While the COVID-19 pandemic has put a near-term damper on the availability of public infrastructure funding, the impact of current public project risk profiles on competition remains a significant issue, and public transportation agencies still need the major industry players to build infrastructure projects. The number of firms that are financially capable of competing for billion-dollar plus contracts is relatively limited, and if “business-as-usual” procurement practices continue to perpetuate a lopsided risk profile and/or if the market slowly but steadily attempts to transfer more and more risk the to the private sector on a go-forward basis, the pool of available, qualified contractors will continue to shrink. Therefore, practical guidance is needed for public agencies to be able to assess their procurement models and appropriately allocate the risk profile for a given project with consideration of the perspective of potential bidders. Public agencies are being encouraged to re-evaluate the assigning of risk per the concept of “best-able to manage” the risk in the best interest of the taxpayers. In other words, if the small pool of contractors is assigning extreme contingency values to unbalanced risk/reward structures, it is not in the best interest of the taxpayers to transfer such risk levels.
The research objective is to develop a rigorous methodology based on empirical data for identifying, assessing, and measuring the perceived risk to industry in the solicitation for projects delivered using alternative project delivery methods such as Design-Build (DB), DB-Finance, and Public-Private Partnerships (P3). To support this objective, the scope would include (a) investigating different risk management arrangements used in the transportation industry and linking them to state department of transportation (DOT) project goals and objectives; (b) examining the industry perception of those used by state DOTs and other countries in the delivery of transportation infrastructure; (c) documenting lessons learned; and (d) making implementation recommendations that will improve U.S. policy and practice.
This project would produce an empirical guide based on effective practices regarding the selection of performance measures for P3 projects and provide guidance on selecting different P3 arrangements/structures given state DOT goals and objectives, as well as effective practices for implementing performance measures. Moreover, the guide would enable agencies to make structured risk analysis of the procurement and contractual framework embodied in the solicitation for a given project. Upon completion of such analysis, the guide would provide a menu of options for the agency’s consideration to make changes in the solicitation that would make its resultant risk profile more attractive to industry and thereby enhance potential competition.
Direction from the AASHTO Special Committee on Research & Innovation: The results should be implementable by most state DOTs.