Qiao, Y. J., Fricker, J. D., & Labi, S. (2018). Capital program cost optimization through contract aggregation process (Joint Transportation Research Program Publication No. FHWA/IN/JTRP-2018/09). West Lafayette, IN: Purdue University. https://doi.org/10.5703/1288284316729
An earlier study (SPR-3702) indicated that INDOT’s practice of grouping (or bundling) projects into multiple-project contracts (MPCs) usually resulted in lower unit costs. This follow-up study (SPR-4156) takes advantage of INDOT’s increased use of project bundling and the data that have been assembled since the conduct of SPR-3702. The principal findings are:
- Economies of scale. The decline in unit cost as the project size increases has been documented for all project types analyzed in this study.
- Economies of bundling. Project cost are reduced as projects are bundled into a contract for all bridge work types, and most traffic, small structure and miscellaneous work types. For road work types, however, the reduction in project cost due to project bundling was only found for certain road project types.
- Economies of competition. Increased market competition (more bidders) lowers costs for most bridge projects, but larger contracts can discourage all but the largest firms from bidding, which can lead to less competition, and therefore higher unit costs. This was investigated using both deterministic and probabilistic methods. According to the probabilistic model, the average number of bidders tends to be the highest when the number of projects is 2 to 4.
- Project similarity (compatibility). Using a measure of similarity between different project types based on their constituent pay items, it was verified that project types in the same work category have a better (smaller) similarity distance compared to those in different work categories. The “similarity distance” measure can help identify candidate projects for bundling.
- Maintenance of traffic (MOT) can be a major component of project cost. The MOT cost for most (but not all) bridge, road, traffic, and small structure work types was found to be generally reduced by project bundling. Of all work categories, road work was found to benefit the most from project bundling in terms of MOT cost savings.
- Future bundling strategies. Use the “similarity distance” measure to identify projects suitable for combining into multiple-project contracts (MPCs). Use patterns found in this study to guide the number of projects to combine into MPCs.
bridges, project bundling, project grouping, economies of scale, economies of bundling, economies of competition, project similarity, maintenance of traffic
Joint Transportation Research Program
Indiana Department of Transportation
West Lafayette, Indiana
Date of this Version