A+B bidding can be phenomenal when administered correctly. This contracting method involves cost (the dollar amount of work to be performed) plus time (with an associated cost) in the formula of determining the low bid. It has gained popularity with Departments of Transportation (DOT’s) across the country.
A portion + B portion = Total Bid considered for award
The A portion represents the contractor’s traditional bid amount to perform the work.
The B portion represents the contractor determined # of calendar days to complete the work multiplied by the agency determined daily road user cost.
In standard construction bids, the A portion is the only consideration for award. In A+B, both standard bid and time values count as the contractor with the lowest sum of A+B gets awarded the job. This method incentivizes the contractor to complete critical projects more quickly while minimizing impact to the traveling public. Contractors who work fast are rewarded.
Nearly all DOT’s that use A+B include contract disincentive clauses that penalize the contractor for each day the project inexcusably extends beyond the number of days bid at the daily road user cost. This is a form of liquidated damages. To get projects completed even quicker, some DOT’s incentivize contractors by providing them with an incentive for each day that the work is completed ahead of the original number of days bid. DOT's sometimes to place a cap on the incentive to certain % of the project value, whereas disincentives are typically uncapped.
Not all projects fit the A+B model. A+B typically makes most sense in high traffic areas such as interstates or major projects that severely disrupt traffic or involve long detours.
The benefits of A+B are vast and impactful. First off, it puts the onus on the contractors to develop comprehensive plans of attack to complete the work efficiently and allocate the appropriate resources to complete the work faster – BEFORE the bids are due. It encourages the use of overtime, weekend work, and night work. Contractors are incentivized to get creative, and this is where ingenuity can shine through with innovative construction sequencing, phasing, and methods. Above all, projects that are completed quicker means that the traveling public (workers, teachers, first responders, students, and transportation professionals on the move) are less impacted by construction work. It costs you and everyone else stuck in the same traffic both time and money when sitting in a work zone or taking a detour due to a road/bridge closure. The Federal Highway Administration (FHWA) has gone to great lengths to calculate these cost impacts through statistical analysis based on research, median incomes, fuel costs, insurance, and depreciation. Plus, if a project is being completed faster, then the cost of inspection is reduced as well. Finally, a project built faster means less potential worker exposure to safety incidents and motorists accidents.
The potential downside of A+B bidding is the construction cost consideration. Acceleration comes at a cost of overtime, day and night shifts, and additional people to coordinate and supervise the work. Some of these “direct” construction costs may be higher for an A+B project than a standard bid. It is not uncommon for the contractor with the lowest A+B bid to have a higher A portion than the next bidder. Incentives also come at a cost. Still, the widespread adoption of A+B bidding across the United States indicates that daily user costs saved (less public delay) easily offsets the added construction cost with room to spare. In the end, it should not actually cost the taxpayer any more money when the entirety of the costs is added to the equation.
A daily road user cost is defined by the FHWA as “the additional costs borne by motorists and the community at-large as a result work zone activity”. Road user costs assigns a monetary value to work zone impacts such as driver delay costs, vehicle operating costs, crash costs, and emission costs. Further, off-site factors such as noise, business impacts, and inconvenience to the local community are also being incorporated into the calculations. Depending upon a project's criticality, daily road user cost can range from $1,500 to $250,000+ per day. There is a balance in the determination of the daily value. Each bid is unique. But the size of the A portion or traditional bid cost makes a difference. The estimated B portion should be at least 10% or more of the estimated construction cost for the B portion to have much of an impact. And it may be time emphasis overkill for the estimated B portion to be greater than the estimated A portion. In summary, common sense prevails in determination of the daily B amount.
The most talented project and field management for a construction company can likely be found on the riskiest or most challenging projects, such as jobs bid using the A+B method. A+B factors in total cost to the public in addition to construction cost. It is not perfect and carries significant risk for contractors. For time-sensitive projects with the potential to slow down commuters in a major city or detour goods being transported, the benefits far outweigh the detractions when administered correctly. Innovative approaches like this one can bring out the best in contractors and DOT’s working together towards a common goal. We appreciate you reading, and for the great feedback we have received. We will cover further contracting methods in upcoming posts.
At Edgevanta, we are building a platform to help contractors maximize their competitiveness in the project acquisition process.
Sincerely,
Tristan Wilson
CEO and Founder
Edgevanta, LLC
