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NATIONAL NCHRP REPORT 652 COOPERATIVE HIGHWAY RESEARCH PROGRAM Time-Related Incentive and Disincentive Provisions in Highway Construction Contracts

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TRANSPORTATION RESEARCH BOARD 2010 EXECUTIVE COMMITTEE* OFFICERS CHAIR: Michael R. Morris, Director of Transportation, North Central Texas Council of Governments, Arlington VICE CHAIR: Neil J. Pedersen, Administrator, Maryland State Highway Administration, Baltimore EXECUTIVE DIRECTOR: Robert E. Skinner, Jr., Transportation Research Board MEMBERS J. Barry Barker, Executive Director, Transit Authority of River City, Louisville, KY Allen D. Biehler, Secretary, Pennsylvania DOT, Harrisburg Larry L. Brown, Sr., Executive Director, Mississippi DOT, Jackson Deborah H. Butler, Executive Vice President, Planning, and CIO, Norfolk Southern Corporation, Norfolk, VA William A.V. Clark, Professor, Department of Geography, University of California, Los Angeles Eugene A. Conti, Jr., Secretary of Transportation, North Carolina DOT, Raleigh Nicholas J. Garber, Henry L. Kinnier Professor, Department of Civil Engineering, and Director, Center for Transportation Studies, University of Virginia, Charlottesville Jeffrey W. Hamiel, Executive Director, Metropolitan Airports Commission, Minneapolis, MN Paula J. Hammond, Secretary, Washington State DOT, Olympia Edward A. (Ned) Helme, President, Center for Clean Air Policy, Washington, DC Adib K. Kanafani, Cahill Professor of Civil Engineering, University of California, Berkeley Susan Martinovich, Director, Nevada DOT, Carson City Debra L. Miller, Secretary, Kansas DOT, Topeka Sandra Rosenbloom, Professor of Planning, University of Arizona, Tucson Tracy L. Rosser, Vice President, Corporate Traffic, Wal-Mart Stores, Inc., Mandeville, LA Steven T. Scalzo, Chief Operating Officer, Marine Resources Group, Seattle, WA Henry G. (Gerry) Schwartz, Jr., Chairman (retired), Jacobs/Sverdrup Civil, Inc., St. Louis, MO Beverly A. Scott, General Manager and Chief Executive Officer, Metropolitan Atlanta Rapid Transit Authority, Atlanta, GA David Seltzer, Principal, Mercator Advisors LLC, Philadelphia, PA Daniel Sperling, Professor of Civil Engineering and Environmental Science and Policy; Director, Institute of Transportation Studies; and Interim Director, Energy Efficiency Center, University of California, Davis Kirk T. Steudle, Director, Michigan DOT, Lansing Douglas W. Stotlar, President and CEO, Con-Way, Inc., Ann Arbor, MI C. Michael Walton, Ernest H. Cockrell Centennial Chair in Engineering, University of Texas, Austin EX OFFICIO MEMBERS Thad Allen (Adm., U.S. Coast Guard), Commandant, U.S. Coast Guard, U.S. Department of Homeland Security, Washington, DC Peter H. Appel, Administrator, Research and Innovative Technology Administration, U.S.DOT J. Randolph Babbitt, Administrator, Federal Aviation Administration, U.S.DOT Rebecca M. Brewster, President and COO, American Transportation Research Institute, Smyrna, GA George Bugliarello, President Emeritus and University Professor, Polytechnic Institute of New York University, Brooklyn; Foreign Secretary, National Academy of Engineering, Washington, DC Anne S. Ferro, Administrator, Federal Motor Carrier Safety Administration, U.S.DOT LeRoy Gishi, Chief, Division of Transportation, Bureau of Indian Affairs, U.S. Department of the Interior, Washington, DC Edward R. Hamberger, President and CEO, Association of American Railroads, Washington, DC John C. Horsley, Executive Director, American Association of State Highway and Transportation Officials, Washington, DC David T. Matsuda, Deputy Administrator, Maritime Administration, U.S.DOT Victor M. Mendez, Administrator, Federal Highway Administration, U.S.DOT William W. Millar, President, American Public Transportation Association, Washington, DC Cynthia L. Quarterman, Administrator, Pipeline and Hazardous Materials Safety Administration, U.S.DOT Peter M. Rogoff, Administrator, Federal Transit Administration, U.S.DOT David L. Strickland, Administrator, National Highway Traffic Safety Administration, U.S.DOT Joseph C. Szabo, Administrator, Federal Railroad Administration, U.S.DOT Polly Trottenberg, Assistant Secretary for Transportation Policy, U.S.DOT Robert L. Van Antwerp (Lt. Gen., U.S. Army), Chief of Engineers and Commanding General, U.S. Army Corps of Engineers, Washington, DC *Membership as of June 2010.

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NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM NCHRP REPORT 652 Time-Related Incentive and Disincentive Provisions in Highway Construction Contracts Gary Fick TRINITY CONSTRUCTION MANAGEMENT SERVICES, INC. Edmond, OK Ells Tom Cackler Ames, IA Steve Trost STRATEGIC SOLUTIONS INTERNATIONAL, LLC Sillwater, OK Lee Vanzler Blacksburg, VA Subscriber Categories Administration and Management Construction Economics Finance Highways Planning and Forecasting 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. 2010 www.TRB.org

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NATIONAL COOPERATIVE HIGHWAY NCHRP REPORT 652 RESEARCH PROGRAM Systematic, well-designed research provides the most effective Project 10-58(01) approach to the solution of many problems facing highway ISSN 0077-5614 administrators and engineers. Often, highway problems are of local ISBN 978-0-309-15478-9 interest and can best be studied by highway departments individually Library of Congress Control Number 2010929164 or in cooperation with their state universities and others. However, the 2010 National Academy of Sciences. All rights reserved. accelerating growth of highway transportation develops increasingly complex problems of wide interest to highway authorities. These problems are best studied through a coordinated program of COPYRIGHT INFORMATION cooperative research. Authors herein are responsible for the authenticity of their materials and for obtaining In recognition of these needs, the highway administrators of the written permissions from publishers or persons who own the copyright to any previously American Association of State Highway and Transportation Officials published or copyrighted material used herein. initiated in 1962 an objective national highway research program Cooperative Research Programs (CRP) grants permission to reproduce material in this employing modern scientific techniques. This program is supported on publication for classroom and not-for-profit purposes. Permission is given with the understanding that none of the material will be used to imply TRB, AASHTO, FAA, FHWA, a continuing basis by funds from participating member states of the FMCSA, FTA, or Transit Development Corporation endorsement of a particular product, Association and it receives the full cooperation and support of the method, or practice. It is expected that those reproducing the material in this document for Federal Highway Administration, United States Department of educational and not-for-profit uses will give appropriate acknowledgment of the source of any reprinted or reproduced material. For other uses of the material, request permission Transportation. from CRP. The Transportation Research Board of the National Academies was requested by the Association to administer the research program because of the Board's recognized objectivity and understanding of NOTICE modern research practices. The Board is uniquely suited for this purpose as it maintains an extensive committee structure from which The project that is the subject of this report was a part of the National Cooperative Highway Research Program, conducted by the Transportation Research Board with the approval of authorities on any highway transportation subject may be drawn; it the Governing Board of the National Research Council. possesses avenues of communications and cooperation with federal, The members of the technical panel selected to monitor this project and to review this state and local governmental agencies, universities, and industry; its report were chosen for their special competencies and with regard for appropriate balance. relationship to the National Research Council is an insurance of The report was reviewed by the technical panel and accepted for publication according to procedures established and overseen by the Transportation Research Board and approved objectivity; it maintains a full-time research correlation staff of by the Governing Board of the National Research Council. specialists in highway transportation matters to bring the findings of The opinions and conclusions expressed or implied in this report are those of the research directly to those who are in a position to use them. researchers who performed the research and are not necessarily those of the Transportation The program is developed on the basis of research needs identified Research Board, the National Research Council, or the program sponsors. by chief administrators of the highway and transportation departments The Transportation Research Board of the National Academies, the National Research and by committees of AASHTO. Each year, specific areas of research Council, and the sponsors of the National Cooperative Highway Research Program do not needs to be included in the program are proposed to the National endorse products or manufacturers. Trade or manufacturers' names appear herein solely because they are considered essential to the object of the report. Research Council and the Board by the American Association of State Highway and Transportation Officials. Research projects to fulfill these needs are defined by the Board, and qualified research agencies are selected from those that have submitted proposals. Administration and surveillance of research contracts are the responsibilities of the National Research Council and the Transportation Research Board. The needs for highway research are many, and the National Cooperative Highway Research Program can make significant 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 652 Christopher W. Jenks, Director, Cooperative Research Programs Crawford F. Jencks, Deputy Director, Cooperative Research Programs David A. Reynaud, Senior Program Officer Megan Chamberlain, Senior Program Assistant Eileen P. Delaney, Director of Publications Kami Cabral, Editor NCHRP PROJECT 10-58(01) PANEL Field of Materials and Construction-- Area of Specifications, Procedures, and Practices Donald J. Miller, Wisconsin DOT (Chair) Jennifer Balis, Federal Highway Administration Mark Brown, Zachry Construction Corp., San Antonio, TX Kevin J. Dayton, Washington State DOT Donn E. Hancher, University of Kentucky David Kent, New York State DOT Rita B. Leahy, Asphalt Pavement Association of California Daniel Liston, Virginia DOT Eugene E. Mallette, California DOT David G. Manning, St. Catharines, Ontario Ananth Prasad, HNTB Corp., Tallahassee, FL Peter A. Kopac, FHWA Liaison Frederick Hejl, TRB Liaison AUTHOR ACKNOWLEDGMENTS This report is the product of research conducted under NCHRP Project 10-58(01) "Time-Related Incentive and Disincentive Provisions in Highway Construction Contracts." Gary Fick, Vice-President of Trinity Construction Management Services, Inc., served as the Principal Investigator and primary author of the report. Other individuals contributing to the research project include Tom Cackler, Consultant; Steve Trost, President, Strategic Solutions International, LLC; and Lee Vanzler, Consultant. The research team would like to acknowledge the participation and cooperation of six state departments of transportation (DOTs) that contributed greatly to the research effort. Their assistance was critical to the success of the research project: California Department of Transportation (Caltrans), Florida Depart- ment of Transportation (FDOT), New York State Department of Transportation (NYSDOT), Ohio Department of Transportation (Ohio DOT), Oklahoma Department of Transportation (Oklahoma DOT) and Utah Department of Transportation (UDOT). Along with these agencies, thanks are extended to 12 contractors who provided the research team with input and feedback regarding the impact of incentive/disincentive (I/D) provisions on their operations. The contractors were solicited to participate with the promise of anonymity to ensure unbiased feedback. Finally, the research team wishes to express gratitude to the NCHRP staff and the NCHRP Project 10- 58(01) panel.

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FOREWORD By David A. Reynaud Staff Officer Transportation Research Board This report will be of interest to state and local highway agency construction managers and contractors with regard to learning about best practices of time-related incentive and disincentive contract provisions and their effect on staffing levels, productivity, project cost, quality, contract administration, and the contractor's operations and innovations. The report also presents a decision process guide to use as a template for crafting the incentive/disincentive provisions. Transportation agencies are under increasing pressure to reduce the duration of highway construction projects. This pressure stems from the desire to reduce traffic delays and other inconveniences to the traveling public. To reduce the duration of construction projects, many agencies have turned to the use of time-related incentive and disincentive contract provisions. There is a need to better understand the use of these provisions in highway con- struction contracts, including the type of contract provisions, the extent to which they are used, their record of success, the criteria used to determine when they are appropriate, the most appropriate provisions to select, the methods used to determine the dollar amount of these contract provisions, and their effects on the quality of the constructed project. Under NCHRP Project 10-58(01), Trinity Construction Management Services, Inc. developed recommendations for effective use of time-related incentive and disincentive provisions in highway construction contracts. The researchers reviewed domestic and inter- national literature and collected information from highway agencies and construction con- tractors on the use and effectiveness of these provisions. After analyzing the effectiveness of these provisions, encountering both effective and ineffective applications, the researchers identified and quantified, where possible, the impacts of these provisions on both highway agencies and contractors' staffing levels, productivity, project cost, quality, contract admin- istration, and contractor operations and innovations. The researchers created a decision process guide for determining the most suitable type of incentive or disincentive contract provision, and for determining the dollar amount to be applied to these provisions and the conditions under which they are the most appropriate. The report also identifies best prac- tices for mitigating negative impact of these contract provisions.

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CONTENTS 1 Summary 5 Chapter 1 Project Background, Objectives, and Research Approach 10 Chapter 2 Discussion of I/D Impacts on Project Factors 24 Chapter 3 Estimating Incentives and Disincentives 27 Chapter 4 Guidelines for the Effective Use of I/D Provisions 41 Chapter 5 Evaluating I/D Effectiveness 42 References 43 Appendix A Bibliography 48 Appendix B Summary of I/D Provisions 55 Appendix C Research Results