Estimating User Costs as a Basis for Incentive/Disincentive Amounts in Highway Construction Contracts

About the report:

The Virginia Department of Transportation (VDOT) occasionally includes an incentive/ disincentive for early completion (I/D) in its construction contracts. This report presents the results of a project to identify procedures that would (1) enhance the effectiveness and enforceability of the I/D provision and (2) reduce the staff time and effort necessary to determine the need for an I/D and to calculate an appropriate per-day dollar amount. The researcher first reviewed the relevant literature pertaining to construction contracts and to road user cost calculation, and then evaluated the available user cost methodologies, especially computer software. Next, the researcher surveyed the current use of I/D provisions in Virginia and other states, and described VDOT's current project development process, with special emphasis on the user cost data that are typically generated during that process. The report makes five conclusions. First, various forms of I/D, though known by a variety of names, are fundamentally similar. Second, use of an incentive rather than a disincentive alone enhances the enforceability of the disincentive clause, though it may increase the final cost of the contract. Third, cost-plus-time bidding enhances the effectiveness of the incentive clause and the enforceability of the disincentive clause. Fourth, the end of the design public hearing is a logical point for VDOT to judge the need for an I/D. Fifth, road user cost savings calculated from the output of the Highway Capacity Software already in common use in VDOT forms a legally sound justification for a per-day dollar I/D amount.

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