U.S. Department of Transportation
Federal Highway Administration
1200 New Jersey Avenue, SE
Washington, DC 20590
202-366-4000
Construction management involves the oversight of risks and resources in the construction of a highway project. Construction management is an essential element of the success of any project, large or small. Traditional construction management processes, such as open bidding, unit-price contracting, and agency quality control, have served the U.S. public well in the construction of our national and State highway systems. While these processes provide transparent checks and balances, they do not inherently promote trust among agencies, contractors, and their supply chain, and they inhibit innovation and efficiency. These methods also do little to help manage the highly publicized cost and schedule overruns that have created a lack of public confidence in the industry’s ability to perform effectively. To compound these issues, many highway agencies are realizing a reduction in staffing while facing increasing infrastructure demands. U.S. highway agencies and their industry partners are beginning to rethink fundamental design and construction management principles.
Evolving industry roles and the adoption of alternative project delivery methods are creating changes in the conventional construction management practices that public agencies use to ensure appropriate project delivery, contract compliance, and quality assurance. The Federal government and State transportation agencies are developing policies and procedures to address these evolving delivery methods. Critical components of these new methods include the changing relationships among public agencies, contractors, and private engineering firms, including risk allocation processes, quality control/quality assurance, and general contract administration procedures. Some evolving delivery methods include the use of nonconventional procedures such as design-build contracts, public-private arrangements, maintenance and warranty requirements, and use of third-party consultants to perform contract management.
The international highway community has developed construction management procedures in what the United States would consider an alternative procurement and contracting environment. Recognizing the similarities and benefits that could result from an examination of international construction management procedures, a diverse team of experts was assembled to research, document, and promote the implementation of international best practices that might benefit U.S. industry.
The scan team has gained a fresh perspective on how the U.S. highway industry can function in a new spirit of partnership and alignment toward customer-focused goals. We are offering a challenge to public and private highway construction professionals to change current construction management practices that create adversarial relationships. We must develop new practices and contractual measures that promote trust, create teamwork, and align all participants toward customer-focused objectives of quality, safety, and dependable transportation facilities. We must also learn to analyze risks more effectively and allocate these risks to the party that can manage them most effectively. These changes must occur if we are to meet customer demands.
In May 2004, a U.S. team traveled to Canada and Europe to learn from their significant experience by conducting a scan of construction management practices for effective project delivery, contract compliance, and quality assurance. The purpose of the scan was to review and document international policies, practices, and technologies for potential application in the United States. The team conducted meetings with government agencies, academia, and private sector organizations involved in construction management efforts, and visited sites where alternative technologies and practices were being applied. The study consisted of a combination of meetings with highway agencies and practitioners, and site visits. The scan team visited or conducted meetings with international organizations from the following locations:
The following observations and key findings provide a basis for the recommendations of this study. The European and U.S. transportation communities are quite similar in terms of the political, financial, and resource challenges they face. However, key procurement and construction management techniques found on this study promote better alignment among project team members and with their customers. The U.S. scan team discovered a more spirited effort of long-term partnership and collaboration between the public and private sectors and more customer awareness among the industry members than in the United States. Specifically, the Canadian and European agencies have developed construction management systems that promote the alignment of team goals through the use of integrated risk analysis techniques that support the strategic application of alternative delivery methods. These concepts are seen throughout the project life cycle, from procurement systems that set the framework for success to contract payment systems that support alignment and trust. The agencies are more willing to delegate traditional highway functions to the private sector where project delivery systems have produced significant benefits in cost and schedule without sacrificing quality. All of these project delivery, procurement, and construction management techniques have resulted in a closer partnership between public and private entities.
Canadian and European transportation systems have growing capital project needs, as well as backlogs of maintenance needs. International highway agencies face operating an aging infrastructure under tight funding constraints and increasing environmental challenges with leaner public staffing resources. These challenges are not unlike those State and Federal agencies face in the United States. In many instances, the international agencies have developed or are developing innovative solutions to these problems. The highway agencies and their industry partners have become more aware of their customer needs and have developed a philosophy of network management to meet these needs. The Highways Agency in England perhaps states its objectives best through the key performance indicators (KPIs) they attempt to measure for each project and service provider:
Although traditional construction management methods under design-bid-build delivery ensure competition in bidding and minimize the transfer of risk to the private sector, they can often result in an adversarial, or even litigious, relationship between the public and private sectors. Some international agencies use alternative construction management techniques that may limit competition and transfer more risk to the private sector when compared to traditional U.S. methods, but they believe that their techniques are more efficient, more sustainable, and/or deliver better value to customers in the long term through the creation of partnerships with the industry that incentivize contractors and the supply chain to focus on outcomes of customer-oriented goals.
The international community has an awareness of risk analysis and allocation techniques not present in all of our U.S. highway agencies. The Highways Agency in England has developed Highways Agency Risk Management (HARM) to model the uncertainties of estimates for cost and time to ensure robust and realistic budgets for publicly financed projects. The Ministry of Transport, Public Works, and Water Management in the Netherlands has developed the Public Sector Comparator and the Public-Private Comparator to assist with these same decisions. Both agencies have dedicated staff members that assist project teams in identifying and quantifying project risk using probabilistic techniques, and then choosing delivery and contracting strategies that can best control and mitigate these risks.
The agencies visited on this scan all used a balanced approach to project delivery methods. The scan team witnessed the entire spectrum of traditional and alternative methods, including design-bid-build, design-build, design-build-operate, and a variety of public-private partnerships. The team also found a number of new methods that allocate more risk to the private sector and/or create more motivation for total life cycle maintenance and operation solutions from the private sector. Of particular interest to the team is the Highways Agency’s Early Contractor Involvement (ECI) delivery method in which design and construction professionals are selected early in the project development process through a qualifications-based selection. They then develop an open book target pricing system during design development in conjunction with the Highways Agency.
While the traditional U.S. low-bid procurement system is employed abroad, the majority of countries visited on this scan use a best-value procurement system as their standard procedure. Procurements based solely on qualifications (without a bid price) are also in use in compliance with European procurement directives. Best-value methods use factors in addition to price for the selection of teams. These additional factors include team qualifications, past performance, design alternatives, and a number of other items based on the needs of a particular project. The Ministry of Transportation in Ontario, Canada, has developed a Registry Appraisal and Quality System (RAQS) to rate contractors on past performance. These ratings are used to adjust prequalification ratings for bidding purposes. England’s Highways Agency recently developed a Capability Assessment Toolkit (CAT) in which it scores company management practices and combines this score with past performance to select designers and contractors in a purely qualifications-based selection for all major projects. An overriding objective of these procurement systems is to create trust and long-term partnerships between the agencies and the industry. In addition, by receiving competitive proposals that are evaluated on factors such as quality or traffic management plans, the owner can align the procurement with the project and customer goals at the earliest stages.
Procurement systems start the project team on the road to success, and payment methods complete the cycle by creating incentives to meet customers’ needs. Unit-price contracts used in the United States allocate the risk for quantity variations appropriately, but they miss opportunities to provide incentives for early completion of project milestones or to minimize impact to the traveling public. Lump-sum payments are being used abroad to create milestone incentives for project completion. The Scottish Executive does not use unit prices for contractor payment, but rather creates a series of completion milestones for which it makes lump-sum payments. The agency believes this minimizes its administrative burden and incentivizes the contractor to complete the milestones efficiently. Both the Highways Agency in England and the Ministry of Transport, Public Works, and Water Management in the Netherlands use congestion pricing incentives/disincentives for payment on privately financed projects that impact the traveling public. The congestion payment mechanisms are in direct alignment with the customer-focused goals repeated throughout this study.
The private sector partners of the international highway agencies involved in this scan conduct many construction management tasks traditionally done by State highway agencies in the United States. The motivation for this transfer of roles stems from a reduction in agency staff and/or a belief that the contractors can perform these tasks more efficiently. For example, the use of milestone and lump-sum payments allows contractors to invoice for completed work with less verification required by the owner than in traditional U.S. contracts. Notably, more quality management is done by the contractor abroad than in the United States. The agencies rely on contractor-designed quality management systems that are in accordance with the procedures they submit in the project proposal. Under these systems, a third party audits the contractors. The use of best-value procurement and past performance in selection allows the agencies to take on more of a quality audit role during construction. All of the countries participating in this scan noted the use of International Organization for Standardization (ISO) certification as an important element of more dependence on contractor quality management.
The need to maximize the efficiency of aging highway infrastructure coupled with a steady reduction in staff have driven a number of the international highway agencies toward a philosophy of network management. With this philosophy, the contracting agency’s primary focus is the efficient operation of the transportation system through packaging and managing project delivery strategies that provide for optimal performance. Many of the host countries have turned to the private sector for delivery functions that formerly were self-performed, such as planning, design, construction management, operations, and maintenance. These contracting agencies now rely on the private industry to provide all of the necessary technical support and contract management ability. As a result, the contracting agency focus has shifted from contract compliance for individual services to management of the network by integrated service contracts.
For example, the English Highways Agency previously experienced problems with the traditional design-bid-build project delivery system. This included cost overruns averaging 35 percent, schedule delays, cutthroat competition precipitating adversarial relationships, and the inefficient use of the industry’s expertise for constructibility and innovation. Recognizing that many of these issues were inherent in the traditional project delivery system, the Highways Agency established a multiyear plan to change its method of managing the transportation network and delivering projects through a variety of strategies, including design-build contracts, managing agent contracts, early contractor involvement, and design-build-finance-operate contracts.
The project delivery and construction management methods the team observed on this scan have led to a more spirited effort of long-term partnership and collaboration between the public and private sectors. The agencies are very conscious of how their procurement and construction management methods affect their design and construction professionals and supply chain. By working toward longer-term partnerships, the agencies have worked with the private sector to better understand customers’ needs. The strategic application of delivery methods that promote life cycle solutions, the use of qualifications and past performance in procurement, and the delegation of traditional highway agency construction management functions to the private sector all have contributed to a closer relationship between the public and private sectors in a sustainable manner.
The construction management scan team was composed of Federal, State, local, industry, and academic members with more than 100 years of combined experience in the design and construction of highway projects in the United States. Through this focused research study, the team has gained a fresh perspective on how the U.S. highway industry can change to achieve more productive partnerships and alignment toward customer-focused goals. The team’s recommendations offer a challenge to highway construction professionals to change current construction management practices that create adversarial relationships. The team’s recommendations are listed below and fully explained in Chapter Five.
The scan team is committed to implementing its recommendations with the industry in the coming months and years. The Federal, State, industry, and academic members of the team are actively transferring the lessons learned in this scan to the U.S. highway industry. Three critical tools to realize the team’s recommendations are listed below and full explained in Chapter Five.
| <<Previous | Contents | Next >> |
