Quantifying specific costs savings on transportation projects is a difficult undertaking and not often attempted. However, at least two studies have examined costs of projects using innovative contracting techniques supporting public-private partnerships and found they resulted in significant cost savings. In addition, estimates from individual projects provide specific examples of costs savings from these techniques.
In February 2003, Battelle, on behalf of Koch Industries, compared the use of traditional methods of contracting to the use of innovative contracting methods.[34] Although data comparing the use of innovative contracting with traditional procurement is rare, the case studies reviewed by Battelle found that the use of performance-based contracting, a form of public-private partnership, can result in cost savings ranging from 6 to 40 percent.[35] Appendix A includes a chart, prepared by Battelle, providing examples of construction and maintenance projects built by public-private partnerships and the cost savings for each. It should be noted that there are a lot of variations in the accuracy and quality of engineer estimates, so this may limit the utility of this comparison. FHWA is working to improve the accuracy and quality of engineer's estimates. Additionally, Appendices B and C provide additional information about projects built by public-private partnerships and any time and cost savings for these projects.
Evidence of the financial benefits of public-private partnerships has also been collected by the Florida Department of Transportation (Florida DOT), one of the States actively utilizing innovative contracting methods. The Florida DOT compared traditional low-bid contracts with those awarded using seven different nontraditional methods. In every case, the nontraditional method had lower cost overruns and was delivered closer to schedule than the average traditional low-bid contract.[36]
Although Florida DOT acknowledged that there are cost and time overruns with projects executed under innovative contracting methods, the magnitude of these overruns is significantly reduced. Traditional low-bid contracts on average had 12.4 percent cost overruns while nontraditional contracts on average had only a 3.6 percent cost overrun.[37]See Figure 3.1.
Figure 3.1
Florida Cost and Time Overruns (1997-98)[38]
Non-Traditional Contracting Technique | Number of Contracts | Construction Award ($) | Percent Cost Overrun | Contract Days | Percent Time Overrun |
A+B (cost-plus-time) | 9 | 48,527,280 | 3.5% | 2,283 | 8.1% |
No Excuse Bonus | 8 | 30,991,918 | 7.2% | 2,110 | 1.5% |
Incentive/Disincentive | 12 | 28,577,800 | 8.4% | 2,835 | 5.8% |
Lane Rental | 8 | 16,847,048 | -4.1% | 1,535 | 5.7% |
Liquidated Savings | 9 | 18,174,776 | -1.8% | 1,171 | 13.2% |
Bid Averaging | 2 | 17,205,296 | 4.5% | 790 | 7.2% |
Lump Sum | 8 | 7,703,934 | -0.7% | 915 | 16.0% |
All Non-Traditional Contracts | 56 | 168,028,054 | 3.6% | 11,639 | 7.1% |
Traditional Low-Bid Contract | 375 | 1,162,868,676 | 12.4% | 87,861 | 30.7% |
There are also many examples of cost savings on projects using innovative contracting methods to facilitate public-private partnerships. Cost savings from innovative contracting methods were estimated by project sponsors on the following projects:
∙ Pocahontas Parkway (Route 895): The Commonwealth of Virginia experienced the cost-saving benefits that can be achieved by the use of a public-private partnership on the Pocahontas Parkway (Route 895), the first project constructed under Virginia's Public-Private Transportation Act of 1995 (VPPTA). According to VDOT, through the use of an innovative design-build-finance contract, the project came in $10 million below the original $324 million estimated cost of the project.[39]
∙ Route 288: Another Virginia construction project, the completion of the western loop around Richmond (Route 288), was estimated by State engineers to cost $283 million. However, by using the VPPTA, the efficiencies of design-build, and a long-term warranty, the State realized a savings of $47 million.[40]
However, Virginia qualified its estimates of cost savings by pointing out that different contracting methods do not allow for direct comparisons of equivalent items. In addition, innovative contracting requires a significant dedication of time by senior staff, as well as consulting fees for legal services and an independent evaluation of the project's financial plan. These additional hours and fees are not reimbursed by the private sector partner and add to the cost of a project under the VPPTA.
∙ The Denver E-470 Toll Road, Segments II, III, and IV: These projects also generated significant cost savings. This design-build-finance project for a 47-mile beltway along the eastern edge of the Denver metro area links together metro arterials and the new Denver International Airport. The design-build arrangement allowed for reduced project and capital costs; interim and long-term financing enhancements; accelerated project delivery; a single source of responsibility; and risk sharing. The project, constructed for $408 million, would have cost $597 million under the design-bid-build approach.[41]
More detail on these projects is contained in Appendix D.