# Executive Summary, International Scanning Tour on Contract Administration

Recognizing the similarities and benefits that could result from an
international examination of innovative contracting procedures, a
diverse team of experts was assembled to research, document, and promote
the implementation of best practices found in Europe that might benefit
US practitioners. The Federal Highway Administration (FHWA) and the
American Association of State and Highway Transportation Officials
(AASHTO) jointly sponsored this study, under the National Cooperative
Highway Research Program (NCHRP).

In June of 2001, a team comprised of Federal, State, contracting, legal,
and academic representatives traveled to Europe to investigate and
document innovative contract administration procedures that are employed
in Europe to cope with growing transportation needs. The team traveled
to Lisbon, Portugal; The Hague, Netherlands; Paris, France; and London,
England. Additionally, the team met with Swedish transportation
officials while in the Netherlands. The ministries of transportation,
numerous private sector contractors, and research organizations involved
in contract administration hosted the team.

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

# Drivers of Change in Europe

Some of the most significant drivers of change in Europe included the
following:

+--------------------------------+-------------------------------------+
| -   Growing infrastructure     | -   Adversarial relationships       |
|     needs                      |                                     |
|                                | -   Claims oriented environments    |
| -   Inadequate public funds    |                                     |
|                                | -   Perceived lack of maintenance   |
| -   Insufficient and           |     efficiency                      |
|     diminishing staff          |                                     |
|                                | -   New European Union directives   |
| -   Lack of innovation in      |                                     |
|     delivery                   | -   User frustration                |
|                                |                                     |
| -   Slow product delivery and  | -   Political discontent            |
|     delays                     |                                     |
|                                |                                     |
| -   Cost overruns              |                                     |
+--------------------------------+-------------------------------------+

# Alternative Financing

There are many innovative alternative financing techniques in use in
Europe that have direct application in the United States. Two primary
differences should be considered in the discussion of alternative
financing in Europe. First, the countries visited on the scan do not
have taxes dedicated to transportation needs. This means that gasoline
taxes and the like are not earmarked for transportation projects, but
are put into a general fund with other taxes. The general funds provide
money for a variety of needs, including transportation projects, but no
taxes are specifically dedicated for transportation projects. The second
difference is that European governments do not offer tax exempt
financing for public transportation projects, as is done in the United
States.

# Contracting Techniques

European transportation agencies are utilizing a wide variety of
alternative contracting techniques that could have a tremendous impact
on the efficiency and effectiveness of contract administration in the
United States.

+----------------------------+-----------------------------------------+
| ### Contr                  | #### Contracts not Currently Used in US |
| acts Similar to US Methods |                                         |
|                            | -   Active Management Payment Mech.     |
| -   Concessions            |     (AMPM)                              |
|                            |                                         |
| -   Design-Build           | -   Management Agency Contracting (MAC) |
|                            |                                         |
| -   Design-Build-Maintain  | -   Private Finance MAC                 |
|                            |                                         |
| -   Des                    | -   Framework Contracts                 |
| ign-Build-Operate-Maintain |                                         |
|                            | -   Alliancing                          |
| -   Finance-Design-Build   |                                         |
| -Operate-Maintain-Transfer | -   Joint Development                   |
|                            |                                         |
| -   Two-Phase Contracts    | -   Target Pricing                      |
|                            |                                         |
| -   Strategic Partnering   | -   Integrated Supply Chain Management  |
+----------------------------+-----------------------------------------+

In summary, all of the contracts promote methods of creating more
partnership between the public and private sectors. European contracts
have evolved toward placing more public trust and responsibility in the
private sector.

# Design-Build

In the countries visited, design-build was observed to be the
contracting method of choice for all projects, ranging from green-field
construction to pure maintenance contracts. Where concession and
public-private partnerships were studied, design-build was inherent in
the process. In the UK, the Highways Agency's contracting method of
choice is design-build, and it has almost completely replaced the
design-bid-build method. As in the United States, there is no singularly
consistent design-build contract, but more consistent characteristics
are present. Design-build contracts are more consistently awarded on a
best value basis.

# Concessions

While the United States is employing only a minimal number of
quasi-public concession and private transportation projects, the
European countries visited on the scan are leveraging concessions for
major portions of their highway systems. Portugal, for example, has gone
from 431 km of concessions, in 1991, to a planned 2700 km of concessions
in 2006 -- representing 90 percent of its national highway network. The
concession system is allowing Portugal to complete its strategic
National Road Plan in 2006, where the use of traditional methods were
anticipated to take until 2014. Motorways in Europe utilize concessions
for both construction and maintenance. Concession periods vary, but were
commonly found to be 30 years.

# Performance Contracting

Performance contracting is in its infancy in the US transportation
sector, but the tools and techniques are well established in Europe.
Performance contracting provides a contractor with performance
specifications that must be met, by employing whatever means the
contractor determines most economical. Performance contracts are thought
to allow much more room for innovation through creative construction
methods---lowering the overall price of a given project. Additionally,
performance contracts necessitate alternative procurement and payment
practices, typically utilizing past performance and end product
qualities as measurements.

# Asset Management

Because there is so much more public trust being placed in private
sector, asset management appears very differently in Europe than it does
in the United States. Europeans do not use depreciation in asset
accounting, but, rather, value assets by replacement cost. Numerous
asset valuation methods were observed. In Portugal, for instance,
concessionaires bidding for the economic ownership determined the value
of a 30-year highway asset. In this case, the market determined what the
asset was worth, and the winning concessionaire is responsible for
maintaining the asset.

# Conclusions and Recommendations

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

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

-   Utilize the TRB Legal Committee to develop draft legislation for
    alternative contract administration processes;

-   Utilize the AASHTO Subcommittee on Finance to develop a policy on
    use of concessions;

-   Utilize the AASHTO Subcommittee on Construction to develop draft
    specifications for best value procurement and design-build contract
    forms;

-   Propose research to summarize construction procurement successes
    being used in the United States that are similar to those found in
    Europe; and,

-   Identify and solicit state DOTs to evaluate pilot projects in the
    areas of innovative financing, alternative contracting techniques,
    design-build, concessions, performance contracting, and proactive
    asset management.

**Note: The Seven Page Executive Summary is available upon request.**

###### FHWA: Dave Cox, FHWA Oregon Division, 503.399.5749, Email <david.cox@fhwa.dot.gov>

**AASHTO: Ron Williams, Arizona DOT, 602.712.7323, Email
<rwilliams@dot.state.az.us>**