Strategies for Implementing Performance Specifications: Guide for Executives and Project Managers (2013)

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3PE RFORMANCE SPECIFICATIONS: WHY NOW? Societal changes and economic conditions suggest that the traditional way of deliv- ering highway construction projects may no longer be suffi cient to keep pace with the growing demands on our highway system to move people and goods safely and effi ciently. Recent infrastructure report cards indicate that the system is deteriorat- ing and facing increasing congestion. At the same time, state highway agencies are facing shrinking budgets and dramatic reductions in both the numbers and experi- ence levels of inspectors and engineers. The complexity of high-speed construction, nighttime construction, and rehabilitation work under traffi c—all of which the public demands—further stretches available agency resources. In response to this widening gap between investment needs and available resources, several agencies have begun experimenting with alternative specifi cations and con- tracting strategies that place more responsibility for performance on the private sector. Chapter Objectives This chapter • Defi nes performance specifi cations and the role they play in an overall performance contracting strategy; • Identifi es the rationale for using performance specifi cations; and • Compares the advantages and disadvantages of method and performance specifi cations. 1 INTRODUCTION TO PERFORMANCE SPECIFICATIONS

4STRATEGIES FOR IMPLEMENTING PERFORMANCE SPECIFICATIONS: GUIDE FOR EXECUTIVES AND PROJECT MANAGERS The traditional way of doing business, using low-bid contracting and prescriptive requirements that tell the contractor how to perform the work, does not motivate the contractor to provide more than the prescribed minimum. The addition of per- formance specifications to an agency’s toolbox would provide the means to motivate and empower contractors to find creative solutions to save time, minimize disruption, and enhance safety and quality in the interest of rapid renewal. The Federal High- way Administration (FHWA) put it this way in its 2004 Performance Specifications Strategic Roadmap: To attain our goals of quality, improved product performance, and a better environment for contractor innovation, we cannot simply identify and test those construction and materials factors that best determine product perfor- mance. We also must address roles, responsibilities, risks, and specification language, as well as determine how best to deliver that product. Freedom to innovate with accountability to deliver is the driving force behind the perfor- mance specification movement (FHWA 2004). WHAT ARE PERFORMANCE SPECIFICATIONS? As used in this document, the expression performance specifications serves as an um- brella term, encompassing various nontraditional specification types used or proposed for use in the highway construction industry, including end-result specifications, quality assurance (QA) specifications, performance-related specifications (PRS), performance- based specifications (PBS), and warranty and long-term maintenance provisions. (For more detail on these different specification types, refer to Framework for Developing Performance Specifications: Guide for Specification Writers, Chapter 1.) In general, these specification types represent a progression toward increased use of higher-level acceptance parameters that are more indicative of how the finished product will perform over time. To varying degrees, they all attempt to shift perfor- mance risk to the contractor in exchange for limiting prescriptive requirements related to the selection of materials, techniques, and procedures. By relaxing such require- ments, performance specifications have the potential to foster contractor innovation and improve the quality or economy, or both, of the end product. Figure 1.1 places these specification types along a continuum of increasing con- tractor responsibility for performance. At one end of the continuum are the traditional method specifications through which the agency retains primary responsibility for end- product performance. Moving along the continuum, performance specifications that allow for quality–price adjustments based on end-result testing or predictive models begin to shift performance risk to the contractor. At the other end of the continuum are postconstruction performance provisions designed to monitor and hold the contractor accountable for actual performance over time. As depicted in Figure 1.2 and discussed in greater detail in subsequent chapters, performance specifications can also be thought of as an integral component of an overall performance contracting system in which a project’s specifications, contract

5STRATEGIES FOR IMPLEMENTING PERFORMANCE SPECIFICATIONS: GUIDE FOR EXECUTIVES AND PROJECT MANAGERS delivery method, and procurement approach are all tailored to one another and to achieving the project goals. The performance specification should translate user needs and project goals into measurable acceptance parameters. The chosen contract deliv- ery method and its inherent conventions regarding design, construction, and post- construction maintenance responsibilities should be consistent with the risk allocated to the contractor in the specifications for achieving those goals. Likewise, the procure- ment approach should ensure the selection of a qualified contractor capable of meeting the performance objectives. PERFORMANCE SPECIFICATIONS AND OTHER PERFORMANCE MANAGEMENT INITIATIVES Ideally, the implementation of performance specifications should be coordinated with other ongoing performance management initiatives. For example, the American Asso- ciation of State Highway and Transportation Officials (AASHTO) strongly advocates the use of performance-based management within highway agencies as a means of advancing national interests related to system preservation and maintenance, mobility and connectivity, interstate commerce, safety, and the environment (AASHTO 2003, 2008). Similarly, a key aspect of the Moving Ahead for Progress in the 21st Century Act (MAP-21) is the transition to a performance- or outcome-based program. At the Figure 1.1. Continuum of highway specifications.

6STRATEGIES FOR IMPLEMENTING PERFORMANCE SPECIFICATIONS: GUIDE FOR EXECUTIVES AND PROJECT MANAGERS federal level, performance management provides a means to more effi cient investment of federal transportation funds by focusing on national transportation goals, increas- ing the accountability and transparency of federal highway programs, and improving transportation investment decision making through performance-based planning and programming. MAP-21 established the following national performance goals for fed- eral highway programs: • Safety. Achieve a signifi cant reduction in traffi c fatalities and serious injuries on all public roads. • Infrastructure condition. Maintain the highway infrastructure asset system in a state of good repair. 15 R07 Guide Vol. 1 Chapter 1.Doc BANNER What contract delivery method best aligns with project goals? Can project goals be expressed in terms of measurable performance parameters? How can solicitation documents be used to help advance the performance objectives defined in the specifications? How much performance risk can be allocated to the contractor given the chosen delivery method and its inherent conventions regarding design, construction, and maintenance responsibilities? What procurement approach will best align with the chosen delivery method? What procurement method will best ensure the selection of a capable, qualified contractor to meet project goals? Fi gure 1.2. Performance contracting system.

7STRATEGIES FOR IMPLEMENTING PERFORMANCE SPECIFICATIONS: GUIDE FOR EXECUTIVES AND PROJECT MANAGERS • Congestion reduction. Achieve a significant reduction in congestion on the National Highway System (NHS). • System reliability. Improve the efficiency of the surface transportation system. • Freight movement and economic vitality. Improve the national freight network, strengthen the ability of rural communities to access national and international trade markets, and support regional economic development. • Environmental sustainability. Enhance the performance of the transportation sys- tem while protecting and enhancing the natural environment. • Reduced project delivery delays. Reduce project costs and expedite the movement of people and goods by accelerating project completion through eliminating delays in the project development and delivery process, including reducing regulatory burdens and improving agencies’ work practices. (MAP-21 2012) At the state level, agencies can invest resources in projects to achieve individual targets that collectively make progress toward national performance goals. The goals for performance specifications in a rapid renewal context (e.g., accelerated construc- tion, minimized user impacts, and long-lasting facilities) generally align with these strategic goals. If an agency already has a performance management initiative under way, performance specifications can help translate an agency’s broad policy goals and objectives down to the project level and instill organizationwide respect for measur- ing, testing, and evaluating performance. Some individuals within the organization may already understand performance metrics and how they can best be applied and implemented. If project-level performance parameters align with overarching agency goals and performance measures (e.g., safety, congestion relief), the results of a particular project can provide a quick gauge of the organization’s overall progress toward meeting its strategic performance objectives. The ongoing process of developing and monitoring performance requirements on a construction project can help accustom personnel to the broader objective of improving agencywide performance. Performance specifications can also serve as a worthy adjunct to other manage- ment philosophies, such as lean construction, although this aspect is not specifically addressed in these guidelines. Consistent with lean principles, performance specifica- tions aim to • Eliminate unnecessary and non-value-added requirements; • Result in continuous improvement; • Align parties around the needs of the end user; and • Place risk on the party best able to manage it. Primary Objectives for Using Performance Specifications ü Transfer performance risk to the contractor ü Motivate contractors to be more quality conscious ü Improve long- term durability ü Accelerate construction ü Encourage innovation ü Reduce agency inspection costs during construction

8STRATEGIES FOR IMPLEMENTING PERFORMANCE SPECIFICATIONS: GUIDE FOR EXECUTIVES AND PROJECT MANAGERS RATIONALE FOR USING PERFORMANCE SPECIFICATIONS While the motivation for using performance specifications will likely vary from agency to agency and from project to project, the literature and input from practitioners suggest that implementing performance specifications has the potential to improve quality and long-term durability. From this perspective, performance specifications better align design requirements with construction by focusing on characteristics that more directly relate to performance and promoting an improved understanding of performance among all parties. This improved understanding of performance fur- ther promotes the development and use of rational performance-based payment sys- tems, replacing pass-fail or judgment calls. By being less prescriptive, performance specifications also encourage industry to innovate and take greater responsibility for performance outcomes, whether by improving quality, accelerating construction, or minimizing user impacts. Lastly, performance specifications can significantly reduce an owner’s quality assurance burden during construction (particularly if the contractor has postconstruction responsibilities). Such objectives (whether set internally by the agency or externally, as in a legisla- tive mandate) will influence both the development and the use of performance speci- fications. Understanding the basic rationale for using performance specifications is therefore an important first step toward ensuring a successful implementation. Once identified, these objectives must be ranked and then communicated, understood, and accepted by all parties involved. In addition to agency personnel, the parties may include the public, legislators, industry, and sureties. The goals need to be understood and communicated at all levels within the agency and its industry partners, from top management down to field staff and subcontractors and suppliers. ADVANTAGES AND DISADVANTAGES OF METHOD AND PERFORMANCE SPECIFICATIONS Although the guidance presented in this volume is intended to help agencies imple- ment performance specifications across a wide range of work and projects, this manual does not suggest that method specifications and an agency’s standard processes be abandoned in their entirety. Such a move would not only be disruptive to internal and external stakeholders, but it could also lead to increased costs and reduced efficiency if performance specifications were not selectively applied to the appropriate projects. As summarized in Tables 1.1 and 1.2, both method and performance specifications hold unique advantages and disadvantages that should be carefully weighed when con- sidering how best to specify requirements for a particular project or project element. Chapter 5 provides additional details regarding the project scoping issues and key project characteristics that can influence the decision of whether performance specifi- cations are an appropriate fit for a given project.

9STRATEGIES FOR IMPLEMENTING PERFORMANCE SPECIFICATIONS: GUIDE FOR EXECUTIVES AND PROJECT MANAGERS TABLE 1.1. ADVANTAGES AND DISADVANTAGES OF METHOD SPECIFICATIONS Advantages Disadvantages • Method specifications are well established, easily understood, and applicable to a wide range of topic areas. • The agency can exert significant control over the work (although this may come at the expense of increased agency inspection efforts). • Requirements are based on materials and methods that have worked in the past, minimizing risk associated with newer or less proven methods or varying contractor performance. • The contractor has little opportunity to deviate from the specifications and, provided that the specifications are met, is not responsible for performance deficiencies of the end product (i.e., the agency retains performance risk). • Method specifications lack built-in incentives for contractors to provide enhanced performance (e.g., cost, time, quality). • The prescribed procedures may prevent or discourage the contractor from using the most cost-effective or innovative procedures and equipment to perform the work. • Contractor payment is not tied to the performance or quality of the work. • Acceptance decisions based on test results of individual field samples can increase the potential for disputes. Source: FHWA 2010. TABLE 1.2. ADVANTAGES AND DISADVANTAGES OF PERFORMANCE SPECIFICATIONS Advantages Disadvantages • Performance specifications promote contractor innovation. • The contractor assumes more performance risk. • Contractors have the flexibility to select materials, techniques, and procedures to improve the quality or economy, or both, of the end product. • A performance specification can provide a more rational mechanism for adjusting payment on the basis of the quality or performance of the as-constructed facility. • The agency can exert less control over the work. • Opportunities for smaller, local construction firms may be reduced. • Identifying all of the parameters critical to performance and establishing related thresholds can be challenging. • Roles and responsibilities of the contractor and agency can become blurred if not adequately defined in the specifications or contract documents. • Staff may be reluctant to assume new responsibilities. Source: FHWA 2010.

10 STRATEGIES FOR IMPLEMENTING PERFORMANCE SPECIFICATIONS: GUIDE FOR EXECUTIVES AND PROJECT MANAGERS OVERVIEW AND ORGANIZATION OF MANUAL Despite the potential advantages offered by performance specifications, they will not emerge as a viable alternative to traditional method specifications overnight. For agency personnel, developing and implementing a scope of work in terms of user needs and end-result performance is often much more challenging and resource intensive than simply adhering to the agency’s standard specifications. For contractors, an initial investment may be needed to acquire the necessary knowledge, skills, and equipment to assume more responsibility for performance. A concerted effort is therefore required on the part of senior leadership to foster a culture in which performance specifications will be embraced. To help agencies plan an effective strategy to achieve that goal, this guidance document addresses the various cultural, organizational, and legal considerations that can affect the successful imple- mentation of performance specifications. Chapter Contents Chapter 2 traces how the decision to use performance specifications can affect tradi- tional project development and delivery processes. Recognizing that such changes can have a significant effect on an agency’s workforce, Chapter 2 also provides senior man- agers with a roadmap for successfully introducing performance specifications to their organization in a manner that will minimize staff resistance to change. In addition to obtaining buy-in from internal staff members, agencies also need to engage local industry because performance specifications tend to yield the best results when agency and industry personnel work in partnership to achieve project goals. To help gain industry support, agencies should first recognize and appreciate the unique challenges that performance specifications pose to contractors. The most critical of these issues, including bonding concerns and flow-down of performance provisions to subcontractors, are discussed in Chapter 3. Chapter 4 identifies various legal precedents of which agencies should be aware to help ensure that their actions do not unintentionally compromise the enforceability of performance specifications. Although performance specifications have been applied to a wide range of trans- portation projects, experience indicates that certain conditions are more likely to yield favorable outcomes than others. Chapter 5 presents a selection process that project managers may use to assess whether performance specifying represents a viable option for a particular project or program. In addition to the project scoping issues discussed in Chapter 5, the selected con- tract delivery method and procurement approach can also influence the decision on whether performance specifications are appropriate for a given project. Chapter 6 presents alternatives to the traditional process that can be used to help advance any project goals defined in performance specifications.

11 STRATEGIES FOR IMPLEMENTING PERFORMANCE SPECIFICATIONS: GUIDE FOR EXECUTIVES AND PROJECT MANAGERS Companion Documents An equally important component of an overall implementation strategy— specification development—is addressed in detail in Framework for Developing Performance Specifications. Readers are encouraged to review this companion document for further infor mation on how performance specifications can be developed and tailored to help achieve project goals. In addition, a series of guide performance specifications developed under SHRP 2 Project R07 is available to further assist agencies with the development of project- specific performance specifications. Given the difficulty in anticipating every project need, the guide specifications are limited to the following application areas, which have demonstrated the greatest potential for performance specifying: • Portland cement concrete (PCC) pavement; • Asphalt pavement; • Concrete bridge decks; • Earthworks construction and other geotechnical features; and • Work zone traffic management.