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100 APPENDIX C EVIDENCE ON CHANGES IN LEVELS OF SERVICE AND COST SAVINGS Information in the two tables in the appendix was assembled to determine whether published information on changes in levels of service and published information on changes in costs were consistent. The body of the text includes more up-to- date information not included here. LEVELS OF SERVICE Agency or Contract Reported Change in Levels of Service VDOT Total Asset Management Washington Policy Center: Contract met or exceeded the performance targets for nearly 90% of the items evaluated--no information on change in LOS. James Bryant: In 1995, a report card indicated that the contractor received an overall rating of A with 95% confidence on all mainline sections and all sets of ramps. VDOT's grades on control sections were generally B's. Pekka Pakkala: Better level of service--no data. AASHTO: Improved levels of service--no data. District of Columbia World Bank: LOS improved as a result of the performance-based maintenance contract. During the first year, maintenance rating scores increased from the high 20s before starting the contract to the low 80s (out of 100). Pekka Pakkala: Better level of service--no data. Reason: LOS ratings rose to the low 80s in the first year from the high 20s before PBMC occurred. Texas DOT TxDOT: Levels of service initially declined on I-20 and I-35 and then started to rise (Graff 2007). World Bank: Relative to their precontract condition, the condition rating of [rest area] facilities maintained under performance-based contracts increased 18 points to 91%. AASHTO: Contractor provided higher-quality snow and ice control than the agency previously did (Note: Washington State DOT cited newspaper articles about poor contractor response to icy road conditions in a Texas contract for highway maintenance (Ribreau n.d.). The articles did not acknowledge these were the worst ice storms in years. The contractor deployed its personnel and equipment. However, in numerous instances, equipment became stuck in traffic and could not get to the areas needing treatment (Segal 2004). British Columbia Ministry of Pekka Pakkala: Better level of service; quality of network is good or better Transportation (MOT) than before--no data. Ontario Pekka Pakkala: Better level of service; quality of network is good or better than before--no data. Sydney, Australia (1995, 10-year World Bank: 13% improvement in condition. performance-based contract) Reason: 13% increase in asset quality condition. New Zealand World Bank: The general manager of Transit New Zealand said better services were delivered. Unclear whether this statement applies to a hybrid contract (with both performance and method specifications) or to a long-term performance-based maintenance contract. Pekka Pakkala: Pronounced improvement in quality of service; reduction in bumps; improved skid resistance, signs, drainage systems and marker posts--no data. Argentina World Bank: The CREMA performance-based contract began with rehabilitation followed by maintenance. The percent of roads in good to fair condition increased from 59% to 94%. The percent in critical to poor condition declined from 41% to 6%. Also roughness measurements deteriorated at a slower rate than predicted by the Highway Design and

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101 Agency or Contract Reported Change in Levels of Service Maintenance (HDM) Standards Model. Reason: For performance-based maintenance contracts on concession toll roads, Argentina experienced higher levels of service and reduced maintenance costs--no supporting data. Uruguay World Bank: The first performance-based maintenance pilots in Uruguay resulted in an improvement in road conditions by the two contractors from 1996 to 1998. The first contractor increased roads in very good condition from 0% to 25% and reduced roads in regular condition from 40% to 15%. Roads in good and bad condition remained unchanged at 60% and 0%, respectively. The second contractor increased roads in very good condition from 23% to 37%, in good condition from 13% to 46% and reduced roads in regular condition from 64% to 17%. The percent of roads in bad condition remained unchanged at 0%. Sources: World Bank refers to Stankevich, Qureshi, and Querioz (2006); Pekka Pakkala refers to Pakkala (2002); AASHTO refers to AASHTO (2002); Washington Policy Center refers to Segal and Montague (2004). COST SAVINGS Location and Description of Project Source Change in Costs Florida DOT Seven asset management Office of Inspector General, Florida Not able to determine whether Asset contracts awarded as of June DOT Management Contracts are cost-effective. 30, 2004 Method used does not reflect actual savings and does not comply with cost estimation Procedure No. 375-000-005. Actual cost savings are not reflected even when the procedure cited above is followed, which compares estimated to letting amounts. I-75 (253 centerline miles) Reason Public Policy Institute (Segal et 12.2% below estimate in year 1 and ranging up al. 2003) to 22.2% below estimate in year 7. These cost savings appear to apply to a contract with both performance and method specifications. Lump-sum contract to AASHTO 2002 15% to 20% cost savings. manage contract awarded in 2001 to operate and maintain 431 centerline miles on the state system in five counties (District 3) I-4, from Orlando to Reason Public Policy Institute (Segal et Costs remained constant. These cost savings Lakeland al. 2003) appear to apply to a contract with both performance and method specifications. I-95 near Jacksonville Reason Public Policy Institute (Segal et Costs decreased 10%. These cost savings appear al. 2003) to apply to a contract with both performance and method specifications. AASHTO 2002 Case study provides no information. Virginia DOT 251 miles of Interstate Reason Public Policy Institute (Segal et $16 to $23 million savings based on a Virginia al. 2003) Tech study Ribreau 2004 The Joint Legislative Audit Review Commission concluded that the savings claim of $16 to $23 million was, on inspection, neither accurate nor verifiable. Furthermore, the narrow scope of the Virginia Tech study might not provide verifiable

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102 Location and Description of Project Source Change in Costs conclusions on the cost-effectiveness of the approach. De La Garza and Vorster 2000 80% of the contractor work was contracted out; based on a comparison of the contractor subcontracts and VDOT bid tabs for 1999 as well as unit price comparisons, the contractor was able to perform the work for 4.1% less than VDOT could have performed similar work. Extending this analysis so it covered the scope of work in the VDOT interstate maintenance contract, Virginia Tech estimated the cost savings to be 6.1%. Estimated total contract savings over the contract period under baseline conditions was $8 million and accounting for price escalation reached $18.7 million. Sensitivity analysis based on varying the overhead rate of the contractor relative to VDOT, after escalating costs according to a price index, suggested cost savings ranged from $6.5 million to $22 million. AASHTO 2002 Contractor guaranteed cost savings of 17%; VDOT estimated the total cost of the 5.5-year contract at $131 million. Contractor successfully negotiated a renewal for an additional 5 years. Not clear to what the 17% applies, just first term or both, estimated future costs or actual costs before the contract. Pakkala 2002 Cost savings--no substantiating information. World Bank (Stankevich et al. 2006) 17% cost savings by VDOT. Based on a study performed by the contractor, its cost per mile was $22,400 compared with $29,500 for VDOT. Highway Maintenance Contracting VDOT calculates a 25% contractor cost savings 2004 relative to the state. On a per mile basis, the contractor cost $22,400 compared with $29,500 for VDOT. Stivers 2001 Guaranteed cost savings of roughly 17% versus in-house Frost 2001 20% cost savings. Joint Legislative Audit and Review The VDOT estimate of $23 million in cost Commission (JLARC) 2001 savings was based mainly on estimates and forecasts of its future costs in comparison to payments it would make to the contractor. JLARC staff reported in 1998 that the savings could not be supported with documentation and the soundness of the analysis could not be verified. JLARC recognized that the Virginia Tech study might shed light on the cost- effectiveness of this contract. However, JLARC concluded that the narrow scope may not provide conclusive findings. Lande and Dennis 1999 VDOT estimated cost savings of $22 million over the 5.5-year contract. Washington Policy Center 2004 Three estimates of cost savings cited. The original VDOT estimate of $23 million was based on the difference of usual cost of

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103 Location and Description of Project Source Change in Costs maintenance and the proposed contract cost. Virginia Tech estimated savings of between $16 million and $23 million, amounting to 12%. The contractor's estimate of savings was $8,000 per lane mile of maintenance. Bryant 2007 No information provided. Texas DOT Four, 2-year rest area Graff 2007 No information available. performance-based maintenance contracts at $6 to $8 million each World Bank (Stankevich et al. 2006) Highway Maintenance Contracting Not stated whether costs went up or down. 2004 Contracts cover enhancement of facilities, janitorial services, and ongoing maintenance. Pakkala 2002 Cost savings--no substantiating information. 500-mile Waco and 400-mile AASHTO 2002 Bids came in below estimate based on average Dallas hybrid contracts, TxDOT costs to perform the work plus 20% for including performance profit measures and method specifications Stivers 2001 Ribreau 2004 No information provided. Georgia DOT Performance-based contract AASHTO 2002 Case study provides no information. for mowing interstates District of Columbia Dept. of Public Works 75 miles of National Highway Reason Public Policy Institute (Segal et No information provided. System, $69 million, 5-year al. 2003) contract Pakkala 2002 Cost savings--no substantiating information. World Bank (Stankevich et al. 2006) AASHTO 2002 Case study provides no information. Robinson et al. 2005 No information. Aspen, Colorado 15-year, maintenance Reason Public Policy Institute (Segal et Unspecified cost savings. warranty contract for al. 2003) rehabilitation and maintenance New Mexico DOT Former Corridor 44 (now US Reason Public Policy Institute (Segal et Speculative information. 550) 20-year design, al. 2003) construction, maintenance warranty project British Columbia MOT 10-year lump-sum World Bank (Stankevich et al. 2006) Reported savings on order of 10%. performance-based contracts covering all types of maintenance for 100% of British Columbia (since 2003) Pakkala 2002 Clients receive some cost savings (unable to provide any figures).

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104 Location and Description of Project Source Change in Costs Whole province Stenbeck 2007 Included British Columbia in an analysis of change in costs due to performance-based maintenance contracting for a number of Canadian Provinces, parts of others, the State of Washington, and Sweden. Determined that PBMC resulted in an average increase in costs. Paper does not report cost savings of individual jurisdictions. Results are questionable given that the sample size was small, in most cases there was only one observation per jurisdiction, only one variable was statistically significant, and the Internet paper was not well written or peer reviewed. Alberta Two rounds of tenders of World Bank (Stankevich et al. 2006) 5% savings for first round of tenders; hybrid contracts eventually 25%35% savings for second round of tenders. covering 100% of provincial roads in 30 Contract Maintenance Areas (CMAs) Pakkala 2002 Clients receive some cost savings (unable to provide any figures) Bucyk and Lali (2005) Based on an independent KPMG report, there were cost savings based on tendering in 17 CMAs: a 28% reduction in cost between the new contracts (year 2000) and the old contracts (prior to 2000) which translates to a reduction in unit prices to $3,705/km from $5,117/km representing a total annual cost reduction of $26,419,932. Whole province Stenbeck 2007 Included Alberta in an analysis of change in costs due to performance-based maintenance contracting for a number of Canadian Provinces, parts of others, the State of Washington, and Sweden. Determined PBMC resulted in an average increase in costs. Paper does not report cost savings of individual jurisdictions. Results are questionable given that the sample size was small, in most cases there was only one observation per jurisdiction, only one variable was statistically significant, and the Internet paper was not well written or peer reviewed. Ontario Lump-sum, 7- to 9-year Area World Bank (Stankevich et al. 2006) No information provided. Maintenance Contracts Pakkala 2002 Clients receive some cost savings (unable to provide any figures). Highway Maintenance Contracting 12.5% savings at end of first round of 3-year 2004 contracts. Whole province Stenbeck 2007 Included Ontario in an analysis of change in costs due to performance-based maintenance contracting for a number of Canadian Provinces, parts of others, the State of Washington, and Sweden. Determined PBMC resulted in an average increase in costs. Paper does not report cost savings of individual jurisdictions. Results

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105 Location and Description of Project Source Change in Costs are questionable given that the sample size was small, in most cases there was only one observation per jurisdiction, only one variable was statistically significant, and the Internet paper was not well written or peer reviewed. Australia Regional Transport Pakkala 2002 10% to 35% Authority, New South Wales; Tasmania; Western Australia 10-year, $130 million, 450 Reason Public Policy Institute (Segal et 35% cost savings through some initial portion of km urban road contract al. 2003) contract. World Bank (Stankevich et al. 2006) 20%30% cost reduction; bid price 25% lower than estimated. Sydney, New South Wales Frost 2001 38% cost savings compared with schedule of rates type of contracts. Southern Tasmania Frost 2001 20% cost savings compared with schedule of rates type of contracts. South Perth Frost 2001 25% cost savings compared with schedule of rates type of contracts. Mid North Region Frost 2001 30% cost savings compared with schedule of rates type of contracts. Six contracts in Western Frost 2001 Savings of 15%20% against in-house Australia operations. New Zealand 10-year, lump-sum Reason Public Policy Institute (Segal et 20% savings based on regular audits. performance-specified al. 2003) maintenance contract for nearly all road and highway works throughout country; includes rehabilitation and maintenance World Bank (Stankevich et al. 2006) Reduced cost according to general manager of Transit New Zealand Highway Maintenance Contracting 30% decrease in cost of professional services 2004 and 17% decrease in costs of professional services; a savings of at least 25% over conventional model. 10-year, lump-sum, Pakkala 2002 Initial savings were about 25%, and were performance-specified between 14% and 20% when the report was maintenance contract (PSMC- written. Savings predicted to be 25%. 001) covering 450 km Argentina 9,600 km of national roads Reason Public Policy Institute (Segal et Unspecified lower maintenance costs. under 12-year toll concession al. 2003) and additional 10,000 km under 5-year rehabilitation and maintenance contract World Bank (Stankevich et al. 2006) Rehabilitation cost savings were due in part to a difference in pavement thickness under the CREMA versus the prior Provincial Roads Rehabilitation Projects. Savings varied depending on thickness and were actually greater because design and other costs customarily taken into account were excluded

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106 Location and Description of Project Source Change in Costs under the CREMA cost estimates. The lump- sum contract arrangement during Phase I virtually ensured no overruns except for force majeure events. Annual costs never exceeded the lump-sum amount by more than 3%. Finland Highway Maintenance Contracting Cost savings analyzed at 7%10% for 3-year 2004 contracts and 13% for 7-year contracts. 30%35%; about 50% less cost per kilometer. the Finnish Road Enterprise became one of numerous state companies under Finnra's umbrella, and won 78% of the 3-year contracts. World Bank (Stankevich et al. 2006) 7%10% for 3-year contracts and 13% for 7- year contracts; the current price level is 50% to 60% of the price level when Finnra was using its own labor and equipment to do maintenance. World Bank Transport Note No. TN-27 30%35%; about 50% less cost per kilometer. (Stankevich, Qureshi, and Querioz 2005) United Kingdom Highway Maintenance Contracting Slightly reduced costs. No supporting data 2004 provided.

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Abbreviations used without definition in TRB Publications: AAAE American Association of Airport Executives AASHO American Association of State Highway Officials AASHTO American Association of State Highway and Transportation Officials ACINA Airports Council InternationalNorth America ACRP Airport Cooperative Research Program ADA Americans with Disabilities Act APTA American Public Transportation Association ASCE American Society of Civil Engineers ASME American Society of Mechanical Engineers ASTM American Society for Testing and Materials ATA Air Transport Association ATA American Trucking Associations CTAA Community Transportation Association of America CTBSSP Commercial Truck and Bus Safety Synthesis Program DHS Department of Homeland Security DOE Department of Energy EPA Environmental Protection Agency FAA Federal Aviation Administration FHWA Federal Highway Administration FMCSA Federal Motor Carrier Safety Administration FRA Federal Railroad Administration FTA Federal Transit Administration IEEE Institute of Electrical and Electronics Engineers ISTEA Intermodal Surface Transportation Efficiency Act of 1991 ITE Institute of Transportation Engineers NASA National Aeronautics and Space Administration NASAO National Association of State Aviation Officials NCFRP National Cooperative Freight Research Program NCHRP National Cooperative Highway Research Program NHTSA National Highway Traffic Safety Administration NTSB National Transportation Safety Board SAE Society of Automotive Engineers SAFETY-LU Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (2005) TCRP Transit Cooperative Research Program TEA-21 Transportation Equity Act for the 21st Century (1998) TRB Transportation Research Board TSA Transportation Security Administration U.S.DOT United States Department of Transportation