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30 CHAPTER 7 Contractor-Based Pavement-Type Selection 7.1 Overview focuses on how to deal with the selection process under such scenarios. In alternate contracting, particularly for projects In traditional design-bid-build contracts, the contractor requiring long-term contractor involvement, the contractor delivers construction services as defined in the standard plans (or a concessionaire) bears significantly greater financial and specifications issued by the highway agency. The contrac- risks than in traditional contracts. However, as the long-term tor assumes no responsibility for the delivered product except owner of the facility, the agency holds the ultimate responsi- with regard to materials and workmanship quality for a limited bility toward taxpayers and road users for the performance of time period. The agency has the entire responsibility and risk the pavement. for design, construction, and post-construction performance Table 10 shows the agency and contractor relationship for of the pavement. different contracting scenarios in order to provide the neces- With the inception of alternative contracting methods, high- sary backdrop for understanding pavement-type selection in way agencies strive for better "value for money" through spe- such scenarios. These challenges can be managed effectively cific project objectives relating to construction time, quality, when risks are understood, their consequences measured, and innovation, safety, and costs. Examples include lane rental, they are allocated to the party that can best manage them. interim completion dates, performance warranties, and design- build and design-buildfinance-operate contracts. These initiatives have shifted the roles and responsibilities 7.2 Risk Assessment in Contractor- of agencies, contractors, and designers from traditional para- Based Type Selection digms, which have in turn resulted in the shift of risk allocation In alternate contracting projects, the agency communicates from agencies to contractors, thus opening up new challenges the project goals, requirements, and deliverables to the con- in program delivery and facility management. The alternative tractor through contract provisions in the RFP. The contractor contracting scenarios involving contractor-based pavement- type selection are defined as follows: is obligated to provide the product and services specified in the contract provisions with certain technical, cost, time, and qual- Design-build. Contractor is responsible for only design and ity requirements. construction (involves materials and workmanship war- As the selection process proceeds from the preliminary engi- ranty or other warranty types). neering phase to the selection of the final pavement type, three Design-build involving O&M. Contractor is responsible for distinct milestones are recognized in this process: design, construction, M&R, and operations during the con- cession period (involves performance thresholds established Advertising for bids--The agency's internal assessments and by the agency). decisions culminate with the development of contract pro- Performance warranty. Contractor is responsible for design, visions. The agency then communicates its requirements to construction, and M&R over the warranty period with no the potential contractor. operational responsibilities (involves performance thresh- Submission of bids--The contractor's internal assessments olds established by the agency). and the business decisions culminate in the development of bidding strategies and bid submittal (i.e., the contractor pro- Although these contracting approaches include much more poses a pavement-type alternative for a certain cost value in than pavement-type selection, the discussion in this guide the submitted bid).

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31 Table 10. Agency and contractor roles in different contracting scenarios. Long-Term Design- Alternate Design- Design-Build Process Performance Bid-Build Bidding Build1 with O&M1 Warranty1 Identification of pavement alternatives Development of potential alternatives at Agency Agency Agency Agency Agency agency level Identification of feasible alternatives at Agency Agency Agency & Agency & Contractor project level Contractor2 Contractor Development of a life-cycle model for pavement alternatives Service life of initial pavement structure Agency Agency Agency & Contractor Contractor (includes pavement design) Contractor2 Service lives of future rehabilitation Agency Agency Agency Contractor Contractor treatments Timing and extent of M&R treatments Agency Agency Agency Contractor Contractor Estimation of life-cycle costs Initial construction Agency Agency Agency & Contractor Contractor Contractor2 Future M&R Agency Agency Agency Contractor Contractor Salvage Agency Agency Agency N/ A N/ A Remaining service life at hand back N/A N/A N/A Contractor Contractor Supplementary Agency Agency Agency & Agency & Agency & Contractor Contractor Contractor Work zone costs Agency Agency Agency & Agency & Agency & Contractor2 Contractor Contractor Traffic operations4 Agency Agency Agency Agency Agency& Contractor Economic analysis of pavement alternatives Develop expenditure-stream diagrams Agency Agency Agency & Contractor Contractor Contractor2 Establish LCCA framework Agency Agency Agency & Contractor Contractor Contractor2 Compute life-cycle costs Agency Agency Agency & Contractor Contractor Contractor2 Analyze/interpret results Agency Agency Agency & Contractor Contractor Contractor2 Reevaluate strategies Agency Agency Agency & Contractor Contractor Contractor2 Economic and noneconomic evaluation of pavement alternatives Evaluate pavement alternatives using Agency Agency Agency & Contractor Contractor economic factors Contractor2 Evaluate pavement alternatives using Agency Agency Agency & Agency & Agency & noneconomic factors Contractor 3 Contractor 3 Contractor3 Weigh noneconomic factors against Agency Agency Agency Agency & Agency & economic analysis Contractor 3 Contractor3 Final selection of pavement alternative Agency Contractor Agency & Contractor Contractor Contractor2 1 Agency may perform the pavement-type selection process independently for validating contractor-based analysis and internal purposes. 2 Depends on the type of design-build contract. 3 Contractor may not consider factors relating to environment, road users, and society. 4 It may be difficult to develop consensus on calculating differential costs during normal traffic operations between pavement types. N/A = Not applicable

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32 Evaluation of contractor proposal--Upon receipt of bids, not be adequate to cover all the agency risks, which can result the agency accepts/rejects the contractor's proposal based in a significant loss to the agency. Therefore, the agency- on its conformance to contract provisions of the project. specified criteria should be robust, realistic, and achievable in order to attract reasonable bid prices from bidders. The Figure 17 presents a flow chart of the steps involved in the agency should establish criteria for evaluating contractor- contractor-based type-selection process. proposed pavement types and communicate them in the RFP or bid documents. Input from the pavement-type selection committee may be helpful in establishing contract provisions 7.2.1 Agency Risks and evaluation criteria pertinent to pavements. In contractor-based type selection, the agency process begins The agency also may use risk-sharing mechanisms such as with the determination of an appropriate contracting method warranty ceiling or price adjustment clauses for inflation in the preliminary phase of the project. The alternate contract- management in order to achieve a balance in risk allocation. ing methods involving contractor-based selection typically These strategies may play a significant role in developing rea- include design-build, design-build with O&M, and long-term sonable contract provisions and attracting balanced bids from performance warranty methods. The contracting method contractors. largely defines the contractor scope in the project and the asso- The agency then communicates the project requirements ciated risks. and the evaluation criteria to potential bidders through the RFP The agency then conducts a comprehensive risk assessment or bid documents. The agency should ensure that these require- in the preliminary engineering phase prior to establishing ments are defined precisely in these documents. the contract provisions. Typical agency risks include reduced pavement performance, increased unplanned intervention, 7.2.2 Contractor Risks cost overruns, time delays, and associated indirect effects such as public dissatisfaction and increased work zone accidents. The contractor's risks generally are associated with the con- The agency also can perform an independent evaluation of tract provisions of a project and the primary organizational economic and noneconomic factors to address responsibili- objectives. To put it practically, as a private enterprise, the con- ties toward to the taxpayers, road users, and the environment. tractor's primary organizational objectives are to increase the Table 11 lists factors that should be considered in the agency's probability of winning the bid, meet the contractual require- risk assessment. The process includes identification of risks, ments, minimize losses, and maximize profits. The contrac- categorizing the probability of occurrence, determining the tor's risks depend on the following factors: likely impact, and properly allocating risks to the parties that can best manage them. Construction details (constructability and specifications). To leverage these risks, the agency uses contract provisions as Location and site conditions (traffic, subgrade, working control points to define the contractor's obligations. For exam- conditions, etc.). ple, an agency may use performance criteria to leverage risks Performance and financial elements (initial costs, future associated with the "pavement" component of a proposed facil- needs, anticipated cost inflows, etc.). ity. The agency then specifies performance threshold values and Performance criteria. scheduled monitoring to ensure a desired level of service. Chances of a successful bid. Whenever the measured performance fails to meet the Incentive/disincentive structure. requirements, the contractor is obligated to undertake repair Agency's receptiveness to proposed strategies. and rehabilitation work, and failure to maintain the thresh- Contractor's experience. old performance may result in disincentives (Molenaar et al. Contractor's ability to control operations and subcontrac- 2005). On design-build projects, where the contractor has no tors. responsibility for operation or maintenance, it is appropriate for the agency to reduce its risk by stipulating the pavement The project-specific contractor risks begin with the con- alternative(s) suitable for use or by specifying the selection tract provisions of a project. The contractor's perceived risks criteria for the contractor to follow. In these cases the agency increase as the "unknowns" in the proposed project increase. should clearly indicate the procedure and inputs to be used in Contractors tend to manage these perceived risks by building the pavement design. financial contingencies into their bid price. Similarly, if the In addressing risks, the agency may be inclined to be more project criteria are unrealistic (e.g., unreasonable quality lim- stringent in specifying the control points. Such stringent cri- its), the contractor perceives higher risk, resulting in a higher teria may lead to contractor bids with higher prices than the proposed price. If the final bid price is too high, it is likely that agency's estimate. In some cases, the contract provisions may the contractor will lose the contract.

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33 Agency decides on contractor- based pavement-type selection Agency determines the contracting type Agency performs an impact assessment of pavement- related risks Agency develops strategies for risk management, allocation and sharing Agency develops contract provisions and specifications Advertising for Bids Agency Process Contractor Process Contractor reviews contract provisions and agency practices Contractor performs risk assessment and develops risk management strategies Contractor develops inputs for the type selection process Contractor follows the selection process of a given contracting type Contractor selects an alternative for the proposal Submission of Bids Contractor Process Agency Process Agency evaluates contractor's proposal Does contractor- selected alternative NO meet contract provisions? Agency rejects or proposes modifications to contractor- YES selected alternative Acceptance of Agency accepts contractor- Contractor's selected alternative Proposal Figure 17. Overview of the contractor-based type-selection process.