorithms, and rating systems for use in awarding best-value highway construction contracts. Screening criteria for selecting projects for application of best-value procure- ment, implementation strategies, and a model best-value specification were also developed. The research results, documented in NCHRP Report 561, will significantly enhance the capabilities of highway agencies in using best-value procurement methods in awarding highway construction contracts.

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CONTENTS S-1 Summary 1 Chapter 1 Introduction and Research Approach 1 1.1 Background: Problem Statement and Research Objective 1 1.2 Best-Value Contracting Definitions 2 1.3 Scope of Study 2 1.4 Research Approach 4 1.5 Results and Products 6 Chapter 2 Findings 6 2.1 State of Practice 6 2.2 Legislative and Regulatory Trends 8 2.3 Best-Value Contracting Concepts 11 2.4 Analysis of Best-Value Concepts 33 2.5 National Transportation Agency Survey Results 35 2.6 Baseline Project Performance Results 44 2.7 Expert Interviews 46 2.8 Summary of Findings 47 Chapter 3 Interpretation, Applications, and Recommendations for Implementation 47 3.1 Development of Best-Value Procurement Methods 49 3.2 Proposed Best-Value Award Algorithms and Rating Systems 56 3.3 Summary of Proposed Best-Value Procurement Framework 57 3.4 Implementing the Proposed Best-Value Procurement Method 62 3.5 Screening Criteria for Best-Value Procurement 66 3.6 Implementation Strategies 73 3.7 Model Best-Value Specification 77 3.8 Summary 78 Chapter 4 Conclusions and Suggested Research 78 4.1 Conclusions 78 4.2 Suggested Research 80 Bibliography A-1 Appendix A Literature Review B-1 Appendix B List of State Laws Allowing Use of Best-Value by Departments of Transportation; Excerpts from the Model Procurement Code, FAR, and State Statutes C-1 Appendix C Questionnaires D-1 Appendix D Best-Value Case Studies E-1 Appendix E Advisory Board Survey

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F-1 Appendix F Best-Value Project Screening Decision Flowchart and Selection Tool G-1 Appendix G Barriers and Solutions to Implementation of Best-Value Process H-1 Appendix H Training Tool AUTHOR ACKNOWLEDGMENTS This research was performed under NCHRP Project 10-61 by Trauner Consulting Services, Inc., the prime contractor, in association with the University of Colorado (CU), University of Oklahoma (OU), and Nossaman Guthner Knox Elliott LLP. Sidney Scott III, P.E. (Trauner) was the principal investigator, with co-principal investigators Dr. Keith R. Molenaar (CU) and Dr. Douglas D. Gransberg (OU); Nancy C. Smith, Esq. (Nossaman) was the legal advisor. This work could not have been accomplished without assistance and feedback from our research advisory panel: Robert Burns, Oregon DOT; Jeffery Carpenter, Alternate Project Delivery Manager, Washington DOT; David Cox, Division Administrator, FHWA; Ron Williams, State Construction Engineer (retired), Arizona DOT; Ernest Drott, Chief of Construction Operations, USCOE; Frank Gee, formerly of Virginia DOT; Len Sanderson, State Highway Administrator, NCDOT; Gary Whited, Deputy Administrator, Wis- consin DOT; Gregory Henk, formerly of Flatiron Structures Company, LLC, and currently with Carter Burgess; Steve Vance, President, Broce Construction; Jon Wight, Past Chairman, ARTBA; Ralph Ellis, Associate Professor, University of Florida, and James Ernzen, Associate Professor, Arizona State Univer- sity. Additionally, Alfonso Bastias and Sangjoo Lee, graduate research assistants at CU, and James E. Brown, graduate research assistant at OU, contributed to this research effort. FHWA's International Programs contributed funds to incorporate findings from the 2004 Construc- tion Management Scan and additional international data collections. The authors wish to acknowledge the efforts of the Construction Management Scan team and the international agencies that contributed to this effort. The authors also wish to express their appreciation to all those who responded to question- naires and provided feedback and case study information. We understand that their time was valuable, and we could not have accomplished this work without their input. Finally, we would like to thank the NCHRP technical panel and Senior Program Officer, Mr. Timothy G. Hess, for their timely input, excellent comments, and helpful suggestions as this research project proceeded.