• Chapter 4 identifies and describes a methodology framework and components that owners can use to integrate risk analysis into their project development, procurement and execution processes to effectively allocate, communicate and manage project risks.
• Chapter 5 presents practitioner feedback on the proposed methodology framework and components.
• Chapter 6 presents the team’s overall conclusions and recommendations regarding further research.

This report also includes appendices consisting of reference documents, survey and interview results, glossaries of key methodology components, and sample contract language addressing key project risks.

A standalone Guide deliverable presents the final methodology and tools and practices to promote competition and effectively manage or mitigate risks across the full project lifecycle.

The final research products include a Memorandum discussing an implementation plan. Presentation Slides will document the overall Research Effort.

2 Literature Review

This chapter presents a summary of the pertinent documents collected as part of the literature review. As the literature in area of risk assessment, allocation, and management is vast, the team focused its review on the following general categories of documents:

1. Reports and guidance related to APD methods, including:
   1. Documents published by US Federal Highway Administration (FHWA), state Departments of Transportation (DOTs), and industry organizations such as DBIA,
   2. Relevant research reports published by NCHRP and other academic sources, and
   3. Reports and articles addressing insurance and surety issues, particularly for large, complex projects using APD methods.
2. Procurement and contract documents from projects using APD methods in the US, as well as term sheets and standard template contracts available from state DOTs and professional organizations (e.g., AIA, Consensus Docs, DBIA, etc.)

The following subsections identify and discuss the key documents that directly informed the team’s subsequent identification and development of the methodology components.

2.1 Reports and Guidance Documents

2.1.1 Reports and Guidance related to APD Methods published by FHWA and State DOTs

Over roughly the last decade, FHWA has collected a variety of information and published various reports related to “innovative” project delivery with an emphasis on P3s. FHWA’s Center for Innovative Finance has produced a suite of reports and model contract guides that have some relevance to this project:

1. The FHWA Center for Innovative Finance’s suite of primers and reports are focused on various aspects of P3s. These cover the fundamentals of P3s and serve as an important resource for individuals or organizations lacking experience in this project delivery approach. For instance, those without knowledge of Value for Money (VfM) assessments and concepts can use the primer on this topic to enhance their understanding. The primer on risk assessment in P3s serves the same purpose and provides guidance on risk allocation. (FHWA 2013)
2. The model contract guides cover a number of issues and risks prevalent in P3s. Moreover, they supply example contract language for treating these issues and risks. Accordingly, they serve as a baseline for contractual design and language that public agencies can reference for P3 term sheets or template contracts; if desired, public agencies could modify these model provisions to suit their own context. (FHWA 2014, FHWA 2015)
3. The Contracting Alternatives Suitability Evaluator (CASE) webtool (ICF 2021; D’Angelo et al. 2018) is a resource developed by FHWA to support the selection of the most appropriate APD method with consideration of a project’s risk profile, goals, and characteristics among other considerations.

Overall, this body of literature provides resources and guidance for the implementation of P3s.

2.1.2 NCHRP Reports

Strategies and tools to identify and mitigate geotechnical risks are thoroughly addressed in NCHRP Report 884 Guidelines for Managing Geotechnical Risks. (Gransberg et al. 2018) For example, the report recommends including, as part of the procurement documents, an initial Geotechnical Baseline Report (GBR), which will then evolve through procurement and award to a final GBR and the inclusion of a Differing Site Conditions (DSC) clause in contractual provisions. The GBR together with the DSC provides a mechanism for cost and time relief to the Contractor if actual conditions differ materially from those shown in the GBR. Further, the strategies proposed can be generalized to more overarching ones such as:

• Early identification and assessment of project risks,
• Consideration of APD methods as a means to address and mitigate project risks, and
• Incorporation of enhanced contractual provisions or mechanisms to more effectively address project risks.

Contractual provisions from actual projects and recommendations for addressing specific risks were reported in NCHRP Legal Research Digest 86: Managing Enhanced Risk in the Mega Project Era. (Gad 2022) The report includes various provisions and recommendations regarding risks and risk allocation. For example, one finding related to environmental approvals was that if an Environmental Impact Statement (EIS) is required for the project because environmental impacts are expected to be significant, contractors may be hesitant to participate in construction projects, particularly if the project will require an EIS, due to the uncertainties associated with the NEPA process until the Record of Decision (ROD) is issued. An EIS requires a higher level of design and may take more than two years to complete on average.

The risk management framework presented in NCHRP Research Report 658: Guidebook on Risk Analysis Tools and Management Practices to Control Transportation Project Costs (Molenaar 2010) discusses several risk management tools such as Delivery Decision Support, risk registers, and “risk maps” that were

2.1.3 State DOT Guidelines and Reference Documents

Selected guidelines or manuals from state DOTs were examined to understand the activities that DOTs follow in planning, developing, procuring, and executing projects using APD methods. Specifically, the review of the guidelines/manuals focused on the extent to which risk management practices and tools for APD methods were addressed. Risk management practices and tools in the following 11 broad areas were examined:

1. Process for project delivery selection
2. Process for risk identification, analysis and assessment
3. Development and utilization of a risk register
4. Identification of baseline activities or responsibilities for typical risks in transportation projects such as site conditions, utilities, etc.
5. Identification of pre-procurement industry forums or meetings
6. Issuing RFP for industry review and feedback during procurement
7. Identification of baseline RFP components such as instructions to proposers (ITP), reference information documents (RIDs).
8. Identification of industry one-on-one meetings for input and feedback during procurement
9. Identification of an alternate technical concept (ATC) process
10. Identification of project implementation/execution processes such contract administration, and
11. Identification of relational contracting methods such as partnering during project implementation

A search of all state DOT websites (as well as the Territory of Puerto Rico) for readily available guidelines or manuals related to CM/GC, DB and P3 was conducted. Twenty-two DB, nine CM/GC and six P3 guidelines/manuals were found during this search. A listing of these manuals including website links is provided in Appendix A.

DB Guidelines and Manuals

The majority of the guidelines/manuals included a description or overview of practices and tools. Interestingly, the CDOT manual (2016a) included a comparison of DBB, DB and CM/GC for “primary evaluation factors” and “project risks”, which provide high-level considerations for these APD methods while illustrating CDOT’s perspectives of how certain risks should be addressed for each method. CDOT also employs a “Project Delivery Selection Matrix” for selecting among DBB, DB and CM/GC.

Most guidelines/manuals also included baseline activities or responsibilities for typical risks in transportation projects. GDOT’s manual (2022a) addressed multiple pre-procurement activities for a project such as: (a) Concept Layout and Concept Report, (b) Costing Plans, (c) Value Engineering Study, and (d) Environmental Document and Permits; it also addressed actions related to typical risks such as contaminated materials, ROW, and utilities. For example, GDOT addresses “Geotechnical Investigation” as follows:

GDOT typically obtains as much geotechnical investigation data as possible prior to the RFP advertisement and provide this data as information only to Proposers in order to minimize risk(s) associated with subsurface conditions. GDOT will also typically provide to Proposers as information only all existing and readily available soils reports, [Bridge Foundation Investigations] or [Wall Foundation Investigations] from prior projects that were in the Design-Build project’s vicinity. GDOT will not typically provide interpretive reports except for the final pavement design. If feasible, Proposers may be allowed to perform additional borings during procurement to further minimize risk.

This describes what type of geotechnical data GDOT will provide as well as its purpose (i.e., it is NOT interpretive) in its DB RFPs. Consequently, this establishes a baseline for geotechnical investigations for all involved parties.

Some manuals were less explicit about particular practices or tools. For instance, the manuals from MNDOT (2019), TxDOT (2017) and VDOT (2022) mention practices related to risk identification, analysis, and assessment, but these are not described in detail. The two areas with the least coverage were project implementation practices and relational contracting methods; generally, these areas were beyond the scope of the associated manuals (i.e., the manuals did not go beyond the procurement and award phase of a project).

Overall, the DB manuals reviewed provide a good depiction of the project preparation and procurement activities that state DOTs will follow for fixed price DB. In doing so, they signal to the industry in general and to prospective proposers specifically how they will typically conduct their affairs and business for DB projects, which assists in establishing protocols and expectations for all involved parties.

CM/GC Guidelines and Manuals

While CM/GC guidelines/manuals were less prevalent, the CDOT (2016b) and GDOT (2023) manuals were examined to contrast the information provided with that found in their DB manuals. In both states, certain areas of the DB and CM/GC manuals are comparable. They all address processes for project delivery selection and risk identification, analysis, and assessment in a similar fashion.

However, the CM/GC manuals have a different trajectory beyond these initial project preparation activities. Both the CDOT and GDOT CM/GC manuals then describe how they will conduct procurements for a CM/GC project; GDOT’s manual describes procurement activities for a Designer of Record (DOR), CM/GC and Independent Cost Estimator (ICE) while CDOT’s focuses on the procurement of a CM/GC; CDOT’s manual identifies and describes roles and responsibilities of a Design Consultant and ICE, but it does not include details about procurement of their services. Both manuals also describe practices for industry engagement during procurement such as pre-proposal meetings/industry forums and one-onone meetings with prospective proposers.

The balance of the CDOT and GDOT CM/GC manuals focus on these principal areas: (1) preconstruction phase services and responsibilities, (2) project cost processes and establishing the construction price, and (3) construction phase services and responsibilities. These sections of the manuals describe roles and responsibilities, activities and processes in each area, details about developing the price for the project – the “Negotiated Construction Price (NCP)” for GDOT and the “Agreed Contract Price (ACP)” for CDOT – and other details such as DBE participation and dispute resolution.

Notably, both manuals discuss employing “risk pools”. The GDOT Manual describes risk pool items identified in the executed risk register; for risk pool items, the CM/GC is not at risk for increases in the Negotiated Construction Price (NCP). The CDOT Manual gives more attention to risk pools and describes three separate risk areas: (1) Contractor Risk, (2) CDOT Risk Pool, and (3) Shared Risk Contingency Pool. Risks that are identified in a project’s risk register are ultimately allocated to one of these three risk areas.

For risks allocated as Contractor Risk, CDOT and the ICE will review contingencies that the CM/GC has assigned to items of work; if any contingencies are considered too high, then the parties can consider means to reduce risks contributing toward the contingencies or mitigate the risk by shifting it to either the Shared Contingency Risk Pool or the CDOT Risk Pool. The risks that are allocated to the CDOT Risk Pool are ones where CDOT is better positioned to manage the risk, the risk is beyond the control of the CM/GC, or the contingency assigned is too high.

The Shared Risk Contingency Pool are risks that “have a high amount of uncertainty, along with a high likelihood of occurring, but still have the potential for the Contractor to control.” The CM/GC proposes risks for inclusion in the shared pool along with the potential amount and a payment specification. If approved by CDOT, this becomes a “Project Special Provision”, and the CM/GC is paid per the payment specification if the risk is encountered. If the entire estimated amount for the risk is not recognized, then CDOT and the CM/GC share the savings as outlined in the special provision. The CDOT Manual further explains that the “Risk Register and Risk Pools is integral to the preparation of the Contractor’s Opinion of Probable Construction Cost (OPCC) and the [Contract Agree Price] Proposal. The Contractor and ICE are better able to prepare accurate estimates as project risks are identified and mitigated, and defining and establishing the Risk Pools allows the Contractor and ICE to remove contingencies from the bid items.”

P3 Guidelines and Manuals

Few DOTs currently maintain P3 Guidelines and Manuals on their websites. Manuals from Arizona DOT (2022), the Colorado High-Performance Transportation Enterprise (2020), GDOT (2022b) and PennDOT (2022) were examined to determine their content. (Note that the Colorado High-Performance Transportation Enterprise is now the Colorado Transportation Investment Office (CTIO)).

The overall structure of all four manuals was similar, although the level of detail provided varied. Each described:

• Administration and general authority of the P3 unit,
• Processes for the identification and selection of P3 projects,
• Pre-procurement/project preparation activities,
• Typical procurement processes, and
• Evaluation and award processes.

Some of the features found in DB fixed price manuals were also present in the P3 Manuals. However, some issues specific to P3s were addressed. The process for handling unsolicited proposals was addressed in the ADOT, CTIO and PennDOT. GDOT does not have statutory authority to receive unsolicited proposals; therefore, it is not addressed in its manual. Additionally, ADOT, CTIO and PennDOT describe the use of Value for Money Analysis (VfM) as part of the assessment and selection process for a P3 project; VfM analyses are a common tool employed for this purpose, and FHWA has published a primer (FHWA 2014) about VfM assessments, which was previously discussed in Section 2.1.1 of this report. GDOT’s manual does not address VfM analysis, although it does consider the value added by the private sector in its P3 screening process.

Finally, ADOT and PennDOT address Pre-Development Agreements (PDAs), which is an approach for delivering a P3 where a public agency and a private developer enter into an agreement to shape and scope a P3 project (PDAs for P3s are also call “Progressive P3s”).

The balance of the manuals in each jurisdiction has comparable elements with those in the DB manuals reviewed such as descriptions of risk management processes, industry engagement pre-procurement and during procurement, and project implementation actions. The CTIO and GDOT manuals provide greater detail about their risk identification, analysis and assessment methods.

2.1.4 Additional DOT and Industry Documents

Term Sheets

Some DOTs provide term sheets that summarize key items for a typical or pending contract. TxDOT has published such a term sheet for its DB contracts, which it typically includes in its RFQs. The TxDOT DesignBuild Contract Term Sheet (TxDOT 2023a) organizes information into the following categories:

• Contract Overview
• Price, Security & Payments
• Completion Deadlines, Schedule and Delay
• Contract Rights & Responsibilities
• Environmental & Performance Risks
• Contract Changes & Costs Outside the Contract
• Business Risks
• Other Contract Provisions

Specific items are then addressed within each category. For example, “Contract Changes & Costs Outside the Contract” includes:

• Differing Site Conditions
• Supply Chain Disruptions
• Third-Party Agreements
• Railroads
• Hazardous Materials
• Utilities
• Force Majeure Events
• Other Relief Events

Within these categories, 66 items are addressed. For example, the “Third-Party Agreements” item states:

DB Contractor is entitled to a Change Order (a) to compensate DB Contractor for certain additional costs incurred and (b) to extend the applicable Completion Deadlines as the result of any delay in a Critical Path, directly caused by modifications to DB Contractor’s obligations resulting from new third-party agreements or modifications to existing third-party agreements. DB Contractor shall not be entitled to any relief for any new third-party agreements or modifications to existing third-party agreements unless the delays and the effects of such delays are beyond the control of the DB Contractor-Related Entities.

Except for project overhead to be calculated in accordance with the [Design-Build Contract] for each day that a Completion Deadline is extended, delay and disruption damages are not recoverable.

(See Other Relief Events section below for relief for modifications to draft third-party agreements included in the [Reference Information Documents] as of the proposal due date.)

To prospective DB contractors, this description provides a baseline understanding of how TxDOT intends to handle relief as a consequence of new third-party agreements or modifications to existing third-party agreements.

The Association for the Improvement of American Infrastructure (AIAI) has published “First Principals of Risk Allocation” (2024), which is essentially a risk allocation term sheet for P3s. This term sheet addresses issues such as “Undisclosed Geotechnical Conditions”, “Right-of-Way”, “Change in Law” and “Utilities”. The working document is described as a “consensus document” among private sector and public sector participants in P3s on key commercial terms that are broadly applicable to major P3 projects. It can serve as a guideline with recommendations for structuring contractual provisions to equitably allocate risks.

Template Contracts

Many state DOTs also publish template contracts. Like term sheets, these template contracts include the baseline provisions for prospective projects that a public agency will modify and adjust for a specific project. As is, they provide an indication of how particular issues and risks will be specified.

TxDOT has published such a template (TxDOT 2023b) that establishes the general conditions for a variety of issues and potential risks. For example, the provisions related to “Utilities” define multiple terms such as “Unidentified Utilities Deductible”, “Unidentified Utilities Deductible Cap” and “Utility Adjustment” while “Section 6.4 Utilities” addresses this item directly with multiple subsections: (a) 6.4.1 Unidentified Utilities, (b) 6.4.2 Public Utility Owner Delays, (c) 6.4.3 Pre-Proposal Commitments, and (d) 6.4.4 Advance Utility Relocations. The “Unidentified Utilities” (Section 6.4.1) states:

The “Unidentified Utilities Deductible” for the Project is, for each facility, the first $[•] of Basic Costs for the Utility Adjustment due to an Unidentified Utility.

The “Unidentified Utilities Deductible Cap” for the Project is an aggregate $[•] for all Unidentified Utilities Deductibles borne by DB Contractor.

[Applicable deductible and cap to be determined on a project-by-project basis. Such deductible and cap could each be “0”, if so determined by TxDOT.]

DB Contractor shall be entitled to a Change Order with respect to certain additional Direct Costs and delays relating to Utility Adjustments, as specified in Section 4.5 of the General Conditions and subject to the restrictions and limitations set forth in Section 4.5 of the General Conditions and in Section 4.6 of the General Conditions, unless otherwise specified in this Section 6.4.

[insert any deviations from the standard terms of the relevant General Conditions sections]

This provision uses a deductible scheme with a cap for adjustment of unidentified utilities although TxDOT may elect for both the deductible and cap to be zero.

VDOT also has published standard template documents for RFPs (VDOT 2016), which includes Part 3 – Lump Sum Agreement, Part 4 – General Conditions of Contract, and Part 5 – Division I Amendments to the Standard Specifications. These parts also establish baseline conditions and terms for DB projects. Part 4 includes VDOT’s “Scope Validation” provisions (Section 2.2 Scope Validation and Identification of Scope Issues); Section 2.2.1 Scope Validation Period states:

The term “Scope Validation Period” is the period of time that begins on Design-Builder’s receipt of Department’s Notice to Proceed and extends for one hundred twenty (120) days from such date of receipt, unless otherwise stated in Exhibit 1. During the Scope Validation Period, Design-Builder shall thoroughly review and compare all of the then-existing Contract Documents, including without limitation the RFP Documents and the Proposal, to verify and validate Design-Builder’s proposed design concept and identify any defects, errors, or inconsistencies in the RFP Documents that affect Design-Builder’s ability to complete its proposed design concept within the Contract Price and/or Contract Time(s) (collectively referred to as “Scope Issues”). The term “Scope Issue” shall not be deemed to include items that Design-Builder should have reasonably discovered prior to the Agreement Date.

Subsequent provisions in Section 2.2 describe requirements for seeking relief for any “Scope Issues” as well as how scope validation applies to non-accessible areas of the site during the validation period.

2.1.5 Insurance and Surety Industry Perspectives

Contracts for APD projects often shift greater risk to the private sector than do contracts on DBB projects. Sureties ultimately take on these risks if there is a default, and they pay attention to the contract risks—particularly on large and complex projects.

A recent 2021 study from insurance company Travelers examined 224 heavy civil building projects completed between 2004 and 2020 that had contract values between $250 million and $2 billion (Travelers 2021; Steele 2021). The projects encompassed bridge, highway, rail, tunnel and other large-scale civil work, and most were projects on which Travelers had been the surety or co-surety. For fixed-price DB or P3 contracts with bids based on approximate 30% designs, the Travelers study found that design-builders often underestimated the quantity risk and design risk they were assuming. These projects were not very successful for the DB or P3 consortiums, and in many cases, contractors did not even make back costs. Over the past 15 years, infrastructure projects greater than $250 million in contract value – especially bridge, highway, and transit work – have been the public construction industry’s worst performing segment for contractors, the study reported. One conclusion was that contractual risk transfer is an important driver of project performance for owners and contractors and certain risks must be shared and not simply shifted. It also concluded that CM/GC and/or Progressive DB models where the contractor and designer collaborate over an extended period of time to determine the final design and construction budget have produced the most consistent and best results for both the contractor and the owner.

The TCRP Legal Digest Issues Involving Surety for Public Transportation Projects (Loulakis 2012) provides insight into the significant role the surety industry plays for both owners addressing project packaging, delivery method, and risk allocation decisions, and industry’s capacity and risk appetite when deciding whether or not to pursue a large, complex project.

As discussed in the digest, a key factor influencing the surety underwriting process is the risk-shifting provisions of the bonded contract. Contractors are now working more closely with sureties in the initial

Another consideration for sureties, particularly with very large DB projects, is the lack of bonding capacity to cover the full value of mega-projects. Surety practices have historically been based on the conventional DBB method, where design and construction are performed by separate companies and where sureties have detailed designs completed for which they can more accurately assess the performance risks. On a DB project, the lack of detailed designs desired by sureties to evaluate project risk may make it difficult for sureties to offer performance bonds for the full value of the contract. This has led to decisions on several very large projects to allow for less than 100% bond amounts (in some cases 50% for performance bonds), alternative forms of security, or in some cases owners have descoped large contracts into smaller packages. Strategic contract packaging is done not only on DB or P3 projects, but also on conventional DBB projects.

In lieu of performance bonds, alternative forms of performance security used for P3s or mega-projects have included parent company guarantees (PCG), a Letter of Credit (LOC) from a financial institution or a combination of bonds for construction obligations and other forms of security for non-construction obligations (e.g., extended warranty/performance guarantees, design obligations, major equipment, and O&M obligations). LOC are bank instruments requiring payment on demand, and similar to bonds require payment of a fee as well as security to assure the bank that it will be repaid in the event of a call on the letter of credit. Due to the nature of LOC, it is a much simpler process to make a demand on a LOC than to enforce a surety bond.

A guarantee is a promise by a third party, typically a parent company or other affiliated entity, that the contractor will perform its obligations. In some cases, a performance guarantee is provided, giving the owner the right to require the guarantor to take over the contract. However, in most cases the guarantee does not include an agreement that the guarantor will in fact perform the work, but instead gives the owner the right to collect damages from the guarantor if the contractor fails to perform. One important difference between guarantees and bonds is that guarantees are provided by an affiliated entity for little or no additional cost to the owner, while bond premiums can be a significant project expense. One potential issue with guarantees is that, if the contractor has failed, there is also a likelihood that the guarantor will be in financial difficulty (Gad et al. 2022).

2.2 Procurement and Contract Documents

To complement the review of FHWA reports, NCHRP reports, and DOT guidelines and documents, procurement documents and contracts from active and completed DB, PDB, CM/GC and P3 projects were examined. These documents provided actual examples of how key risks are characterized, allocated and managed in ongoing projects, which is more direct evidence of whether processes or baseline conditions reported in guidelines and term sheets as well as recent research are being followed.

The review of the procurement documents and contracts from active APD projects enabled us to:

• Assess how well procurement processes aligned with certain practices identified in APD manuals reviewed previously, and
• Examine contemporary practices for handling and allocating risks in APD projects.

2.2.1 Design-Build (Fixed Price) Procurement Documents

Procurement documents for a variety of DB projects were collected and inventoried. Specifically, the RFPs for over 40 DB (fixed price) transportation projects with issue dates from 2000 through 2022 were collected. To qualify for further review, the RFPs had to include at least the Instructions to Proposers (ITP) and a draft contract/agreement that included the general conditions. From this subset, 20 DB projects from states that have been active in DB delivery were examined in two areas: (a) the extent to which particular practices found in DB manuals were followed, and (b) how 10 selected risks were treated. Significant findings are discussed in the following subsections.

Practices for Early Industry Engagement during Procurement

DB RFPs included practices for industry engagement during procurement, although some included more extensive interaction than others. Nearly half included a pre-proposal industry forum (9/20), but many relied primarily on the conventional RFI process for input and feedback. Most (16/20) included one-onone meetings during procurement although several only reserved the right to hold such meetings. A little more than half (12/20) included an ATC process. Notably, more recent RFPs were generally more inclusive compared to those issued earlier, incorporating most or all of these practices. These results suggest that industry engagement varies, perhaps depending on project size, and the transaction costs involved with such industry engagements may exceed their benefits for smaller projects.

Identification and Allocation of Key Risks

Based on input from the research team’s SMEs as well as the findings from the research reports and guidelines reviewed, the RFP documents from twenty DB projects were reviewed to identify key risk issues common to all projects and examine how the contract documents allocated these risks. The following key recurring risk areas were examined:

• Geotechnical conditions
• Differing site conditions (DSC)
• Archeology or Protected Species
• Utilities
• Right-of-Way
• Railroads
• Hazardous Materials
• Design
• Warranties
• Force Majeure

Key observations regarding risk allocation are summarized below.

Geotechnical Conditions: DOTs include geotechnical reports and data in RFP reference information. This information is provided in most of the RFPs for DB contractors to reference and use during proposal preparation. The DB Contractor must make its own investigation/interpretation of site conditions and geotechnical reference information, and not rely on accuracy or completeness of the reference information in preparing its proposal.

This practice does not align with recent recommendations from NCHRP Report 884 that recommends the public agency provide an initial Geotechnical Baseline Report (GBR) in the RFP that evolves through procurement and contract award to a final GBR as a reliance document. For one RFP reviewed (I405/SR167 Interchange Project, WSDOT 2015), the GBR was provided as the baseline defining “…geotechnical conditions against which actual geotechnical conditions encountered are compared for the purpose of determining if a Differing Site Condition exists” Alternatively, DOTs have compensated shortlisted proposers for performing additional pre-award site/geotechnical investigations or supplemental borings in contractor designated locations in return for waiving the rights to claim for a DSC. Similarly, VDOT has implemented a post-award Scope Validation Period where the selected DB contractor is provided a 120-day period to perform additional subsurface investigations, identify any defects, errors, and inconsistencies in documents, or changed subsurface conditions, which may result in a DSC with adjustments to the scope and budget. In return, the DB contractor is not entitled to any adjustment in the Contract Price and/or Contract Time(s) due to Differing Site Conditions identified after the Scope Validation Period.

Differing Site Conditions (DSC): Projects with federal funding are mandated to include a DSC clause. It is therefore unsurprising that 16 out of the 20 RFPs reviewed included DSC provisions.

DSCs generally address unforeseen subsurface conditions or concealed conditions that were not discovered during project development or preconstruction site investigations. Typical DSC clauses require several steps including timely notice to the owner, proof that a DSC exists, and that DSC could not have reasonably been avoided or mitigated. The owner will then determine whether a DSC is eligible for a change order or ask for additional information, and if eligible, will initiate a change order.

Several projects have implemented deductible schemes where the DB contractor is responsible for DSC costs up to a cap or deductible limit above which the owner compensates it for change orders for eligible DSCs. A shared deductible has been used where the DB contractor is responsible for DSCs up to a dollar limit, above which the owner and DB contractor share 50/50 in DSC costs to a specified limit. Alternatively, some DOTs are considering using an allowance scheme, whereby the owner may reimburse the DB contractor up to an allowance cap, above which, DSC costs and time are shared, or the owner compensates the DB contractor for eligible DSCs.

Archeology or Protected Species and Hazardous Materials: DOTs predominantly do not conduct survey investigations for archeology/protected species or hazardous materials and include these in the RFPs as Reference Information Documents (RIDs). This is likely because such conditions were not anticipated in most of these projects. In some cases, the DOT contract provisions require that the DB contractor perform a site investigation to determine the existence of these conditions. With appropriate notice and justification for impacts, they are generally treated as relief events, force majeure events, or DSCs.

Utilities: Less than half of the RFPs reviewed clearly indicated DOTs had completed or conducted prior coordination or agreements with utilities. Most RFPs required DB contractors to coordinate with utility owners regarding relocation although some made this a joint effort between the DB contractor and DOT. Generally, the costs for relocation fall to DB contractors, but for some “non-prior rights” utilities, particularly energy and telecom utilities, relocation responsibility was retained by the utility owner. Utility coordination and relocation was rated as a top risk in the recent NCHRP Report 1025. Overall, provisions related to utilities either transfer the coordination and relocation responsibilities to the DB contractor or share the coordination and relocation responsibilities in some way. One agency specified a shared risk

2.2.3 Construction Manager/General Contractor (CM/GC) Procurement Documents

Two recent CM/GC project procurement documents were examined for their content: the RFP for the I70 Floyd Hill to Veterans Memorial Tunnel Project (CDOT 2021) and the RFQ for the US-31 over Pine River Bascule Bridge Rehabilitation (MDOT 2022).

The RFP for CDOT’s I-70 project includes three main sections: (1) Scope of Work and Project Information, (2) CM Proposal Requirements and Instructions, and (3) Proposal Content and Evaluation Criteria. Several appendices are listed. Overall, the RFP is typical for such procurements. However, Appendix A to the RFP includes a “Preconstruction Roles and Responsibilities Matrix” that indicates that the CM will work with the Design Team to finalize. This matrix identifies tasks where the Contractor, the Design Consultant and CDOT/Others have primary responsibility, secondary responsibility or collaborative responsibility. For example, CDOT/Others has primary responsibility for ROW, specialty and local clearances while the Design Consultant has secondary responsibility; CDOT/Others has primary responsibility for utility coordination while both the Design Consultant and CM have secondary responsibilities. This matrix demarcates the initial plan for preconstruction responsibilities and coordination among the parties.

The RFQ for MDOT’s US-31 Bascule Bridge Rehabilitation includes seven main sections: (1) Introduction, (2) Background Information; RFQ Process, (3) Scope of Services, (4) Content of Statement of Qualifications, (5) Evaluation Process, (6) SOQ Submittal Requirements, and (7) Preconstruction Services Fee and Termination. Several attachments are listed. The RFQ is fairly typical. The Scope of Services section is instructive since it: (a) identifies a range of preconstruction services (including identification of constructability issues and provision of alternate design concepts); (b) describes the process for submission of a construction services cost proposal (CSCP) with three possible payment method areas: GMP, adjustable work and possibly contingency items; and (3) construction services that include construction responsibilities, quality control and bonding and insurance requirements. Areas such as utilities, geotechnical investigations, and ROW are not addressed; perhaps, this is a consequence of the scope of the project (bridge rehabilitation).

2.2.4 P3 Procurement Documents

Over roughly the last 15 years, several state agencies in the US have planned and implemented P3 arrangements for transportation projects that include various practices for risk allocation and sharing. Some of these practices have become market precedents while others have remained tailored to project characteristics or local conditions.

Recently, risk allocation practices were examined in multiple highway P3 projects where the principal source of data was the project contracts. A systematic methodology for analyzing the content of the contracts was developed; the results and methodology employed are described in Nguyen et al. (2018).

Table 2.3 summarizes how the risks identified were predominantly allocated in the contracts of the 26 P3 projects. The investigation uncovered whether these risks were: (a) retained by the public sector, (b) transferred to the private sector or (c) shared in some fashion between the parties; a risk was classified as being predominantly allocated if more than 80% of the contracts allocated it in the same way. Those without a predominant allocation were found to be mixed among the three classifications or roughly split between two classifications (as indicated in the table’s “Comments” column).

Table 2.3: Predominant Risk Allocation in Sample of US P3 Highway and Transit Projects

Risks Predominantly Retained by Public Sector

The public sector solely retained risks for usage/demand and network risks in availability payment P3s due to the characteristics of these arrangements. Most project risks related to financing, design, construction, and operation/maintenance were either shared or transferred to the private sector. This result confirms the overall risk transfer tenet of P3s.

The risks most frequently retained by the public sector are changes directed by the public authority. In these cases, the public agency assumed the impacts of adjustments after financial close in project scope or conditions that it directs.

Risks Predominantly Transferred to Private Sector

The principal risks over the life of a P3 project are transferred to the private sector: construction (design, performance), finance (financing, refinancing), operation (availability and service, operation expenses, maintenance), project company ownership (transfer) and hand-back (hand-back). Further, if the private entity elects to refinance the project, then it must bear this effort and cost; most contracts also required the private entity to share any refinancing gains with the public sector as illustrated by this provision from the Transform 66 contract in Virginia:

The Developer will pay to the Department 50% of any Refinancing Gain from a Refinancing that is not an Exempt Refinancing. The Refinancing Gain will be calculated after deducting payment of (i) the Department’s Allocable Costs under Section 7.08(e) and (ii) the Developer’s Allocable Costs directly associated with the Refinancing (Section 7.08d)

Project company ownership was also treated similarly across the contracts. Public agency scrutiny of the controlling stakes was made clear in the contractual transfer provisions. Although the Maryland I-495 contract is one of the earliest in the contract set, its provisions here were representative of the vast majority of the contracts:

From time to time during the term of this Agreement, the Concessionaire has the right, at its sole cost and expense, to pledge, sell or otherwise transfer solely the Toll Revenues available for Distribution in connection with a Permitted Securitization.

However, this right was limited by the public agency (Maryland I-495, Section 20.01):

The Concessionaire shall not Transfer, or otherwise permit the Transfer of, any or all of the Concessionaire’s Interest to or in favor of any Person (a ‘Transferee’) during the Lockup Period [the 10-year period commencing on the concession’s closing date and ending on the 10th anniversary of the closing date] and following the Lockup Period, the Concessionaire shall not Transfer, or otherwise permit the Transfer of, any or all of the Concessionaire’s Interest to or in favor of a Transferee, unless the Department has approved.

Risks Predominantly Shared

Many risks were predominantly shared between the public and private sectors as illustrated in Table 2.3. Several risks in the Construction category (site geology/conditions; environmental; archeology, fossils, or protected species; permits; environmental permits) were shared in some manner while some risks in the

If Developer has complied with the submittal requirements under Section 5.7.4 of the ITP, MDOT will adjust the Base MAP to offset a portion of the impact of fluctuations (increases and decreases) in the Baseline Credit Spreads that have occurred during the Interest Rate Protection Period. Subject to the limitations described in Section 5.7.4 of the ITP and Schedule 18 (Update to the Base MAP), the credit spread risk/benefit sharing between MDOT and Developer will be implemented on an 85:15 basis, with MDOT assuming 85% of the fluctuation in Baseline Credit Spreads and Developer assuming 15%. (Section 3.7.2)

2.2.5 Summary of Common Contractual Risk Allocation Strategies

Table 2.4 below summarizes typical project risks and related risk allocation strategies (i.e., retain, transfer, share) that apply to large APD projects. The optimal risk allocation strategy will vary depending on a project risk assessment, the APD selected, the DOT’s ability to mitigate project risk in advance of execution, and industry’s risk appetite.

Table 2.4: Typical Project Risks and Allocation Strategies