Ensuring Efficient Incentive and Disincentive Values for Highway Construction Projects: A Systematic Approach Balancing Road User, Agency and Contractor Acceleration Costs and Savings

Eul-Bum Lee and Douglas Alleman
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Eul-Bum Lee: Graduate Institute of Ferrous Technology & Graduate School of Engineering Mastership, Pohang University of Science and Technology (POSTECH), 77 Cheongam-Ro, Nam-Ku, Pohang 37673, Korea
Douglas Alleman: Construction Engineering and Management, Department of Civil, Environmental and Architectural Engineering, University of Colorado, Boulder, CO 80309-0428, USA

Sustainability, 2018, vol. 10, issue 3, 1-22

Abstract: United States State Highway Agencies (SHAs) use Incentive/Disincentives (I/D) to minimize negative impacts of construction on the traveling public through construction acceleration. Current I/D practices have the following short-comings: not standardized, over- or under-compensate contractors, lack of auditability result in disincentives that leave SHAs vulnerable to contractor claims and litigation and are based on agency costs/savings rather than contractor acceleration. Presented within this paper is an eleven-step I/D valuation process. The processes incorporate a US-nationwide RUC and agency cost calculation program, CA4PRS and a time-cost tradeoff I/D process. The incentive calculation used is the summation of the contractor acceleration and a reasonable contractor bonus (based on shared agency savings) with an optional reduction of contractor’s own saving from schedule compression (acceleration). The process has a capability to be used both within the US and internationally with minor modifications, relies on historical costs, is simple and is auditable and repeatable. As such, it is a practical tool for optimizing I/D amounts and bridges the gap in existing literature both by its industry applicability, integrating the solution into existing SHA practices and its foundation of contractor acceleration costs.

Keywords: incentives and disincentives; road user cost; highway rehabilitation and reconstruction; schedule analysis; agency cost; time-cost tradeoff; optimizing model; CA4PRS (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2018
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