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Suggested Citation: "1 Introduction." National Academies of Sciences, Engineering, and Medicine. 2025. Open-Book Pricing Practices for Construction Manager/General Contractor and Progressive Design-Build Projects. Washington, DC: The National Academies Press. doi: 10.17226/29084.

CHAPTER 1 Introduction

When describing the difference between construction manager/general contractor (CM/GC) and progressive design-build (PDB), some authors posit that PDB is merely CM/GC in which the contractor holds the design contract (Brown and Caldwell, Co. 2017). Both delivery methods are awarded with minimal or no pricing, and the final contract amount is negotiated during the design and preconstruction processes. A key advantage cited for both methods is the ability to use open-book pricing procedures (Gransberg 2023). Open-book pricing practices are associated with an agreement between the owner and the general contractor/design-builder (hereafter referred to as “the contractor” unless a specific reference is made to either CM/GC or PDB) to negotiate the construction cost with complete cost transparency, subcontractor pricing, and the current market value of construction materials and labor. These practices are typically specified by state departments of transportation (DOTs) to negotiate the construction pricing on CM/GC and PDB projects.

However, the precise definition of open-book pricing is often not included in CM/GC and PDB solicitations. Thus, the expectations of the DOT may differ from those of its contractor, leading to potential issues regarding the “effectiveness” of the open-book pricing process. The literature review conducted by the synthesis team found that no single accepted definition of the mechanics of open-book pricing exists. Thus, it is incumbent on the DOT to define these details in its solicitation so that expectations can be aligned and that competing contractors can understand the quantity and types of documentation they will be expected to produce to justify the costs of construction and/or design.

According to Bagwell and Henley (2020),

Open book contracts turn contractors into advocates, working alongside the owner to achieve common goals for the program, design, schedule, building performance, and most importantly, the cost. This is a change from the traditional dynamics of hard bid contracting, as it allows the design partners, construction manager, and owner to work together as a team, while still giving the owner full control and final decision-making authority.

Hence, aligning the understanding of how open-book negotiations will be conducted is key to accruing the benefits available by collaborating on the development of construction costs. As the use of alternative project delivery methods proliferates and the availability of infrastructure improvement funding increases, the need to accelerate the design and construction of transportation projects reaches a critical mass, thus encouraging DOTs to seek collaborative procurement approaches to obligate available funding expeditiously while maintaining the mandated fiduciary control of expending public monies. CM/GC and PDB enable the owner to award a contract earlier in the project’s development than traditional design-bid-build (DBB) or lump sum design-build (DB). Doing so allows the CM/GC or PDB project team to collaboratively develop the project’s scope, allocate risks more effectively, and accommodate the DOT’s technical scope

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within its budget and schedule constraints. The operative term in open-book pricing is collaboration. Price transparency encourages trust, an essential component of collaboration (Barutha et al. 2021). Thus, this synthesis will distill the current practice for defining and applying open-book pricing into a set of effective practices that can be used to enhance collaboration in CM/GC and PDB projects.

1.1 Objective and Scope

The objective of this synthesis is to benchmark the policies and procedures used by DOTs to negotiate the construction pricing on CM/GC and PDB projects using open-book approaches. The synthesis documents agency practices and specifications regarding open-book estimating and negotiations and the successes and challenges of both. The study showcases applications of open-book practices, experience gained, practice specifications, and effectiveness.

The scope of the synthesis describes the type and extent of information included in the study. The scope includes:

Documentation of key performance metrics;
A focus on the post-award, preconstruction stage of a CM/GC and/or PDB project;
A synthesis of an agency’s open-book estimating policies and procedures for negotiating guaranteed maximum prices (GMPs);
Procedures for utilizing the independent cost estimator (ICE) to validate open-book estimates and opinions of probable construction costs (OPCCs); and
Procedures for exercising the off-ramp if a price agreement cannot be reached.

1.2 Methodology

The required information was collected from a literature review, a content analysis of DOT documents regarding CM/GC and PDB, a survey of DOTs known to have alternative project delivery experience, and interviews with DOTs and contractors on nine “typical” CM/GC and PDB projects. A simple, multiple-choice, web-based survey was developed and deployed to obtain information related to the DOTs’ open-book negotiation procedures. The DOT survey was provided to the NCHRP project panel; once it was approved, a web-based survey tool was used to finalize and distribute the survey to DOT alternative project delivery points of contact, which was previously used by the consultants in a recent Georgia DOT (GDOT) project (GDOT 2023). The GDOT project found that 31 DOTs have the legislative authority to use CM/GC in some form, and 16 DOTs have specific authority to use PDB. However, those figures are not absolute. Some DOTs have implemented CM/GC or PDB without specific enabling legislation by interpreting their current alternative delivery authority as not specifically excluding one or both delivery methods. Details on this topic are found in Chapter 2. Responses from 42 DOTs were received, yielding an 82% response rate. The survey results and follow-up questions are summarized in graphs and tables found in Chapter 3. The survey responses and follow-up questions were used in conjunction with the literature review to pinpoint prospective case examples illustrating the variation in procedures, specifications, and systems for approaching open-book estimating and negotiation. The case examples cover a variety of project types in diverse locations across the United States. Appendix B presents the survey details and a map of the survey responses.

Follow-up interviews with DOTs that indicated a willingness to share their open-book experience were conducted to gain a better understanding of their web-based survey responses. Survey respondents were asked to provide DOT documentation regarding CM/GC and PDB practices,

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research, specifications, and reports, which were used to complete the content analysis found in Chapter 3. The data obtained from the documents involve:

Components of the negotiated GMP,
Cost modeling requirements and responsibilities,
DOT open-book negotiation procedures used in CM/GC and PDB projects,
Risk allocation and contingency establishment methods,
Contingency development and allocation rules,
Open-book implementation policies and procedures used at state DOTs (including utilization of an ICE), and
DOT processes for executing the off-ramp when an impasse on price is reached, or the negotiated price exceeds available funding.

A summary of the state of the practice for DOT open-book negotiation practices is provided in Chapter 3. Survey responses supplemented by NCHRP panel recommendations were used to designate nine case examples of procedures, practices, and specifications for open-book negotiating. The case examples are presented in Chapter 4.