FHWA Life Cycle Costs Analysis and Pavement Type Selection Guidance

Maryland Concrete 2014 Conference March 18, 2014 FHWA Life Cycle Costs Analysis and Pavement Type Selection Guidance

Presentation Outline

Background on FHWA Policy & Guidance Information • Federal Register Oct 8, 1981 PTS Policy • If designs equivalent then alternate bidding (AB) permitted • Federal Register Nov 9, 1981 Clarification • Discourages use of price adjustment clauses w/ AB • 23 CFR, Part 626 Non-Regulatory Supplement April 8, 1999 • FHWA does not encourage use of AB for PTS due to issue of equivalent pavement designs

Background on FHWA Policy & Guidance Information • FHWA Memo Nov 13, 2008 • Clarifies and consolidates FHWA policy • Alternate Bidding is not encouraged • Use of commodity price adjustments should not be used • Special Experimental Project #14 (SEP14) approval needed if using price adjustments • NCHRP Report 703 “Guide for Pavement Type Selection,” 2011

PTS Method #1 Identify feasible alternatives Perform LCCA Cost within specified % of lowest estimate Cost within specified % of lowest estimate • Consider subjective factors: • constructability, adjoining pavement, competition, • traffic control, • budget, etc. YES NO Eliminate alternative Make Decision 8 states

PTS Method #2 (MI) Identify feasible alternatives 1 rigid, 1 flexible Perform LCCA Alternate with lowest LCC YES Make selection decision NO Eliminate alternative

PTS Method #3 Identify feasible alternatives Perform LCCA Submit to selection committee Committee evaluates engineering and economic factors Committee recommends a decision

Both rigid and flexible alternatives are feasible PTS Method #4 Identify feasible alternatives NO YES Perform LCCA Prepare LCC Adjustment factor Eliminatealternative Alternate Bids to determine pavement type 10-25 states

FHWA Technical Advisory • Elimination of SEP 14 approval for price adjustments, November 8, 2012 • Use of Alternate Bidding for Pavement Type Selection, T 5040.39 December 20, 2012

Question 1: Purpose of TA? • Guidance on use of Alternate Bidding for Pavement Type Selection on Federal-aid projects on NHS

Question 2: Does TA Supersede other Guidance? • TA Supersedes: • Federal Register FHWA PTS Policy Statement November 11, 1981 • 23 CFR 626 NR Supplement issued April 8, 1999 • FHWA Memorandum issued November 13, 2008

Question 3: Background on AB for PTS? • Risk to Agency associated with variation of material costs and performance • 23 CFR 626 NR Guidance did not encourage use of AB • Limited use due to: • Lack of national guidance, • Consistent approach to AB and • Open competitive bidding environment

Question 4: Scope/Applicability of TA? • Recommended practice for use on Federal Aid projects on NHS • Process suitable for any project • Contracting agencies may use State design and construction practices for non-NHS projects

Question 5: FHWA Position? • Suitable approach when, • Engineering/economic analysis shows no clear choice between different pavement designs

Question 6: When is AB Appropriate? • Equivalent Designs • Similar level of service over same performance period (use of Pavement ME-Design software) • Similar life-cycle costs • Performance period should include min one major rehab cycle • Life cycle costs considered similar if NPV for higher cost alternative is less than 10% higher than lower cost alternative

Question 6: When is AB Appropriate? • Discount Rate • Guidance available in FHWA “LCCA in Pavement Design – Interim Tech Bulletin”, September 1981 • Recommend use of NPV for future costs • Recommend use of Real Discount Rate consistent w/ OMB Circular A-94, Appendix C

Question 6: When is AB Appropriate? • Consideration of Uncertainty • Determine total LCC for each alternative • Consider use of RealCost software

Question 6: When is AB Appropriate? • Maintenance and Rehab Strategy • Should reflect realistic pavement management practices • Should utilize realistic timing and extent of M&R activities • Provide similar level of service over performance period • NCHRP Report 703 Section 3.5 has a reasonable approach

Question 6: When is AB Appropriate? • Non-Economic Factors • Agency may consider: • Constructability • Continuity of adjacent pavements • Availability of local materials • Experience

Question 6: When is AB Appropriate? • Appropriate Application • Only use where pavement items impacted by AB are likely to influence lowest costs • Projects w/ substantial quantities of non-pavement items may not be good candidates for AB

Question 6: When is AB Appropriate? • Work Zone User Delay Costs • Not suited when user delay costs for initial construction and M&R exceed 20% between alternates

Question 7: Administration of AB? • LCCA Bid Adjustment • Should be used for all AB projects • Compute NPV of all unique costs over performance period • Establish process w/ industry input • Include LCCA bid adjustment in project specs • Should not include non-agency costs • User delay costs • Vehicle operating costs • Environmental costs, etc.

Question 7: Administration of AB? • Commodity Price Adjustment • Not desirable • Difficult to administer equal treatment • May result in in different levels of material cost risk

Question 7: Administration of AB? • Quality Price Adjustment Clauses • If used, • Provide similar incentives/disincentives for all alternate pavement types

Question 7: Administration of AB? • Material Quantities • Materials pay items based on weight/mass may result in cost overruns • Materials pay items based on area are less likely to result in a materials overrun • Overruns may result in a higher cost to Agency, which makes LCCA invalid • Recommend agency establish process to monitor actual costs to prevent any systematic bias

Question 7: Administration of AB? • Approvals • Title 23 U.S.C. 112 FA construction contracts awarded based on lowest responsive bid • SEP 14 Innovative Contracting Approval Process no longer required • Evaluated use of alternate pavement type bidding using LCCA bid adjustments and is no longer considered experimental per FHWA Memo dated November 8, 2012

Question 7: Administration of AB? • Change Orders • Should not allow post-award change order for pavement type • Negates purpose of alternate bid process

Question 8: Program Effectiveness? • Monitor number of bidders and unit cost of projects • Solicit input from respective pavement industry groups

Question 9: Reference Materials? • NCHRP Report 703 “Guide for Pavement-Type Selection,” 2011 http://onlinepubs.trb.org/onlinepubs/nchrp/nchrp_rpt_703.pdf

Additional Information or Questions Gary Crawford FHWA Office of Asset Management, Pavements, and ConstructionPavement Design and Analysis Team202-366-1286gary.crawford@dot.gov Gina Ahlstrom FHWA Office of Asset Management, Pavements, and ConstructionPavement Design and Analysis Team202-366-4612gina.ahlstrom@dot.gov

FHWA Life Cycle Costs Analysis and Pavement Type Selection Guidance