U.S. Department of Transportation
Federal Highway Administration
1200 New Jersey Avenue, SE
Washington, DC 20590

Skip to content
Facebook iconYouTube iconTwitter iconFlickr iconLinkedInInstagram

Office of International Programs

FHWA Home / Office of International Programs

Contract Administration: Technology and Practice in Europe


Many transportation agencies have discovered that traditional highway contract administration procedures and project delivery methods do not meet current demands. In the United States, both Federal and State agencies are turning to alternative contracting procedures to accommodate reconstruction and growth. The primary goal for the majority of alternative contracting procedures is to deliver projects faster, without compromising safety or quality or increasing costs. Quite often, increased safety, higher quality, and decreased cost can be achieved, while delivering projects at a faster pace. In the United States, the use of alternative contracting practices has been on the rise since the early 1990s, and the highly publicized success of numerous "mega projects" is encouraging more agencies to experiment with alternative contracting methods. Likewise, numerous European nations are employing alternative contracting methods to meet increasing infrastructure needs. Recognizing the benefits that could result from an international examination of alternative contracting procedures, a diverse team of experts was assembled to research, document, and promote the implementation of best practices found in Europe that might benefit U.S. industry. The Federal Highway Administration (FHWA) and the American Association of State and Highway Transportation Officials (AASHTO) jointly sponsored this study, under the National Cooperative Highway Research Program (NCHRP).

In June of 2001, a team consisting of Federal, State, contracting, legal, and academic representatives traveled to Europe to investigate and document alternative contract administration procedures that are employed in Europe to cope with growing transportation needs. Appendix A contains the names, affiliations, and biographic information of the scanning team members. The team traveled to Lisbon, Portugal; The Hague, the Netherlands; Paris, France; and London, England. Additionally, the team met with Swedish transportation officials while in the Netherlands. The ministries of transportation, numerous private-sector contractors, and research organizations involved in contract administration hosted the team. Appendix B lists the names of the organizations and their representatives.

In recent years, the European community has faced a multitude of problems that are similar to those that challenge the U.S. transportation community today. The scan team discovered that European highway agencies appear to be better at exploiting the efficiencies and resources that the private sector offers, through the use of innovative financing, alternative contracting techniques, design-build, concessions, performance contracting, and active asset management. European agencies have created contracts that focus on the users, while seeking to allocate risk appropriately and establish an atmosphere of trust in the implementation of procedures. The United States can directly and immediately employ many European procedures to help cope with its most urgent transportation needs.


Until the late 1980s, for the most part, European methods of contract procurement and administration were very similar to those in the United States. Public transportation agencies retained tight control over the design and construction of the highway systems. Prescriptive specifications and low-bid procurement methods were the public-sector tools of choice for procuring new works in both the United States and Europe. In the late 1980s, European agencies began to make significant changes to contract administration techniques. While various U.S. transportation agencies experimented with alternative contracting methodologies starting about the same time, the European agencies started to use alternative methodologies as their primary contracting methodology for major projects. The scan team quickly realized that the drivers for change in Europe include some of the same problems in the United States today. Some of the most significant drivers of change confronting Europe include:

These problems are certainly not unique to Europe; most U.S. States share some of them. (Even though EU members have a different relationship with the EU than U.S. States have with the Federal government, the EU Directives are analogous to Title 23 and FHWA's regulations.) This report describes tools and techniques that European transportation agencies and private-sector groups have used to overcome their problems. Many of the tools and techniques can be directly and immediately applied in the United States, if legislative and political environments allow. Other techniques may be valuable in the future or could serve as indicators of future contracting types.


European transportation agencies are implementing a wide variety of alternative contracting techniques that could have a tremendous impact on the efficiency and effectiveness of contract administration in the United States. The report discusses these techniques in terms of procurement, contract types, and payment mechanisms. Similar to the relationship between the FHWA and State departments of transportation (DOTs), the EU Directives establish minimum requirements that must be used by its members for procurement, but individual countries can develop unique contracting techniques that fit distinctive needs.

The most notable difference between European and U.S. procurement methods is that best-value awards are widely used in all types of procurements. Low-bid selection, although still used, is becoming less common. The Europeans have found that best-value selection, using transparent and uniform processes, enhances competition and innovation. In the case of long-term maintenance contract procurements, the business culture and quality are weighted much more significantly than are the price and technical portions of the procurement. Shortlisting is widely used to ensure that all potential proposers are competent technically and meet the owner's other minimum requirements. In cases of public-private ventures and privatization, careful consideration is given to the economic benefits of the procurement. The public-sector transportation agencies have dedicated significant effort to evaluating and assessing best-value proposals, and, in some cases, have significantly changed their organizational structures. Finally, the ministries of transportation visited by the scan team use confidential discussions in their procurement processes much more readily than in the United States. The European agencies provided examples of an increase in design and construction innovation resulting from these discussions in the procurement phase.

This report discusses a number of contract types being used in Europe. The United States is currently employing a number of these techniques, but the scan revealed new techniques that have merit for consideration in the United States. Some of the contract types discussed in this report are listed below. Specific examples are discussed later in the report.

Contracts Similar to U.S. Methods

Contracts not Currently Used by U.S. Agencies

  • Design-Build
  • Design-Build-Maintain
  • Design-Build-Operate-Maintain
  • Concessions
  • Framework Contracts
  • Managing Agent contract (MAC)
  • Private finance MAC
  • Integrated Supply Chain Management

In summary, all of these types of contracts promote creation of partnerships between the public and private sectors. European agencies are actively working toward development of relationships with the private sector that are based on trust and delegation of responsibility. The contracts discussed in this report provide examples of how some European countries are allocating contractual risk to leverage the efficiency of the private sector to provide benefits to the public.

Certain alternative procurement methods and contracts can combine nontraditional payment mechanisms to optimize their benefits. In many cases, payments are not based on units of work completed, but rather on availability of the product at the end of the project. The private-sector providers are required to finance the cash flow during and after construction. They ultimately receive payments based on factors such as availability (i.e., number of lanes open), quality of performance (i.e., smoothness), and/or safety (a reduction in the number of crashes, measured against a baseline). Disincentives were observed on maintenance contracts, and incentives were readily used for safety.


In the countries visited, design-build was observed to be the contracting method of choice for many types of projects, ranging from green-field construction to pure maintenance contracts. Design-build also is an inherent component in concessions and public-private partnerships. In the United Kingdom, the Highways Agency's contracting method of choice is design-build. Design-build contracts are typically awarded on a best-value basis. In the best-value analysis, lifecycle costs are analyzed using net present value (NPV). In the United Kingdom, the Highways Agency indicated that in the early 1990s it carried preliminary designs too far, prior to tendering. The agency has now corrected that error. One area where the Europeans appear to be more advanced than the Americans is in writing outcome (value) specifications. U.S. practitioners are struggling with similar performance specifications. This report includes some tools observed for developing outcome specifications that are directly and immediately applicable to U.S. design-build practices. In Europe, the issue of quality assurance in design-build contracts is primarily dealt with through the use of 5- to 10-year warranties and 30-year concessions. The use of alternative financing, operation, and maintenance, in conjunction with design-build contracts, minimizes the need for owners to perform time-consuming and redundant inspection and testing. The lessons learned on this scan tour include the types of projects suitable for design-build, the use of best-value selection for design-build projects, the need to minimize the level of design in the solicitation, design and construction administration, third-party risks, the use of warranties, and the addition of maintenance and operation to design-build contracts. In summary, the design-build techniques observed in Europe promote a level of partnering and early contractor involvement not yet widely seen in the United States.


Performance contracting is in its infancy in the U.S. transportation sector, but the tools and techniques are well established in Europe. Performance contracting allows the contractor to employ whatever means it determines are most appropriate (and economical) to satisfy the performance specifications provided by the owner.

Performance contracts allow innovation through creative design and construction methods--and are thought to lower the overall price of a given project. Performance contracts necessitate alternative procurement practices with past performance and innovative solutions as major factors in the selection process. Such contracts also are ideal candidates for alternative payment mechanisms, typically using end-product qualities as measurements.

Performance specifications are critical elements of performance contracting. In the Netherlands, the Highways Agency has extensive experience with drafting performance specifications. The Dutch are testing a series of 60 pilot projects to measure performance contracting versus traditional prescriptive methods. They define performance specifications in five levels of requirements that range from road-user wishes to requirements for basic materials and processing. Performance specifications detail both the operating level and minimum condition of the facility at the time it is returned to public ownership.

An area of concern in performance contracting in the United States is quality assurance/quality control (QA/QC). Traditional QA/QC roles and responsibilities in the United States can impede the effectiveness of performance contracting. Performance contracts observed by the scan team placed the responsibility for quality control solely with the contractor, and the owner retained only a minimal quality assurance role. Owner quality assurance is built into the process at various "stop" or "control" points on projects. There also are unique processes for penalty points and quality audits in lieu of heavy owner inspection. In one instance, the owner gives the contractor yellow or red cards for quality violations, like a referee in a soccer game. One yellow card is a warning and allows the contractor to correct work while improving its process or fixing the problem. Two yellow cards, or one red card, mean that the contractor must stop work until the violation is remedied.


Many of the alternative financing techniques in use in Europe have the potential to be used in the United States. Two significant differences between the U.S. and European finance processes, however, must be considered. First, the countries visited do not have tax revenue sources dedicated exclusively to transportation needs. This situation means that gasoline taxes and the like are not earmarked for transportation projects, but are deposited into a general fund with other taxes. The general funds provide money for a variety of needs, including transportation projects, but no taxes are specifically dedicated for future transportation projects. The second difference is that European governments do not have the ability to use tax-exempt financing for public transportation projects, as is the case in the United States. Although this means that interest rates are higher for European projects, it also means that such projects are not subject to the management contracting rules applicable to U.S. projects using tax-exempt financing, and makes private financing much more competitive with public financing. For example, in the United Kingdom, the interest differential between publicly guaranteed funds and private funds is sometimes less than 1 percent.

Alternative funding sources in Europe include a combination of bond and bank financing. Private financing is used much more readily than in the United States. In some cases, private financing is used because governments have reached ceilings for public debt; in others cases, it is simply because private financing is a competitive solution. For example, the Dutch have created a toll tunnel project through a limited-liability entity and plan to transfer ownership to the private sector by selling shares of the entity to the public when the tunnel is operating profitably. Meanwhile, in Portugal, concessionaires bid for the rights to maintain and operate existing highways, creating a type of off-balance sheet approach to government funding and even purchase of highway infrastructure.

The scan revealed several alternative financing payment mechanisms. As in the United States, real tolls are in use, but, in some situations, real tolls meet with public and political resistance. Both Portugal and the United Kingdom are experimenting with systems of "shadow tolling". Shadow tolls involve payment of user fees by the government on the basis of the number of vehicles that use the facility, allowing the concessionaire to obtain financing for the project secured by the user fees and based on traffic studies. The user fees are paid on the basis of traditional sampling methods and high-tech count mechanisms that establish the number of vehicles using the facility. This arrangement gives the concessionaire the risk of, and reward for, the number of vehicles using the road. In the United Kingdom, shadow toll arrangements are evolving from a "toll per vehicle" scheme to a payment based on highway performance and availability. Finally, in all countries, the team found examples of the temporary transfer of existing government assets and revenue sources to the private sector. Transfers appeared in a variety of methods, from maintenance to tolls, for durations of up to 35 years.


While only a minimal number of quasi-public concession and private transportation projects have been developed in the United States, the European countries visited are leveraging concessions for major portions of their highway systems. Portugal, for example, has gone from 431 km of concessions in 1991, to a planned 2,700 km of concessions in 2006--representing 90 percent of its national highway network. The concession system is allowing Portugal to complete its strategic National Road Plan by 2006, an 8-year acceleration over the projected timeline of traditional methods. Concessions are used for both construction and maintenance of European motorways. Concession periods vary, but were commonly found to be 30 years. The Dutch are promoting concession periods that equal 75 percent of the design life of the product. Both public agencies and concession companies commonly obtain long-term warranties from their contractors, but the team observed widespread use of maintenance contracts in lieu of warranties. A variety of concession structures were observed, ranging from fully private to quasi-public and fully public entities, with varying requirements for private-sector equity. This report includes a discussion of a "Public-Private Comparator" employed by both the Netherlands and the United Kingdom in making procurement decisions. Drivers for the use of concessions range from lack of public funding to a belief that private financing and maintenance delivers a higher quality product and provides benchmarks for public-sector performance. Concessions also are discussed in the performance contracting section of this report.


U.S. highway agencies should better utilize the efficiencies and resources that the private sector has to offer, through the use of innovative financing, alternative contracting techniques, design-build, concessions, performance contracting, and proactive asset management. Agencies must focus on the users, while equitably allocating risk and seeking to establish an atmosphere of trust in the implementation of procedures. This report presents a number of tools to assist U.S. agencies in meeting their growing infrastructure needs. Documentation of knowledge and best practices learned on the scan is provided in an effort to implement these tools and make the U.S. transportation system more efficient and effective for the public.

The team found a number of contract administration tools and techniques that will impact the U.S. transportation community. Some of these items can be directly and immediately applied, while others will require legislative changes prior to implementation. All team members will be actively taking opportunities to educate their peers about the results. Additionally, the following actions will be taken by the team to implement the most pertinent findings:

The following table is provided as a guide to the report. Europeans are using certain tools to assist in solving their transportation needs. The table summarizes the tools discovered on the scanning tour and correlates these tools to the needs of U.S. highway agencies.

Access to
Public Funds
Lack of
in Delivery
Slow Delivery
Lack of
Chapter 3: Contracting Techniques                      
  • Procurement
  • Best-Value Selection
      X X X X X      
  • Alternative Bids/Discussions
      X X X X X      
  • Contract Types
  • Payment Mechanisms
  X X X X X X X X X X
Chapter 4: Design-Build X X X X X X X X X X X
Chapter 5: Performance Contracting                      
  • Performance Specifications
      X X X X X X X X
  • Performance Indicators
      X X X X X X X X
Chapter 6: Alternative Financing Techniques                      
  • Funding Sources
  • Public-Private Partnerships
X X X X X X X X      
  • Payment Mechanisms
  • Shadow Tolls
X X X X X       X X X
  • Active Management Payment Mechanism
X X X X X       X X X
Chapter 7: Concessions X X X X X X X X X X X
<< Previous Contents Next >>
Page last modified on November 7, 2014
Federal Highway Administration | 1200 New Jersey Avenue, SE | Washington, DC 20590 | 202-366-4000