U.S. Department of Transportation
Federal Highway Administration
1200 New Jersey Avenue, SE
Washington, DC 20590
202-366-4000
The European host countries' procurement processes vary significantly from those found in the United States, and these variances help promote construction management techniques that align project team goals with customer needs. In addition to low-bid procurement, the scan team found widespread use of qualifications and/or past performance in procurement, use of best value (price plus nonprice factors) in procurement, and the use of alternative bids in procurement. While the procurement process occurs before construction management in the project cycle, the scan team found that it is an integral part of construction management success. All of the host countries allow nonprice factors to be incorporated into contractor selection. These nonprice factors are used to align team goals with project goals and ultimately customer requirements. All of the countries, except the Netherlands, have the ability to use some form of past performance in the procurement. They noted that these processes are critical to the success of their construction management programs.
U.S. highway agencies are accustomed to using prequalification processes for contractors on an annual basis, but these processes are usually quite general and not typically used on a project-by-project basis. In contrast, all of the international organizations studied in this scan have the option to assess qualifications and/or past performance in procurement in some manner on each project. All of the countries cited their procurement processes as a critical element of success in their construction management systems. When discussing construction management issues of quality assurance/quality control, contract change processes, environmental monitoring, etc., they frequently stated that contractors have incentives to perform these practices well because they know it will affect their ability to participate in future work, either directly through a past performance rating or indirectly though an assessment of their qualifications and capabilities. The Netherlands is the only country restricted by jurisdiction from using past performance criteria for selection, but it does use an assessment of qualifications in its procurements.
Although quality-minded contractors gain an advantage, the drawback to using qualifications and/or past performance in procurement is that it can limit competition. Traditional U.S. procurement is accomplished through an open bidding system, which provides opportunity for companies to compete for public dollars. Our highway system has been built, in most part, by relatively small contractors in a very competitive environment. Contractors win a project by being the low bidder, not through exceptional performance on past projects or possessing capabilities in line with a particular project's needs. The process can be very different internationally. The Highways Agency perhaps states this fact most succinctly in the Highways Agency Procurement Strategy (Highways Agency, 2001a):
The HA has entered project partnering arrangements with its suppliers on major projects for a number of years. These have been successful and beneficial through the agreement of cooperative working arrangements to deliver mutually agreed common objectives. The HA is now seeking to develop longer-term partnerships with suppliers which allow successful teams to be retained and maximum use made of developed skills and invested knowledge.
Long-term relationships allow the supply chain to be involved in the development and planning of work programs and to deliver them more efficiently and safely. They also facilitate the recruitment and retention of the skilled resources needed to deliver the programs.
The new procurement strategy will result in a tendency towards fewer, better quality suppliers appointed on a long-term basis. It will be vital that the best suppliers are employed. There needs to be a clear understanding of what aspects of quality add real value to the service delivery and the requirements and procedures need to be consistent and transparent to suppliers.
To ensure that the HA identifies and employs suppliers that can work in partnership to deliver best value services and solutions, and to incentivize good performance by fair rewards.
To select suppliers on the basis of the optimal combination of quality and price which for any particular service or project will achieve the delivery of best value.
To maintain a supplier base that is competitive and sustainable, and which is motivated to seek work from the HA and to achieve continual improvement.
The Highways Agency procurement strategy is perhaps the most different from those found in the United States, but it does provide an example of how international transportation organizations are striving to align project team goals with customer needs. The scan team found that Germany and the Netherlands have procurement systems that resemble those of the most progressive U.S. DOTs and the Federal sector. Scotland and Finland use qualifications in procurement because of their extensive use of design-build contracting. The Ministry of Transportation in Ontario has developed an innovative system that it uses to incorporate past performance and qualifications into procurement of both contractors and construction administration consultants.
Germany and the Netherlands use prequalification and past performance in procurement the least. Germany has no formal or annual prequalification processes, but the owner is very knowledgeable about its routine contractors' experience and abilities. However, the owner will informally request prequalification information with references before awarding difficult or large projects if it is not familiar with a contractor's experience. The references are contacted, experience/ability informally verified, and if acceptable to the owner, the project is awarded. Owners will also deny future bidding privileges if a contractor fails to perform or is not in general compliance with state policies and procedures.
The Dutch do prequalify contractors on a project basis, but they do not take past performance into account because they are restricted by law from doing so. Noncomplex projects are and will continue to be awarded to the bidder of the lowest price after an open call for offers. For more complicated projects, a prequalification (short listing) is done after an open call. The prequalification is based on competence, but generally not on ideas for the project. After the prequalification, the selection is done on the basis of price and either a preliminary quality plan and/or a design in the case of design-build work.
In Scotland, design-bid-build work is treated differently from design-build work. For design-bid-build work, all contractors must submit a standard prequalification questionnaire to be evaluated by the owner and be eligible to receive tender requests. For design-build work, all prospective bidders must submit a response questionnaire on a project-by-project basis, and the project is then awarded on a best-value basis as discussed later in this chapter. This is similar to most States using design-build in the U.S. system, but some States—such as New Jersey, Ohio, and Pennsylvania—have procured design-build on a low-bid basis.
The Ontario Ministry of Transportation in Canada has developed a system to prequalify consultants and contractors called the Registry, Appraisal, and Qualification System (RAQS). The ministry uses an annual contractor prequalification system that is similar to many U.S. systems, but it is a little more reliant on past performance. All contractors are prequalified on a basis of financial status, performance appraisals, and infraction reports at the end of each project (no interims), which establish an overall performance rating. The rating is maintained on a 3-year rolling average. All contractors must have a financial rating, which is based on assets and cash. Contractor's financial statements are checked annually and audited on a random basis. Contractors can bid only up to their available financial rating, which is a function of financial rating, penalty adjustments, and work on hand in all jurisdictions and the private sector. Penalty adjustments are made for poor performance through an infraction process and contractor performance rating system.
The Ministry of Transportation's use of consultants to perform construction administration is also relevant to this report. These consultants are selected on a combination of price, performance, and quality—20 percent, 50 percent, and 30 percent, respectively. The system developed for conducting this assessment is called the Consultant Performance and Selection System (CPSS), which develops a corporate performance rating (CPR). The following is a description of consultant selection taken from the Consultant Performance and Selection System Procedures Guide (Ontario Ministry of Transportation, 2003)
Past performance is measured by a consultant's Corporate Performance Rating (CPR),which is the weighted-average of a consultant's appraisals over the last three years.
CPR 3(Avg. Yr. 1) + 2(Avg. Yr. 2) + 1(Avg. Yr. 3) 6
Avg. Yr. 1 = Average of all appraisals within the most recent 12 months
Avg. Yr. 2 = Average of all appraisals in 12 months prior to Year 1
Avg. Yr. 3 = Average of all appraisals in 12 months prior to Year 2
| Firm | RFP Tech. Score | Score out of 100 | Wght. Score (30%) | Perf. Rating (CPR) | Score out of 100 | Wght. Score (50%) | Price | Score out of 100 | Wght Score (20%) | Total Score | Rank |
|---|---|---|---|---|---|---|---|---|---|---|---|
| A | 635 | 100 | 30.0 | 3.6 | 94.7 | 47.4 | 78000 | 73.1 | 14.6 | 92.0 | 1 |
| B | 505 | 79.5 | 23.9 | 3.0 | 78.9 | 39.5 | 57000 | 100 | 20.0 | 83.4 | 4 |
| C | 552 | 86.9 | 26.1 | 3.2 | 84.2 | 42.1 | 69250 | 82.3 | 16.5 | 84.7 | 3 |
| D | 575 | 90.6 | 27.2 | 2.9 | 76.3 | 38.2 | 99130 | 57.5 | 11.5 | 76.9 | 5 |
| E | 545 | 85.8 | 25.7 | 3.8 | 100 | 50.0 | 94000 | 60.6 | 12.1 | 87.8 | 2 |
If the Total Scores for two or more consultants are tied, the consultant with the lowest price wins the assignment.
The Highways Agency is the most different from the United States in its use of qualifications and past performance in procurement, as demonstrated in the statements from its procurement strategy at the beginning of this section. It has the most structured approach to assessing and updating contractor performance ratings. It is the Highways Agency's intent to work only with selected contractors. They maintain a "long list" or general prequalification of contractors, and then selectively produce a project-specific "short list" to distribute work to multiple contractors in the marketplace to maintain a healthy level of competition. As seen in figure 8, companies are prequalified to the long list on the basis of financial standing and technical capability. For purposes of the short list, each company is assigned a "vendor rating" on the basis of its capability, past performance, and other strategic data. The Highways Agency Supply Chain Management Team considers issues such as current backlog and the possibility of over-dominance or over-reliance in the marketplace when making the short-list decisions.
Figure 8. The Highways Agency procurement process. (Highways Agency, 2003)
To assist in a qualifications-based procurement, the Highways Agency has recently developed the Capability Assessment Toolkit (CAT). In essence, CAT is a system for contractors to assess their own capabilities, which are combined with a past-performance rating to develop a qualification-based score for procurement. CAT is a very structured qualifications assessment tool developed in consultation with the industry. The following is taken from the Highways Agency's description of CAT (Highways Agency, 2003)
As part of the ongoing implementation of the Procurement Strategy, the CAT has been developed by the Agency's Supply Chain Management Team to:
The CAT has been developed in consultation with the construction industry and incorporates feedback gained from across the Agency's procurement practices.
Under the new approach, offeror selection will be a high-level company assessment that will exclude detailed project issues. The aim will be to allow the best and most appropriate suppliers the most selection opportunities.
The new process will use standard selection criteria to prequalify suppliers (step 1) and then capability, past performance and strategic overview information to arrive at a tender list (step 2).
This process has been designed to reward the most capable and best performing suppliers, while maintaining competition in our supply base. It systematically increases the likelihood of success, by ensuring that the best and most appropriate suppliers are placed on the Agency's offeror lists. The process is consistent and transparent and allows suppliers to develop realistic and relevant improvement plans that respond to the feedback that they receive.
Data obtained from the CAT will initially be used in major highway procurement exercises, but will be applied to other work categories in due course.
The new two step process will be used to select suppliers for tender lists following receipt of expressions of interest.
During this step, suppliers expressing an interest are assessed as to their financial and economic standing and their technical capacity, including a strong focus on health and safety issues. Suppliers must exceed acceptability thresholds to prequalify.
A single set of validated capability scores will be held for each company on the Agency's procurement database. The scores will relate to the entire company and will normally be valid for a period of 12 months.
The validated capability scores will be used together with past performance and strategic overview information to arrive at the tender list.
This approach will:
The CAT has been developed using the well-established principles that underpin a number business excellence models. The CAT considers what it is that companies need to do to be effective. It is structured as follows:
For each attribute, three indicators describe features of the capability that could be demonstrated.
For each of the indicators there are five levels of capability, 0 to 4.
The documentation making up the toolkit (CAT) is in two main parts:
The capability assessment process has two distinct stages:
Companies are asked to score themselves using a CAT self-score framework and guidelines and return those scores to the Agency's Supply Chain Management Team.
A team of fully trained and briefed client CAT practitioners will spend time with the companies to validate the self-scores. The validated scores will be held on the Agency's procurement database and will be used in conjunction with past performance and strategic overview information to determine tender lists.
The U.S. transportation industry can benefit greatly from these examples of incorporating qualifications and past performance in procurement. While techniques in use by the international organizations involved in this scan may be prohibited by law in many States, the U.S. transportation industry can benefit from the experience of these organizations as we look to the future. The use of qualifications and past performance in procurement may allow the United States to improve current construction management techniques. There is opportunity for more efficiency, better team alignment and partnering, and products that better meet our customers' expectations. Changing to procurement systems like those discussed in this section will take an integrated effort between agencies and practitioners. The change will also take time to occur so that accurate data on past performance can be generated and professionals can align their business practices with agencies' overarching procurement goals.
Contractor prequalification/use of past performance information is not common in most State highway agencies. A number of States, however, have embarked on pilot programs, some of which use past performance data in procurement. In 2002, the AASHTO Subcommittee on Construction Contract Administration Task Force conducted a questionnaire on State DOT approaches for dealing with unsatisfactory contractor performance (time and quality). Click Here. The results of this questionnaire show that the use of prequalification and past performance is fairly prevalent:
Question 7) How does the State use contract performance evaluation data (other than contract progress, for example: quality of materials, quality of the constructed product, quality of traffic control facilities, timely submittal of documentation, cooperation, safety compliance, public coordination, etc.)?
7a. Performance evaluations directly lead to an adjustment of prequalification capacity rating with the completion of every contract (explanations suggested)—7 (FL, GA, IA, IL, ME, MO, NE).
7b. Performance evaluations indirectly lead to an adjustment of prequalification capacity rating only when consistent or below-average performance is noted over several contracts—18 (CA, IN, KS, MI, MO, ND, NH, NJ, NV, OH, OR, PA, SD, UT, VA, WA, WV, WY).
7c. Removal from the prequalification list—15 (AL, IA, IL, IN, MO, NC, ND, NE, NH, OH, OR, PA, UT, VT,VA).
Question 9) Does your State have a contractor prequalification process?
Yes—34 (AL, AR, CO, CT, FL, GA, HI, IA, IL, IN, KS, MA, ME, MI, NC, ND, NJ, NE, NM, NV, OH, OK, OR, PA, SC, SD, TN, TX, UT, VA, VT, WA, WV, WY).
May be used on individual projects—(MD, MS).
The results of the survey show that a fair number of States do allow past performance to affect future work and that the majority do use some type of prequalification process. Only a few States, however, use contractor prequalification on individual projects as seen so prevalently in the international organizations. Missouri and Florida have developed contractor rating systems that parallel those found abroad. Information on their programs is available from the following Web sites:
Missouri
Rules of Department of Transportation, Division 10—Missouri Highway and Transportation Commission, Chapter 10—Contractor Performance Rating to Determine Responsibility
Rules of DOT Division 10 Missouri Highway and Transportation Commission
Florida
Construction Project Administration Manual, Performance Ratings, Section 13.1—Contractor's Past Performance Rating
Contractor's Past Performance Rating
The use of best-value procurement was prevalent in all of the countries using design-build project delivery. A number of countries also use best-value procurement on traditional design-bid-build delivery. A best-value procurement process involves awarding a project on the basis of price and other key factors—not on the basis of cost alone. The other key factors should enhance the long-term performance and value of construction. Best-value procurement can use the qualifications and past performance elements discussed in the previous section, as well as allow for the proposal of management plans (safety, traffic, environmental, etc.) or technical solutions/designs that enhance the project.
Finland, England, and Scotland use best-value procurement almost exclusively. Germany and Ontario generally award construction contracts on the basis of low price, but they do have the options to use best-value procurement when project characteristics merit its use (e.g., design-build delivery, more technically complex projects, or when only a small number of contractors are available). The Netherlands uses best value more frequently than Ontario and Germany. The Netherlands uses it for all design-build projects and also on selected design-bid-build projects, particularly in conjunction with those projects in which it shortlists contracts.
The mechanics of the best-value processes varied by country, but all of the processes shared common characteristics. As shown in figure 9, the goal of a best-value selection is to balance cost with noncost factors to achieve long-term performance and value of construction for the public. All of the systems employ a two-envelope bidding (or proposal) system. The contractor submits a price proposal in a separate envelope from the technical (or qualifications) proposal. The technical envelope is always assessed (or scored) before the price proposal is opened. Opening the price proposal occurs only after the assessment of the technical proposal to ensure that the price proposal will not influence the assessment of the technical offer.
Figure 9. Common attributes of European best-value procurement procedures.
The criteria assessed in the technical proposal varied on a project-by-project basis throughout the host countries. Value can be added to projects through two general categories: 1) contractor qualifications or 2) contractor enhancements to the project. Contract qualifications are assessed through criteria such those discussed above. Contractor enhancements vary greatly, but can include time-related issues, design enhancements, traffic management plans, safety plans, environmental mitigation, etc. The owners choose these best-value parameters and create evaluation criteria from them on a project-by-project basis.
A key to success in best-value procurement involves the transparency of evaluation plans. Procurement documents must clearly convey how the evaluation criteria will be scored and how the cost and technical proposal will be combined. Transparent criteria and scoring methods convey to the contractors how they will be evaluated and what they should focus on in their proposals. These processes must be transparent to the proposers so that they know how to weight costs and efforts in their proposals. Procurement documents must clearly convey the owner's project goals if the owner is to receive the best proposals.
The manner in which tradeoff analysis is conducted between the price and technical proposals varies by country and by project within each country. Some examples only employ two criteria of price and qualifications or past performance. If the lowest price comes from the highest technical rating, then the project is awarded to the lowest bidder. If the lowest bidder does not have the highest technical rating, then the agency performs a tradeoff analysis to determine if the higher technical scores provide the public with better long-term value. If it can be determined that better value is achieved from one of the higher technical offers, then the award is made to someone other than the lowest bidder.
The use of best-value procurement is very similar to the use of qualification and past performance in procurement. The international organizations examined in this scan deemed the procurement procedures to be essential elements in the success of their construction management programs. Best-value procurement, when employed thoughtfully and correctly, can undoubtedly help achieve alignment between project team goals and customer needs.
The goal of National Cooperative Highway Research Program (NCHRP) Project 10-61 was to recommend a best-value procurement method for U.S. highway construction. The resulting report outlines a comprehensive process that transportation agencies can use to create best-value methods in their individual States. The research effort investigated best-value concepts in use in the construction industry, evaluated their relative effectiveness, and recommended a best-value system or systems that may be used in conjunction with a traditional design-bid-build delivery system for highway construction. The recommendations parallel the best-value systems discovered in this international scanning effort.
The research products include the following:
The results of NCHRP 10-61 are available at NCHRP 10-61.
In contrast to the majority of U.S. design-bid-build projects, the scan team discovered widespread use in the countries visited of alternative bids proposed by contractors and design-builders. Innovations in design and construction management are being captured in the procurement phase—not as contractor-initiated change proposals after the contract is awarded. Confidential preproposal meetings are often conducted in conjunction with the use of alternative bids to clarify concepts while maintaining competition. The scan team believes that more use of these two mechanisms will improve construction management procedures in the United States.
As previously stated, the German project delivery and procurement systems most resemble those in the United States. Even though Germany primarily uses a low-bid system, it does allow for alternate designs/proposals to be submitted at the same time as the contract bid submissions. Alternate proposals are evaluated on the basis of price, time, quality, functionality, and life cycle costs. Accepted alternates may be awarded even when higher than other base bid submissions, if determined prudent to the owner.
Scotland's project delivery and procurement practices are much more progressive than those found in the United States. Contractors may propose alternative designs meeting equivalent outcome requirements. The contractor assumes the risk for these changes. The Scottish Executive will promote variations to the statutory consents, but if additional right-of-way is needed, the contractor must acquire the additional property and transfer it to the Scottish Executive. When there are multiple jurisdictions involved in the project, the responsible agency must approve the changes. Scotland uses consultants to review technical competency of alternative proposals.
A number of U.S. highway agencies have developed procedures for allowing alternative bids and designs. Pavement and bridge structures are the two most common applications.
Alternative Pavement Bids
A number of states are allowing competition on pavement types though the solicitation of alternative bids, including Louisiana, Maryland, Michigan, Missouri, Ohio, and Texas. Louisiana has developed and published the process listed below.
Louisiana Department of Transportation and Development Agency Process for Alternate Design and Alternate Bid of Pavements
Alternative Bridge Bids
PennDOT has been using a "contractor furnished/alternate structure design" program since the early 1980s. This program has resulted in many innovations in both prestressed concrete and fabricated structural steel bridges over the past 20 years.
When using alternative bidding procedures, contractors or design-builders often need to ask the highway agency questions. Officials in the Netherlands, England, and Scotland discussed the importance of allowing for confidential discussions with bidders/proposers during the procurement process. They conduct these discussions in preproposal meetings. It is important that the proposers know that their design alternates will not be rejected. The alternatives are not necessarily accepted in these meetings because they cannot be fully reviewed, but proposers can discuss the ideas with the owners and know that their alternatives will not be rejected outright following bid submission.
Scotland's preproposal meeting is representative of what was found in this study. Scotland conducts confidential preproposal meetings with each short-listed bidder to validate compliance with contract requirements and/or indicate acceptance of alternate designs, which prevents nonresponsive proposals. This process is beneficial to both the owner and the contractor because they can correct any obvious errors or noncompliant proposal items before the bid, when it is the least costly to do.
Confidential meetings are imperative when discussing design alternates. Proposers must be confident that their ideas will not be shared with other teams, or they will lose any competitive edge from their innovation. This is different from the process of written requests for information and issuance of addenda used in the United States. The meetings can be binding or nonbinding for both parties and are used to promote discussion with the team.
The use of design-build delivery on large projects in the United States has necessitated the creation of a process for preproposal meetings. Design-builders are often required to develop substantial designs in their proposals and need some assurance that their designs will not be rejected. "Alternative technical concept" review/approval procedures have been used effectively on large design-build projects to stimulate innovation and savings.
More information is available at the Web site of the AASHTO Joint Task Force on Design-Build. See Section 5.1 of the Report on Current Design-Build Practices for Transportation Projects. The Design-Build Contracting Final Rule also has provisions to allow alternative technical concepts in Federal 23 CFR 636.209. It can be viewed at Final Rule.
The use of alternative bids/designs and preproposal meetings sets a stage for efficient construction management procedures. These mechanisms allow for team alignment to be developed early and project goals to be communicated. The international organizations involved in this scan view alternative bids/designs and preproposal meetings as integral components of their comprehensive construction management system.
The ministry's use of RAQS has enhanced its prequalification process and allowed it to completely eliminate performance bonding requirements for all construction contracts—saving about $2 million per year (Minchin and Smith 1999).
See the RAQS Web site at RAQS (viewed July 2004).
The entire report can be viewed at Entire Report.
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