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OCR for page 80
80 APPENDIX A Tools D1.1 Contract Packaging Why use it? On December 13, 2001, Maryland DOT opened bids for Project size (contract dollar), equipment requirements, the Woodrow Wilson Bridge superstructure contract. A sin- physical features, and the responsibilities (i.e., risk) imposed gle bid, 75 percent higher than the engineer's estimate for the on the contractor are all critical factors impacting the bid contract, was received. In reviewing the situation, it became price of work. There are opportunities to reduce contract cost clear that market forces had a substantial impact on the bid by conscientiously considering the contract package in re- prices, a much greater impact than anticipated by the project spect to these factors. At the same time, estimators must con- planners and estimators. The manner in which work is pack- sider the impacts of contract packaging when developing the aged into individual contracts affects contract prices and must project estimate. be accounted for when estimating project cost. State high- A Caltrans study on the impact of competition on final bid way agencies should seek to package projects in such a way results found a clear and undeniable relationship between the that there is effective management of cost, schedule, and risk. number of bids received and the contact low bid compared Heeding the recommendations of an independent review with the engineer's estimate. Strategies that increase competi- committee, Maryland DOT repackaged the contract into three tion (i.e., the number of bidders per project) will lower project contracts and rebid the project approximately a year later. cost. Contract packaging is particularly important in the case The first rebid contract came in 11 percent over the estimate, of large aggregate dollar value work and work of a specialized but there were five bidders and it was a workable bid, and the nature. The geographical location of a contract or work sites is other two contracts both came in below the estimates, one by an additional factor that should be considered. Any factor that 28 percent and the other by 25 percent. Contract packaging affects the number of bidders that can be expected on a project is important for maintaining competition and receiving should be evaluated. competitive bids. Caltrans found that the relationship between the average number of bidders and the bid price changes based on project dollar size, as shown in Table D1.1.1. This table makes it clear What is it? that even for small dollar jobs, it is important to consider the In packaging contracts, there must be a weighing between effects of competition. economy (usually measured as competition) and work effi- ciency. Based on thoughtful analysis and consideration of a pro- What does it do? gram or project's physical work elements and on the market conditions existing at the work location, contract packages that Contract packaging affects project cost; therefore, knowl- minimize the total cost of construction are developed. Contract edge of such impacts can result in contracting packages packaging, which is based on such forethought, requires inter- structured to achieve the work at lower cost. By structuring action between estimators, the project development team, and contracts to facilitate maximum participation by the con- the state highway agency personnel responsible for managing tracting community, state highway agencies can often lower project construction as the estimator and construction manage- bid prices. Increasing competition also leads to the continued ment personnel will be able to call attention to packaging affects potential for long-term savings by maintaining a viable base on project cost. of competition.

OCR for page 80
81 Table D1.1.1. Relationship bid price to estimate considering project size (Caltrans study). Project Size, $ Ave. No. Percent over Expected reduction Bids PS&E if only by increasing the ave. one bid by one biddder Less than 1 Mil. 5.2 +17% -2.3% 1 to 5 Mil. 5.3 +5% -2.0% 5 to 10 Mil. 5.0 +5% -2.1% Greater than 10 Mil. 5.7 +3% -1.8% PS&E = plans, specifications, and estimates When to use it? tract had four bidders and was 25 percent below the Engi- neer's Estimate. Contract packaging decisions should be made in the pro- gramming phase or very early in the design phase. The con- Tips tract packaging approach should be known when the baseline estimate is created. In some instances, contract packaging de- SHAs should consider the following when packaging cisions will be made later in the design phase due to a change contracts: in scope or realization of a major risk. However, this should be avoided as it will often cause design rework and a delay in Coordination with adjacent contracts. project letting. Traffic control limitations. Accomplishment of utility relocation activities before the prime contract (advance utility relocation). How to use it? Accomplishment of hazardous remediation work as a Contract packaging decisions should be made with infor- separate contract in advance of the prime contract mation from all team members. Cost estimating is a key in Large-dollar contracts (such contracts can limit competition the decision. A thorough understanding of the design con- because contractors are not able to obtain bonding. In the straints and opportunities is also necessary to make logical case of mega-dollar projects, there is a limit to the risk that contract packaging decisions. An understanding of market the bonding community is willing to assume. To protect conditions (e.g., number and type of contractors available, themselves, the bonding companies join together to write etc.) is also an important input into making the contract pack- large bonds. This practice further limits the availability of a aging decisions. contractor to obtain a bond.) During the design phase of project development, thought Example should be given to the strategic separation of projects within a corridor, allowing for efficient use of earthwork (balancing A review of the Maryland SHA estimate compared to the cut and fill requirements). single bid for the Woodrow Wilson Bridge superstructure In respect to all these consideration there must be a balance contract found: between the cost of administration for multiple contracts and the potential benefits from having multiple contracts. There were only a small number of contractors with the ability to undertake a project of such magnitude. Resources There were several other major bride projects being bid concurrently with the Woodrow Wilson project. While the Caltrans report is specific to conditions in that The size of the project necessitated that joint-venture teams state, it provides a good indication how competition impacts be formed, further reducing the competition. project cost (see Impact of Competition on Final Bid Results for Transportation Related Construction Project, Nov. 15, 2001, The work was repackaged into three contracts. The first Caltrans, Division of Engineering Services). contract was successfully bid with five contractors com- Maryland DOT (MDOT) information on the Woodrow peting. The second contract had six bidders and came in Wilson Bridge contract packaging can be found at www.mdot. 28 percent below the Engineer's Estimate. The third con-