BACKGROUND

State departments of transportation (DOTs) are increasing their use of alternative project delivery (APD) methods such as design-build and public-private partnerships to deliver construction projects.  A critical element in the development of a solicitation by the state DOT/owner is the assessment and assignment of financial risk to the selected contractor. How risk is allocated and the degree to which risk is transferred from the state DOT/owner to the contractor significantly influences potential bidders’ decisions to propose on a project and how to structure and price their proposal. Bidder pricing typically increases with the amount of risk being assumed. The state DOT/owner needs to balance project risk and the cost of the project; a project that is “risk-free” for the state DOT/owner is also likely to be unaffordable.

APD is typically used for large construction projects, but only a limited number of private engineering and construction companies have the financial capacity to assume significant financial risk. Assigning increasing levels of financial risk to the contractor with commensurate increases in bid prices can be expected to reduce the number of competitive bids and may also attract unqualified and/or unresponsive bidders. The likely impacts to the state DOT/owner include unsuccessful solicitations, higher bid prices, and significant project delays. One likely impact to bidders is unrecoverable costs for the preparation of bids, which can be substantial. Research is needed to develop guidelines for state DOTs/owners on how to (a) assess project risk and apportion that risk between the owner and the contractor, and (b) effectively convey risk within the procurement documents to attract responsive and competitive bids when APD is used.

OBJECTIVES

The objectives of this research are the following:

1. Develop a methodology to identify, assess, and quantify risk within completed and active projects delivered with APD methods. Application of this methodology shall assist state DOTs with understanding risk inherent in a project and identify potential ways to mitigate or manage that risk, including allocating some degree of risk to the contractor. The methodology shall integrate processes that consider the perspectives of state DOTs/owners and potential bidders.  

2. Produce a guide for state DOTs/owners on how to integrate risk analyses within their project development processes and how to effectively incorporate risk allocation in procurement documents. The guide shall also provide tools and techniques to aid the state DOT/owner in applying the methodology and effectively managing risk post-award.  

TASKS

Task 1. Review literature and develop practitioner survey.

Task 1a. Review literature on public sector and related sectors’ experience with apportioning financial risks between the owner and the contractor.

Task 1b: Develop practitioner survey(s). Identify appropriate practitioners to survey, to include but not be limited to state DOTs/owners, design firms, and construction contractors. The goals of the survey shall include identification of (a) risks related to or impacting the use of APD; (b) how state DOTs/owners identify and assess risk during the project development process; (c) how state DOTs/owners assign risk during procurement stage tools and/or processes; (d) the costs for risks borne by contractors and, as needed, mitigation of such risks; and (e) risk factors or decisions influencing a contractor to withdraw during procurement.

Submit a technical memorandum summarizing the findings from Tasks 1a and 1b, including the draft practitioner survey(s) developed in Task 1b. Following NCHRP review, the memorandum shall be discussed via conference call. NCHRP approval of the memorandum is required before proceeding with subsequent tasks.

Task 2. Conduct practitioner survey and develop draft methodology components.

Task 2a. Conduct practitioner survey. The survey shall initially be conducted electronically, with follow-up contacts by phone or virtual meetings as needed. The survey shall be sent to pertinent personnel within state DOTs/owners, and engineering and construction firms that have delivered projects using APD methods. Analyze survey results and identify potential components for the methodology. Submit a technical memorandum summarizing the results of Task 2a for NCHRP review. NCHRP approval of the memorandum must be received before work on Task 2b may begin.

Task 2b. Develop recommended methodology components.

Task 3. Submit interim report. The report shall summarize the findings from Tasks 1 and 2 and include recommended methodology components developed in Task 2. Following NCHRP review, the report will be discussed at a meeting with the NCHRP project panel, in-person if possible at the TRB offices in Washington, D.C. NCHRP approval of the interim report is required before proceeding with subsequent tasks.

Task 4. Obtain feedback on the methodology components and develop the methodology.

Task 4a. Obtain feedback on draft methodology components from practitioners familiar with risk challenges. Propose potential practitioner participants for consideration and feedback from NCHRP prior to requesting feedback. Practitioner feedback may be obtained via web conference(s) or peer exchange(s). Submit a technical memorandum summarizing the results of Task 4a for NCHRP review. 

Task 4b. Develop the methodology. Using the findings of Tasks 1-4a to the extent possible, develop the methodology and submit it for NCHRP review. NCHRP approval of the methodology must be received before proceeding with subsequent tasks.

Task 5. Develop the draft guide. Utilizing the methodology developed in Task 4b, develop a guide that would facilitate structured risk analyses of procurement in APD project solicitations and provide state DOTs/owners tools for modifying solicitations to make risk profiles more attractive to industry and thereby increase potential competition. If the methodology requires administration of risk post-award, the guide shall contain recommendations for managing risk post-award.

Task 6. Submit final report and project deliverables. Project deliverables shall include the guide, a conduct of research report summarizing the entire research effort, an implementation memo, and presentation slides on the research effort.

Note: Following receipt of the draft final deliverables, the remaining 3 months shall be for NCHRP review and comment and for research agency preparation of the final deliverables.

STATUS: Research in progress.