sou · H0B339d4 · 2012-06-14 00:00:00 — Incentives & disincentives (if possible/practical) Bundling and integration of services (economies of scope) Increasing the length of area based contracts (economies of scale) Measuring the performance of the service providers Clearly defined risks in the contract and having a balanced approach (equitable) Encouraging innovation (difficult in practice without a reward scheme) A hybrid method in maintenance contracts seems to be a trend as the risks may be more equitably balanced. Only one country (, ) has contract durations that are over 10 years, and some are taking advantage of integrated services and the economies of scale and scope. What works well in one country may find cultural differences in another country that do not necessarily achieve the same benefits. It is wise to implement those features that produce productivity gains in their own application and the PBSA are considered the mostly likely forms to increase the productivity. Having a well-organized and efficient maintenance regime certainly improves productivity, but they are mainly dependent upon the contractors processes and practices. The main influence by the clients is to establish a framework for success by using maintenance contracts that provide opportunities for efficiency and productivity. This may require a learning process and re- the practices to influence the proper results. The biggest challenge is to create a healthy and competitive market for the maintenance services so that innovation, efficiency and productivity can be realized. 1.Introduction, Background and Objectives This research study originated from and was performed by the Transportation and Highway Department of , in , . The project manager for the project is from and the steering was provided by from . The main purpose is to derive international examples, practices, lessons learned and significant findings that are related to the productivity of the infrastructure (road ) contractors with the focus on procurement methods. The findings are based upon an international study that investigates both capital intensive projects as well as maintenance contracts. This study is not aimed at productivity measurements or statistics, but mainly at how productivity relates to project delivery methods. Statistics collected and reported from Swedish governmental authorities reveal that the productivity in the construction sector, in general, has been weak, and lagging behind other sectors. Productivity is a link to the economy of a country and is an important measure to pursue and track. was assigned the task to evaluate how the () procures road infrastructure and how the agency or promotes productivity and innovation in the road sector. The main tool that clients can influence productivity is through the public procurement processes. Therefore, it was necessary to evaluate productivity from a procurement perspective. ordered this international study to further examine issues related to productivity from a procurement viewpoint. A preliminary survey revealed that some countries have been using alternative procurement methods (compared to the traditional model or Design-Bid-Build) to gain efficiencies, cost savings, quicker delivery of projects, and value added benefits to society. The Design-Build model and some of its advanced variants have been endorsed through practical results, reports, studies and benchmarking. It is important to examine if such practices might be more profound to promoting productivity. Therefore, it was decided to seek practices from progressive countries in order to help stimulate productivity and be applied to the Swedish context. Six countries were selected which include , , , , , , and three states in the . , , and (by telephone interview) were selected from the . Many of these countries are considered pro-active in the use of alternative procurement methods for road applications and were selected as good examples of different and broad approaches. Productivity is generally reported in terms of productivity of the entire construction sector and not only from the infrastructure (road) contractors. The true productivity results are virtually impossible to determine under the present scenarios. Considering the time constraints and the funding, a quantitative approach was not feasible. Instead the paper is based on more of a qualitative approach through structured interviews and a thoughtful analysis of the most significant aspects related to procurement methods and productivity. The duration of this project is from through . The research methodology gathered resources through published reports, technical papers, internet searches, and with experts in the industry. Structured interviews with the respective road authorities using a custom-made questionnaire were the main source of data collection and the questionnaire is shown in Appendix B. The interviews were conducted during January through in 2011 and Appendix C shows a listing of the organizations interviewed. The authors long-term experience, previous reports, and practical experience in procurement practices, especially in Design- Build, provided additional insight by information contained in Pakkala (2002) and Pakkala et al. (2007). This study is a qualitative approach as opposed to a rigorous and statistical approach as time and budget were a consideration. The objective of the study was to determine what factors can potentially increase or decrease the productivity of road contractors through the public procurement processes and potentially identify how productivity is influenced in these models. The research objectives are summarized as follows: To identify the types of procurement practices used in other countries To identify practices used in other countries To determine the benefits, challenges, and issues with alternative project delivery methods To determine arguments used for differing models To identify factors that influence to productivity and innovation To determine the lessons learned from other countries The expected/predicted benefits were that the outcomes from the study will be a catalyst for increasing the usage of procurement methods that may provide an increase in productivity. Some of the expected results include: Determining procurement methods that have better results Identification of practices that promote innovation and productivity Determining factors that increase productivity and efficiency Can there be any (KPIs) relating to productivity What are the challenges for implementation The main tool available for clients or owner agencies to influence the productivity of contractors is through public procurement processes. One cannot just simply demand productivity from the contractors, but has the opportunity via the procurement process. The delivery methods used for capital construction projects have been mainly traditional methods that have typically evolved from history. Architects, engineers, specialty contractors, and the industry have adopted a segmented rather than an integrated approach with design and construction. This might be referred to the specialization of professionals and organizations. Recently and over several decades there has been a slow and deliberate paradigm change that is seeking so-called alternative methods or integration of services for the infrastructure. One main theme is the integration of design and construction. In , the describes their guidelines in a form of a business model and how they should function. The functions are divided in four areas: 1.Formal/legal procurement method – tool for effective competition 2.Contracting form – tool for effective division of responsibility 3.Form of compensation – tool for effective incentives 4.Collaboration (partnership) – tool for effective cooperation Before the tendering phase, the organization is liable to decide on these four areas and in the decision motivate their choice of business-model. There are numerous forms and models for the procurement practices and Appendix A includes a list of definitions. The typical project delivery models used for road projects can be highlighted as follow: Design-Bid-Build (D-B-B) Design-Build (DB) (CM At-Fee) (CM At-Risk) Design-Build-Operate (DBO) or Design-Build-Operate-Main- tain (DBOM) Design-Build-Finance-Operate (DBFO) or known as Design- Build-Finance-Maintain (DBFM) Build-Own-Operate (), Build Operate Transfer (BOT) and Build Own Operate Transfer (BOOT) (ECI) – a form of the Alliance model Recently the Alliance model Figure 1 shows the main project delivery models, and Figure 2 shows the progression and importance that the lower levels are developed before the higher levels. The Design-Bid-Build (DBB) or so-called traditional method has a separation between the design phase and the construction phase. The design phase is completed first and usually by a professional design firm or by the in-house resources and experts of the owner agency. Once the design documentation is completed, the construction is tendered separately and in a linear process. The contracts are typically unit prices, but some are using fixed price or lump sum agreements. DBB projects typically require a significant amount of administration and manual processes, and how quality control is organized and managed. The quantities in the unit priced contracts can sometimes be a source of negotiations and tension, which may lead to additional compromises and possibly increases in costs. The Design-Build (DB) model is defined as an agreement when an organization agrees to complete the remaining portion of the clients design and to construct the project. This essentially means that the design and construction are integrated and that the contractor typically takes on more risks because there is both design and construction work in a single contract. The contracts are typically fixed price or lump sum. In some countries, the – At Fee or At Risk (CM@Fee & CM@Risk) is often referred to as Construction Manager . This is typically used when the agency/client does not have sufficient management skills or resources to manage and administer the project execution phase. The owner agency is responsible for the design, bidding process, and construction of a project. In the CM@Fee, the CM organization takes on the responsibility for administration and management, constructability issues, day-to-day activities, and assumes an advisory role throughout the project. The CM organization has no contractual obligation to the design and construction entities and merely acts like a design consultant advisor. When using the Con- struction Management - At Risk (CM@Risk) approach, the owner/client has one agreement with the Construction Manager, who then interacts with the design consultant and subsequently takes on the role of a general contractor. Generally, the CM@Risk model assumes more risk because the contractor is at risk for the project cost and schedule. Most road agencies have strong project management skills and the CM model mainly provides additional quality oversight. However, when an organization is downsized too thin or does not have the sophistication required in project management, then this form of procurement might be a substitute. Presently, this is being tested in a few countries and the model offers an alternative approach (termed as Construction Manager ), but the design and construction is still separate. Source: (Finnra). Progression of Project Delivery Steps (Public Funding) Source: (Finnra). The alternative variants of the DB model include DBOM, DBFO, DBFM, (ECI) and the Alliance model. The BOT and BOOT are similar to the DBOM and DBFO model, but there is an official transfer of ownership, with potential leasing and other options. The main goals of these are to produce projects that have better or equivalent quality, longer life cycles, bring savings to the client, transfer risks (to the organization best able to manage risks), include integrated processes, and potentially complete projects faster than traditional methods. Many of these methods are recent practices and are on-going, so there has not been any significant Value for Money (VfM) results to date. Some of these more advanced models (DBFM & DBFO) require significantly increased knowledge, understanding, wisdom, and their application when going into unknown territory, especially if it is the first time implementing the model. The ECI and Alliance model are like an extreme Design-Build model, where an alliance is formed early on to take advantage of inputs/impacts during the project planning phase. It includes the design and construction in one contract. Pakkala et al. (2007) and Koppinen &Lahdenpera (2004) provide more details on the Alliance model. There is a significant variation known as multi-parameter bidding called A + B Bidding, but it is not a project delivery method. It is actually a contractor selection method on how to determine the winning bid by using a time component to build the project and costs per day. The A portion is the total cost bid by the contractor for completion of project and the B portion is the total number of days to complete the project. The B portion is multiplied by the estimated cost per day (client supplied statistical data), times the number of days that the contractor expects to complete the project. The A and B component are added together and contract is awarded to the lowest combination price. There are also options like incentives and disincentives, which are typically used in conjunction with the A + B bidding method. Also, a few have used the option of quality in the form of warranties. This method is more commonly used in the . It is important to realize that one size does not fit all and that each project delivery method has its advantages and challenges. A wise client will understand and choose the right delivery mechanism for the right project. This requires good benchmarking, knowing the strengths and weaknesses, and the key drivers for the given project. All models are capable of delivering a successful project and each model should be used appropriately. During the literature review, productivity can be defined in many ways and not always interpreted in the same . Sometimes productivity is broadly described in terms of efficiency, effectiveness, performance, and even profit. In the manufacturing industry productivity is fairly well recognized and is typically described as the relation of output to all inputs. Increases in productivity are generally favored and decreases are typically frowned upon. Productivity Definition and Measurement This leads to the issue of having a common definition of productivity that is used consistently. A simple definition of productivity is defined as the amount of output per unit of input, which could be labor, equipment, or capital. Productivity in this study is defined as the value of output divided by the value of all inputs. If value can be added or increased into the numerator portion of the productivity equation, then there should be productivity gains. Likewise, if the denominator portion can be reduced (more for less), then there are productivity gains too. So the real challenge is how do we get more value or less cost, so that productivity can increase, since most project budgets are fixed? Tangen (2005) describes productivity in several ways, such as: units of output per unit of input actual output per expected resources used total income per costs and profit value added per input of production factors as the ratio of what is produced to what is required to produce it According to et al. (2009) there can be three main levels of productivity to consider. First is the task level, which is measured by the contractors and is considered confidential or unattainable because this is the contractors competitive advantage. The second is the project level productivity, which potentially is a reasonable measure that clients could benchmark, but requires significant administration and understanding to the consequences of productivity. The third level is the industry level, where the productivity comparisons are typically benchmarked across differing sectors. Timmer et al. (2007) and et al. (2010) recommend consideration of a multifactor approach and where deflators can be applied during differing price levels, quality changes, and other indexing variables. There are also indirect ways to influence productivity. The normal research and development practices of contractors, if available, have an effect on productivity. As an example, newer modern equipment is much more flexible and multi-purpose as opposed to older equipment, and can influence the productivity. Some of the most dramatic inventions in history were reported by the (2006) highlighted as: Electricity and electric motors The internal combustion engine Cluster of entertainment, communications, & information systems This study is not aimed at productivity measurements or statistics, but mainly how productivity relates to project delivery methods. One challenge is that the infrastructure clients are not directly measuring the productivity of the infrastructure contractors. Productivity statistics are generally measured by other governmental institutions and organizations, such as statistical authorities, and as an aggregate measure. Even then, the productivity is a representation of all construction types and not merely of those for the road infrastructure. In , the productivity is an aggregate measure for companies constructing and infrastructure for energy as well as transport infrastructure. Productivity measurements are usually measured at the same time construction is put in place. Some roads are more durable and have longer life cycles compared to others. As an example, if a better quality road is desired, it may be more durable over time, but may have lower productivity values. It is therefore difficult to assess the productivity over time and especially when compared to quality. This is an interesting and somewhat challenging aspect when assessing productivity data. A productivity comparison in the construction sector is typically compared with the manufacturing industry and other industries. However, this is an unfair comparison. Road construction is normally performed in outdoor environment, susceptible to all types of weather related impacts, and not in ideal environments as with typical manufacturing. Also, according to (2010) maintenance is not included in the other sectors, but may be included in the road sector. This is something to consider when comparing results. This is where conflicts usually occur and where it is virtually impossible to compare the total construction productivity values, because there are no uniform measures that can be used for systematic comparisons. Some of the challenges when discussing productivity include: are we measuring the right attributes; is the data accuracy high enough; is the definition used and understood by all stakeholders; is it a fair comparison when benchmarking one industry against others; at what level do you measure productivity; is it possible to determine productivity impacts using different procurement methods; and are you able to determine what caused the increase or decrease of true productivity. If productivity is currently not measured by the clients, should they begin measuring productivity? This can lead to many challenges for the clients and could be a significant amount of administration and cost. Productivity is certainly an issue that will continue to be discussed and debated. It should be as objective as possible in order to allow comparisons. The intent of this project is to investigate productivity from a procurement perspective and is usually accomplished through the public procurement process. If productivity gains are a priority, then it is important to determine which procurement methods increase the potential for productivity. Even if a certain model might be potentially more advantageous, the productivity gains may not always be automatic. It is important to understand what practices are used and why? Do alternative practices provide better performance, success, time savings, quality, or for Money (VfM) compared to traditional models? These are important issues to obtain a comprehensive understanding of what models are available and which ones produce better outcomes or benefits. Factors that reduce productivity are also important to identify so that clients are not directly contributing to any unproductive consequences for the contractors. It is not the intent of this report to concentrate on the productivity statistical measurements and mechanisms, but it is important to understand that there are significant challenges when measuring productivity. Alternative project delivery methods are relatively new to the infrastructure sector, especially for roads. Therefore, it is important to understand the implication of using different project delivery methods and what are the challenges for implementation. The structure of the report is organized as follows: Chapter 1 Introduction, Background and Objectives Chapter 2 Design-Build Model Chapter 3 Results from interviews Chapter 4 Results from Maintenance Interviews Chapter 5 T-Rex Case Study Example Chapter 6 Significant Findings from Each Country Chapter 7 Summary and Principle Conclusions This section discusses the details, research findings, benefits, challenges, and important features in the Design-Build (DB) model, also called Design & Construct. DB has been termed as an innovative or alternative model compared to the traditional model of Design- Bid-Build (DBB). All advanced variants of Design-Build namely DBOM, DBFO, ECI and Alliance models, use the Design-Build component. information and aspects of the DB model are provided hereafter. The traditional model or DBB is widely understood and has been the common method for centuries during the industrial revolution. The Design-Build method has its roots to ancient times according to (1997) when it was used as the main procurement method during the time of the pyramids and the concept. The design and construction were performed by one organization and in an integrated fashion. The Design-Build model is basically described as a procurement method, where the contractor is responsible for completing the clients remaining design portion and constructing the project. There have been numerous studies around the world addressing the Design-Build model and its use. Probably the most comprehensive study involved the comparison of DBB, DB and CM@Risk, and was termed as study in CII (1997). The results of this study clearly identified Design-Build as the best performer based upon data from the research. Even though the study was applicable to and industrial projects, the Design-Build component is the main feature that provides the overwhelming benefits. Some of the key findings from the study are summarized in Box 1. Design & construction speed in DB is faster compared to DBB & CM@Risk Design & construction cost growth in DB is lower than DBB & CM@Risk Design & construction schedule growth is lowest in CM@Risk, but DB is lower than DBB Quality of DB is equivalent to CM@Risk and greater than DBB Intensity of DB is greater than DBB & CM@Risk A more recent study by et al. (2007) contains interesting findings from road transportation projects at . The study benchmarked a total of 3130 road projects and the results clearly showed that the project delivery method chosen does indeed affect the project performance. The study compares alternative project delivery methods with the traditional method (DBB). The alternative project delivery projects included Design-Build, A + B bidding, lane rental, incentives and disincentives, lump sum, warranties, and a few others not commonly used by the participants in this productivity study.