Develop a price escalation method for Minnesota Department of Transportation indefinite delivery/indefinite quantity contracts: AxE bidding
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Although the use of single solicitations for the acquisition of multiple supplies or services through the issuance of individual work orders began in the 1970s, it was not until the mid-90s that the use of Indefinite Delivery/Indefinite Quantity (IDIQ) contracts was formally authorized by the U.S. Congress for use in federally funded projects. In view the federal success with this innovative contracting method, some state Departments of Transportation (DOTs) have incorporated IDIQ techniques into their contracting practices. However, some of the procedures established for federally funded IDIQ contracts are not implementable at the state level. In particular, DOTs need a simple, equitable approach to escalate contract unit prices on multi-year single award IDIQ contracts. Therefore the objective of this study is to develop a method for escalating IDIQ bid unit prices that is tailored for the Minnesota Department of Transportation (MnDOT).
The proposed escalation method is the result of a comprehensive literature review and detailed case study analysis that benchmarked the state-of-practice in IDIQ contracting in the transportation industry. DOT contractual information about current escalation clauses was also collected, and then the price adjustment methods described in these clauses were tested using actual MnDOT historical bid data. The result indicated that traditional price escalation techniques for construction projects were not compatible with IDIQ contracts, highlighting the need of an alternative price adjustment method.
The proposed method is termed "A times E" (AxE) bidding. AxE bidding is modeled after the "A plus B" (A+B) or "cost plus time" bidding method that has been in use throughout the country for the past two decades. In both cases, the "A" part is the sum of the products of the bid unit prices and the engineer's estimated quantities. In A+B bidding, the "B" part is the value of time in which the bidder proposes to complete the project. In A+B, a bidder with an aggressive schedule can win the contract without the need to be low on the "A" part of the bid. AxE bidding uses the same theory but the "E" part of the formula is the bidder's escalation rate. Again, a bidder can win without being the lowest price and can use the mathematical relationship between its bid unit prices and the amount they will escalate to achieve the lowest AxE amount.