Speed and Efficiency in Government Procurement of Transportation-Related Construction Services

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Speedier contract execution is increasingly important in government procurement of construction services for the military, in response to natural disasters, and in the building of transportation infrastructure. However, in spite of a demonstrable need, academic literature has paid little attention to speed as a factor in contract mechanism design. This is not entirely surprising because when multiple factors are involved, it is not possible to find simple rules that will be optimal for all situations. The focus of the proposed research is therefore on specific but important class of problems dealing with procurement of construction services by state DOTs (Departments of Transportation). Transportation-related construction is a significant economic activity; monthly spending by the 50 states on highway and street construction has averaged over 72 billion dollars during the first 5 months of 2006. Nearly all of these services are performed by contractors. State DOTs have been using a variety of experimental procedures to realize speedier contract execution, without the benefit of formal analysis or proof of cost effectiveness. The problem is further complicated by the presence of significant uncertainty about raw material prices and scope of work, as well as informational asymmetry. The proposed research will focus on developing mathematical models to help DOTs evaluate experimental contracting mechanisms in use, optimize contract parameters, and identify contract clauses that divide risk more equitably without increasing moral hazard. Intellectual challenges in this project stem from the need to simultaneously apply concepts from economics (game theory, incentive contracts, & auctions), operations research (stochastic modeling & optimization), and engineering (cost estimation) to improve contracts for construction services. Broader impacts will be twofold. Contributions to engineering education will come from the training of a doctoral candidate and via the development of short courses for working engineers (in collaboration with the University of Minnesota's Center for Transportation Studies). This project has the strong support of the Minnesota DOT, which will be leveraged by the PI to demonstrate the value of using optimal contract parameters to the national community of state-DOT construction engineers. This will help improve how contracts are structured by DOT engineers.