BACKGROUND

State departments of transportation (DOTs) are charged with overseeing the expenditure of public funds to produce high-quality infrastructure at the least cost. Many transportation agencies include pay adjustments in construction subawards as a quality assurance tool to raise the quality of the work above the minimum acceptable to extend the service life of the asset. 

Since pay adjustments were introduced into highway construction practice, public agencies have sought to use pay incentives and disincentives to motivate subawardors to produce work that exceeds the specified minimum. Subawardors must consider the risks and rewards of meeting these quality expectations in the competitive low-bid process in light of the costs associated with producing higher-quality work. These costs may include investments in quality control personnel and testing, quality materials, and facility and equipment upgrades and maintenance. Many agencies have found positive pay adjustments insufficient to incentivize the use of higher-quality construction materials and workmanship. Instead, many are relying on negative pay adjustments to penalize agencies for not achieving a desired level of quality.

Research is needed to advise agencies on developing methods to assign or “right size” the pay adjustments needed during construction to achieve the quality needed to improve the long-term performance of agency assets. 

OBJECTIVE

The objective of this project is to develop a practical guide, featuring a process framework, to help state DOTs establish, monitor, and adjust payment structures in subawards. This framework aims to incentivize enhanced quality outcomes for materials and workmanship in construction projects. 

At a minimum, the guide should be flexible enough to be applied by state DOTs regardless of local market factors and performance expectations for a given asset. The guide should incorporate and build on the terminology and risks used in the American Association of State Highway and Transportation Officials (AASHTO) R9: Standard Practice for Acceptance Sampling Plans for Highway Construction and AASHTO R10: Standard Practice for Definition of Terms Related to Quality and Statistics Used in Highway Construction.

Accomplishment of the project objective will require at least the following tasks.

TASKS

PHASE I – Data Collection 

Task 1. Conduct a literature review to identify standards and experience regarding the use of pay adjustments and other methods of providing incentives and disincentives in construction subawards, including but not limited to pay adjustments. 

Task 2. Research and document the industry’s state of practice regarding the use of pay adjustments and other incentives and disincentives in subawards to achieve a desired quality of performance. Specifically, the research should (1) identify and discuss the specific risks and benefits of applying pay adjustments to subawards, (2) identify the gaps in knowledge and practice to be addressed in the final product, and (3) identify potential case studies for completion in Task 3.

Task 3. Develop and document a minimum of four state DOT case studies representing all AASHTO regions that illustrate different experiences in using pay adjustments in various contexts, including project types and sizes. Compare a range of subawardor bid prices and applied pay adjustments in consideration of the risks identified in Task 2.

Task 4. Prepare Interim Report 1, which summarizes the results of the four prior tasks and includes a work plan for Phase II and an annotated outline of the process framework and guide that at a minimum:    

• Recommends a continuous process for analyzing the performance of assets constructed using pay adjustments to inform future decisions on the use and setting of pay adjustments,
• Provides recommendations for setting pay factors that consider the benefits and risks to the agency and subawardor,
• Helps agencies establish the appropriate pay factor(s) for desired quality characteristics defined by an agency, and
• Presents four or more state DOT case studies illustrating various practices using pay adjustments.

PHASE II – Product Development and Validation 

Task 5. Establish and document the variation of pay factors required to incentivize specified material and construction quality for integration into the guide.

Task 6. Prepare first drafts of the guide and process framework for NCHRP review. The draft guide and framework are due to NCHRP at least 6 months prior to the subaward end date. 

Task 7. Convene at least one stakeholder workshop with state DOT practitioners and other stakeholders to validate the contents of the documents prepared in Task 6. Workshops may be in-person or virtual.

 PHASE III – Prepare Draft and Final Deliverables for Publication

 Task 8. Prepare, at a minimum, the following:

• The guide and process framework;
• A PowerPoint presentation with speaker’s notes to share at industry meetings, conferences, and other venues to facilitate implementation; and
• A technical memo titled “Implementation of Research Findings and Products” containing a detailed implementation plan to encourage staff and executive adoption and implementation of the research results, such as pilot tests and setting new performance indices or other controls and specification limits. The plan should also recommend other research needs related to this topic and consider formatting the content for potential adoption by AASHTO as a recommended practice. 

STATUS: Proposals have been received in response to the RFP. The project panel will meet to select a contractor to perform the work.