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NICMAR
PAPER
ON
INNOVATIVE CONTRACTING
TECHNIQUES IN HIGHWAY SECTOR
PREPARED BY
SAMBA SIVA RAO.P
PGD ACM 22nd Batch
2008 – 2010
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INNOVATIVE CONTRACTING TECHNIQUES IN HIGHWAY SECTOR
DECLARATION
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CERTIFICATE
Rao.P (221131), in the partial fulfillment of the academic requirements for the award
Date:
Guide
Counter Signed by
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ACKNOWLEDGEMENT
I express sincere and heartfelt thanks to Dr. M.G. Korgaonker, Director General,
NICMAR, Pune ,Prof. Ajit Patwardhan, Dean, SOCM, NICMAR, Pune and Dr.
Anil Agarwal,Head-PGPACM,SOCM,NICMAR,Pune for giving us an opportunity to
undertake this research subject for study.
I also thank the Librarians of NICMAR, Pune for giving us access to the valuable
facility.
ACM-22nd Batch
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EXECUTIVE SUMMARY
1) A+B BIDDING:
To date, in USA 125 projects have used A+B bidding. The projects ranged from small
pavement rehabilitation projects to major reconstruction and expansion projects. The
size of the projects ranged from $.600, 000 to $.15.6 million, with a total let amount
of $.93.8 for the 15 projects. Approximately $.671, 300 has been paid in incentives.
Comments:
• Considering Indian Contracting system, A+B has been an effective tool for
reducing contract time. Contractors are bidding (on average) 15% fewer days
compared to the maximum allotted time by NHAI.
• The use of incentives has been an effective method for further reducing
contract time. On average, a contractor completes the project 17% faster than
the original bid time if an incentive is included in the contract. This compares
to 6% for non-incentive contracts.
• A+B bidding does not appear to greatly increase the bid cost of the project. On
100 of the 125 projects, the low bid was under the engineer’s estimate. The
other 25 projects were 1, 3, 5 and 8% over the Engineer’s Estimate.
• Contractors are using additional crews, longer hours and resources to complete
the work faster than normal projects. This pace has strained NHAI staffing and
fatigued contractor staff, which has the potential to decrease quality and
jeopardize safety.
• It appears that this method of bidding is requiring the contractor to look more
closely at the constructability of the project during the bidding process.
• The ‘B’ portion of the process has not changed the bid outcome, meaning the
contractor with the lowest ‘A” portion has been awarded the bid even if he did
not have the lowest number of bid days.
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Recommendations:
2) INCENTIVES/LIQUIDATED SAVINGS:
Comments:
Recommendations:
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3) LANE RENTALS:
Comments:
• Without good specifications and enforcement, the use of lane closures may
decrease safety.
• Awarding incentives for early completion also helped reduce lane closure
impacts.
• Some field personnel believe that lane rentals may also decrease quality of
work. Contractors will work more night hours when lane rental times are
typically lower.
Recommendations:
• Develop guidelines for using lane rentals on NHAI and local projects.
Pay for Performance is used measure the final performance of an item compared to
performance criteria established in the contract. Unlike traditional specifications
where the owner assumes the risk if the contractor is in compliance with the
specification but the final outcome is not acceptable, pay for Performance requires the
contractor to correct any deficiencies.
Comments:
Pay for Performance may be an effective tool to improve quality, but there is not
enough data at this time to evaluate its effectiveness.
Recommendations:
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• Monitor the Pay for Performance pavement marking items in all the Highway
Projects which are executing in India.
• Identify additional items and projects where Pay for Performance can be used.
5) WARRANTIES:
The goal of instituting warranties on projects is to improve the quality and durability
of products by allowing a longer timeframe to accept work constructed by contractors.
This process is also aimed to encourage contractors to improve their construction
techniques and use better equipment to meet the warranty requirements. With
warranties, there is potential to decrease the level of inspection required by NHAI.
Comments:
• Except for two projects (both design-build and design-bid-build), projects with
warranties have not experienced any significant issues since construction.
• There are no trends to suggest that contractors are bidding higher bituminous
unit costs on warranty bid items compared to non-warranty bid items.
Contractors are likely including potential corrective actions costs within the
mobilization item.
Recommendations:
• Continue to monitor the 2-5 year warranties on the design-build and design-
bid-build projects currently in effect in USA and then apply to Indian
Highways.
• Continue to monitor the effectiveness of short term (2-5 year) and long term
(20-year) bituminous warranties in other countries.
• Gather input from the industry on the use of warranties, including bonding and
contractual issues.
6) DESIGN-BUILD:
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Comments:
Recommendations:
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INDEX
Declaration
Certificate
Acknowledgement
Executive Summary………………………………………………………...01
Acronyms List………………………………………………………………14
CHAPTER 1: INTRODUCTION…………………………………………15
1.1: Introduction……………………………….............................................15
1.2: Background.............................................................................................16
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2.5: Warranties………………………….......................................................28
2.5.1: Description
2.5.2: Benefits
2.5.3: Drawbacks
2.5.4: Project Selection
2.5.5: Warranty Period
2.5.6: Warranty Enforcement
2.5.7: Warranty Dates
2.5.8: Warranty Criteria
2.5.9: Warranty Specifications
2.5.10: Contract Administration Considerations
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2.6.3: Drawbacks
2.6.4: Project Selection
2.6.5: Liquidated Savings Amounts
2.6.6: Special Provisions
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TECHNIQUES IN USA……………………
…………………………………………………….40
4.1.6.5: Incentives
4.1.7: Comments…………………………………………………….42
4.1.8 Recommendations / Next steps…………………………….....43
4.2.4: Comments…………………………………………………....43
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4.3.7: Comments……………………………………………….…..45
4.3.8: Recommendations………………………………….……….46
4.4.4: Drawbacks…………………………………………..………46
4.4.5: Comments………………………………………………..….46
4.4.6: Recommendations…………………………………………...47
4.5 Warranties……………………………………………………………....47
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4.5.6: Comments……………………………………………….…...48
4.5.7: Recommendations…………………………………………...49
4.7 States Which Are Used Innovative Contracting Techniques in USA ………50
TECHNIQUES IN UK........................................................54
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REFERENCES……………………………………………………….……61
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LIST OF TABLES
LIST OF FIGURES
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ACRONYM LIST
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CHAPTER-01
INTRODUCTION
1.1 INTRODUCTION:
The highway sector is perhaps the most conservative segment of the construction
industry. Although highway contractors have implemented many new construction
technologies, owner-contracting methods until recently have remained the same.
NHAI have traditionally awarded highway projects to the lowest bidders after the
design was completed and approved. This design-bid-build approach while providing
a level playing ground for contractors has its limitations. For example, focusing on
low bids sometimes leaves too little emphasis on product quality and time, factors that
affect long-term performance of the system. The approach is slow and does not favor
a life cycle cost approach to projects.
In traditional highway construction contracting, cost is generally the one criterion that
determines a winning bid. But in recent years, all the highway agencies around the
globe strive to meet customer needs, factors other than cost have also emerged as
important: quality, delivery time, social and economic impact, safety, public
perceptions, life-cycle costs, and use of improved technologies. So a new approach in
contracting system came into existing.
The main thrust of these approaches is to minimize construction time and cost,
improve quality by either providing specifications for quality control and inspection
or warranties, and most importantly, transfer some risk from the public agency to the
contractor. Contractors have been hesitant to assume this risk in a traditional
contracting setting in which the client gives the contractor detailed specifications
about method and materials. Performance-based specifications address the issues of
risk transfer and contractor liability in highway construction contracts. In such
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contracts the client specifies the criteria for performance while providing the
contractors with more freedom and responsibility to meet the criteria.
1.2 BACKGROUND:
The genesis for the FHWA's SEP-14(began in 1988, with the establishment of a
Transportation Research Board (TRB) task force to evaluate Innovative Contracting
Practices. The task force consisted of 23 representatives from State highway agencies
in U.S.A, all segments of the industry, and others.
• Assess how current practices affect quality, progress, and cost; and
• Bidding procedures
• Materials control
• Quality considerations
• Insurance and surety issues.
Recommendations were made by TRB for each of the four major topic areas. Some
of the more significant recommendations included:
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Several "project specific" innovative contracting techniques are currently being used
and evaluated by a number of highway agencies round the world. These include:
• Cost-plus-time bidding
• Lane rental
• Incentive / Disincentive Projects
• Design-build contracting
• Warranty clauses.
Other than this there are other methods/techniques in Innovative Contracting like No
Excuse Bonus, Liquidated Savings, CPM Schedules, and Pay for Performance.
But the techniques/methods listed above are having good scope compared to these
methods/techniques.
Initially, various concerns on the part of some members of the highway industry round
the world prompted FHWA to proceed cautiously in allowing countries to experiment
with the Design-build concept. However, in recent years, FHWA has witnessed an
increased interest from the countries like Australia, Canada, Canada, England,
Estonia, and USA in the design-build concept. As a result of this interest, FHWA
continues to allow the use of the design-build concept on an experimental basis. Other
innovative contracting techniques have also been used by a select number of countries
like Finland, The Netherlands, New Zealand, Norway, and Sweden.
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CHAPTER-02
INNOVATIVE CONTRACTING TECHNIQUES
2.1.1 Description:
The number of ‘B’ days is multiplied by the road user cost furnished by the owner and
added to the ‘A’ component to obtain the total bid.
This formula only determines the lowest bid for award, not the payment to the
contractor.
2.1.2 Benefits:
2.1.3 Drawbacks:
1) Contract changes are magnified; too many changes nullify the advantages of A+B.
2) Acceleration techniques may require more resources for contract administration.
3) More hours and over-time budget required from contractor.
4) Negotiations for additional work are more intense since time being a bigger issue.
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a) Good Candidates:
b) Poor Candidates:
a) Right Of Way:
1) Will all right-of-way be secured prior to letting date?
2) If not do the staging plans allow the contractor to sequence work around the
conflicts and is a right-of-way time determination schedule in the special
provisions?
b) Plans:
1) Is there high confidence in the design?
2) Has a thorough field review been conducted?
3) Has design coordinated with construction at various stages (e.g. 30%, 90%)?
4) Has a constructability and bid-ability review been conducted by design and
construction?
c) Utilities:
1) There is little or no chance that utilities will significantly delay the contractor.
2) Are utility conflicts clearly identified in the plan and special provisions?
d) Third-party agreements:
1) Will all permits be secured by the letting date?
2) Will all municipal agreements be secured by the letting date?
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e) Program Impacts:
Have you considered the district wide impacts of using an accelerated schedule? Have
you considered the potential cost and delivery to other projects?
f) Soil Conditions:
There is little risk of contaminated or poor soils adding significant extra work.
g) Traffic Conditions:
Do construction traffic impacts relate to any of the following conditions?
· Lengthy detours (A roundabout roads)
· Significant delays to motorists
· Significant impacts to businesses, schools, or emergency services
h) Staffing considerations:
1) Do you have the staff available if the contractor has an aggressive schedule?
2) Do you have the budget for any additional overtime?
If the answer is YES to most of the above questions, the project may be suitable for
A+B. If you answered NO to some of the questions, your project may still be a good
candidate for A+B, but give careful consideration to the items with a NO response.
A+ B techniques can be applied to many aspects of a project. Determine how you can
best use A+B on your project.
Example:
RUC calculated by NHAI = Rs.75, 000 per day
Bidder #1: Rs.1, 000,000 at 50 Days (A+B = Rs.4, 750,000)
Bidder #2: Rs. 1,500,000 at 40 Days (A+B = Rs.4, 500,000) – Awarded Contract
Question: Are you willing to spend an extra 50 percent to complete the project 10
days early? Adjusting the RUC may minimize this effect.
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Note: If you calculate an overly aggressive schedule, you might not see a significant
reduction in the days bid, or you may see an increase in the Rs. portion.
a) Incentives (Optional):
b) Disincentives:
Note: Assess the feasibility of assessing a disincentive with a high value. The
disincentive can be a different amount than the RUC to determine the bid.
2) Inform the design squad so that contract time can be added as a bid item.
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6) Minor work orders, supplemental agreements and change orders need to be address
contract time extensions/reductions.
7) Work with the contractor to revise the schedule if plan additions occur Consider
safety impacts to the roadway user, contractor personnel and NHAI staff during
construction.
8) Consider impact to clear zones during construction, drop-off requirements, and
lane-closure requirements.
2.2.1 Description:
Lane-rental fees are based on the estimated cost of delay or inconvenience to the road-
user during the rental period. The fee is assessed for the time that the contractor
occupies or obstructs part of the roadway, and is deducted from the monthly progress
payments.
Lane Rental should NOT be used to reduce overall contract time but to focus on the
time that roadways users are impacted by construction traffic.
2.2.2 Benefits:
2.2.3 Drawbacks:
Safety needs to be addressed with every lane-rental project. Plans and specifications
should identify cases when lane closures (clear-zones, drop-offs) will be required to
reduce the chance that contractors will take safety risks to reduce lane-rental charges.
On a lane-rental project, the contractor bids a lump-sum amount for lane rental. NHAI
specifies lane rental rates and the contractor estimates the number of hours in each
lane-rental category.
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Lane-rental use is tracked by the project personnel as the project progresses. At the
end of the project, contractors receive either an incentive or disincentive as
determined below:
a) Incentive –An incentive is usually paid for the difference between the lump-sum
bid amount and actual lane-rental use. The incentive encourages
contractors to reduce traffic impacts during construction.
Lane rental should be used on projects with significant impacts to motorists. Here are
general guidelines for using lane-rental.
a) Good Candidates:
b) Poor Candidates:
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a) Contractor Bidding:
Can the contractor accurately predict the duration of activities that will impact a lane?
b) Third-Party Agreements:
There are little or no utility or third-party impacts that can delay aspects of the
project relative to lane-rental?
c) Traffic Considerations:
Traffic restrictions or lane closures with no or limited alternate routes that result in a
high user cost.
Or
Opportunities exist to reduce closure times (e.g. staging or construction of temporary
work that will impact traffic).
Or
User fees are substantial enough to offset the potential cost increase.
d) Safety:
The plan and/or special provisions can accurately insure that the safety of the
construction operations will not be jeopardized by using lane-rental.
e) Design Uncertainties:
Confidence that plan additions and significant overruns that may impact lane closure
times have been minimized
If the answer is YES to most of the above questions, the project may be suitable for
lane rental. If you answered NO to some of the questions, your project may still be a
good candidate for lane rental, but give careful consideration to the items with a NO
response.
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* Lane rentals may be allowed in peak hours where traffic levels are low.
Estimate the hours that a typical contractor will bid. Provide this number to NHAI’s
estimate unit for inclusion in the Engineer’s Estimate.
1) Consider using a Critical Path Method (CPM) Schedule to help administer contract
time.
2) Prepare staff for monitoring the lane-rental schedule.
3) Review the requirements with the contractor at the pre-construction meeting.
4) Work with the contractor to revise the schedule if plan additions occur.
5) Consider safety impacts to the roadway user, contractor personnel and NHAI staff
during construction. Consider impact to clear zones during construction, drop-off
requirements, and lane closure requirements.
2.3.1 Description:
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2.3.2 Benefits:
2.3.3 Drawbacks:
a) Good Candidates:
· Projects with high road-user or business impacts
o Urban reconstruction projects
o Bridge replacement projects
o Detour projects
o Urban pavement rehabilitation projects (if confident with quantities)
o Interstate (high volume) projects with major traffic impacts
· A+B projects
· Bridge rehabilitation projects
· Projects with commitments to open a roadway as quickly as possible.
b) Poor Candidates:
· New construction projects with minimal impacts to road users
· Projects where right-of-way or utilities are not clearly identified
· Traffic Management System (TMC)
· Steel fabrication (minimal benefit to public)
· Landscaping (minimal disruption to traffic)
a) Linear –Contractor receives the same daily amount regardless of the number of
days completed, early or late.
b) Non-Linear (Escalating) – The earlier a job is completed, the greater the daily
amount paid to the contractor.
Escalating Example:
• For each day that all work under this contract is completed before August 1,
2006, the contractor will obtain an incentive in accordance with the following
schedule:
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• If incentives are not sufficient to cover the contractor’s cost for the extra
effort, there is little motivation for the contractor to accelerate production.
• Maximum incentive should not exceed 5 percent of the total contract amount.
2.4 DESIGN-BUILD:
2.4.1 Description:
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2.4.2 Benefits:
2.4.3 Drawbacks:
Good Candidates:
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2.5 WARRANTIES:
2.5.1 Description
2.5.2 Benefits:
a) Quality and durability of selected work items guaranteed for a specific time
b) Longer timeframe for acceptance means agency can ensure contractor is
performing high-quality work.
c) Decreased inspection level on warranty projects allows states to allocate resources
elsewhere
2.5.3 Drawbacks:
a) Owner must ensure that warranty guidelines are reasonable and enforceable
b) Warranty may not be collectable if guidelines are too restrictive or place undue
burden on contractor
c) Requires additional staffing to monitor the warranty after construction
Warranties can be used on a variety of different construction items. Listed below are a
few items that are good candidates for warranties.
Warranty Candidates:
• Bituminous
• Grading (settlement)
• Culvert (settlement)
• Route and seal
• Concrete pavement
2.5.5 Warranty Period:
a) The length of the warranty period can vary on each project and warranty item.
b) The longer a warranty, the more difficult to enforce.
• Recommended warranty length is to 2-3 years.
• Maximum warranty length: 5 years.
Monitoring the warranty is the responsibility of the State R&B and not NHAI’s
specialty offices such as the bituminous or concrete office. Specialty offices may
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assist with assessing the products during the warranty period, but the ultimate
responsibility is with the State R&B.
a) Establishing a clear date when the warranty begins is essential to enforcing the
warranty.
Example:
c) Vague terms such as “substantial completion” or “all work is completed” should
not be used in the contract. These are items that are open to interpretation and can
significantly change the FCA date.
Warranty threshold criteria must be established within the contract in order for the
warranty to be enforceable. In addition, NHAI may also want to indicate corrective
actions required if the threshold limits are exceeded.
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a) Establish a firm and clear date when the warranty period begins
b) Notify the contractor of the date that the warranty period begins.
c) Notify the Contract Administration Engineer prior to award to insure that the
warranty bond is submitted.
d) Notify NHAI maintenance of the warranty. This will preclude maintenance
from doing work that will void the warranty.
e) Identify a district person to monitor the work during the warranty period.
f) NHAI specialty offices will not monitor the work during the warranty period.
g) Review work periodically during the warranty period. Document deficiencies.
h) Notify Contract Administration Engineer if you need to invoke the warranty
bond during construction.
2.6.1 Description:
2.6.2 Benefits:
2.6.3 Drawbacks:
a) Good Candidates:
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b) Poor Candidates:
• Large construction projects – liquidated savings may be too small of an
incentive
• Projects with minimal traffic impacts
• Projects with minimal staffing concerns
2.7.1 Description:
2.7.2 Benefits:
2.7.3 Drawbacks:
• Increased cost. Any risk will result in increased bid prices by the contractor
and the clause could be subject to challenges by the contractor if disputes arise
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2.8 PAY-FOR-PERFORMANCE:
2.8.1 Description:
• Pay for Performance is a process where the contractor is paid for work on a
graduated scale based on the quality and longevity of the work over time. Pay-
for-performance specifications rely on final outcomes that can be measured
against performance criteria set forth in the contract. If the contractor fails to
meet minimum performance criteria, payment is withheld and corrective
action is required.
2.8.2 Benefits:
• Eliminates blame when there is a problem with the quality of a specific work
item
• Shifts the risk of providing a quality product to the contractor
• Provides higher quality products for a longer duration
2.8.3 Drawbacks:
Pay-for-Performance Example
Pavement markings – Measured reflectivity over time
2.9.1 Description:
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Critical Path Method (CPM) schedules are excellent tools for both the contractor and
NHAI to monitor contract time during a construction project. Unlike a traditional bar
chart schedule, CPM schedules use logic to link activities and define the critical path
and project duration.
2.9.2 Benefits:
2.9.3 Drawbacks:
CPM should be used on complex projects or projects with critical timelines. Due to
the level of experience required for both the contractor and NHAI, CPM schedules are
not recommended on lower cost, simpler projects, at this time.
Good Candidates:
Poor Candidates:
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For using Innovative Contracting techniques first of all we have to define project
objectives and then choose the Innovative contracting techniques which are effective
and efficient.
Project Complexity:
Availability of Funds:
Emergency Project, Timing of Funds, Local, State, National, Bonding, Toll Fees
Time Constraints:
Event, Emergency, Public Perception, Limited Resources
Product Quality:
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CHAPTER-3
HISTORICAL DEVELOPEMENT
3.1 MILIEU:
The genesis for the FHWA's SEP-14 began in 1988, with the establishment of a
Transportation Research Board (TRB) task force to evaluate Innovative Contracting
Practices. The task force consisted of 23 representatives from State highway
agencies, all segments of the industry, and others. Its mission was to:
• Assess how current practices affect quality, progress, and cost; and
• Bidding procedures;
• Materials control;
Recommendations were made by the task force for each of the four major topic areas.
Some of the more significant recommendations included:
NICMAR 41
INNOVATIVE CONTRACTING TECHNIQUES IN HIGHWAY SECTOR
Several "project specific" innovative contracting techniques are currently being used
and evaluated by a number of State highway agencies. These include:
• Cost-plus-time bidding,
• Lane rental,
• Warranty clauses.
After an evaluation period, FHWA approved cost-plus-time bidding, lane rental, and
warranty procedures as non-experimental contracting procedures. Initially, various
concerns on the part of some members of the highway industry prompted FHWA to
proceed cautiously in allowing countries to experiment with the Design-build concept.
However, in recent years, FHWA has witnessed an increased interest from the
countries in the design-build concept. As a result of this interest, FHWA continues to
allow the use of the design-build concept on an experimental basis. Other innovative
contracting techniques have also been used by a select number of countries
NICMAR 42
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FHWA currently has a contract with the Utah State University - Local Technology
Assistance Program (LTAP) to conduct a study on the best practices for certain
innovative contracting techniques. The LTAP center has developed a web page to
collect information from the states and share best practices. The LTAP center has
provided guidance concerning contracting technique applicability, criteria for project
selection, current use, and example special provisions. The site can be accessed at
the following address:
(http://www.utaht2.usu.edu/projects/innovativecontracting/ICSearchpage.html).
In April 1998, AASHTO, the highway industry and FHWA conducted a Symposium
on Innovative Contracting in Orlando Florida. The symposium provided a national
forum for highway industry representatives to express their opinions concerning the
advantages, limitations, and potential disadvantages of innovative contracting
techniques. The representatives at the conference debated the use of non-traditional
contracting techniques to achieve common goals and increase quality. Participants
discussed past successes and failures, present trends, and future directions for
innovative contracting. A summary of the Symposium presentations and individual
copies of presentations are available at the conference web site
(http://www.technautics.com/Orlando98/mins.htm).
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CHAPTER-4
CASE STUDIES: INNOVATIVE CONTRACTING TECHNIQUES
IN USA
This Chapter highlights how the innovative contracting techniques made Highway
projects efficient in all the countries of U.S
Since 2000, several DOT district have used A+B bidding. In total, fifteen (35) projects
have been let in five districts. Listed below is a summary of these projects and results
observed throughout the state Minnesota.
4.1.1 Purpose:
The purpose of A+B projects is to reduce impacts to the public (road user costs) by
selecting a contractor with the best combination of price and time. Each contractor
submits a bid consisting of two components:
a) “A” Component – Traditional bid for the contractor items and is the dollar amount
for all work to be performed under the contract
b) “B” Component – The contractors ‘bid” of total number of calendar days required
to complete the project The “B” Component is multiplied by the road user cost
furnished by the DOT and added to the “A” Component to obtain the total bid.
Projects selected for A+B bidding had major impacts to the traveling public. The
majority of projects were pavement rehabilitation projects.
NICMAR 44
INNOVATIVE CONTRACTING TECHNIQUES IN HIGHWAY SECTOR
On all fifteen (35) contracts, the contractor with the low bid ‘A’ Component was
awarded all of the contracts. On five contracts, the contractor awarded the project also
had the lowest bid number of days.
DOT specified in the special provisions the maximum number of days the contractor
would be allowed to complete the work. It was anticipated that the contractors would
bid less than this in order to obtain the bid. Listed below are some average statistics:
• 15% Time Savings – Low Bid days versus DOT max in the Special Provision.
• 11% Additional Time Savings – Actual construction time versus bid days +
extensions
a) 17% Time Savings on projects with incentives
b) 6% Time Savings on projects without incentives
Note: The project involving the claim is not used in the analysis below due to
complications with contract time involved with the claim.
The following bullets are general statistics regarding the use of incentives on A+B
Projects.
• 10 of the 35 projects allowed for incentives.
• Incentives ranged from $3,100/Day to $10,000/Day
The FHWA report also recommends that the cap be substantial enough to encourage
the contractor to increase productivity to meet the project schedule. All of the projects
had incentives within the FHWA guidelines. Project No. 2738-20 was a project with a
relatively low dollar amount ($601,000), but had major traffic impacts. The project
required reducing traffic to a single lane over the Crow River where the AADT
exceeded 70,000. In this case, increasing the maximum incentive above 5% was
justified by the decrease in roadway user impacts.
NICMAR 45
INNOVATIVE CONTRACTING TECHNIQUES IN HIGHWAY SECTOR
Overall, the engineers agreed that the A+B process is a great tool for using on projects
with anticipated high road user delays. Many engineers felt that this process could be
applied to a wide variety of projects and not necessarily rehabilitation projects.
Some engineers felt that A+B should not be used in the following areas:
• High potential for poor soil overruns
• Poor design plans where negotiating additional time may become an issue
• Utility conflicts or relocations may impact schedule
• DOT staffing limitations could jeopardize safety and quality of work
Most of the contractors approached the A+B projects with additional crews and longer
hours in order to meet the completion deadlines and/or obtain the incentives.
In some cases, aggressive schedules often placed a heavy burden on DOT staffing
during these projects. In some districts, the contractors’ aggressive schedules placed a
heavy burden on staff to keep up with the number of crews and long work hours.
Some engineers felt that the aggressive schedule created long work hours that may
have influenced the quality of work for both the contractor and DOT staff. The
aggressive schedule and fatigue of crews may have compromised safety for both
workers and motorists within the construction zone.
4.1.6.5 Incentives:
4.1.7 Comments:
• Engineers felt that the A+B process was a good tool for projects with high
anticipated roadway user cost delays.
• A+B bidding does not appear to greatly increase the bid cost of the project.
The engineers estimate is generally falling between the low and high bids.
• A+B has been an effective tool for reducing contract time. Contractors are
bidding on average 15% fewer days compared to the maximum allotted time
by DOT.
• The use of incentives has been an effective method for further reducing
contract time. On average, a contractor completes the project 17% faster than
NICMAR 46
INNOVATIVE CONTRACTING TECHNIQUES IN HIGHWAY SECTOR
the original bid time if an incentive is included in the contract. This compares
to 6% for non-incentive contracts.
• Contractors are using additional crews, longer hours and resources to complete
the work faster than normal projects. This pace has strained DOT staffing and
fatigued contractor staff, which has the potential to decrease quality and
jeopardize safety.
• It appears that this method of bidding is forcing the contractor to look more
closely at the constructability of the project during the bidding process.
• The ‘B’ portion of the process has not changed the bid outcome, meaning the
contractor with the lowest ‘A” portion has been awarded the bid even if he did
not have the lowest number of bid days.
4.2.1 Purpose:
To expedite construction timelines, DOT has offered incentives and liquidated savings
on several projects throughout the state. DOT has recently incorporated the use of
incentive/disincentives on several roadway projects to expedite construction
timelines.
Two projects implemented Liquidated Savings, a concept in which the contractor can
obtain an incentive equal to the amount of DOT’s contract administration fees for
early completion.
The project Types are Daily Incentive, Liquidated Savings, Intermediate Incentive
On four projects, the low bid came in under the engineers estimate. The other projects
were 5% and 8% over the engineers estimate. There is currently not enough data to
determine if contractors are adjusting their bids in anticipation of obtaining the
incentive to offset costs.
4.2.4 Comments:
4.2.5 Recommendations:
4.3.1 Purpose:
During the project, the fee is assessed for the time that the contractor occupies or
obstructs part of the roadway and is deducted from the monthly payments. If a
contractor exceeds the proposed time within their bid, they are assessed a penalty in
the amount of the rental fee rate. Often, the contractor is awarded an incentive for any
un-used hours of their bid.
The below ones are the type of projects will come under Lane Rental
Bit Mill And Overlay, Culverts, Signal , Grading, Bit Paving, Signals, Bridge ,
Bituminous Overlay , Bridge Painting , Bridge Painting, Bituminous Mill And
Surfacing
The lane rental concept has been applied using different methods on several of these
projects. Listed below are the types of applications that several districts have applied
to the lane rental concept.
• Reduce Impacts to Intersections
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INNOVATIVE CONTRACTING TECHNIQUES IN HIGHWAY SECTOR
The impact of safety needs to be addressed with all projects, especially on projects
with accelerated schedules. Contractor’s set-up lane closures not only to protect the
traveling public, but to protect the safety of their workers. There was some concern
regarding contractor taking more safety risks to reduce lane rental costs. This included
working at nights instead of the day and reducing buffers distances between operating
equipment/workers and the traveling public.
To combat the potential safety issues, DOT provided guidelines to the contractor on
when lane closures would be required. The plans included details on the distance and
height of drop-offs adjacent to traffic, backfilling requirements, and minimal work
zone safety areas required.
Similar to the comments received on the A+B projects; many field staff believed that
the lane rental concept may have reduced the quality of work. Lane rentals work was
often done at night when lower rental fees occurred. The increased rate of production
may have also compromised some quality of work. The extended work hours also
placed on strain on DOT and contractor personnel.
Many field personnel observed many benefits of using the lane rental tool:
• Contractors were faster at taking down lane closures
• Contractors were required to think more about reducing contract time during
the bidding process
• Inspectors saw a reduction in lane closures where no/minimal amount of work
was being done
• Incentives for limited lane rentals encouraged contractors to reduce lane
closure times.
Many field personnel also provided input on the difficulties of administering lane
rentals:
• In some cases, the extra work was occurring along with the normal
construction operations that made it difficult to assess if lane rental charges
should be invoked.
• On a moving operation, it was sometimes difficult to monitor the lane rental
impacts.
• Further guidance in specifications on turn lane closures needs to be addressed.
4.3.7 Comments:
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INNOVATIVE CONTRACTING TECHNIQUES IN HIGHWAY SECTOR
4.3.8 Recommendations:
• Develop guidelines for using lane rentals on DOT and local projects.
• Continue to monitor lane rental use on DOT projects.
4.4.1 Purpose:
Pay for Performance is used measure the final performance of an item compared to
performance criteria established in the contract. Unlike traditional specifications
where the owner assumes the risk if the contractor is in compliance with the
specification but the final outcome is not acceptable, pay for Performance requires the
contractor to correct any deficiencies.
4.4.2 Applications:
DOT has instituted the Pay for Performance specification on only one project,
design/build project in the Metro Division in the state of Minnesota. Pavement
striping performance will require a product’s retro-reflectivity and color to meet or
exceed established durability and quality standards, as specified by the warranted
values. The performance period is five years.
4.4.3 Benefits:
A level of risk is shifted from the owner to the Contractor. The contractor then reduces
his/her risk by providing a quality product that will last a longer duration.
NICMAR 50
INNOVATIVE CONTRACTING TECHNIQUES IN HIGHWAY SECTOR
4.4.4 Drawbacks:
The use of Pay for Performance often requires DOT to monitor the effectiveness of
the product over a longer period of time. This increases DOT’s monitoring costs. This
system may place a financial burden on the contractor if they have to finance a
portion of the work for the duration of the performance period.
4.4.5 Comments:
Pay for Performance may be an effective tool to improve quality, but there is not
enough data at this time to evaluate its effectiveness.
4.4.6 Recommendations:
• Monitor the Pay for Performance pavement marking items on the Highway
Projects.
• Identify additional items to apply Pay for Performance specifications.
• Identify projects to apply Pay for Performance items and specifications.
4.5 WARRANTIES:
4.5.1 Purpose:
The goal of instituting warranties on projects is to improve the quality and durability
of products by allowing a longer timeframe to accept work constructed by contractors.
This process is also aimed to encourage contractors to improve their construction
techniques and use better equipment to meet the warranty requirements. With
warranties, there is potential to decrease the level of inspection required by DOT.
Since the mid 1990’s, DOT has been working to incorporate warranties into roadway
and bridge construction projects. Since this time, DOT has developed specifications
and implemented pavement and other warranties on design-build and design-bid-build
projects.
• Warranty bonds generally were in the amount of 20% of the total bid amount
for the warranted bituminous pavement items
• DOT conducted pavement distress surveys to monitor the pavements
• The 2-year warranty period covered transverse and longitudinal cracking,
debonding, raveling, flushing, rutting and pop outs.
NICMAR 51
INNOVATIVE CONTRACTING TECHNIQUES IN HIGHWAY SECTOR
• Projects that had both warranty and non-warranty items with the same mix
design and,
• Non-warranty projects with similar bituminous bid items that were let within 3
months of the warranty projects in the same district.
There were no apparent trends in the data to suggest that the unit bid prices for
warranty items increased compared to non-warranty items. Please note that this
analysis did not account for constructability constraints, quantity differences and/or
truck hauling costs that differ between the projects.
Based on information provided by DOT Estimating Unit, contractors are likely
including costs to address warranty corrective actions within the mobilization item.
4.5.5 Lessons Learned:
• There does not appear to be any significant changes in the way bituminous
pavements are constructed with a 2-year warranty.
• Warranties require additional effort by the districts to monitor the performance
of items during the warranty period.
• There did not appear to be significant added value with 2-year bituminous
warranties.
NICMAR 52
INNOVATIVE CONTRACTING TECHNIQUES IN HIGHWAY SECTOR
4.5.6 Comments:
4.5.7 Recommendations:
• Continue to monitor the effectiveness of short term (2-5 year) and long term
(20-year) bituminous warranties in other countries.
• Continue to monitor the 2-5 year warranties on the design-build and design-
bid-build projects currently in effect in Minnesota.
• Develop additional threshold and corrective action guidelines for
implementation on future design-build and design-bid-build projects. The
guidelines should also clearly define when the warranty period begins.
• Gather input from the industry on the use of warranties, including bonding and
contractual issues.
In addition to the innovative contracting techniques stated above, DOT has in the past
used other techniques to decrease construction time and road user impacts. Listed
below are some additional alternatives:
Allows the contractor to pick the starting date of a project. This technique provides
the contractor more time to plan and schedule the use of equipment and manpower to
the start of construction. Scheduling problems that may delay contract time
completion are avoided. DOT currently uses this tool on certain projects.
On projects with multiple staging or methods for innovative construction, the use of
constructability reviews with members of the construction industry can be a valuable
NICMAR 53
INNOVATIVE CONTRACTING TECHNIQUES IN HIGHWAY SECTOR
tool. Constructability reviews are done at various times during the design. In a 1999
AASHTO study, countries that use constructability reviews have reported fewer
change orders, better plans, fewer claims, reduced contract time, reduced impacts to
motorists and better understanding of the project by construction personnel prior to
construction.
Under this procedure, DOT would select a design and Construction Management
(CM) consultant on the basis of qualifications, experience, fees and prices for the
target cost of construction.
During the preliminary design phase the construction manager provides input into the
project to help control cost and achieve the project objectives. At some point during
the design (typically 60-90% of completion), the owner and the CM negotiate a
Guarantee Maximum Price (GMP). The CM must complete the project within this
price.
The CM assumes all the risk by holding all of the sub-contracts. The Florida DOT
currently uses this procedure. The CM is selected based on Florida’s standard
consultant selection process.
Florida-US currently uses bid averaging to contractors to bid a true and reasonable
cost for a project. This method allows the contractor to bid what the actual project will
cost without “needing” to be the lowest bidder. Bid averaging is not used on federally
funded projects.
If 5 or More Bids are received, the Department excludes the high and low, then
averages the rest and selects contractor closest to the average. If 3 or 4 bids are
received, the Department averages all bids and selects contractor closest to the
average. If less Than 3 Bids are received, the Department rejects all bids and re-
advertises the project.
Similar to A+B, but the contractor also bids the number of warranty years. A
contractor is given a credit for every year that he bids on the warranty. Maryland and
Kentucky have used this method.
NICMAR 54
INNOVATIVE CONTRACTING TECHNIQUES IN HIGHWAY SECTOR
NICMAR 55
1 SEP-14 Other than SEP-14
State Cost- Lane W Desig Design-
Design- Design- Ot C Lane Warra Other
Plus- Rent arra n- Build-
Build- Build- he ost- Rental nty
Time al nty Build Warrant
Maintai Operate r Plus
INNOVATIVE CONTRACTING TECHNIQUES IN HIGHWAY SECTOR
(A+B n - -
) Maintai T
n ime
(
A+
B)
Alaba X X X
ma
Alask X X X
Arizo X X X X
na
Arkan X X X
sas
Califo X X X X X
rnia
Color X X X X X X
ado
Conn
ecticu
t
Dela X X X X
ware
Distri X X X X
ct of
Colu
mbia
Florid X X X X Bid
a Avera
ging,
Lump
Sum
Biddin
g, No
Excus
e
Bonus
Georg X X X X
ia
Hawa X X
ii
Idaho X
Illinoi X
s
India X X X X X X X
na
Iowa X X X
Kansa X
s
Kentu X X X Constr
cky uctabil
ity
Revie
w,
Syste
m
Integra
tor
Louis X X
iana
Main X X X X X X X
e
Maryl X X X X
and
Mass X
achus
etts
Michi X X X X X X X X ID/IQ
gan
Minn X X X
esota
Missi X X X
ssippi
NICMAR
Misso X X X X X Lfe56
uri Cycle
Cost,
Alt.
Pavem
ent
INNOVATIVE CONTRACTING TECHNIQUES IN HIGHWAY SECTOR
(Source: FHWA Initiatives to Encourage Quality through Innovative Contracting Practices, Special
Experimental Projects No. 14 – (SEP-14), October 23, 1998.)
CHAPTER-05
CASE STUDIES ON INNOVATIVE CONTRACTING
TECHNIQUES IN UK
Eaves Green Link Road, which was completed in November 2006, comprises of
1.5km of single carriageway road, with one major structure, running to the south west
of Chorley.
The contract for the construction of the scheme was a conventional contract, awarded
to Birse Civils Limited (BCL), on the basis of lowest price (£4.1m).However, the
construction works were notable for the working relationship developed between BCL
and the County Council, which contributed to the scheme opening 15 weeks early,
within budget, and with the adoption of innovative and sustainable engineering
solutions.
This was achieved through a partnership approach to the contract. Although the
contract did not contain any contractual requirement for partnering, BCL and the
County Council agreed that a partnering approach should be adopted. A Partnering
Workshop involving all BCL and County Council staff involved in the construction of
the scheme was held before work started on site. At this workshop, key objectives
NICMAR 57
INNOVATIVE CONTRACTING TECHNIQUES IN HIGHWAY SECTOR
essential for the success of the project were identified, along with key issues and
solutions, culminating in a Project Charter committed to by all staff.
This led to an environment of trust and openness, working as one team, with
improved co-ordination and planning, better management of Health and Safety,
increased innovation and better communication. The energies of both parties were
focused towards achieving a successful project.
BCL and the County Council shared the same site office accommodation and
administrative staff throughout the contract period.
In the spirit of partnering, throughout the construction period, BCL used their
expertise in construction techniques and materials to identify possible changes to the
works as designed, leading to financial, time and environmental benefits.
These included their proposal to treat the soft clay excavated from the site with lime
and cement stabilization, to render it suitable for re-use in the works. The 24,000
cubic meters of material involved would have been taken to landfill off site, and a
similar quantity of suitable material would have been imported for the new
construction. The cost saving of about £175k was shared equally between BCL and
the County Council. Further benefits included the removal of 6,000 wagon journeys
from the local roads, reduced carbon missions, preservation of natural resources and
avoiding using scarce landfill capacity.
Similarly, the County Council worked together with BCL, to review the original
design to achieve solutions to buildability problems and to maximize the use of
recycled materials in the works.
Work to assist and communicate with local residents, businesses and the large school
next to the site were also addressed proactively and jointly, including regular
‘surgeries’. The scheme recently received a Sliver Award through its high
performance in the national Considerate Constructors Scheme.
The Remade project is a 7 year NWDA funded scheme, set up with the objective of
reclaiming 334 hectares of derelict land on 46 sites, for ‘soft end’ uses, such as sports
facilities, play areas, recreation, safe routes for cycling and walking, and parks and
gardens.
It was considered that the best means of delivering these projects would be through a
framework contract with 3 contractors, rather than going out to tender for each works
contract individually.
The framework contract was advertised, and competed for, in accordance with the EU
procurement rules. The 50 contractors who responded were required to make a
NICMAR 58
INNOVATIVE CONTRACTING TECHNIQUES IN HIGHWAY SECTOR
Quality submission, to determine the best 11 contractors. These were then required to
complete a schedule of rates for the items of work likely to be required under the
contract, and the 3 lowest were appointed as the Framework Contractors.
The individual works contracts within the framework contract will be shared between
the three on the basis of 60% of the work (by value) to the lowest, and 20% each to
the other two. The works contract price is determined by applying the contractor’s
schedule of rates to the designed works and negotiating a Target Cost for the work,
taking account of, and agreeing ownership of, all identified risks to the project
delivery. This gives much greater certainty of the final cost of the project. The works
contract also includes a gain-pain arrangement, where any overspend or under spend
in relation to the target cost is shared equally between the County Council and the
Contractor. This encourages innovation and keeping costs to a minimum.
The Framework Contract provides a platform for maximizing the value and quality of
Remade works by establishing a strong and open working relationship between the
County Council and the Contractors. It is anticipated that a close, long-term
relationship will deliver real benefits for the both parties including:
NICMAR 59
INNOVATIVE CONTRACTING TECHNIQUES IN HIGHWAY SECTOR
CHAPTER-06
CONCLUSIONS AND RECOMMENDATIONS
NICMAR 60
INNOVATIVE CONTRACTING TECHNIQUES IN HIGHWAY SECTOR
• SHAs (USA) have tried several innovative contracting approaches since 1990
through an FHWA initiative. These approaches include warranties, design
build, cost-plus-time, and lane rentals. A combination of these contracting
approaches has also been used by some SHAs. The benefits of innovative
contracting approaches include the following:
The underlying hypothesis of the study was that innovative contracting results in
reduced costs, time, and improved quality of the final product. Case studies of
highway construction projects were used to illustrate the impacts of innovative
contracting on the three measures of cost, time, and quality.
In addition, data from other civil construction projects, other industries, and
experiences in all the states of USA with performance-based outcomes were also
reviewed. While the case studies and literature point to the hypothesis as being valid,
limited quantitative data precludes a detailed evaluation of the hypothesis as it
pertains to highway construction industry.
The primary driver for using innovative contracting approaches as used by SHAs is
reduction in time and resources from project planning through construction phases.
Like that in India (NHAI) also we can use these Innovative Contracting techniques.
The case studies estimated that as much as 50 percent time reduction in project
duration can be achieved compared to the traditional design-bid-build approach. Also,
significant cost savings ranging from 6 to 40 percent in using performance-based
outcome approaches can be achieved.
NICMAR 61
INNOVATIVE CONTRACTING TECHNIQUES IN HIGHWAY SECTOR
It was concluded that very few truly performance-based outcome projects have been
executed in the highway construction industry in the United States. The concept is
relatively new in the highway construction industry. Success stories have been
reported in other branches of government, such as outsourcing water and waster water
management plants, defense contracting, welfare service, correctional facilities, and
emergency services.
The degree of benefits, however, depends on several factors, including the type and
nature of the project and the type or combination of types of innovative contracting
approaches employed. Notably, SHAs in USA are satisfied with the quality, timeliness
and cost effectiveness of projects executed using innovative contracts so far.
It was also observed that short warranties are the most common form of innovative
contracting used by SHAs in USA for highway construction projects. Long-term
warranties and fixed price maintenance contracts are just being considered as viable
alternatives in the highway construction industry. The probable reasons for limited
usage of these innovative contracting approaches include lack of experience and
knowledge in the benefits of alternative contracting approaches, lack of confidence in
contractors’ ability to manage the roadways over long-term, and bonding agencies
concern about risks of long-term warranties.
6.2 RECOMMENDATIONS:
NICMAR 62
INNOVATIVE CONTRACTING TECHNIQUES IN HIGHWAY SECTOR
• Encourage all the states in India to consider innovative contracting for especially
for projects with time, cost, resource constraints, and of critical value to the states.
• Provide incentives to all the States that are progressive and have shown benefits
due to innovating contracting.
• Nationally, encourage public-private sector partnerships in financing and
managing highway construction and maintenance projects. This implies cost and
risk sharing. In this way NHAI (i.e., public sector) will be more amenable to
undertake long-term warranties knowing that the risk is shifted to the contractors
while maintaining control of the public asset.
NICMAR 63
INNOVATIVE CONTRACTING TECHNIQUES IN HIGHWAY SECTOR
REFERENCES
References:
5) FHWA Press Release. FHWA Cites Utah I-15 Project as Example of Innovative
Way to Build Roads, January 28, 1999.
9) Herbsman, Z.J. and C. R. Glagola. Lane Rental: Innovative Way to Reduce Road
Construction Time, ASCE Journal of Construction and Engineering Management,
Vol. 124 No. 5, pp. 411-417, 1998.
10) Innovative Contracting journal- national audit office, 1991. Management of road
maintenance.
14) Pekka a.Pakkala (Finnish road administration), Dr. W. Martin de jong (Delft
University of technology), Juha äijö (ramboll Finland); “International overview
of Innovative contracting Practices for roads”, July 2000.
15) Stuart d. Anderson & Ivan damnjanovic (Texas a&m university College station,
Texas); “Selection and evaluation of Alternative contracting methods to
Accelerate project completion -A synthesis of highway practice”, August 2003
E-References:
www.asce.org
www.dot.state.mn.us
www.fhwa.dot.gov
www.ic.usu.edu
www.nhai.org
www.sha.state.md.us
NICMAR 65
INNOVATIVE CONTRACTING TECHNIQUES IN HIGHWAY SECTOR
NICMAR 66