Work Zone Road User Costs - Concepts and Applications

Chapter 4. Application of WZ RUC Analysis in Contracting/Project Delivery Methods

4.1 Overview

Time delay has been a chronic problem in the delivery of highway construction projects. In 2002, the General Accounting Office (GAO) observed that it typically takes about 9 to 19 years to plan, gain approval for, and construct a new, major Federally funded highway project that has significant environmental impacts. (Siggerud, Highway Infrastructure: Preliminary Information on the Timely Completion of Highway Construction Projects, Report No. GAO-02-1067T, United States General Accounting Office, Washington, DC, 2002.) Construction delays not only result in cost overruns but also cause adverse economic impacts and disruption to traveling public and local neighborhood. These impacts are more significant in urban areas with high traffic volumes.

Highway agencies increasingly are interested in shortening project delivery to manage the overall impacts of construction delays and associated road user costs. The benefits of shorter construction time are obvious: minimizes inconvenience and disruption of the traveling public, improves the safety performance of both construction crew and traffic, minimizes the adverse economic impacts on local businesses, provides savings in direct agency costs, and minimizes the social costs of traffic delays and additional travel.

Highway agencies use schedule-focused contracting methods and accelerated construction techniques to shorten construction time and minimize WZ RUC. (Fick, G., E. T. Cackler, S. Trost, and L. Vanzler, Time-Related Incentive and Disincentive Provisions in Highway Construction Contracts, Final Report, NCHRP Report No. 652, National Cooperative Highway Research Program, Transportation Research Board, Washington, D.C., 2010. Ellis, R., J. Pyeon, Z. Herbsman, E. Minchin, and K. Molenaar, Evaluation of Alternative Contracting Techniques on Florida DOT Construction Projects, Final Report, Contract No. FDOT BDC51, Submitted to the Florida Department of Transportation, Gainesville, 2007. Anderson, S. D., and I. Damnjanovic, Selection and Evaluation of Alternative Contracting Methods to Accelerate Project Completion, NCHRP Synthesis 379, National Cooperative Highway Research Program, Transportation Research Board, Washington, D.C., 2008.) The schedule-focused methods focus on reducing the number of calendar days of construction, completing the critical project milestones within the intended timeframe, stipulating the hours and days the contractor is allowed to close the roadway lanes for work, and incentivizing the contractor to complete the project ahead of schedule. These contracting methods can be pursued through any project delivery method: traditional, design-build, or construction manager/general contracting (CMGC). Accelerated construction uses various innovative planning, design, materials, and construction methods to reduce the installation time.

Both schedule-focused contracting methods and accelerated construction techniques focus on reducing the onsite construction time, which in turn, minimizes the work zone exposure time and associated costs. The deployment of non-traditional contracting methods or accelerated construction techniques to achieve shorter construction time often carries additional costs associated with innovations. This cost premium generally is offset partially or fully with WZ RUC savings gained from shorter work zone time. The computation of WZ RUC thus plays an important role in evaluating the economic efficiency of deploying non-traditional contracting/ construction strategies.

Furthermore, the computation of WZ RUC forms the basis for calculating contractor incentives/disincentives (I/D) set by an agency for early and late project completion. In the Milton Construction Company vs. Alabama case, the Alabama Supreme Court ruled that State of Alabama failed to adequately demonstrate that the disincentive amount was set based on the work zone road user costs. Though the outcome of this case did not set legal precedence for I/D provisions, the ruling emphasizes the primary role of road user costs in establishing I/D provisions.

This chapter presents an overview of schedule-focused alternative contracting strategies, identifying the need for their application, selecting an appropriate strategy based on project needs, determining I/D amounts, and identifying a balance between construction costs and the level of schedule acceleration required for early completion.

4.2 Schedule-Focused Alternative Contracting Strategies

4.2.1 Need for Schedule-focused Alternative Contracting Strategies

Traditionally, the owners of highway facilities have focused on acquiring construction services through low bid contracts—maximum value at minimum cost. (Thomas, H. R., R. D. Ellis, and S.K. Sinha, Improving the Time Performance of Highway Construction Contracts, Final Report, NCHRP Project No. 20-24(12)A, National Cooperative Highway Research Program, Transportation Research Board, Washington, D.C., 2006.) To ensure construction completion on time, owners have used liquidated damages clauses in their contracts. Liquidated damages are imposed to recover the additional construction oversight costs incurred by the owners if the contractor fails to complete the construction on time. Though these penalty mechanisms were put in place to enforce mandatory completion, nearly half of projects were not completed on time. On-schedule performance was worse for larger projects over 5 million dollars, as nearly two-thirds of these projects were not completed on time. (Crossett, J., and Hines, Comparing State Dots’ Construction Project Cost & Schedule Performance – 28 Best Practices from 9 States, Final Report, NCHRP Project 20-24, Task 37A, National Cooperative Highway Research Program, Transportation Research Board, Washington, D.C., 2007.) These findings suggest that the liquidated damages were only partially effective in enforcing project completion time.

With increasing pressures to complete construction on time, owner agencies have turned to non-traditional, schedule-focused contracting methods for use in conjunction with liquidated damages. These methods include:

• I/D for early/late completion.
• Lane rental.
• Cost (A) + time (B) bidding with I/D.
• Interim milestones.
• No-excuse bonus (otherwise called locked incentives).
• Liquidated savings.
• Accelerated construction techniques. (Although an accelerated construction technique is not considered as a contracting strategy, it is often used to shorten project completion time and minimize road user impacts.)

Except for accelerated construction techniques, all these contracting methods have been evaluated on select Federal-aid projects since the 1990s under the FHWA’s SEP-14 program. Of these strategies, A+B bidding and lane rental were declared operational (no longer considered experimental) after a period of evaluation, while the others are under evaluation. These strategies, including accelerated construction techniques, were put in practice in several highway projects under the FHWA’s HfL program.

Schedule-focused methods augment the traditional design-bid-build delivery method by focusing on improving its schedule performance. In addition, design-build and CMGC have been found effective in shortening the construction completion time. The use of CMGC in Federal-aid projects is under SEP-14 evaluation, while the design-build method is no longer considered experimental. Though CMGC and design-build primarily focus on improving the overall project delivery time (i.e., preliminary engineering through construction), the early involvement of the contractor in the pre-construction phases has helped the owner agencies manage work zone impacts and achieve early completion through increased coordination and better planning.

4.2.2 Overview of Schedule-focused Contracting Methods and Alternative Delivery Methods

This section presents an overview of the schedule-focused contracting methods and alternative delivery methods.

4.2.2.1 Incentive/Disincentive for Early Completion

FHWA’s Contract Administration Core Curriculum (CACC) Manual defines I/D for early completion as “a contract provision which compensates the contractor for each day that identified critical work is completed ahead of schedule and assesses a deduction for each day that completion of the critical work is delayed.” (FHWA, Contract Administration Core Curriculum Participant’s Manual and Reference Guide, Office of Program Administration, Federal Highway Administration, Washington, D.C., 2006.) In this approach, the contractor is required to complete the project by the engineer’s estimate of the contract time specified in the bid documents. Upon completion, the contractor is rewarded with bonus payments for completing the project ahead of schedule and penalized with disincentive charges for late completion. The owner agency determines both the maximum allowable time and the I/D structure.

The I/D structure and the engineer’s estimate of the contract time should be well justified and determined on a project-by-project basis. The incentive payments should be adequate enough to motivate the contractor to complete the work on or ahead of schedule; in other words, the incentives paid to the contractor should be higher than the additional costs incurred by the contractor for accelerating the work. On the other hand, the disincentive charges for delivery delay should compensate the additional costs incurred by the owner agency and road users.

The I/D structure should be established using the road user costs, traffic control and maintenance costs, and construction engineering inspection costs. FHWA recommends a cap of 5 percent of the total contract amount for the maximum incentive payment, while no such cap is recommended on the maximum disincentive amount.

Similarly, the maximum time for completion allowed in the contract (engineer’s estimate) should be well balanced and effective. An unreasonable completion date may attract unbalanced bids, while an incentive payment to contractors is unjustified for little or no effort. Project scheduling using the critical path method (CPM) can help determine an optimal completion time.

The use of I/D provisions is suitable for virtually all types of projects, but especially those with high-traffic volumes in urban areas. Typical projects include new/reconstruction, rehabilitation projects, detour projects, intersection upgrades, and bridge rehabilitation projects. However, I/D generally is not used on non-critical, low WZ RUC projects that create little disruption to traffic, such as signal systems, landscaping, and signing projects.

The advantages and disadvantages of using I/D provisions are summarized in Table 44.

Table 44. Advantages and disadvantages of incentives/disincentives.

Advantages	Disadvantages
Reduces WZ RUC Shortens project completion time Enhances work zone safety Encourages contractor efficiency and productivity Accommodates local traffic flow Opens critical phases of a project earlier Reduces construction engineering inspection, traffic control costs	Would not necessarily result in time savings Additional agency resources Increased construction costs Negotiations difficult with contract changes May lead to adversarial relationship Additional documentation and coordination Risks of unbalanced bids with both cost and time component if planned not properly. Needs additional planning

4.2.2.2 A+B Bidding (with I/D)

A+B bidding allows an owner agency to solicit bids for the cost of work items and the time to complete the work and procure them in a single contract. This method involves two components:

• Cost (A): The dollar amount of contract items (equipment, materials, and manpower) for all work to be performed under the traditional low-bid contract.
• Time (B): The dollar amount for the time component of a contract, estimated by multiplying the number of calendar days to complete the work by the daily road user cost.

The cost and time components are combined to arrive at a bid value:

Bid value = (A) + (B x Daily Road User Cost)

The contract is then award to the lowest bid value for contract award. This formula is not used in determining the payment to the contractor. The contractor receives incentives for early completion and is required to pay disincentives (and liquidated damages) for delaying beyond the completion date agreed in the contract.

A+B bidding generally is suitable for time-critical projects such as high-traffic volume roadways, business, tourist, and environmentally sensitive areas. Typical projects include new/reconstruction, rehabilitation projects, simple bridge replacement projects, detour projects, intersection upgrades, and bridge rehabilitation projects. A+B bidding is not required for non-critical, low impact projects such as signal systems, landscaping, and signing projects.

The advantages and disadvantages of this method are summarized in Table 45.

Table 45. Advantages and disadvantages of A+B bidding.

Advantages	Disadvantages
Reduces WZ RUC Shortens project completion time Enhances work zone safety Encourages contractor efficiency and productivity Accommodates local traffic flow Opens critical phases of a project earlier Reduces construction engineering inspection, traffic control costs	Would not necessarily result in time savings Additional agency resources Increased construction costs Negotiations difficult with contract changes May lead to adversarial relationship Additional documentation and coordination Bidding risks with insufficient competition Risks of unbalanced bids with both cost and time component if planned not properly. Needs additional planning

4.2.2.3 Lane Rental

In lane rental, the contractor pays a rental fee for the time period a lane is closed to through traffic for construction activities. This provision is intended to minimize the disruption of the work zone traffic and to encourage minimal use of lanes for construction activities.

In this approach, the owner agency determines the number and duration of lane closures. The lane rental fee is estimated using the WZ RUC of the closure period. Closures may be continuous or intermittent, restricted to off-peak hours, night work, weekend, or during the execution of specific tasks, such as blasting. (Caputo, F., and S. Scott, Criteria and Guidelines for Innovative Contracting, Final Report, Study No. SD95-07, Submitted to the South Dakota Department of Transportation, Pierre, SD, 1996.) The owner must estimate the closure time accurately, and the methodology for determining closure time should be defined clearly in the specifications. In some cases, the contractor may be allowed to propose the required amount of closure time and number of closures in their bid submissions.4TP 99P4T Lane rental fee can be combined with an I/D provision or may apply only for the period of schedule overrun. Lane rental also can be combined with the A+B bidding method.

Lane rental generally is suitable when detours are long, unavailable, or impractical, or when peak hour traffic is impacted adversely. It is well suited for multiple lane roads with high traffic volumes where there is flexibility for intermittent or temporary lane closures to keep at least one lane open to traffic through the work zone. Typical projects include mill and overlay, temporary widening, patching, diamond grinding, dowel retrofitting, reclamation and recycling, guardrails, striping, signing, bridge painting, crack sealing, signal systems, and traffic management projects. Lane rental is not suitable for projects where long-term permanent lane closures are required, such as bridge re-deck or concrete rehabilitation projects.

The advantages and disadvantages of this method are summarized in Table 46.

Table 46. Advantages and disadvantages of lane rental.

Advantages	Disadvantages
Reduces WZ RUC Shortens project completion time Enhances work zone safety Encourages contractor efficiency and productivity Accommodates local traffic flow	Work at night and worker safety Would not necessarily result in time savings Additional agency resources Negotiations difficult with contract changes May lead to adversarial relationship Additional documentation and coordination

4.2.2.4 No-Excuse Incentives

In this method, the contractor is given a “firm completion date” with no excuses for delay. The contractor receives incentives for completing by or before the specified date but there are no disincentives applied for failure to meet the target date (liquidated damages may apply). This method is also referred to as locked incentive dates.

No-excuse incentive clauses have been successful in encouraging early completion for projects that must be open by an event date, such as a sporting event. However, if construction is not completed by that date, appropriate disincentive or liquidated damage provisions may be used to recover public and agency costs.

No-excuse incentives are suitable for time-critical and full closure projects such as in urban, business, tourist, or environmentally sensitive areas. They are well suited for larger projects with multiple phases where the pace of work progress needs to be controlled.

The advantages and disadvantages of this method are summarized in Table 47.

Table 47. Advantages and disadvantages of no-excuse incentives.

Advantages	Disadvantages
Reduces WZ RUC Shortens project completion time Enhances work zone safety Encourages contractor efficiency and productivity Opens critical phases of a project earlier Better control of project acceleration compared to A+B Reduces construction engineering inspection, traffic control costs	Additional agency resources Increased construction costs Negotiations difficult with contract changes May lead to adversarial relationship Needs additional planning Legal constraints may not permit

4.2.2.5 Interim Completion Dates (with or without I/D)

In this method, the contractor is required to complete one or more specific portions of a project within a set duration or by a firm completion date. Schedule-related incentives and disincentives may apply.

4.2.2.6 Liquidated Savings

Under this provision, the contractor receives an incentive amount equal to the savings in the owner agency’s construction oversight costs for completing the project ahead of schedule. The same approach is used for calculating both liquidated savings and liquidated damages.

4.2.2.7 Accelerated Construction Techniques

Accelerated construction uses various techniques and technologies to help reduce construction time while enhancing/maintaining safety and quality. Accelerated construction techniques offer significant advantages over the traditional construction techniques:

• Reduces the on-site construction time.
• Minimizes inconvenience to traveling public.
• Makes the construction process efficient.
• Improves the work zone safety (with reduced exposure time).
• Reduces environmental impacts by minimizing the site access footprint.
• Reduces the associated road user costs.

Acceleration construction techniques include:

• Prefabricated Bridge Elements and Systems (PBES): These prefabricated elements are manufactured at an off-site location under controlled conditions, assembled as structural systems, transported to the construction site, and installed on a prepared foundation. Prefabricated elements include individual structural elements such as partial-depth or full-depth deck panels, pre-cast beams, pier cap, abutment wall, wingwall, and/or footing column, and/or footing. Prefabricated elements include superstructure, substructure, or the entire bridge system itself.
• Heavy Cranes/Transporters for Bridges: Self Propelled Modular Transporters (SPMT) facilitate quick removal of demolished bridge structures and rapid installation of a new superstructure. The SPMT technology reduces the sequential processes of conventional on-site bridge superstructure construction into one step: move prefabricated bridge superstructure to its final position. SPMTs can move the new bridge superstructure or the entire bridge into place in minutes, with construction inspection completed and traffic flow restored within several hours. (FHWA Manual on Use of Self-Propelled Modular Transporters to Move Bridges, Publication No. FHWA-HIF-07-022, Federal Highway Administration, 2007.)
• Pre-cast Concrete Pavement Construction: Prefabricated concrete panels facilitate rapid repair, rehabilitation, and construction of pavements in high-volume-traffic roadways. These panels can be used for single lane replacements, full-depth repairs or full-width construction. These panels can be made thinner than cast-in-place panels, making them ideal for installation under overpasses with limited height clearances. (FHWA, Modular systems reduce traffic congestion and speed project completion.)
• Material Innovations: Use of non-conventional materials, such as rapid strength concrete and polymer modified concrete, minimizes the lane closure time required for constructability reasons and facilitates the early opening of lanes to traffic.
• Non-destructive Testing: Use of non-destructive test devices, such as the light weight falling weight deflectometer and intelligent compaction, provides real-time monitoring of construction quality and saves construction time.

Accelerated construction techniques are appropriate for projects that require the least possible lane closure times. Installation of prefabricated bridge elements, systems, or concrete panels requires fewer hours of lane closure, thus limiting traffic disruption to shorter periods during non-peak hours, nights, or weekends. These techniques are suitable for high volume roadways, emergency bridge replacement, evacuation routes, over a railroad or navigable waterway, and locations where detours are long or impractical. These techniques also are suitable for bridges or concrete pavements that impact the critical path duration of the project. (FHWA, Decision-Making Framework for Prefabricated Bridge Elements and Systems (PBES), Publication Number FHWA-HIF-06-030, Federal Highway Administration, May 2006.)

4.2.2.7 Design-Build Projects

Design-build is a project delivery method in which an owner combines procurement for both design and construction services into a single contract from a single private sector entity. In design-build contracting, the owner is responsible for defining the scope and requirements of the project, performing initial design and design oversight, soliciting proposals from bidders to procure services for both final design and construction, and evaluating those proposals for selection, while the responsibilities for final design is shifted to the design-builder.

In the design-build approach, the performance criteria for the project include schedule, project management, and technical and cost factors. Schedule is particularly important because owners typically select design-build as a means to compress the project delivery method. (Molenaar, K. R., and A. D. Songer, “Model for Public Sector Design-Build Project Selection,” Journal of Construction Engineering and Management, American Society of Civil Engineering, Vol. 24, Issue 6, 1998.) The owner agency may require potential contractors to propose a time schedule for project completion in their bid submittal that may include interim milestones to control the pace of the project and a final completion date. The owner agency also may specify criteria for schedule restrictions in the proposal solicitation that include lane closure hours, forbidding certain types of work during specified periods of time, mandating holidays, and implementing security precautions. The contractor-proposed time schedule will then be evaluated (along with other criteria) for award. For low-bid awards, the owner agency can propose the schedule for project completion.

From the WZ RUC perspective, the direct involvement of the design-builder in the pre-construction phases helps to identify appropriate strategies for reducing work zone impacts and overall project delivery time; however, it is imperative that the responsibilities of the design-builder are defined clearly in the proposal solicitation.

The advantages and disadvantages of the design-build contracting are summarized in Table 48.

Table 48. Advantages and disadvantages of design-build project delivery.

Advantages	Disadvantages
Shortened construction completion time Less time impact on design errors and omissions as the design-build is in control on both design and construction details More flexibility for contractor innovation in selecting design, materials and construction methods Reduced change orders and claims Inclusion of innovations and new technologies.	Risks over the owner’s inability to precisely define the project scope Loss of owner’s control over design details Change orders are expensive Uncertainty over life cycle performance and potential conflicts with the contractor’s design.

Construction Manager/General Contractor

CMGC is a two-phase project delivery method where a construction manager, selected by an owner based on qualifications for both preconstruction and construction services of a project, will be at risk for the final cost and time of construction. As W. Strang puts it, “the construction manager is an agent of the Owner in managing the design process, but takes the role of a vendor when a total cost guarantee is given.” (Strang, W., “The Risk in CM at-Risk,” CM eJournal, Construction Management Association of America, McLean, Va., 2004.)

In the first phase, the selected contractor collaborates with the owner and designer in the pre-construction phases to provide inputs particularly on constructability, budgeting, schedule, and materials ; assist in developing a complete contract package; and establish a guaranteed maximum price (GMP), delivery schedule, and construction quality when the design is nearly complete.

In the second phase, the contractor builds the project for a GMP acceptable to the owner. Upon failure to reach an acceptable price, the construction manager is entitled to payment for the pre-construction services, while the owner may put out the project as a low bid design-bid-build project in the market. Upon acceptance, the construction manager is at risk for any expenditure exceeding the GMP. Any cost savings realized in the project may be shared between the owner and the construction manager.

In the pre-construction phase, the construction manager’s services may be utilized in all phases of the project, including but not limited to not limited to planning, design, third-party coordination, constructability reviews, budgeting, cost estimating, scheduling, value engineering, material selection, construction logistics plan, market surveys of construction materials and equipment, contract package development, and other services required in the contract.

The advantages and disadvantages of the CMGC are summarized in Table 49. Note that the advantages listed in this table of are basically linked to the cost, schedule, quality performance of the project, while the disadvantages are mostly related to the contract administration.

Table 49. Advantages and disadvantages of CMGC.

Advantages	Disadvantages
Contractor’s inputs in the design decisions Relatively higher precision cost estimates at early stages of the project More realistic and faster delivery schedule Early bid packages Teaming atmosphere Owner control over the details of the design Identifies risks early and allocate to parties that better manage them.	Conflict of interest between the construction manager and the designer (i.e., cost control versus conservative design to reduce design liability). Additional owner responsibility to coordinate both design and construction phases of the contract. Final cost unknown until the GMP is established Inadequate training and experience.

In the context of WZ RUC, CMGC allows for the collaboration between the owner and the construction manager in developing a construction phasing and delivery schedule for the project. This approach may be advantageous in expediting project completion time and minimizing the work zone impacts on traffic and the local community, thus reducing road user costs.

In this method, at the time GMP is established, the construction manager establishes construction completion dates for final or substantial completion and any intermediate phases and milestones. The completion dates typically are established in terms of calendar days following the commencement date of the construction phase. In the event the construction manager fails to complete the project or any intermediate phases by the completion dates agreed upon, the construction manager may attract disincentives for late completion. Similarly, depending on the contract agreements, the construction manager may attract incentive bonus for early completion.

Another advantage of CMGC is the ability to incorporate the construction manager’s perspective and inputs in developing MOT strategies. The construction manager either collaborates with the designer in preparing better MOT plans or improves on a prepared plan.

Though suitable for projects of all sizes and complexity, CMGC typically is used for larger, more complex projects with high road user costs. CMGC is appropriate when the owner has difficulties in identifying reasonable schedules and cost estimates for a project and when there is a need for optimizing design and improve constructability.

4.3 Selecting a Contracting Strategy to Expedite Project Completion

An owner agency decides on the contracting strategy to be used in the initiation and preliminary phase of a project. The process involves the selection of an appropriate project delivery method followed by a schedule-focused contracting strategy for early completion. The decision making process is influenced by the agency goals, project objectives, and the need to accelerate the project in particular.

In the earlier phases of the project, the owner agency typically establishes the preliminary cost estimates, a tentative time schedule, and milestones, and conducts public meetings and work zone traffic analyses to assess the impact the project will have on the public. Based on the preliminary estimates and impact assessment, the owner agency then establishes the need to accelerate the project, evaluates the project criteria for effective use of schedule-focused contracting methods, and selects an appropriate strategy for early completion. Estimates of key contract parameters, such as daily WZ RUC, I/D structure, accelerated schedule, and associated costs are refined as the design phase progresses. The process typically extends until all the pertinent design details are finalized.

Figure 14 presents a sample process proposed by Sillars (2007) for implementing schedule-focused contracting methods. (Sillars, S. N. Establishing Guidelines for Incentive/Disincentive Contracting at Oregon DOT, Report No. FHWA-OR-RD-07-07, Oregon Department of Transportation, Salem OR, 2007.)

Figure 14. Sample flow chart of the I/D contracting implementation process (Sillars, 2007).

For practitioners, the following references provide a more in-depth review of schedule-focused contracting methods:

• NCHRP Synthesis No. 379: Selection and Evaluation of Alternative Contracting Methods to Accelerate Project Completion — This report summarizes the state of practice of selecting schedule-focused contracting methods to accelerate project completion and to identify driving factors for selecting one method over another.101
• NCHRP Report No. 652: Time-Related Incentive and Disincentive Provisions in Highway Construction Contracts — This report provides recommendations for the effective use of time-related I/D provisions in highway construction contracts.99

The key steps involved in selecting a contracting strategy to expedite project completion are listed as follows:

• Identifying the need for project acceleration
• Selecting a project delivery method
• Selecting a schedule-focused contracting strategy

4.3.1 Need for Project Acceleration

The first step of the process is to establish the need for using a schedule-focused contracting strategy and shortening the duration of the project. The owner agency may choose to accelerate the project completion to reduce work zone impacts and associated road user costs, in the larger interests of local community and political interests, to complete the project on or before an intended date or to close a gap in the local highway network. The impact assessment also helps in identifying the work zone needs by characterizing the travel and safety impacts on commuter and freight traffic, the economic effects on local business and inconvenience on neighborhood, and associated road user costs.

The agency can develop minimum guidelines to identify the need for project acceleration in the earlier phases of project development based on project characteristics, duration, and threshold levels of traffic delay time and road user costs. If a project meets such minimum guidelines for using schedule-focused contracting methods, the project team can further establish the potential benefits for its use.

FHWA’s Technical Advisory T 5080.10 states that time-related I/D provisions are appropriate for projects identified with selective characteristics and not for routine use. (Willett, T. O., Incentive/Disincentive (I/D) for Early Completion, Technical Advisory T 5080.10, Federal Highway Administration, dated February 8, 1989.) The advisory identifies projects with the following characteristics appropriate for its application:

• High-traffic volumes generally found in urban areas.
• Work that will complete a gap in the highway system.
• Major reconstruction or rehabilitation on an existing facility that will severely disrupt traffic.
• Major bridges out of service.
• Significant impacts to local business and adjacent neighborhood.
• Lengthy detours.
• Significant increase in road user costs.

In addition, an agency may consider the following factors:

• Significant safety issues of workers and traffic are anticipated during construction.
• Where political and local community interests are needed to be accommodated.

• Time-sensitive projects.
• To encourage innovative construction processes.

Table 50 presents a list of questions that can help to identify the need for accelerating project completion. If the answer to several of these questions is YES, choosing a schedule-focused contracting strategy may help achieve the project goals. Guidance on selecting an appropriate contracting strategy is presented in section 4.3.2.

Table 50. Questions on identifying the need for accelerating a project schedule.

Question	Yes	Maybe	No
Is the project goal to shorten the duration of construction phase?
Is the estimated WZ RUC high for the baseline duration?
Is the traffic volume high enough to cause significant disruptions? Does the work zone affect the intersecting traffic?
Is this roadway located in an urban area? Does the local traffic depend on this highway for commute?
Does this area lack any viable detour alternative that does not adversely impact the local network?
Are there local community and political interests to be considered?
Does the work zone adversely impact the local business and neighborhood?
Are the safety issues of construction workers and traffic a concern?
Is the project time-sensitive?
Does this project close a gap in the local highway network?
Is the project located in tourist or environmentally sensitive areas?

However, the effectiveness of schedule-focused strategy would be lost if the project development process fails to provide complete and well-defined set of plans, specifications, and estimate (PS&E). Schedule-focused methods can be very costly in time as well as money with change orders, design omissions and errors and conflicts, and finally, may lose its effectiveness. These strategies are not recommended for use until the following complications are resolved:

• Right-of-way not secured before the letting date or such issues hinders the sequencing and overall progress of work.
• Third-party conflicts such as permits, municipal agreements, utilities, railroad agreements, hazardous materials environmental/archaeological issues.
• Design is either incomplete; change orders or plan additions are anticipated.
• Field review does not guarantee against restrictions any unfavorable site conditions such as geotechnical and environmental issues.
• Design uncertainties or incomplete design.
• Agency-wide activities that may restrict available resources (staffing, labor, equipment, and material shortages) typically demanded by an accelerated schedule.

Therefore, the owner agency should make sure to resolve these issues before the commencement of construction schedule. The PS&E submittal should be complete before the letting date.

4.3.2 Selecting an Appropriate Schedule-Focused Alternative Strategy

This section provides guidance on selecting a particular contracting strategy for a project to achieve schedule-related objectives. This guidance is intended to support the decision making process of an owner agency and should be used in conjunction with agency goals and any applicable State laws.

4.3.2.1 Selecting a Project Delivery Method

Project Size, Scope, and Complexity

• For small, medium sized, and routine projects, the design-bid-build method will be more appropriate for project delivery. The owner agency will have knowledge, experience, and control over planning, design details, and cost of the project.
• For medium to large, innovative, and more complex projects, alternative project delivery methods (design-build and CMGC) are recommended. Early involvement of the contractor in the design or pre-construction phases will help in better coordination, planning, and sequencing.

Design Scope

• When the owner agency is less certain over the design scope of the project, CMGC will be a more pragmatic choice over design-build. Bringing the contractor into the pre-construction process helps refining the design scope through direct contractor inputs and feedback over design and costs, thereby reducing related risks. Design-build is more appropriate when the owner agency has a clearer vision of the design scope.

Innovations

• CMGC is a good choice for introducing innovations and new technologies, as the process allows collaboration and control with the contractor. CMGC encourages out-of box innovations that the contractors would not have chosen independently. With the agency’s willingness to share risks and costs, CMGC makes this choice possible by involving the contractor early in the process and thereby providing more time and options to identify the appropriate strategies for risk reduction. (Alder, R. "UDOT Construction Manager General Contract (CMGC) Annual Report," Utah Department of Transportation Project Development Group, Engineering Services and Bridge Design Section, Salt Lake City Utah, 2007, 39pp.) CMGC is preferable to design-build for introducing innovations, as owners sometimes have questions concerning life cycle decisions made by design-builders. Design-build is more appropriate when the owner has knowledge and confidence over the innovations.

Table 51 presents a simple matrix to select an appropriate project delivery method based on road user costs and project completion factors only.

Table 51. Project delivery method selection matrix.

Project size	Is project routine or innovative?	Certain over design scope?	In-house design ?	Early cost certainty?	Certain over constructability?	Suggested strategy
Small-medium	Routine	Yes	Yes	Yes	Yes	DBB	Follow Table 52 for schedule related strategies.
Small-medium	Innovative	Yes	Yes	Yes/No	Yes/No	DBB (May hire consultants or seek constructability advice from local contractors or trade associations.)	Follow Table 52 for schedule related strategies.
Medium-large	Routine	Yes	Yes	Yes	Yes	DBB/DB/ CMGC	Follow Table 52 for schedule related strategies.
Medium-large	Innovative	Yes	Yes	Yes	No	DBB (May hire consultants or seek constructability advice from local contractors or trade associations.	Follow Table 52 for schedule related strategies.
Medium-large	Innovative	Yes	Yes	No	Yes/No	CMGC/DB	Follow Table 52 for schedule related strategies.
Medium-large	Innovative	Yes	No	Yes	Yes/No	DB	Follow Table 52 for schedule related strategies.
Medium-large	Innovative	Yes	No	No	Yes/No	DB	Follow Table 52 for schedule related strategies.
Medium-large	Innovative	No	Yes	Yes	Yes/No	CMGC	Follow Table 52 for schedule related strategies.
Medium-large	Innovative	No	Yes	No	Yes/No	CMGC	Follow Table 52 for schedule related strategies.
Medium-large	Innovative	No	No	Yes	Yes/No	CMGC	Follow Table 52 for schedule related strategies.
Medium-large	Innovative	No	No	No	Yes/No	CMGC	Follow Table 52 for schedule related strategies.

4.3.2.2 Selecting a Schedule-Focused Contracting Strategy

Early Completion Required

• I/D will be more appropriate if the project goal is early completion. Incentives provide motivation to the contractor to complete the project early, whereas disincentives discourage schedule delays.
• Liquidated damages will be more appropriate to ensure completion on time if early completion is not a priority.

Time-Sensitive Projects

• For time-sensitive projects, A+B bidding, no-excuse incentives, and interim milestones are more appropriate. These methods can be used when the project is required to be completed by a specific date. These methods also are appropriate where early completion is preferred, such as in urban, tourist, and environmentally sensitive areas.
• When the project is not time-sensitive, lane rental can help achieve the desired level of work zone performance.

Project Duration

• Generally, for short-term projects, lane rental and no-excuse incentives are suggested.
• For long-term projects, A+B bidding and no-excuse incentives are preferable.

Intermediate or Multiple Phases

• If the completion of one or more intermediate phases of a project is critical, A+B bidding, no-excuse incentives, and interim milestones are recommended. For non-critical phases, lane rental can help achieve the desired level of work zone performance.
• If the goal is to control the pace of a large, multi-phase project, A+B bidding, no-excuse incentives, and interim milestones will be more appropriate.

Detours are Long, Impractical, or Unavailable

• Use of lane rental is recommended when detour alternatives are not feasible and full closure is not required. To be effective, lane rental requires at least one lane should be available for through traffic at all times. Accelerated techniques can be considered for use on case-by-case basis when cost-effective.
• When detour alternatives are not feasible and full closure is inevitable, accelerated construction techniques will be effective. Installation of prefabricated elements and systems requires fewer hours of lane closure and can be scheduled during non-peak hours, nighttime, or weekends, in one or more stages.

Urban Commuter Traffic

• Use of lane rental during non-peak hours is recommended for urban commuter traffic when full closure is not required. Accelerated techniques can be considered for use on case-by-case basis when cost-effective.
• When full closure is inevitable, accelerated construction techniques will be effective. Use of accelerated techniques is recommended in emergency projects.

Owner’s Confidence on Estimated Duration

• When the owner agency is not confident about the estimated project duration, A+B bidding allows the market to determine the number of days of completion. It also provides flexibility to reject bids with unreasonably high or unjustified completion time.
• When the owner agency is confident about the estimated project duration, both A+B bidding and no-excuse incentives can be used.

Table 52 provides a matrix for selecting an appropriate contracting strategy based on the decision rules discussed above.

Table 52. Schedule-focused contracting strategy selection matrix.

Suggested Strategy	Baseline Project duration	Time sensitivity	Complete Early	Intermediate Phases	Detours impractical/long, Urban commuter traffic	Owner’s confidence on estimated duration
(Cost plus time bidding with incentives and disincentives)/No-excuse bonus (or no-excuse incentives)/(Incentives and disincentives for early completion) + Accelerated Construction Techniques	Short	Yes	Yes	Not critical	Yes - Full closure required	High
(Cost plus time bidding with incentives and disincentives)/(Incentives and disincentives for early completion) + Accelerated Construction Techniques	Short	Yes	Yes	Not critical	Yes - Full closure required	Low
(Cost plus time bidding with incentives and disincentives)/No-excuse bonus (or no-excuse incentives)/(Incentives and disincentives for early completion) + Lane Rental/Accelerated Construction Techniques	Short	Yes	Yes	Not critical	Yes - Full closure not required	High
(Cost plus time bidding with incentives and disincentives)/(Incentives and disincentives for early completion) +Lane Rental/Accelerated Construction Techniques	Short	Yes	Yes	Not critical	Yes - Full closure not required	Low
(Cost plus time bidding with incentives and disincentives)/No-excuse bonus (or no-excuse incentives)/(Incentives and disincentives for early completion) + Lane Rental	Short	Yes	Yes	Not critical	No	High
(Cost plus time bidding with incentives and disincentives)/(Incentives and disincentives for early completion) +Lane Rental	Short	Yes	Yes	Not critical	No	Low
(Cost plus time bidding with incentives and disincentives)/No-excuse bonus (or no-excuse incentives) + (Incentives and disincentives for early completion)	Short	No	Yes	Not critical	Yes - Full closure required	High
(Cost plus time bidding with incentives and disincentives) + (Incentives and disincentives for early completion)	Short	No	Yes	Not critical	Yes - Full closure required	Low
(Cost plus time bidding with incentives and disincentives)/No-excuse bonus (or no-excuse incentives)/(Incentives and disincentives for early completion) + Lane Rental	Short	No	Yes	Not critical	Yes - Full closure not required	High
(Cost plus time bidding with incentives and disincentives)/(Incentives and disincentives for early completion) +Lane Rental	Short	No	Yes	Not critical	Yes - Full closure not required	Low
(Cost plus time bidding with incentives and disincentives)/No-excuse bonus (or no-excuse incentives)/(Incentives and disincentives for early completion) + Lane Rental	Short	No	Yes	Not critical	No	High
(Cost plus time bidding with incentives and disincentives)/(Incentives and disincentives for early completion) +Lane Rental	Short	No	Yes	Not critical	No	Low
(Liquidated Damages)	Short	No	No	Not critical	Yes - Full closure required	High
(Liquidated Damages)	Short	No	No	Not critical	Yes - Full closure required	Low
Lane Rental + (Liquidated Damages)	Short	No	No	Not critical	Yes - Full closure not required	High
Lane Rental + (Liquidated Damages)	Short	No	No	Not critical	Yes - Full closure not required	Low
(Liquidated Damages)	Short	No	No	Not critical	No	High
(Liquidated Damages)	Short	No	No	Not critical	No	Low
(Cost plus time bidding with incentives and disincentives)/No-excuse bonus (or no-excuse incentives)/Interim Milestones (or interim completion dates)/(Incentives and disincentives for early completion) + Accelerated Construction Techniques	Long	Yes	Yes	Critical	Yes - Full closure required	High
(Cost plus time bidding with incentives and disincentives)/Interim Milestones (or interim completion dates)/(Incentives and disincentives for early completion) + Accelerated Construction Techniques	Long	Yes	Yes	Critical	Yes - Full closure required	Low
(Cost plus time bidding with incentives and disincentives)/No-excuse bonus (or no-excuse incentives)/Interim Milestones (or interim completion dates)/(Incentives and disincentives for early completion) + Lane Rental	Long	Yes	Yes	Critical	Yes - Full closure not required	High
(Cost plus time bidding with incentives and disincentives)/Interim Milestones (or interim completion dates)/(Incentives and disincentives for early completion) + Lane Rental	Long	Yes	Yes	Critical	Yes - Full closure not required	Low
(Cost plus time bidding with incentives and disincentives)/No-excuse bonus (or no-excuse incentives)/Interim Milestones (or interim completion dates)/(Incentives and disincentives for early completion)	Long	Yes	Yes	Critical	No	High
(Cost plus time bidding with incentives and disincentives)/Interim Milestones (or interim completion dates)/(Incentives and disincentives for early completion)	Long	Yes	Yes	Critical	No	Low
(Cost plus time bidding with incentives and disincentives)/No-excuse bonus (or no-excuse incentives)/(Incentives and disincentives for early completion) + Accelerated Construction Techniques	Long	Yes	Yes	Not critical	Yes - Full closure required	High
(Cost plus time bidding with incentives and disincentives)/(Incentives and disincentives for early completion) + Accelerated Construction Techniques	Long	Yes	Yes	Not critical	Yes - Full closure required	Low
(Cost plus time bidding with incentives and disincentives)/No-excuse bonus (or no-excuse incentives)/(Incentives and disincentives for early completion) + Lane Rental/Accelerated Construction Techniques	Long	Yes	Yes	Not critical	Yes - Full closure not required	High
(Cost plus time bidding with incentives and disincentives)/(Incentives and disincentives for early completion) + Lane Rental/Accelerated Construction Techniques	Long	Yes	Yes	Not critical	Yes - Full closure not required	Low
(Cost plus time bidding with incentives and disincentives)/No-excuse bonus (or no-excuse incentives)/(Incentives and disincentives for early completion)	Long	Yes	Yes	Not critical	No	High
(Cost plus time bidding with incentives and disincentives)/(Incentives and disincentives for early completion)	Long	Yes	Yes	Not critical	No	Low
(Cost plus time bidding with incentives and disincentives)/No-excuse bonus (or no-excuse incentives)/Interim Milestones (or interim completion dates)/(Incentives and disincentives for early completion) + Accelerated Construction Techniques	Long	No	Yes	Critical	Yes - Full closure required	High
(Cost plus time bidding with incentives and disincentives)/Interim Milestones (or interim completion dates)/(Incentives and disincentives for early completion) + Accelerated Construction Techniques	Long	No	Yes	Critical	Yes - Full closure required	Low
(Cost plus time bidding with incentives and disincentives)/No-excuse bonus (or no-excuse incentives)/Interim Milestones (or interim completion dates)/(Incentives and disincentives for early completion) + Lane Rental	Long	No	Yes	Critical	Yes - Full closure not required	High
(Cost plus time bidding with incentives and disincentives)/Interim Milestones (or interim completion dates)/(Incentives and disincentives for early completion) + Lane Rental	Long	No	Yes	Critical	Yes - Full closure not required	Low
(Cost plus time bidding with incentives and disincentives)/No-excuse bonus (or no-excuse incentives) /Interim Milestones (or interim completion dates)/(Incentives and disincentives for early completion)	Long	No	Yes	Critical	No	High
(Cost plus time bidding with incentives and disincentives)/Interim Milestones (or interim completion dates)/(Incentives and disincentives for early completion)	Long	No	Yes	Critical	No	Low
(Cost plus time bidding with incentives and disincentives)/No-excuse bonus (or no-excuse incentives) /(Incentives and disincentives for early completion) + Accelerated Construction Techniques	Long	No	Yes	Not critical	Yes - Full closure required	High
(Cost plus time bidding with incentives and disincentives)/(Incentives and disincentives for early completion) + Accelerated Construction Techniques	Long	No	Yes	Not critical	Yes - Full closure required	Low
(Cost plus time bidding with incentives and disincentives)/No-excuse bonus (or no-excuse incentives)/(Incentives and disincentives for early completion) + Lane Rental/Accelerated Construction Techniques	Long	No	Yes	Not critical	Yes - Full closure not required	High
(Cost plus time bidding with incentives and disincentives)/(Incentives and disincentives for early completion) + Lane Rental/Accelerated Construction Techniques	Long	No	Yes	Not critical	Yes - Full closure not required	Low
(Cost plus time bidding with incentives and disincentives)/No-excuse bonus (or no-excuse incentives)/(Incentives and disincentives for early completion)	Long	No	Yes	Not critical	No	High
(Cost plus time bidding with incentives and disincentives)/(Incentives and disincentives for early completion)	Long	No	Yes	Not critical	No	Low
(Cost plus time bidding with incentives and disincentives)/No-excuse bonus (or no-excuse incentives) + (Liquidated Damages) + Accelerated Construction Techniques	Long	No	No	Not critical	Yes - Full closure required	High
(Cost plus time bidding with incentives and disincentives) + (Liquidated Damages) + Accelerated Construction Techniques	Long	No	No	Not critical	Yes - Full closure required	Low
(Cost plus time bidding with incentives and disincentives)/No-excuse bonus (or no-excuse incentives) + (Liquidated Damages) + Lane Rental	Long	No	No	Not critical	Yes - Full closure not required	High
(Cost plus time bidding with incentives and disincentives) + (Liquidated Damages) + Lane Rental	Long	No	No	Not critical	Yes - Full closure not required	Low
(Cost plus time bidding with incentives and disincentives)/No-excuse bonus (or no-excuse incentives) + (Liquidated Damages)	Long	No	No	Not critical	No	High
(Cost plus time bidding with incentives and disincentives) + (Liquidated Damages)	Long	No	No	Not critical	No	Low

4.4 Establish Key I/D Parameters

Upon the selection of an appropriate contracting strategy for the project, key cost and schedule parameters must be determined in the design stage. These parameters are paramount for the successful execution of the selected strategy and include:

• Daily WZ RUC.
• I/D amount.
• Baseline and accelerated schedule.
• Costs of acceleration.

Figure 15 presents a theoretical construct to illustrate the relationships among these key parameters. Combining the concepts of “time-cost tradeoff” and “time is money,” this model is based on the following rationale:

• Project acceleration requires additional labor, materials, and equipment and therefore costs more money.
• Delaying the project beyond the normal completion time results in increased costs due to inefficient allocation and utilization of resources.
• The longer construction takes, the greater the road user costs and agency overhead costs will be.

Proposed by McFarland et al. (1994), this model can be used to determine the optimum construction completion time at which the direct agency costs and road user costs are balanced. (McFarland, W. F., R. J. Kabat, and R. A. Krammes, Comparison of Contracting Strategies for Reducing Project Completion Time, Report No. FHWA/TX-94/1310-F, Texas Department of Transportation, Austin, TX, 1994.) This model presents at least three cost curves: construction costs, road user costs and construction engineering costs (combined for the presentation purposes), and total project costs.

The construction cost curve represents the contractor’s cost for completing the project (assumed to include a normal profit). For every construction project, the construction cost is the lowest at the baseline duration (point CRLR). Any deviation from this baseline schedule will result in increased construction costs. Expediting completion requires additional contractor effort through tighter schedules and overtime, additional resource mobilization and deployment and/or innovation, and incurs additional costs to the contractor. Extending the completion beyond the baseline duration results in penalty and misallocation and underutilization of resources, and hence incurs additional costs to the contractor. In other words, the construction costs increase with each additional day saved or delayed from the standard schedule.

Figure 15 . Relationship between project cost and duration.

On the other hand, the agency’s construction oversight cost and WZ RUC increase linearly with project duration. When these indirect costs are combined with the construction costs, the resulting cost curve shifts to the left. In other words, the combined costs are lowest at an optimal duration (point TRLR) shorter than the normal expected duration. Any further acceleration will no longer be justifiable, as the difference between benefits and costs would be negative.

Any difference between the total costs and the construction costs will be used in calculating incentives and disincentives. While the disincentives will be based on the differential road user and construction engineering costs, the incentives should be lower than the disincentives, as the incentive calculation will take the additional amount paid by the agency toward the contractor’s costs of acceleration. However, for practical purposes, both incentives and disincentives are generally kept the same.

These curves can be used as a basis for establishing the key parameters of schedule-focused contracting strategies. However, it should be noted that the cost curves are merely the theoretical constructs of “real world” scenarios. There are several key assumptions behind the development of these curves:

• The owner agency has adequate projects (for sample size) and detailed cost data for developing statistically valid models.
• The agency costs, road user costs, and duration data are estimated accurately.
• There is effective competition among contractors with no collusion.
• The cost curves are deterministic, as opposed to a stochastic model.

Practitioners can use one of the following methods in developing construction cost curves:

• Generic cost vs. duration models can be developed using regression analysis of multiple project data utilizing alternative contracting projects. Such models generally are less sensitive to project specifics and may provide less accurate cost estimates. Therefore, these models should be limited to cursory estimations in the early stages for project delivery. To cite an example, Shr et al. developed polynomial cost models for Florida DOT to estimate project acceleration costs. Cost and duration data from 15 construction projects were used in developing this model. Schedule-focused (alternative) contracting projects were used on all of these projects that included I/D, no-excuse bonus, and A+B bidding. (Shr, J-F., B. P. Thompson, J. S. Russell, B. Ran, and H. P. Tserng, “Determining Minimum Contract Time for Highway Projects,” Transportation Research Record No. 1742, Journal of the Transportation Research Board, Transportation Research Board, Washington, D.C., 2000.)

The polynomial cost model developed to estimate the construction costs is presented as follows:

where,
CC= actual project cost
CRoR = contractor bid price
D = actual days used by the contractor
DRoR = contract time specified in the bid

• More accurate, project-specific cost vs. duration models can be developed using detailed time-cost tradeoff analysis. These models can be developed for project-level applications by computing cost and duration estimates for activities (interchangeably used with work items) on the critical path schedule at various levels of acceleration (by applying different production rates). Developing these models can be cumbersome and computation-intensive, as real-world projects involve hundreds of activities. Furthermore, detailed cost and productivity data are required for each activity.

4.4.1 Establishing I/D Amount

Each schedule-focused contracting strategy discussed herein is based on the concept that the owner agency would reimburse a portion of the delay costs to the contractor for shortening the construction delivery time, while the contractor is penalized for delaying the project delivery beyond the allowable time. (Herbsman, Z. J., W. T. Chen, and W. C. Epstein, “Time is Money: Innovative Contracting Methods in Highway Construction,” Journal of Construction Engineering and Management, American Society of Civil Engineering, Vol. 121, No. 3, 1995.) To accomplish the objectives of shorter delivery time, the incentive amount must be sufficient to motivate the contractor to accelerate the project.

If the acceleration costs are equal to or greater than the incentive amount, then there is no real incentive to accelerate production, and the use of I/D provisions will not produce the intended results. If the incentive amount exceeds the costs of delay, the agency cannot justify the use of incentives based on road user cost savings.

The contractor’s costs of acceleration (CA) and road user costs form the lower and upper limits for the incentive/disincentive amount. Therefore, a balance must be struck between the two bounds in determining an appropriate incentive/disincentive amount for the project. (Jaraiedi, M., R. W. Plummer, and M. S. Aber, “Incentive/Disincentive Guidelines for Highway Construction Contracts,” Journal of Construction Engineering and Management, American Society of Civil Engineering, Vol.121, No. 1, 1995. Sillars, D. N., and J. Riedl, “Framework Model for Determining Incentive and Disincentive Amounts,” Transportation Research Record No. 2040, Journal of the Transportation Research Board, Transportation Research Board, Washington, D.C., 2007.) The following equation illustrates the relationship among the I/D amount, WZ RUC, and CA:

CA ≤ I /D ≤ WZ RUC

While most owner agencies can estimate daily road user costs, there is no standardized approach for determining CA. Furthermore, this information generally is not available to agencies. However, individual highway contractors regularly determine this value for their firms. (Sillars, S. N. Establishing Guidelines for Incentive/Disincentive Contracting at Oregon DOT, Report No. FHWA-OR-RD-07-07, Oregon Department of Transportation, Salem OR, 2007.) In such cases, the owner agencies may use a discount factor (DF) to convert WZ RUC to I/D values as illustrated as follows: (Pyeon, J. H., and E. B. Lee, CA4PRS Application for Determination of Incentive/Disincentive Dollar Amount, Presented at the CA4PRS Peer Exchange Workshop, St. Louis, MO, 2010. NJDOT, Road User Cost Manual, New Jersey Department of Transportation, Trenton, NJ, 2001.)

I/D = DF * WZ RUC

In either case, the maximum incentive and disincentive amounts should follow the guidelines of the FHWA’s Technical Advisory T 5080.10.113 The advisory stipulates the maximum incentive payment at 5 percent of the total contract amount, while no cap should be placed on the maximum disincentive amount. Generally, the incentive daily rate should equal the disincentive daily rate. If different rates are selected, the incentive daily rate should not exceed the disincentive daily rate.

4.4.2 Establishing Daily WZ RUC

At the end of the design stage (i.e., 90 percent design), the daily WZ RUC estimates should be finalized for use in the bidding documents. At this stage, the agency should have finalized the MOT strategy that will be implemented in the construction phase.

4.4.3 Establishing Baseline and Accelerated Schedule

The owner agency should establish a final baseline and accelerated schedule at the end of the design stage. FHWA Technical Advisory 1TTA 5080.15 (FHWA Guide for Construction Contract Time Determination Procedures, Technical Advisory TA 5080.15, Office of Program Administration, Federal Highway Administration, Washington, DC, 2002.) provides procedures for determining contract time, baseline or accelerated, for construction projects. The use of calendar days or completion date is recommended, as it has proven to be most effective in controlling contract times.

1TThe baseline schedule typically is developed using standard production rates, which in turn are based on the agency’s historical productivity rates of 1Tan average contractor working 5 days a week, 8 hours a day. The accelerated schedule can be developed by compressing the baseline schedule using the performance of a good typical contractor working extended shifts with extra workers for 6 or 7 days a week. However, such extended periods of work will result in declining productivity. (Mubarak, S. Construction Project Scheduling and Control, Second Edition, John Wiley & Sons, Inc., 2010.)

Several highway agencies use the CPM (More detailed information of CPM scheduling can be found in text books on construction project scheduling and control) to determine and control project scheduling. The prerequisite for using CPM or other techniques to analyze project schedules is to create a work breakdown structure (WBS). (The work breakdown structure is defined as the decomposition of the total project work into discrete work items or activities in a way that helps to accomplish the work in an organized and detailed manner.) The WBS activities are then mapped to determine the duration of the critical path, which is same as the minimum time required to complete the entire project.

The accelerated project schedule can be established first by identifying the WBS activities on the critical path and then exploring the feasibility of shortening the duration of those activities. As a rule of thumb, the work item with the least acceleration cost is selected first. For example, the baseline schedule may assume that an activity C cannot start until activity B is complete. Reviewing these finish-to-start relationships can help to identify if activity C can be started before activity B is complete.

Another common approach is to shorten the activity duration by achieving higher production rates through efforts such as extended work hours, multiple crews, additional equipment accelerated construction techniques etc. The production rate required to achieve the desired level of acceleration is ascertained. For example, if the baseline duration of an activity is 3 calendar weeks (15 working days), it takes 120 hours to complete that activity. With the same crew size and assuming no productivity loss, extending the work shifts to 10-hr, 6-day weeks means the same activity can be completed in 2 calendar weeks (10 working days).

The level of acceleration that can be achieved depends on the number of critical work items selected for acceleration and the production rates. (To compute the accelerated duration of critical work items, refer to standard text books on construction project scheduling and control.) This iterative process is continued until a satisfactory level is achieved. Some examples of different productivity rates include:

• 8-hr day, 5-day week with standard crew size.
• 10-hr day, 5-day week with standard crew size.
• 8-hr day, 5-day week with increased crew size.
• 10-hr day, 5-day week with standard crew size.
• 10-hr day, 7-day week with increased crew size.

For more guidance on establishing accelerated project schedules, refer to FHWA Technical Advisory 1TTA 5080.15, agency-specific documents, and other sources such as textbooks and training materials on project scheduling.

4.4.4 Establishing Contractor’s Costs of Acceleration

Achieving higher production rate often carries a cost premium; higher the production rate, shorter the activity duration, greater are the costs incurred for additional resources or innovative processes. Typically the production rate required for the desired level of acceleration is not finalized unless it is cost-feasible. Often trade-offs are to be made by the owner agency to balance between the level of acceleration and the corresponding costs. Furthermore, if the incentive plans are not adequate enough to cover the additional costs, the contractor will have no real incentive to accelerate the project. Hence there is a need to establish the costs of acceleration for determine the required level of acceleration as well as the lower bound of the incentives. This section provides some insights in computing the additional costs associated with the schedule acceleration.

Owner agencies are well equipped to estimate the construction costs for a normal schedule within an acceptable level of tolerance. Most highway agencies develop cost estimates for a project using unit cost data extracted from historical bids with appropriate adjustments for project characteristics, market conditions, and prevailing prices. Though less frequent, some agencies use production rates and cost associated with equipment, labor, materials, and overhead (i.e., cost-based estimation in developing cost estimates for a project. (Cost-Based Estimates contain six basic elements: Material, Equipment, Labor, Time, Overhead and Profit. Each item of work on a project can be broken up into tasks that it takes to complete the item of work. Each of these tasks contains the six basic elements that result in the cost for the project.)

While historical cost data may be adequate for developing project cost estimates at standard production rates, these data may not represent the conditions typically encountered in schedule acceleration, such as the change in construction techniques, crew size and productivity, daily and weekly working patterns, and overtime policy. If an agency has historical cost data for projects constructed under schedule acceleration, the agency can develop parametric models using statistical regression to develop preliminary cost estimates for use in early stages of project delivery only.

On the other hand, the owner agencies can use the cost-based estimation method to estimate the contractor’s costs of schedule acceleration. This method allows the agencies to develop more detailed and accurate cost estimates using the accelerated production rates and individual cost components. It also allows the agencies to take into consideration the project-specific characteristics such as type and complexity, geographical location, market factors, and volatility of material prices. (Anderson, S., I. Damnjanovic, A. Nejat, and S. Ramesh, Synthesis on Construction Unit Cost Development: Technical Report, Report No. FHWA/TX-09/0-6023-1, Texas Department of Transportation, Austin, Texas, 2008.)

Under this method, the costs of activities defined in the project’s WBS are broken down into the following elements:

• Direct costs—these costs are attributed directly to the production activities of a project. The computation of direct costs takes into account the quantity of a WBS activity, its production rates and unit costs for the following sub-elements:
  • Labor – includes mobilization, hourly wages for additional resources and overtime wages for extended shifts.
  • Equipment – includes mobilization and rental costs of equipment.
  • Materials – includes additional costs associated with early delivery of materials.
  • Subcontractors – Includes the subcontractor’s costs for materials, labor, equipment, profit and overhead.

Some of the common sources of direct unit cost data are presented in Table 53.

• Indirect costs— these are overhead expenses related to a specific project but not directly linked to any specific work item. They include:
  • Mobilization and demobilization.
  • Staffing for project management and supervision.
  • Office trailers and vehicles assigned to project team.
  • Lighting during night work and other indirect expenses.
  • Insurance and taxes.

Typically the percentage of overhead can range from 7 to 10 percent of volume of work for larger contractors to over 15 percent for smaller contractors. (AASHTO, A Practical Guide to Estimating, Prepared by AASHTO Technical Committee on Cost Estimating, American Association of State Highway and Transportation Officials, Washington, DC, 2009.)

• General overhead (For the purpose of taxonomy, the general overhead costs are sometimes listed either under the indirect costs category or the markup costs category. Therefore, to avoid any confusion, the general overhead costs are defined herein as a separate category. Nevertheless, the general overhead costs should be included in the cost estimations.) — these are company level general and administrative overhead expenses incurred by the contractor in support of the overall construction program. These costs are usually shared by all projects in proportion to their cost and duration. Examples include:
  • Office maintenance (e.g., rent, utilities).
  • Office personnel.
  • Office equipment and vehicles.
  • Office services (e.g., lawyers and accountants).

Table 53. Common sources of unit cost data.

Direct Cost Components	Common Data Sources
Material costs Labor rates Equipment costs Production rates	Quotes from supplies, cost information for in-stock materials State Department of Labor Bluebook equipment rental Agency experience, RS Means (Reed Construction Data) Site Manager (Trns*port (AASHTOWare®))

• Markup costs— these include the project contingency costs as well as the contractor profit. Adjusting the cost estimates for market condition and contractor’s markup costs is highly subjective and requires engineering judgment.
  • Contingency costs— these are an additional sum of money allocated for the unknown and uncertain events that are most likely occur during the life of the project such as scope changes, scope increase, high-risk elements, and unforeseen site conditions; they are directly proportional to the risk taken in the project. The contingency costs typically are 5 to 10 percent of the total project costs at the PS&E stage of the project.
  • Profit margin—The contractor‘s profit margin typically includes 3 to 10 percent of the total project costs though it is likely to be outside this range (AASHTO, 2009)132. The profit margins on construction projects are highly variable and are often unknown to an agency. However, the profit margins marked by the contractor are likely to vary based on the project size and complexity, size of the contracting company, market condition and the total project costs. In proposing a I/D framework for Oregon DOT, Sillars (2007) has proposed a generic formula to estimate the contractor’s profit margin and is presented as follows: (Sillars (2007) has adopted the general form of the formula proposed by Carr and Beyor (2004) to estimate the professional compensation fees for consultants on construction projects. Refer to: Carr, P. G., and P. S. Beyor, "Design Fees, the State of the Profession, and a Time for Corrective Action,” Journal of Management in Engineering, American Society of Civil Engineering, Vol. 21, No. 3, July 1, 2005.)

Where,
P = forecasted profit at the time of bid
C = estimated total project cost
f = project type (see Table 54 )
m = market condition (see Table 54)

Table 54. Empirical factors for estimating profit margin.

Project Type	f	Market Condition	m
Roadway	1.0	Busy	1.40
Interchange	1.1	Normal	1.50
Bridge	1.25	Slow	1.60
Complex	1.35

Detailed information typically is required for cost-based estimation. Such level of detail may not be available to some owner agencies, and not likely in the preliminary stages of the design process. In such situations, owner agencies can apply project knowledge and engineering judgment, through common tools such as parametric estimating, to estimate the percentage increase in each of the cost elements aggregated at a project level (Sillars, 2007), until detailed analysis can be done.

The generalized proportions of direct, indirect, and markup costs, as a percentage of total project costs, are likely to vary from project to project and from one geographic location to another; however, their statistical averages based on the project type generally are robust enough for preliminary estimations. Sillars (2007) presented the generalized percentages of cost elements developed by Oregon DOT using historical costs and breakdown presented in trade guides such as RS Means and Trns*port (see Table 55).

Table 55. Typical cost breakdown by project type (Sillars, 2007).

Cost Category	Project Type
	Roadway	Interchange	Bridge	Complex
Direct cost	81%	78%	79%	77%
Labor	25%	30%	30%	33%
Materials	45%	35%	30%	37%
Equipment	30%	35%	40%	30%
Subcontract	0%	0%	0%	0%
Indirect cost	6%	9%	8%	9%
Supervision	2%	3%	2%	4%
Time-related facilities	1%	1%	1%	1%
Non-time-related	1%	1%	1%	1%
Mobilization/demobilization facilities	3%	5%	5%	5%
Insurance and taxes	1%	1%	1%	1%
Markup	12%	13%	14%	14%
Risk	3%	5%	5%	6%
Home Office G&A	8%	8%	8%	8%
Profit (Calculated separately)

The acceleration costs at a given production rate can be calculated by determining the direct costs for equipment, labor, and materials required for maintaining that production rate, and then adjusting the direct costs for overhead and markup costs. The acceleration costs are calculated typically for the activities on the critical duration path.

4.4.5 Establishing Time-Cost Tradeoff Point

The level of schedule acceleration depends on the level to which the contractor deploys additional resources, multiple crew shifts, overtime work, and supervision. The higher the level of acceleration, the shorter the project duration and the higher the acceleration costs. Figure 16 presents the relationship among the acceleration costs, time savings, and the level of acceleration. (Fick, G., E. T. Cackler, S. Trost, and L. Vanzler, Time-Related Incentive and Disincentive Provisions in Highway Construction Contracts, Final Report, NCHRP Report No. 652, National Cooperative Highway Research Program, Transportation Research Board, Washington, D.C., 2010.)

Figure 16. Relationship among the level of acceleration, acceleration costs, and time savings (adopted from Fick et al., 2010).

At some point, the acceleration costs may exceed the perceived benefits of time savings (i.e., CA > WZ RUC), and the goal of expediting construction time may not prove beneficial. In other words, there is an optimum level of acceleration beyond which there are no benefits of time savings. Hence, a tradeoff is needed between the level of acceleration (or CA) and the benefits of time savings (RUC). (For more information on time-cost trade off analysis, refer to standard textbooks on construction project scheduling and control.) This can be accomplished by evaluating the cost and time impacts of various productivity rates on work items on the project’s critical duration path.

4.4.6 Calculating Incentives/Disincentives – Discount Factor Approach

The steps involved in calculating I/D using discount factors are as follows:

1. Establish baseline schedule for the project using standard production rates. See section 0 for further discussion.
2. Establish road user cost estimates for project using baseline schedule and a preferred MOT strategy. See section 0 for more discussion.
3. Determine the discount factor. The value typically ranges from 0.2 to 1.0.
4. Calculate daily I/D value by multiplying daily WZ RUC by the discount factor.

Daily I/D = Discount factor * daily WZ RUC

The discount factor is the portion of road user cost savings that an owner is willing to share with the contractor. The selection of this factor typically is an owner agency’s management decision by taking factors into account such as market conditions, confidence on the accuracy of WZ RUC estimates, work zone factors, and time sensitivity of project completion. The discount factor is selected in such a way that the value of the WZ RUC matches the agency cost (Pyeon and Lee, 2010) particularly when the total WZ RUC of the project exceeds the agency costs. As several agencies have limited the total incentive amount at 5 percent of the total contract amount, this requirement is also taken into consideration in selecting a discount factor.

While selecting a discount factor for I/D, the agency should check if the liquidated damages clause still applies in the event of a schedule overrun. In the absence of a liquidated damages clause, the discount factor may not adequately cover the agency’s construction engineering charges and a justifiable proportion of road user costs. Note that the lower discount factor has a diminishing effect on the contractor’s I/D—in other words, the contractor is paid a lower incentive amount for early completion and pays a lower disincentive amount for schedule overrun. However, the trend reverses for the owner agency (combined societal and agency costs) when the liquidated damage clause does not apply—at a lower discount factor, the agency’s savings are higher for early completion while the unrecovered losses are also higher when there is a schedule overrun.

4.4.7 Calculating Incentives/Disincentives –Cost of Acceleration Approach

1. Establish baseline schedule for the project using standard production rates. See section 0 for further discussion.
2. Establish road user cost estimates for project using baseline schedule and a preferred MOT strategy. See section 0 for more discussion.
3. Analyze the CPM schedule of baseline duration by using increased production rates for activities on the critical path. See section 0 for further discussion.
4. Estimate the contractor’s CA for increased production rates. See section 4.4.4 for further discussion.
5. Select an I/D amount that is less than or equal to unit WZ RUC costs but greater than the acceleration costs for the desired optimal duration. A discount factor can also be introduced to discount the road user costs.

Cost of Project Acceleration < I/D ≤ WZ RUC
Cost of Project Acceleration < I/D = DF* WZ RUC

The practitioners can make use of tools such as sensitivity analysis to identify an appropriate discount factor and evaluate its effectiveness. As illustrated in Example 4.7, the contractor and agency profits and losses can be estimated for various combinations of discount factors and project completion scenarios. In Example 4.7, a hypothetical project scenario was assumed and the cost model presented in Eq. 1 was utilized.

At higher discount factors, the agency pays a larger portion of WZ RUC savings to the contractor as incentives for early completion and recovers an equal portion of WZ RUC losses from the contractor as disincentives for late completion. Put briefly, the agency transfers a large portion of schedule related risks, including benefits and costs, to the contractor at higher discount factors.

At lower discount factors, the agency pays only a smaller portion of WZ RUC savings to the contractor for early completion and recovers an equal portion of the losses from the contractor for late completion. To be effective, the incentives paid to the contractor must to be adequate enough to compensate the contractor costs of acceleration, while the disincentives recovered from the contractor should commensurate with the WZ RUC losses. With increasing discount factor, the contractor receives more incentives to complete earlier as long as the costs of acceleration do not exceed the incentive amount. To summarize, the discount factor selected by the agency should be adequate enough to ensure that the agency’s early completion goals are met.

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