Life-Cycle Cost Adjustment Factors in Alternate Design/Alternative Bid Pavement Bids: Added Value or Added Controversy?
Alternative design/alternative bids (ADAB) provides a mechanism for the asphalt and concrete paving industries to compete for the same paving project. It operates on the principle of the market pricing of each material determining which is most economical when the bids are opened, rather than selecting the pavement type during design based on a life-cycle cost analysis (LCCA). This paper reviews including LCC-based bid adjustment factors in the ADAB award decision. Data are from a survey that received responses from 40 U.S. Departments of Transportation (DOT) and the Canadian province of Ontario, and a content analysis of 55 ADAB project outcomes in 13 U.S. states and three Canadian provinces. Seven algorithms in use to calculate an ADAB bid adjustment factor were found, and six U.S. DOTs that award ADAB projects without an adjustment factor. The paper finds that the adjustment factor formula rarely influences the award decision and, generally, the pavement type with the lowest bid cost wins with or without the adjustment factor. The paper models the ADAB process in financial terms as an exercisable commodity option that accrues value from the differential rates of volatility between asphalt and concrete. It concludes that an LCC-based bid adjustment factor complicates the award process, creating potential for controversy over what the factor inputs are, and does not add value over bidding the pavement types head to head and awarding to the low bidder. The ADAB process increases the number of bidders and reduces unit bid prices for both pavement types.
This article is published as Gransberg, D., Karaca, I., and Buss, A. “Impact Life Cycle Cost Adjustment Factors in Alternate Design/Alternative Bid Pavement Bids: Added Value or Added Controversy?” Transportation Research Record: Journal of the Transportation Research Board. (2017). doi:10.1177/0361198118758030. Posted with permission.