Details:

Corporate Creators:
Dye Management Group, Inc.
Corporate Contributors:
United States. Federal Highway Administration. Office of Safety Research and Development
Subject/TRT Terms:
[+]
Benefit Cost Analysis Bonds Case Studies Contract Administration Contractors Evaluation Literature Reviews Performance Measurement Prequalifications Research Hub State Departments Of Transportation Surveys
Publication/ Report Number:
FHWA-HRT-14-034
Resource Type:
Tech Report
Geographical Coverage:
North America;United States
Corporate Publisher:
United States. Federal Highway Administration
Abstract:
State departments of transportation rely on private industry construction contractors to build, rehabilitate, and replace their infrastructure assets. The Federal Highway Administration (FHWA) is interested in providing guidance that State transportation departments can use to select contractors that can complete projects cost-effectively. One potential method to help select qualified contractors is to use a performance-based contractor prequalification process. FHWA commissioned this study to evaluate the wisdom of expanding the use of this process. This report presents the results of this study, which examined relevant literature, evaluated the benefits and costs of performance bonds and performance-based contractor prequalification, and recommended a model performance-based prequalification approach. In the highway industry, one of the main methods to prequalify a contractor is determine whether or not a performance bond can be secured. The current performance bonding system does not differentiate between a high performing and marginally performing contractor, so long as the two companies have the same level of financial assets. This gives both companies the same opportunity to bid on a project, regardless of performance. In a low-bid environment, it creates a situation where a State transportation department subsidizes marginal performance, which, in turn, reduces the incentive for top performers to continue superior performance. This research project analyzes the benefits and costs of performance bonds and performance-based contractor prequalification and creates a performance-based contractor prequalification model. Through a detailed literature review; surveys of contractors, State transportation departments, and sureties; and State transportation department case studies, the research suggests that the default rate for the industry is less than 1 percent, the minimum contract value that requires a performance bond should be raised to between $1 million and $10 million, and the cost of performance-based prequalification is low compared to the cost of performance-bonds. Last, a three-tiered performance-based contractor prequalification model is presented.
Format:
PDF
Funding:
DTFH61-11-C-00027
Collection(s):
Federal Highway Administration
Main Document Checksum:
[+]
urn:sha256:e6840d1f48ba4bc7b7be35a9448fb475d35eed5f3d477cb55b3f86acc61a05a8
Download URL:
https://rosap.ntl.bts.gov/view/dot/35941/dot_35941_DS1.pdf
File Type:

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