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Practices for Closing Out Highway Projects from Substantial Completion to Final Payment (2021)

Chapter: Chapter 3 - Current Practices in Closing Out Highway Construction Projects

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Suggested Citation:"Chapter 3 - Current Practices in Closing Out Highway Construction Projects." National Academies of Sciences, Engineering, and Medicine. 2021. Practices for Closing Out Highway Projects from Substantial Completion to Final Payment. Washington, DC: The National Academies Press. doi: 10.17226/26304.
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Suggested Citation:"Chapter 3 - Current Practices in Closing Out Highway Construction Projects." National Academies of Sciences, Engineering, and Medicine. 2021. Practices for Closing Out Highway Projects from Substantial Completion to Final Payment. Washington, DC: The National Academies Press. doi: 10.17226/26304.
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Suggested Citation:"Chapter 3 - Current Practices in Closing Out Highway Construction Projects." National Academies of Sciences, Engineering, and Medicine. 2021. Practices for Closing Out Highway Projects from Substantial Completion to Final Payment. Washington, DC: The National Academies Press. doi: 10.17226/26304.
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Suggested Citation:"Chapter 3 - Current Practices in Closing Out Highway Construction Projects." National Academies of Sciences, Engineering, and Medicine. 2021. Practices for Closing Out Highway Projects from Substantial Completion to Final Payment. Washington, DC: The National Academies Press. doi: 10.17226/26304.
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Suggested Citation:"Chapter 3 - Current Practices in Closing Out Highway Construction Projects." National Academies of Sciences, Engineering, and Medicine. 2021. Practices for Closing Out Highway Projects from Substantial Completion to Final Payment. Washington, DC: The National Academies Press. doi: 10.17226/26304.
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Suggested Citation:"Chapter 3 - Current Practices in Closing Out Highway Construction Projects." National Academies of Sciences, Engineering, and Medicine. 2021. Practices for Closing Out Highway Projects from Substantial Completion to Final Payment. Washington, DC: The National Academies Press. doi: 10.17226/26304.
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Suggested Citation:"Chapter 3 - Current Practices in Closing Out Highway Construction Projects." National Academies of Sciences, Engineering, and Medicine. 2021. Practices for Closing Out Highway Projects from Substantial Completion to Final Payment. Washington, DC: The National Academies Press. doi: 10.17226/26304.
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Suggested Citation:"Chapter 3 - Current Practices in Closing Out Highway Construction Projects." National Academies of Sciences, Engineering, and Medicine. 2021. Practices for Closing Out Highway Projects from Substantial Completion to Final Payment. Washington, DC: The National Academies Press. doi: 10.17226/26304.
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Suggested Citation:"Chapter 3 - Current Practices in Closing Out Highway Construction Projects." National Academies of Sciences, Engineering, and Medicine. 2021. Practices for Closing Out Highway Projects from Substantial Completion to Final Payment. Washington, DC: The National Academies Press. doi: 10.17226/26304.
×
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Page 34
Suggested Citation:"Chapter 3 - Current Practices in Closing Out Highway Construction Projects." National Academies of Sciences, Engineering, and Medicine. 2021. Practices for Closing Out Highway Projects from Substantial Completion to Final Payment. Washington, DC: The National Academies Press. doi: 10.17226/26304.
×
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Page 35
Suggested Citation:"Chapter 3 - Current Practices in Closing Out Highway Construction Projects." National Academies of Sciences, Engineering, and Medicine. 2021. Practices for Closing Out Highway Projects from Substantial Completion to Final Payment. Washington, DC: The National Academies Press. doi: 10.17226/26304.
×
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Page 36
Suggested Citation:"Chapter 3 - Current Practices in Closing Out Highway Construction Projects." National Academies of Sciences, Engineering, and Medicine. 2021. Practices for Closing Out Highway Projects from Substantial Completion to Final Payment. Washington, DC: The National Academies Press. doi: 10.17226/26304.
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25   Introduction This chapter presents the reported current practices by state DOTs from a national survey that collected information on project closeout for highway transportation construction projects, specifically: • The duration to closeout a project; • Construction and financial documentation needed for closing out a project; • Implications of not closing out projects on time; • The processes and tools used by DOTs for project closeout; and • Factors that delay project closeout. A web-based survey questionnaire, developed from the literature review, collected data on construction project closeout, focusing on the phase from completion of construction and accep- tance of work to final payment, which incorporates closing out the construction and financial aspects of the project. Voting members of the AASHTO Committee on Funding and Finance received the questionnaire, which includes representatives from 50 state DOTs. The purpose of the survey was to collect information on project closeout as reported by state DOTs. In addi- tion, the survey helped to determine the state DOTs for further investigation as case examples, as discussed in Chapter 4. Appendix A includes the survey questionnaire used for reference, whereas Appendix B includes the aggregate survey data collected from responding DOTs. Of the 50 state DOTs, 40 completed a response to the survey, which represents an 80% response rate. Table 9 presents the 40 state DOTs that responded to the survey along with responses to whether a DOT has a formal closeout process and when a DOT begins planning for project closeout. Most state DOTs acknowledged having a formal project closeout process that they follow, whereas 63% of state DOT responses (25 responses) said that they begin plan- ning for the project closeout when 60% or more of the construction work is complete. Six state DOTs acknowledged that they begin planning for closeout before they mobilize and begin the construction work. When asked about the stakeholders involved with project closeout processes for highway construction, state DOTs noted the stakeholders listed in Figure 8. The FHWA (83% of responses) and the general contractor (70% of responses) were the most mentioned stakeholders outside of the DOT and their internal offices and sections. Suppliers (28% of responses), vendors (25% of responses), fabricators (23% of responses), and manufacturers (23% of responses) were mentioned by state DOTs as being a part of project closeout, as billing, payments, and quantities from these stakeholders are critical components to project closeout. C H A P T E R 3 Current Practices in Closing Out Highway Construction Projects

State DOT Formal Project Closeout Process When Planning for Project Closeout Begins During Construction Yes No Before Mobilization 0-20% 21-40% 41-60% 61-80% 81-100% Alaska Arkansas California Colorado Connecticut Delaware Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Louisiana Maine Michigan Minnesota Mississippi Montana Nebraska Nevada New Hampshire New Jersey North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Washington Wisconsin Wyoming Total Count 38 2 6 6 0 3 2 23 Frequency 95% 5% 15% 15% 0% 7.5% 5% 57.5% Table 9. State DOTs responding to the survey questionnaire.

Current Practices in Closing Out Highway Construction Projects 27   Duration to Close Out a Project For the purpose of the survey questionnaire, project closeout duration was defined as the number of calendar days between substantial completion and financial closeout of a highway construction project. Each responding state DOT provided the goal set for the total duration that project closeout should take for highway construction projects. Also, DOTs, when available, provided their current actual average duration for closing out projects to see if state DOTs were achieving their project closeout duration goals. Table 10 shows the 32 state DOTs that provided information on project closeout duration, including a description of the project closeout time- frame and each state DOT’s closeout duration goal. The timeframe is provided, as not every state uses the same definition of project closeout duration. Additionally, state DOTs provided their actual average project closeout duration. Table 11 compares the number of state DOTs with a project closeout duration less than, the same as, or more than their goal to when the state DOT begins planning for project closeout. Ten of the 32 state DOTs said that currently their average actual project closeout duration is less than their goal, whereas five state DOTs showed that they are currently meeting their goal, and 17 are not meeting their project closeout duration goal, as it takes more time than the goal. Of the 10 state DOTs achieving a shorter project closeout duration than their goals, seven begin planning for closeout when construction is more than 80% complete, whereas only one state DOT that is less than their project closeout duration goal begins planning for closeout before construc- tion begins. Additionally, DOTs were asked if they use different goals for project closeout duration, depending on the delivery method used for a project. Table 12 summarizes the state DOTs that responded to this question and provides duration information regarding their goals and the current status of their actual project closeout durations when compared with their goals for projects delivered with design-bid-build (DBB), design-build (DB), construction manager/ general contractor (CMGC), and Public-Private Partnerships (PPP). The results show that the DOTs have set the same project closeout duration goals regardless of the delivery method. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Manufacturer Fabricator Vendor Supplier Subcontractor Program Manager Construction Manager General Contractor FHWA State DOT Figure 8. Stakeholders involved in DOT highway construction project closeout.

28 Practices for Closing Out Highway Projects from Substantial Completion to Final Payment Start and End of Project Closeout Duration State DOT Goal Project Closeout Duration (Calendar Days) Actual Project Closeout Duration Acceptance to Final Payment to Contractor Oklahoma 60 More than the goal California 90 More than the goal Illinois 90 More than the goal Iowa 90 More than the goal Kansas 90 More than the goal Louisiana 90 Same as the goal Montana 90 Less than the goal Washington 90 More than the goal Oregon 120 More than the goal Georgia 180 More than the goal Minnesota 180 More than the goal South Dakota 200 More than the goal Substantial Completion to Final Payment to Contractor Texas 150 More than the goal Ohio 180 Same as the goal Indiana 180 Less than the goal Utah 150 Less than the goal Acceptance to Financial Closeout Arkansas 270 More than the goal South Carolina 270 More than the goal Florida 275 Less than the goal Colorado 365 Less than the goal Nebraska 600 Less than the goal Substantial Completion to Financial Closeout Alaska 365 Less than the goal Maine 365 Same as the goal Nevada 365 More than the goal Pennsylvania 365 Less than the goal Wyoming 365 Less than the goal Vermont 380 More than the goal New Jersey 420 More than the goal Hawaii 545 More than the goal New Hampshire 720 Less than the goal Michigan 1,095 Same as the goal Wisconsin 1,275 Same as the goal Table 10. Project closeout duration and goals for state DOTs. When Planning for Closeout Begins Number of state DOTs with a project closeout duration: Less than the goal Same as the goal More than the goal Before mobilization 1 1 2 0% to 20% complete 1 1 3 21% to 40% complete 0 0 0 41% to 60% complete 1 0 1 61% to 80% complete 0 0 0 81% to 100% complete 7 3 11 Table 11. State DOTs measuring the goal versus actual average project closeout duration (n = 32).

Current Practices in Closing Out Highway Construction Projects 29   Also, the actual duration information provided is the same, as state DOTs tend to calculate their project closeout duration performance measure for all projects and do not separate them by delivery method. The survey questionnaire inquired about how state DOTs set their project closeout dura- tion goals. As shown in Figure 9, 22 state DOTs (55% of responses) noted using experience to set the goal for project closeout duration. Forty-eight percent of the state DOT responses also mentioned internal analysis. The Georgia DOT noted in their response that an internal analysis conducted examined their project closeout process from semi-final inspection through final payment and implemented process improvements regarding materials certifications and internal financial audits, which has helped to reduce their project closeout duration. Both the Rhode Island and Connecticut DOTs mentioned using negotiations with the FHWA for their project closeout duration goals. The North Dakota DOT said that their goal is to close out all completed work before the next construction season begins. The Alaska, Connecticut, and Nevada DOTs all mentioned that they have recently performed analyses of their internal processes to help improve project closeout. State DOT DBB DB CMGC PPP Goal Actual Goal Actual Goal Actual Goal Actual Colorado 365 Less 365 Less 365 Less NA NA Georgia 180 More 180 Same NA NA 180 Same Indiana 180 Less 180 Less NA NA 180 Less Minnesota 180 More 180 More 180 More NA NA Nevada 365 More 365 More 365 More NA NA Texas 150 More 150 More NA NA 180 180 Utah 120 Less 120 Less 120 Less NA NA Vermont 380 More 380 More 380 More NA NA Washington 90 More 90 More NA NA NA NA NA = not applicable. Table 12. Project closeout durations in days used by state DOTs for alternative contracting methods. 0% 10% 20% 30% 40% 50% 60% Not Sure Research Policy/Legislation Internal Analysis Experience Figure 9. How project closeout duration goals were set at state DOTs.

30 Practices for Closing Out Highway Projects from Substantial Completion to Final Payment Documentation for Closeout Highway construction projects generate many documents, reports, and information that become critical for closing out a project, as the work has to be reviewed to ensure compliance to the contract documents as well as reviewing and verifying all payments. Without proper documentation, closeout is difficult to accomplish in a timely manner. From the survey ques- tionnaire, Table 13 outlines the common documents that are needed for DOT project closeout. Substantial completion/acceptance documents, final estimate, final payment application, change order documentation, and as-built drawings are all documents required by at least 90% of the responding state DOTs. Implications of Not Closing Out a Project Figure 10 lists the repercussions that DOTs experience when the closing of a project is not completed in a prompt manner. Nineteen state DOTs (48% of responses) said that when timely project closeout does not occur, the DOT has difficulty allocating resources to other projects or tasks. Employees, materials, and equipment are tied up with a project longer than anticipated, which means that these resources are unable to work on other responsibilities until the project is officially closed. Other responses include the additional costs to the DOT, which is a result of resources being involved with projects longer and potentially the interest that a DOT pays on any payments not made promptly. The Ohio and Pennsylvania DOTs noted in their responses that when projects take a long time to close, they are unable to release associated funds for use on other projects. The Colorado and Texas DOTs mentioned that projects that are delayed in closing out may end up on the FHWA inactive list and eventually lead to de-obligation of funds to that project by the FHWA. Processes and Tools for Project Closeout Each DOT that responded to the survey questions was to provide success factors of project closeout that positively impact the closeout process (see Figure 11). The most responses were towards cooperation between the DOT and contractor, in which 34 state DOTs (85% of responses) acknowledge that the better the relationship is with the contractor, (e.g., collabo- rating, no claims on the project, prompt reception of documents), the more efficient the project closeout is and the less time it takes to accomplish. State DOTs also mentioned in 80% of the responses (32 responses) having experienced and trained DOT staff handling project closeout as well as project closeout experiences with fewer delays and mistakes or errors, since the staff performing the work had the experience and training to do so in an efficient and timely manner. In addition, nine state DOTs acknowledged that they use specific project closeout incentives/ disincentives. The Iowa and Minnesota DOTs mentioned that they withhold payments from contractors until all required work is completed and proper documentation is submitted. The state DOTs were asked to provide information on the technologies that they use related to the project closeout process. Figure  12 shows that 26 state DOTs (65% of responses) noted using internal project management software applications for conducting construction and financial closeout. Also, e-Construction was mentioned in 50% of the responses, with AASHTOWare pavement design products mentioned by 17 state DOTs (43% of responses). The use of unmanned aircraft vehicles (UAVs), RTK devices, radio frequency identification (RFID), and building information modeling (BIM) is limited for project closeout, and the Minnesota DOT said in its response that it is just beginning to explore the use of BIM for closeout purposes.

Current Practices in Closing Out Highway Construction Projects 31   Su bs ta nt ia l c om pl et io n/ fi na l ac ce pt an ce F in al e st im at e F in al p ay m en t ap pl ic at io n A pp ro ve d an d co m pl et ed c ha ng e or de rs A s- bu ilt d ra w in gs M at er ia l c er ti fi ca ti on s M at er ia l t es t re po rt s O pe ra ti on s an d m ai nt en an ce m an ua ls C er ti fi ca te o f co m pl ia nc e F in al in sp ec ti on r ep or t C om pl et ed p un ch li st r ep or t D B E r ep or ts F in an ci al in fo rm at io n fo r fi na l pa ym en t R ig ht -o f- w ay m ap s/ ce rt if ic at io ns Alaska Arkansas California Colorado Connecticut Delaware Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Louisiana Maine Michigan Minnesota Mississippi Montana Nebraska Nevada New Hampshire New Jersey North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Washington Wisconsin Wyoming Total Count 40 40 38 37 36 34 32 30 27 27 25 23 15 10 Frequency 100% 100% 95% 93% 90% 85% 80% 75% 68% 68% 63% 58% 38% 25% Table 13. Project documents for closing out state DOT highway projects.

32 Practices for Closing Out Highway Projects from Substantial Completion to Final Payment 0% 10% 20% 30% 40% 50% Results in claims/litigation Lack of proper archiving of documents Traveling public thinks highway projects are never finished Financial burden placed on the general contractor Reduces number of projects DOT can complete annually Negatively impacts the DOT-Contractor relationship Additional costs to the DOT Difficulty allocating DOT resources to subsequent projects Figure 10. Implications for not closing out projects. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Using consultants Awarding Contractors with DOT experience Using contractual incentives Using e-Construction and other technologies Using performance measures No claims / litigation occurring Clear project closeout contract terms Cooperation between DOT and FHWA DOT training of staff for project closeout Experienced DOT project closeout staff available Cooperation between DOT and Contractor Figure 11. Success factors for closing out highway projects.

Current Practices in Closing Out Highway Construction Projects 33   The 20 state DOTs that noted using e-Construction during project closeout were asked to provide information on how e-Construction is used for project closeout. Figure 13 shows three aspects of e-Construction: information and document sharing, electronic document review, and electronic signatures. Of the 20 state DOTs, all said that they are using e-Construction to share project information, including project closeout. Another 16 state DOTs noted using e-Construction to review documents, and 14 state DOTs noted using electronic signatures to sign off on project closeout documents, eliminating the need for paper-based signatures. The responding state DOTs provided information on lessons learned for their DOT project closeout processes, the tools they use, and how they measure project closeout performance. Table 14 summarizes the responses. Overall, many DOTs noted that project closeout should be emphasized early and often throughout construction, the use of a formal and electronic close- out process is more efficient, and communication among the project team about the project and project closeout is key to timely and successful project closeout. 0% 10% 20% 30% 40% 50% 60% 70% Building Information Modeling Radio frequency identification Real time kinematic devices Unmanned aircraft vehicles AASHTOWare products e-Construction Internal PM/Closeout application Figure 12. Technologies used by state DOTs specifically for project closeout. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Electronic Signatures Electronic review of closeout documents Electronic document sharing Figure 13. How state DOTs use e-Construction for project closeout.

34 Practices for Closing Out Highway Projects from Substantial Completion to Final Payment Factors that Delay Project Closeout To find the current items that impact project closeout negatively and cause project closeout delays, state DOT responses included factors that are barriers to completing project closeout in a timely manner, as shown in Figure 14. The top two responses mentioned by 32 of the state DOTs (80% of the responses) included difficulty in receiving required closeout documentation and dealing with open claims or litigation between the DOT and the contractor. These two represent common delays to project closeout, documentation issues, and the people associated with the project team. Disputes and claims can be expensive and can cause even longer delays in closing out a project (Parker et al. 2005). Project closeout requires many documents of information and data that DOT staff review and accept before a project can be officially closed out. However, as the Connecticut DOT mentioned, backlogs of audits and incomplete and inaccurate documents along with missing required docu- ments slows down the closeout process. State DOTs also provided responses regarding specific documents, such as missing testing information (48% of the responses), missing certifications State DOT Lessons and Tools California Close out projects in a timely manner to avoid the risk of losing funding and emphasize the closeout process. Colorado Collect documentation throughout the construction phase rather than collecting it at the end. Florida Establish communication between the project stakeholders, as it is a key factor for timely closeout. Idaho Maintain a focus on finishing projects in a timely manner rather than moving resources in striving to do more. Indiana Use an electronic-based process to create project closeout efficiency. Kansas Establish milestones that trigger specific actions as the project progresses toward completion. Louisiana Keep up with documentation as the project progresses to have a smooth closeout process. Maine Measure the project closeout process by setting and tracking milestones. Michigan Communicate with the FHWA as the end date of a project approaches. Minnesota Prioritize closeout and use time frames for the closeout process. Nevada Establish communication between internal DOT divisions to ensure a timely closeout process. New Hampshire Develop and follow standard operating procedures from project development to project closeout. New Jersey Use of electronic forms expedites communication and the closeout processing time. North Dakota Work on project closeout throughout the construction phase. Ohio Establish a closeout process that starts at the end of construction and finishes with financial closeout. Oregon Develop a proactive approach by dealing with items as they occur rather than at the end. Pennsylvania Conduct field audits as the job progresses. Rhode Island Form closeout committees and conduct periodic meetings to review projects ending within a year. Utah Begin the closeout process as early as possible. Wyoming Establish communication between project stakeholders to obtain information in a timely manner. Table 14. Lessons learned for project closeout processes and tools used by state DOTs.

Current Practices in Closing Out Highway Construction Projects 35   (45% of the responses), delayed billing from vendors (33% of the responses), missing inspec- tion reports (20% of the responses), migrating from paper-based documents to electronic files (13% of the responses), and insufficient as-built drawings (10% of the responses). The other major component to project closeout delays are the people involved. Limited DOT staff availability (73% of the responses), limited staff with project closeout experience (48% of the responses), external stakeholders delaying the process (35% of the responses), limited cooperation between the DOT and contractor (30% of the responses), changes in contractor personnel (25% of the responses), and limited cooperation between the DOT and FHWA (3% of the responses) are all factors that delay project closeout that are related to the project team and the stake- holders involved. Chapter Summary Chapter 3 documents the current practices for closing out highway construction projects based on 40 state DOT responses to a national survey. Based on the responses given by the state DOTs, the following summarizes project closeout duration, documentation for project closeout, the implication of not closing out projects, processes and tools used for project closeout, and the factors that delay project closeout. • State DOTs set goals for the duration that it should take to close out a project. DOTs use milestones and performance measures to track project closeout duration, which helps improve the efficiency and timeliness in closing out projects. • Project closeout requires many different documents that contain project information and data that are reviewed and approved for project closeout to proceed. The accuracy and completeness of project closeout documents impacts the promptness of project closeout. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Limited cooperation between DOT and FHWA Did not establish project closeout milestones Insufficient as-built drawings Migrating paper documents to electronic files Missing inspection reports Changes in contractor project personnel Limited cooperation between DOT and contractor Delayed billing from third-party vendors External stakeholders delaying the closeout process Punchlist taking too long to complete Missing certifications Limited DOT staff with project closeout experience Missing material testing reports/results Limited DOT staff availability Changes in DOT project personnel Claims/litigation between DOT and contractor Difficulty receiving required closeout documents Figure 14. Factors that delay closing out highway projects.

36 Practices for Closing Out Highway Projects from Substantial Completion to Final Payment • State DOTs recognize that when projects are not closed out properly and in a timely manner, they are unable to use resources on other projects or responsibilities, and they run the risk that funding sources will de-obligate funds for a project. • The processes and tools used by state DOTs to close out projects vary, but commonalities found include the importance of beginning the closeout process as soon as possible, auditing and documenting for project closeout as the project progresses, openly communicating and understanding the importance of project closeout, stakeholders cooperating and working as a team, and the use of electronic closeout processes making it more efficient. • The primary factors that state DOTs mentioned that delay project closeout are documenta- tion and the project team working together. Many issues associated with project closeout delays involved the lack of or incomplete and inaccurate documents and the inability of stakeholders to perform their closeout responsibilities in a timely fashion.

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Although project closeout only entails a small portion of actual construction work, closing out highway construction projects for state departments of transportation (DOTs) is a complex and vital process that is a part of project delivery for highway construction projects.

The TRB National Cooperative Highway Research Program's NCHRP Synthesis 570: Practices for Closing Out Highway Projects from Substantial Completion to Final Payment compiles and documents information regarding the current state of the practice for closing out highway projects from substantial completion to final payment.

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