Cost Overrun in Public-Private Partnerships: Toward Sustainable Highway Maintenance and Rehabilitation
Publication: Journal of Construction Engineering and Management
Volume 140, Issue 6
Abstract
Transportation agencies worldwide have been preparing themselves to face the growing demand for transportation infrastructure by forming public-private partnerships (PPP), contractual agreements formed between public and private sector entities, to allow for greater private sector participation in the delivery of transportation projects. However, there is one major concern that needs to be addressed: the issue of accurately estimating maintenance and rehabilitation costs at the project planning stage. The accuracy of these estimates plays a significant role in determining project characteristics, and in selecting appropriate projects and PPP approaches for implementation, so that they may lead to sustainable highway preservation strategies. This paper compares the contract winning bid cost with the final as-built cost of highway maintenance and rehabilitation projects, determines possible cost overruns across the projects and identifies influential factors that affect them. The analysis is performed separately by PPP contracting approach, and thereby relaxes the assumption of past research that cost overrun behaves identically across different contracting approaches. The results show that a number of factors play a role in the determination of cost overrun, including the project size (cost, duration, and length) and specific maintenance and rehabilitation activities.
Get full access to this article
View all available purchase options and get full access to this article.
Acknowledgments
The authors are grateful to the following executives for providing contract data and other useful information: M. Bowman, S. Trammel, J. Burkhardt, T. Shields, S. Newbolds, J. Lewien, M. Miller, J. Morton, B. Tompkins, and D. Belter of the Indiana Department of Transportation; F. T. Richards of the Alaska Department of Transportation; S. J. Berndt, H. Jensen, N. Worline, and S. Lund of the Minnesota Department of Transportation; L. Davis, A. Reeves, and S. Foskey of Polk County, Florida; L. Buttler, T. Booker-Sims, B. Blackwell, and K. Hardy of the Texas Department of Transportation; D. L. Mitchell, D. Kiefer, R. A. Thacker, and R. Prezioso of the Virginia Department of Transportation; G. Stebbins from E+B Paving Inc.; T. Lucas from Milestone; S. Koble from Brooks Construction Co.; and K. Rose from Rieth-Riley. The authors would also like to thank F. Mannering, B. McCullouch, S. Labi, K. Sinha, G. Zietlow, and P. Pakkala. The contents of this paper reflect the views of the authors, who are responsible for the facts and the accuracy of the data presented herein.
References
Abdel-Aziz, A. M. (2007a). “A survey of the payment mechanisms for transportation DBFO projects in British Columbia.” Constr. Manage. Econ., 25(5), 529–543.
Abdel-Aziz, A. M. (2007b). “Successful delivery of public-private partnerships for infrastructure development.” J. Constr. Eng. Manage., 918–931.
Abdel-Aziz, A. M., and Russell, A. D. (2001). “A structure for government requirements in public–private partnerships.” Can. J. Civ. Eng., 28(6), 891–909.
Akran, E. O., and Igwe, O. (2001). “Methodology for determining price variation in project execution.” J. Constr. Eng. Manage., 367–373.
Al-Momani, A. H. (2000). “Construction delay: A quantitative analysis.” Int. J. Proj. Manage., 18(1), 51–59.
Anastasopoulos, P. Ch. (2007). “Performance-based contracting for roadway maintenance operations.” M.Sc. thesis, Purdue Univ., West Lafayette, IN.
Anastasopoulos, P. Ch., Florax, R. J. G. M., Labi, S., and Karlaftis, M. G. (2010a). “Contracting in highway maintenance and rehabilitation: Are spatial effects important?” Transp. Res. Part A: Pol. Pract., 44(3), 136–146.
Anastasopoulos, P. Ch., Islam, M., Volovski, M., Powell, J., and Labi, S. (2011a). “Comparative evaluation of public-private partnerships in roadway preservation.” Transp. Res. Rec., 2235, 9–19.
Anastasopoulos, P. Ch., Labi, S., Bhargava, A., and Mannering, F. L. (2012). “Empirical assessment of the likelihood and duration of highway project time delays.” J. Constr. Eng. Manage., 390–398.
Anastasopoulos, P. Ch., Labi, S., and McCullouch, B. G. (2009). “Analyzing duration and prolongation of performance-based contracts using hazard-based duration and zero-inflated random parameters poisson models.” Transp. Res. Rec., 2136, 11–19.
Anastasopoulos, P. Ch., Labi, S., McCullouch, B. G., Karlaftis, M. G., and Moavenzadeh, F. (2010b). “Influence of highway project characteristics on contract type selection: An empirical assessment.” J. Infrastruct. Syst., 323–333.
Anastasopoulos, P. Ch., McCullouch, B. G., Gkritza, K., Mannering, F. L., and Sinha, K. C. (2010c). “A cost savings analysis of performance-based contracts for highway maintenance operations.” J. Infrastruct. Syst., 251–263.
Anastasopoulos, P. Ch., Volovski, M., Pradhan, S., Islam, M., and Labi, S. (2011b). “Public private partnerships (PPPs) in highway reconstruction, rehabilitation, and operations.”, U.S. Dept. of Transportation, Washington, DC.
Anderson, S. D., and Russell, J. S. (2001). “Guidelines for warranty, multi-parameter, and best value contracting.”, Transportation Research Board, National Research Council, Washington, DC.
Bhargava, A., Anastasopoulos, P. Ch., Labi, S., Sinha, K. C., and Mannering, F. L. (2010). “Three-stage least squares analysis of time and cost overruns in construction contracts.” J. Constr. Eng. Manage., 1207–1218.
Bordat, C., McCullouch, B. G., Labi, S., and Sinha, K. C. (2004). “An analysis of cost overruns and time delays of INDOT projects.”, Joint Transportation Research Program, Indiana Dept. of Transportation and Purdue Univ., West Lafayette, IN.
Carpenter, B., Fekpe, E., and Gopalakrishna, D. (2003). “Performance-based contracting for the highway construction industry.” Koch Industries, Washington, DC.
Chan, D. W. M., and Kumaraswamy, M. M. (1997). “A comparative study of causes of time overruns in Hong Kong construction projects.” Int. J. Proj. Manage., 15(1), 55–63.
Chang, A. S. (2002). “Reasons for cost and schedule increase for engineering design projects.” J. Manage. Eng., 29–36.
Choi, K., Kwak, Y., Pyeon, J., and Son, K. (2012). “Schedule effectiveness of alternative contracting strategies for transportation infrastructure improvement projects.” J. Constr. Eng. Manage., 323–330.
Choi, K., and Kwak, Y. H. (2012). “Decision support model for incentives/disincentives time–cost tradeoff.” Autom. Constr., 21, 219–228.
Choi, S., Kim, D., Han, S., and Kwak, Y. (2014). “Conceptual cost-prediction model for public road planning via rough set theory and case-based reasoning.” J. Constr. Eng. Manage., 04013026.
Ernzen, J., and Feeny, T. (2002). “Contractor led quality control and quality assurance plus design-build: Who is watching the quality?” Transp. Res. Rec., 1813, 253–259.
Federal Highway Administration (FHWA). (2007). “Price trends for federal-aid highway construction.” Federal Highway Administration, 〈http://www.fhwa.dot.gov/programadmin/pt2006q4.cfm〉.
Florida Department of Transportation (FDOT). (2000). “Highway construction and engineering and transportation system maintenance programs.”, Office of Program Policy Analysis and Government Accountability, Tallahassee, FL.
Flyvbjerg, B., Shamris Holm, M. K., and Buhl, S. L. (2002). “Underestimating costs in public works projects: Error or lie?” J. Am. Plann. Assoc., 68(3), 279–295.
Flyvbjerg, B., Shamris Holm, M. K., and Buhl, S. L. (2003). “How common and how large are cost overruns in transport infrastructure projects?” Transp. Rev., 23(1), 71–88.
Flyvbjerg, B., Shamris Holm, M. K., and Buhl, S. L. (2004). “What causes cost overrun in transport infrastructure projects?” Transp. Rev., 24(1), 3–18.
Frimpong, Y., Oluwoyeb, J., and Crawford, L. (2003). “Causes of delay and cost overruns in construction of groundwater projects in a developing countries: Ghana as a case study.” Int. J. Proj. Manage., 21(5), 321–326.
Gkritza, K., and Labi, S. (2008). “Estimating cost discrepancies in highway contracts: Multistep econometric approach.” J. Constr. Eng. Manage., 953–962.
Gransberg, D. D., and Ellicott, M. A. (1996). “Best value contracting: Breaking the low-bid paradigm.” Trans. AACE Int., ABI/INFORM Global, Vancouver, Canada, 5.1–5.4.
Gransberg, D. D., Lopez del Puerto, C., and Humphrey, D. (2007). “Relating cost growth from the initial estimate to design fee for transportation projects.” J. Constr. Eng. Manage., 404–408.
Gransberg, D. D., and Molenaar, K. (2004). “Analysis of owner’s design and construction quality management approaches in design/build projects.” J. Manage. Eng., 162–169.
Gransberg, D. D., and Riemer, C. (2009). “Impact of inaccurate engineer’s estimated quantities on unit price contracts.” J. Constr. Eng. Manage., 1138–1145.
Hancher, D. E. (1999). “Contracting methods for highway construction. TR news.” Transportation Research Board, Washington, DC, 205, 10–14.
Hastak, M., Minkarah, I. A., Cui, Q., and Bayraktar, M. (2003). “The evaluation of warranty provisions on ODOT construction projects.” Ohio Dept. Transp., 〈http://www.dot.state.oh.us/Divisions/TransSysDev/Research/reportsandplans/Reports/2003/Construction/14780-FR.pdf〉.
Herbsman, Z. J., and Glagola, C. R. (1998). “Lane rental: Innovative way to reduce road construction time.” J. Constr. Eng. Manage., 411–417.
Jacoby, C. (2001). Report on supplemental agreement reasons, AASHTO-FHWA project cost overrun study, Federal Highway Administration, U.S. Dept. of Transportation, Washington, DC.
Jahren, C., and Ashe, A. (1990). “Predictors of cost-overrun rates.” J. Constr. Eng. Manage., 548–551.
Joint Legislative Audit, and Review Commission (JLARC). (2001). “Review of construction costs and time schedules for Virginia highway projects: A report in a series on transportation issues in Virginia.”. Richmond, VA.
Kaming, P. F., Olomolaiye, P. O., Holt, G. D., and Harris, F. C. (1997). “Factors influencing construction time and cost overruns on high-rise projects in Indonesia.” Constr. Manage. Econ., 15(1), 83–94.
Korman, R., and Daniel, S. H. (1998). “Audit notes ‘avoidable’ changes.” Eng. News-Rec., 240(13), 14.
Kwak, Y. H., Chih, Y., and Ibbs, W. C. (2009). “Towards a comprehensive understanding of public private partnerships for infrastructure development.” Calif. Manage. Rev., 51(2), 51–78.
Kyte, C. A., Perfater, M. A., Haynes, S., and Lee, H. W. (2004). “Developing and Validating a Highway Construction Project Cost Estimation Tool.”, Virginia Transportation Research Council, Charlottesville, VA.
Liautaud, G. (2004). Maintaining roads: Experience with output-based contracts in Argentina, World Bank, Washington, DC.
McCullouch, B. G., Sinha, K. C., and Anastasopoulos, P. Ch. (2009). “Performance-based contracting for roadway maintenance operations in Indiana.”, Joint Transportation Research Program, Indiana Dept. of Transportation and Purdue Univ., West Lafayette, IN.
Pakkala, P. (2005). “Performance-based contracts—International experiences.” Finnish Road Administration, Presentation at the TRB Workshop on “Performance-based Contracting,” Washington, DC.
Porter, T. (2002). “International trends in procurement models for highway maintenance.” Final Rep., Opus Int. Consultants, 〈http://www.opus.co.nz〉.
Robinson, D. M., Raynault, E., Frazer, W., Lakew, M., Rennie, S., and Sheldahl, E. A. (2006). “DC streets performance-based asset preservation experiment: Current quantitative results and suggestions for future contracts.” 85th Annual Meeting, Transportation Research Board, Washington, DC.
Rowland, H. (1981). “The causes and effects of change orders on the construction process.” Ph.D. thesis, Georgia Institute of Technology, Atlanta, GA.
Segal, G. F., Moore, A. T., and McCarthy, S. (2003). “Contracting for road and highway maintenance.” Reason Public Policy Institute, Los Angeles.
Singh, P., Oh, J. E., Labi, S., and Sinha, K. C. (2007). “Cost-effectiveness evaluation of warranty pavement projects.” J. Constr. Eng. Manage., 217–224.
Sinha, K. C., and Labi, S. (2007). Transportation decision-making: Principles of project evaluation and programming, Wiley, Hoboken, NJ.
Skutella, M. (1998). “Approximation algorithms for the discrete time-cost trade-off problem.” Math. Oper. Res., 23(4), 909–929.
Stankevich, N., Qureshi, N., and Queiroz, C. (2005). “Contrats basés sur les résultats pour la préservation et l’amélioration des actifs routiers.”, The World Bank, Washington, DC.
Turcotte, J. (1996). “Review of the Florida department of transportation’s performance in controlling construction cost overruns and establishing accountability for these problems.” The Florida Legislature. Report No. 96-21, November 27th, 1996, 〈http://www.oppaga.state.fl.us/reports/pdf/9621rpt.pdf〉.
Washington, S. P., Karlaftis, M. G., and Mannering, F. L. (2011). Statistical and econometric methods for transportation data analysis, 2nd Ed., Chapman and Hall/CRC, Boca Raton, FL.
Ybarra, S. J. (1998). “VMS asset management contract for Virginia’s interstate highways.” Secretary of Transportation for the Commonwealth of Virginia. 〈http://shirleyybarra.com/V-DOTcasestudy.pdf〉.
Zhang, X. Q. (2004). “Improving concessionaire selection protocols in public/private partnered infrastructure projects.” J. Constr. Eng. Manage., 670–679.
Zhang, X. Q. (2005a). “Criteria for selecting the private-sector partner in public-private partnerships.” J. Constr. Eng. Manage., 631–644.
Zhang, X. Q. (2005b). “Critical success factors for public-private partnerships in infrastructure development.” J. Constr. Eng. Manage., 3–14.
Zhang, X. Q. (2005c). “Paving the way for public-private partnerships in infrastructure development.” J. Constr. Eng. Manage., 71–80.
Zhang, X. Q. (2006). “Public clients’ best value perspectives of public private partnerships in infrastructure development.” J. Constr. Eng. Manage., 107–114.
Zhang, X. Q., and Kumaraswamy, M. M. (2001). “Procurement protocols for public-private partnered projects.” J. Constr. Eng. Manage., 351–358.
Zheng, D. X. M., Ng, S. T., and Kumaraswamy, M. M. (2004). “Applying a genetic algorithm-based multiobjective approach for time-cost optimization.” J. Constr. Eng. Manage., 168–176.
Zietlow, G. (2004). “Implementing performance-based road management and maintenance contracts in developing countries – An instrument of German technical cooperation.”, German Development Cooperation, Eschborn, Germany.
Zietlow, G. (2005). “Cutting costs and improving quality through performance-based road management and maintenance contracts—The Latin American and OECD experiences.” Regional Seminar on Performance-Based Road Management and Maintenance Contracts, Arusha, Tanzania.
Zietsman, J. (2004). “Performance measures for performance based maintenance contracts.” 83rd Annual Meeting, Transportation Research Board, Washington, DC.
Information & Authors
Information
Published In
Journal of Construction Engineering and Management
Volume 140 • Issue 6 • June 2014
Copyright
© 2014 American Society of Civil Engineers.
History
Received: Aug 13, 2013
Accepted: Feb 6, 2014
Published online: Mar 24, 2014
Published in print: Jun 1, 2014
Discussion open until: Aug 24, 2014
Authors
Metrics & Citations
Metrics
Citations
Download citation
If you have the appropriate software installed, you can download article citation data to the citation manager of your choice. Simply select your manager software from the list below and click Download.