Managing Change, Challenges & Other Things Malcolm T. Kerley, P.E. Chief Engineer, Virginia Department of Transportation Chair, AASHTO Subcommittee

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1 Managing Change, Challenges & Other Things Malcolm T. Kerley, P.E. Chief Engineer, Virginia Department of Transportation Chair, AASHTO Subcommittee on Bridges & Structures April 19,

2 Topics VDOT Project Delivery Options Changing Roles A Few Other Things Questions 2

3 National Work Zone Awareness Week April 19-23,

4 Woodrow Wilson Bridge 4

5 About VDOT VDOT maintains the 3rd largest state-owned road system in the country 57,867 miles of state maintained roadway system 5

6 About VDOT 20,914 Structures (Bridges and Large Culverts) - 19,380 (93%) Maintained by VDOT - 1,534 (7%) Maintained by Localities 4 Underwater Crossings 2 Mountain Tunnels 3 Toll Roads, 1 Toll Bridge 4 Ferry Services 41 Rest Areas, 107 Commuter Parking Lots 6

7 Fy 2010 Transportation Revenues Sales & Use 16% Other Revenues 21% Motor Vehicle Sales & Use 14% VA Motor Fuels 24% Federal Fuels and Others 25% Almost 2/3s of transportation revenues are tied to fuel purchases and auto sales 7

8 2010 Transportation Revenue $900,000,000 $800,000,000 $700,000,000 $600,000,000 $500,000,000 $400,000,000 $300,000,000 $200,000,000 $100,000,000 $0 Motor Fuels Tax Vehicle Sales and Use Tax Vehicle License Tax Retail Sales and Use Tax Other Sources Federal HMOF Construction 8

9 About VDOT Current FY2010 budget is $3.4 billion $1.63 B (48.3%) Maintenance (includes city and county street payments) $669 M (19.8%) Construction $459 M (13.6%) Support other agencies, tolls, admin, other programs $362 M (10.7%) Special financing and earmarks $257 M (7.6%) Debit service 7.6% 10.7% 13.6% 48.3% 19.8% 9

10 VDOT Construction Districts Northern Virginia N Staunton Culpeper Fredericksburg Richmond Bristol Salem Lynchburg Hampton Roads 10

11 VDOT s Dashboard 11

12 Goshen Rehabilitation Project 12

13 Program Challenges Economic recovery requires efficient transportation network Infrastructure is aging DOT workforce aging and shrinking DOT budget shrinking VMT stagnant during current recession, but had grown significantly 13

14 Transportation Revenue Reductions Spring 2008 February 2009 Through FY 2009 $1.11 billion $2.57 billion $3.68 billion August 2009 November 2009 FY 2010 Revisions $0.88 billion $0.05 billion $0.93 billion Total $4.61 billion 14

15 Current Six-Year Improvement Program Approved Approved Revised Approved Revised FY Program FY Program FY Program FY Program FY Program Highway Construction $8.6 b $7.9 b $6.0 b $5.5 b $5.5 b Rail & Public Transportation $2.9 b $2.7 b $2.9 b $2.0 b $2.1 b Total $11.5 b $10.6 b $8.9 b $7.5 b $7.6 b 15

16 Program Challenges - Bridges Aging infrastructure - 56% of VDOT s bridge inventory is 40 years or older 20% of the inventory is at risk of becoming SD Shortfall in State and Federal revenues Estimated $1.9 billion in maintenance and rehabilitation needs Estimated $ 4.2 billion in replacement needs Approximately $ 3.5 billion reduction in the six-year plan 16

17 VDOT s Bridge Program NUMBER OF BRIDGES AND CULVERTS BY DECADE NUMBER pre DECADE 17

18 VDOT s Bridge Program CUMULATIVE PERCENT OF BRIDGES AND CULVERTS PERCENT 120.0% 100.0% 80.0% 60.0% 40.0% 100.0% 92.8% 81.7% 71.4% 54.8% 55% of inventory is 40 years or older 34.3% 26.0% 21.9% 20.0% 0.0% 3.2% 0.7% 0.3% 0.1% pre DECADE 18

19 VDOT s Bridge Program Bridge Construction Unit Costs $250 $200 Dollars per Sq. Ft. $150 $100 $50 $ Year On-System Cost per SF Off-System Cost per SF 19

20 Bridge Management Needs/Goals Needs - Preventive Maintenance and Preservation - Restoration & Rehabilitation - Replacement Goals - Identify and prioritize statewide needs - Provide adequate processes to plan, budget, implement and monitor work efforts - Use a life-cycle approach 20

21 The Blueprint Reductions by Program Over 6 years (FY ) 3 Parts to Blueprint 13% Six-Year Program 15% Reduce by $4.6B Organization/Staffing 72% Reduce employees by 1,000 Services/Programs Centerline out Construction Program Admin & Support Program Maintenance Program 21

22 Public Policy Questions Who should pay for Roads and Bridges? What type of user fee makes the most sense? Fuel tax? Tolls? VMT? Other? Who should maintain and operate the transportation network? 22

23 Route 5 Bridge over Chickahominy River 23

24 VDOT Past, Present and Future 100 years of tradition : Virginia policy mirrors federal policy Motor fuels user tax [$0.17 per gallon since 1986], and local taxes are predominant funding source Most VDOT project delivery is by traditional design-bid-build - paid with public funds VDOT s current budget is approximately $3.4 billion [US] 24

25 VDOT Past, Present and Future Present Challenges Mirror Rest of US Highway system is aging Maintenance requires increasingly larger share of budget Population and economy are growing Current needs exceed available funds Strong economy requires efficient transportation 25

26 VDOT Past, Present and Future - Options Determine and maintain core competencies Develop new delivery methods Develop internal systems that accommodate new delivery methods 26

27 Project Delivery Options Design Bid Build Private Contract Fee Services Design Build Design Build Operate Maintain (DBOM) Long Term Lease Agreement Design Build Finance Operate (DBFO) Design Build Own Operate (BOO) Public Agency Controlled Public Pays Public Private Partnerships User Pays Concessions / Privatizations More Private Sector Control Tax Exempt Financing Public Control Public Equity Taxable Financing Private Control Private Equity Borrowed from C. Kane, formerly of Washington Group 27

28 Scoping - Influence Curve 28

29 VDOT s Project Delivery Options Design-Bid-Build Remains primary delivery method Suitable for many types of projects Alternative delivery methods: Public Private Transportation Act (PPTA) Design-Build 29

30 Virginia s Public-Private Transportation Act of 1995 [the PPTA] Policy A. - A public need for timely transportation development - Existing methods may not be adequate - Private development or operation may be more timely or more efficient or less costly thereby serving the public interest C. Intent is to encourage private investment in transportation facilities Allows for solicited or unsolicited proposals Such partnerships are for carefully selected projects 30

31 VDOT s Procurement Process - PPTA Phase 1 Quality Control Phase 2 Independent Review Panel IRP Meetings Receipt of Localities comments Concessionaire presentation VDOT presentations Public Comments Phase 3 CTB Action Phase 4 Detailed Proposal Phase 5 Negotiations Phase 6 Interim or Comprehensive Agreement 31

32 3P Projects in Virginia 32

33 The Route 895 PPTA Project Phase 1 Virginia s First PPTA Toll Road The PPTA allows unsolicited proposals FD/MK proposal in 1995 VDOT did not have construction funds FD/MK proposed debt financing for DBF VDOT would operate toll road upon completion Road was constructed

34 The Route 895 PPTA Project Phase 2 Refinancing the debt, and Virginia s first PPTA concession agreement Traffic revenue did not meet forecasts Economic growth forecast a better long-term return Transurban, LLC Finance, operations and maintenance Valued at +$500 million [US] Revenue sharing provisions 34

35 Route 895 PPTA DBF , FOM

36 Route 895 PPTA DBF , FOM

37 Downtown Tunnel/Midtown Tunnel/MLK Extension Midtown Tunnel - New Construction, Approaches and Improvements Downtown Tunnel - Improvements Southern Extension of MLK Freeway (Route 58) 37

38 Midtown Tunnel 38

39 Coalfields Expressway Coal synergy P3s it s not just tolling Route 28 Special tax district I-495 Hot Lanes Dynamic tolling HOV/HOT lanes 39

40 Coalfields Expressway Hawks Nest 40

41 Route 28 Corridor Improvements 41

42 I495 - Capital Beltway HOT Lanes 42

43 Design-Build of the Code of Virginia, enacted in Authorizes the Commonwealth Transportation Board (CTB) to award Design-Build contracts - Requires Objective Criteria for project selection - Finding of Public Interest 43

44 Design-Build CTB Objective Criteria Project shall include one or more of the following: - Expedited Schedule - Established Budget - Well Defined Scope - Favorable Risk Analysis - Prequalification of Design-Build Firms - Competitive Bidding Process 44

45 DB Bridge Contracts Large and small projects Route 460 Bridge - $90 million Regional Bridge and Culvert Repair Bundled structures by geographic area Contracts ~$1 million to $10 million Route 609 ~$1 million Route 713 ~$2 million 45

46 609 Bridge 1 st Single Phase 46

47 Giles Co. Bridge Posted: 3 tons Maximum Load 47

48 Battlefield Parkway - Leesburg 48

49 Pacific Boulevard 49

50 Changing Roles 50

51 Design and Construction Oversight Owner s Role P3 & DB delivery not simply a philosophical change Different contractual arrangements require different policies and procedures Act based on lifecycle risks Executive Management must direct changes to traditional procedures 51

52 Risk Based Approach to Contract Administration Quality Assurance and Quality Control Plan Review Construction Authorization and Oversight Dispute Resolution 52

53 Observations DOTs have 100 years of tradition Conflicting Priorities (profit v public service) Fundamentally different organizations can successfully coexist Government must establish a business process Private sector must perceive investment opportunities Private companies can succeed or fail, and they do both equally well Engineering is the easy part 53

54 Owner s Recommendation s Read the contract documents Develop procedures based on your risks Understand and enforce the contract Direct your program Communicate to ensure support P3 is not a panacea 54

55 Current Status Traditional design-bid-build contracts 84 Construction Contracts for $1 billon 140 Maintenance Contracts for $300 million More than $2 billion under construction and $3 billion work under development for PPTA & DB projects Four active PPTA contracts under construction for +$1,900 million 17 active DB contracts under construction for +$250 million 55

56 Smart Bridge - Blacksburg 56

57 a few Other Things How does a bridge engineer consider those policy issues and changing program and project delivery methods in the context of traditional design-bid-build contracting? Is design-bid-build contracting still relevant? 57

58 Rapid Renewal Approaches Innovative Contracting Options Why use innovative contracting options? Accelerate Delivery, Minimize Road User Impacts Recover Road User Costs - not considered in traditional contracts Risk Allocation What are the types used by VDOT? Incentives/Disincentives A+B Bidding Cost plus time bidding No-Excuse Bonus Fixed Date/Adjustable Schedule Design-Build 58

59 Basis for Rapid Renewal Approaches Simplified calculations for Road User Cost (RUC) Vehicle Operating costs: ADT x Delay time x Vehicle Operating Cost/mile Lost Productivity costs: -OR- ADT x Avg passenger per vehicle x Delay x min. hourly wage 59

60 Incentives/Disincentives Definition: Contract provision that compensates the Contractor for accelerating completion. Determination: Apply to Critical Projects, Minimize RU impacts and costs Incentive/Disincentive Phase should complete in less than one construction season Based on justifiable Road User Costs (not liquidated damages) I/D $$ Sufficient to encourage acceleration (not exceed 5% of total contract) Incentive/Disincentive $$ should match Requires CPM schedule specification, accurate baseline, frequent updates 60

61 Incentives/Disincentives Pros And Cons Pros Reduce Construction time Reduce contract administration costs Improve public relations Increase Contractors interest Cons Increase construction costs Negotiating contract changes is difficult Contractors submit more TIA s and claims. 61

62 Incentives/Disincentives Project Selection 62

63 Incentives/Disincentives Route 340- Bridge Replacement At Jeremy s Run 63

64 A + B Bidding Definition: What is the A and the B? A = Traditional dollar amount for contract items B = Calendar days bid to complete the work multiplied by daily RUC» B converts to new Contractor determined fixed completion date Determine the $$ Amount: (A) + (B x [Road User Cost/Day]) = Total Bid Lowest Bid for Award Award $$ amount is limited to the A portion of the bid after Award Can be coupled with Incentive/Disincentive based upon length of time bid to complete (I/D based around new fixed date)» Cap placed for budgeting project on incentive 64

65 A + B Bidding Criteria High RUC, Safety/Emergency, community impacts High Traffic Control costs Relatively free of third party conflicts Public interest expressed to expedite project B portion should be sufficient to influence bids 65

66 A+B Bidding Pros Increases bidders interest Encourages acceleration Promotes efficiencies Reduce RU impacts Reduces pollution, environmental impacts Cons Contract changes, delays, nullify advantages Increases inspection and administration costs Negotiating contract changes, TIA s is difficult Not to be used routinely 66

67 A + B Bidding Project Selection 67

68 No-Excuse Bonus Definition: Bonus to accelerate completion. Contractor assumes all risks for completion and waives all right to claims. Criteria: Unique/Complex Project, High Traffic Volumes/RUC s Determine the $$ Amount: Road User Cost Cost of all known and potential risks Must be sufficient to encourage acceleration and interest Thorough pre-award contract time analysis to determine major milestones Detailed construction inspection and administration estimate 68

69 No-Excuse Bonus Pros Reduced construction time Increased Bidders interest Better coordination between Primes and Sub-contractors More innovative techniques Cons Impacts quality of work Increase construction costs and inspection costs Waive all rights to claim Negotiating contract changes, TIA s is difficult Requires detailed CPM Schedule specification, baseline, frequent updates. 69

70 ACCA Yard Project 70

71 Fixed Date / Adjustable Schedule Advertise project with dual dates Contractor selects work period within larger contract window Contractor s selection converts to fixed date Usually reserved for smaller contracts Ex: Work requires 60 days to perform, but VDOT provides 180 day window. Contractor selects early or late period to optimize his schedule work. Benefit to VDOT: Increased competition 71

72 Rapid Renewal - Summary Why use innovative contracting options? Accelerate delivery Minimize road user impacts / travel delay Recover user costs Risk allocation ~ contractor controls MOT and job sequencing What is the top option used by VDOT? Incentive/Disincentive Successful Easy Administration 72

73 73

74 AASHTO Bottom Line Report 2009 Annual investment $166 billion [2010 to 2015] Highways and Bridges Highway capital investment 78.7 billion [2006] Total from all levels of government Model-based investment estimates do not address all needs Additional annual highway requirements total over $13 billion >$7 billion in environmental mitigation costs $2.6 billion in highway operations costs $1.2 billion in safety program costs $1.6 billion in highway security costs. 74

75 AASHTO Bottom Line Report

76 AASHTO Bottom Line Report

77 AASHTO Bottom Line Report

78 Top 3 Challenges Funding Is the pie big enough? Funding Are you getting your correct piece of the pie? Funding Are you eating your pie appropriately? 78

79 Varina Enon Bridge 79

80 AASHTO Subcommittee on Bridges & Structures Strategic Plan 2005 Workshop Prioritized Major Challenges Extending Service Life Optimizing Structural Elements Accelerating Bridge Construction Advancing the AASHTO Specifications Monitoring Bridge Condition Contributing to the National Policy Managing Knowledge 80

81 AASHTO Subcommittee on Bridges & Structures 2000 Workshop Prioritized Major Challenges Enhance Materials, Structural Systems, and Technologies Efficient Maintenance, Rehabilitation, and Construction Bridge Management Enhanced Specifications for Improved Structural Performance Computer-Aided Design, Construction, and Maintenance Leadership 81

82 AASHTO Subcommittee on Bridges & Structures Leadership Objective Engage in policy development, planning and budgeting Leadership Approach Professional articulation of safety risks Bridge Engineers viewpoint Aesthetics Environment Maintenance Investment Bridge Alignment Construction Methods Leadership and Management Training for Bridge Engineers 82

83 AASHTO Subcommittee on Bridges & Structures 83

84 Questions 84

85 Questions What is the primary source of transportation revenue for Virginia? To which program does VDOT allocate the most money? What is the predominant, traditional project delivery method? 85

86 Questions What are one or two delivery methods wherein the owner relinquishes certain authority to the contractor? Why would an owner choose an alternative delivery method? What are the top three challenges faced by DOTs? What is one of AASHTO s Leadership Objectives for bridge engineers? 86