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Defining Contractual Risk Profiles to Increase Competition on Alternative Project Delivery Methods (2025)

Chapter: Appendix H: Focus Group Notes

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Suggested Citation: "Appendix H: Focus Group Notes." National Academies of Sciences, Engineering, and Medicine. 2025. Defining Contractual Risk Profiles to Increase Competition on Alternative Project Delivery Methods. Washington, DC: The National Academies Press. doi: 10.17226/29285.

Appendix H: Focus Group Notes

Appendix H.1: Owner Workshop Notes

General Information
Date	May 30, 2024
Owner Participants	Eric Kahlig, Ohio DOT Jeff Folden, Maryland DOT Ryan Mitchell, Michigan DOT Shailendra Patel, Virginia DOT Art McClusky, Washington State DOT
Workshop Structure	Workshop participants were guided through a roundtable discussion to: Confirm the methodology components identified in the Interim Report, which were presented Identify user preferences for Guide to be developed under the research (e.g., content, format, etc.).

Methodology Components – Stages 0, 1 Project Initiation and Planning and Development
Tools identified in the Interim Report	APDM primers and information PDM decision tools Use of standard contract templates Project pipeline Preliminary Risk Identification Industry Outreach Third-party coordination / outreach / agreements (e.g., utilities, railroads, local governments, etc.)
Other proposed tools	Pre-solicitation one-on-one meetings with interested teams (note this aligns with recommendations received from contractors) Training for staff to ensure consistency: Understanding of roles and responsibilities under different methods Application and interpretation of contract language
Other comments	With regard to the PDM decision, progressive methods are perceived as being less effective than fixed price DB at incentivizing innovation (no competitive tension, no competition of solutions) Progressive methods require less upfront studies and due diligence than fixed price DB; can focus primarily on the main cost drivers and risks To improve competition, consider packaging a large program into small projects of $150-200M

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Methodology Components – Stage 2 Procurement
Tools identified in the Interim Report	Industry review of draft RFP, term sheet, contract docs Ability (and time) for proposers to conduct their own investigations One-on-One Meetings, ATCs Reliance (vs. reference) documents (Although focus group participants expressed appreciation for the role “rely upon” documents could play in risk sharing strategies, classification of geotechnical baseline reports, survey data, etc. is not currently the norm) Negotiation of risk sharing strategies (allowances, deductibles, contingency pools) Forms of security Stipends
Other proposed tools	Streamline RFP criteria and/or process Limit responses to what is truly important to the agency/project Focus on the key project elements; consider pass/fail criteria for the rest Some central office participation to promote consistency across projects For PDB and CM/GC projects: Use ICE to assist with reconciling estimates and negotiating construction costs on progressive DB and CM/GC projects Develop pro forma estimates and focus on cost drivers; for major items, obtain market validation of those costs
Other comments	Discussions primarily focused on negotiation of construction costs for CM/GC and PDB projects: General recognition that DOT owners are often at a disadvantage when it comes to negotiating construction costs Doubts were raised regarding the overall competence of the ICE industry (abilities vary widely) More standardization across agencies of the ICE process would be helpful Exercising the off-ramps in PDB and CM/GC contracts can expose the owner to cost, schedule, and reputational risk

Methodology Components – Stage 3 Execution
Tools identified in the Interim Report	Post-award scope validation period Risk management meetings/workshops Partnering Communication & issue escalation Alternative dispute resolution processes
Other proposed tools	Use of incentive / disincentive provisions and LDs (not just for time, but for quality, retention of key personnel, etc.)
Other comments	There was much interest in VDOT’s post-award scope validation period. Time period may be scaled based on project complexity (typically 90-120 days) Practice is now endorsed by DBIA

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Methodology Components – Stage 4 Operations
Tools identified in the Interim Report	KPI monitoring Warranty criteria and annual condition surveys Hand-back criteria
Other proposed tools	N/A
Other comments	Discussions focused on lessons learned regarding warranty use: WSDOT shared its experience with its fish habitat program: To address a Dept of Fish & Wildlife requirement requiring fish barriers to remain operational for 5 years, WSDOT required contractors to provide a 5year warranty on the work Over time, WSDOT found that the cost of the warranty exceeded the cost of any corrective work that would have been required ODOT has also gotten away from warranties: Complaints from industry that it ties up bonding capacity Warranties can place a lot of conditions on the owner (e.g., to conduct certain inspections) which are not always performed; in such cases, ODOT found it to be more effective to pursue latent defect claims against contractors than to invoke the warranty provisions

Guidebook Preferences
Content Recommendations	Perceived needs expressed by participants included: Guidance on developing an opinion of the probable construction cost (for PDB & CM/GC) What supporting information to ask for How to review overhead and profit Guidance on the ICE process What is an ICE (e.g., simple validation vs. bottoms-up estimate) Process (single blind? double-blind?) Sample RFP and contract language

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Appendix H.2: Industry Workshop Notes

General Information
Date	August 7, 2024
Industry Participants	Steve DeWitt, ACS Joe Wingerter, Kiewit Ural Yal, Flatiron Chad Mathis, Southland Holdings Keith Nixon, Balfour Beatty US
Workshop Structure	Participants had a roundtable discussion focused on the following questions: What risks do owners tend to misallocate? What tool(s) are most beneficial to helping identify/manage risk? What are your perspectives on the following aspects of progressive project delivery methods: Attractiveness of progressive methods vs fixed price Owners’ understanding of risk and risk allocation Process of negotiating risks and construction price What are your perspectives on various risk “sharing” strategies (e.g., allowances, risk pools, deductible schemes, relief mechanisms)? Are owners learning anything through progressive approaches that can benefit other delivery methods? What influence does the surety industry have on contract size, risk allocation, choice of delivery method? What success factors would you suggest to owners to improve competition, reduce costs, and result in better project outcomes? What are potential showstoppers that would discourage you from pursuing a project?

Q1. What risks do owners tend to misallocate (particularly on hard-bid projects)
Critical Risks	Contractors worry about low probability yet potentially catastrophic risks. Such unmanageable risks are what owners often attempt to transfer to industry. Participants agreed that risks related to ROW, third parties (including utilities, railroads, governmental agencies) and even weather can be particularly problematic. The general thought was that in general, contractors can absorb the impacts of a moderate delay to the schedule; the problem is when delays extend beyond that and possibly force work into another construction window/season. Price volatility in today’s heated market was cited as another key risk that is affecting everyone. Questions regarding supply chain robustness and labor availability are creating much uncertainty surrounding project pricing.

Q1. What risks do owners tend to misallocate (particularly on hard-bid projects)

Critical Risks

Contractors worry about low probability yet potentially catastrophic risks. Such unmanageable risks are what owners often attempt to transfer to industry.
- Participants agreed that risks related to ROW, third parties (including utilities, railroads, governmental agencies) and even weather can be particularly problematic.
- The general thought was that in general, contractors can absorb the impacts of a moderate delay to the schedule; the problem is when delays extend beyond that and possibly force work into another construction window/season.
Price volatility in today’s heated market was cited as another key risk that is affecting everyone. Questions regarding supply chain robustness and labor availability are creating much uncertainty surrounding project pricing.

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Promoting Owner-Industry Alignment on Risk

Participants all advocated for increased use of “rely upon” documents. Given the moneys owners are spending on feasibility studies and preliminary engineering, owners should adopt a more risk-based approach to thinking about what information could be designated as reliance documents to level the playing field and reduce uncertainty and associated bid premiums.
During procurement, it would be helpful for owners to foster increased communication between proponents and third parties. Often proponents have limited, if any, opportunities to hear directly from third parties (e.g., railroads) about project constraints. If proponents could engage in more meaningful dialogues with such stakeholders early and throughout the procurement process, it might enable:
- More certainty and lower bid premiums due to the increased transparency surrounding potential interface and other risks
- More innovative solutions based on having an enhanced understanding of third party needs and the phasing potential of the work

Q2. What tool(s) are most beneficial to helping identify/manage risk?
Risk Registers	The participants all agreed that a risk register is a critical tool to managing project and commercial risk. However, they noted that owners and industry often approach risk registers differently. Owners tend to use risk registers to catalog risks into broad, programmatic categories. As such, the typical owner’s risk register has tens of risks. Contractors risk registers are far more detailed as they are used as a tool to support the robust development of cost/schedule contingency. For a large and complex project, a contractor’s risk register may therefore carry hundreds if not thousands of risks.

Q2. What tool(s) are most beneficial to helping identify/manage risk?

Risk Registers

The participants all agreed that a risk register is a critical tool to managing project and commercial risk.
However, they noted that owners and industry often approach risk registers differently.
- Owners tend to use risk registers to catalog risks into broad, programmatic categories. As such, the typical owner’s risk register has tens of risks.
- Contractors risk registers are far more detailed as they are used as a tool to support the robust development of cost/schedule contingency. For a large and complex project, a contractor’s risk register may therefore carry hundreds if not thousands of risks.

Q3. Perspectives on progressive project delivery methods (PDB, CM/GC)
Attractiveness of Progressive vs. Fixed-Price PDMs	While noting that all project delivery methods have a time and place, all participants were in favor of increased use of progressive delivery methods to derisk large and complex projects and make them more attractive to pursue. One participant also noted that, from a “quality of life” perspective, it is much easier to attract and retain personnel on a progressive project (where everyone is “swimming in the same direction”) vs. a fast-paced, high risk, and likely more adversarial fixed-price project. Another participant argued that progressive methods drive more innovation than fixed price DB because contractors tend to discard and not pursue potentially risky solutions, even as ATCs. In contrast, progressive methods allow the contractor to collaborate with the owner to study such solutions.

Q3. Perspectives on progressive project delivery methods (PDB, CM/GC)

Attractiveness of Progressive vs. Fixed-Price PDMs

While noting that all project delivery methods have a time and place, all participants were in favor of increased use of progressive delivery methods to derisk large and complex projects and make them more attractive to pursue.
One participant also noted that, from a “quality of life” perspective, it is much easier to attract and retain personnel on a progressive project (where everyone is “swimming in the same direction”) vs. a fast-paced, high risk, and likely more adversarial fixed-price project.
Another participant argued that progressive methods drive more innovation than fixed price DB because contractors tend to discard and not pursue potentially risky solutions, even as ATCs. In contrast, progressive methods allow the contractor to collaborate with the owner to study such solutions.

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Price Negotiation Process

The disparity in the level of experience between the owner’s pricing team and the industry team can be problematic.
- At the price negotiation stage, an owner’s starting strategy is often to simply say the contractor’s cost is “too high”. This is not helpful.
- Owners are often surprised and overwhelmed by the number of risks that contractors are considering, and the depth to which they are being assessed, when they develop their estimates and contingency calculations.
- Although the risk workshops are helpful, the owner’s staff often “check out” after the first few hours of reviewing risks.
- Owners have a hard time understanding the time and cost implications of risks.
Owners often fail to update old project estimates and budgets. This can lead to surprises when the PDB or CM/GC team provides an estimate that is far higher. Instead of relying on old estimates, owners should retain the ICE early in the budgeting process (instead of waiting until the PDB or CM/GC team is engaged).

Independent Cost Estimator (ICE)

Qualifications of ICEs can vary widely.
- The ICE should have construction estimating experience (not simply be a PM/CM).
- The ICE should use standard industry estimating software when preparing its estimates.
- The ICE team should not be the same personnel as those who prepared the owner’s original budget estimate (to avoid “pride of ownership” issues)
The contractor and ICE should come to an upfront agreement as to how they will be structuring the cost model for the project and how cost comparisons will be performed.
- Often, the variance between a contractor’s estimate and that of the owner comes down to just a handful of items.
- It is therefore important for the ICE to also have a detailed, bottoms-up estimate that is generally structured in the same manner as that of the contractor to allow the parties to drill into what is driving the variance (e.g., assumptions regarding productivity, means and methods, etc.)

Q4. Perspectives on various risk “sharing” strategies
Sharing Strategies	In general, the participants voiced preference for the use of robust risk workshops to establish contingencies instead of generic deductible schemes. Allowances and provisional sums should be used more frequently (similar to the early days of fixed price DB) to address quantities that are highly uncertain. Unit costs should be broken out for certain items (e.g., pile length) and attached to provisional sums.

Q4. Perspectives on various risk “sharing” strategies

Sharing Strategies

In general, the participants voiced preference for the use of robust risk workshops to establish contingencies instead of generic deductible schemes.
Allowances and provisional sums should be used more frequently (similar to the early days of fixed price DB) to address quantities that are highly uncertain.
Unit costs should be broken out for certain items (e.g., pile length) and attached to provisional sums.

Q5. Application of lessons learned from progressive methods that can be applied to other PDMs
Market Insights	Owners are obtaining more insight into market conditions and what drives project costs. This should lead to better owner estimates and budgets over time. Understanding market trends, particularly related to the costs and availability of key commodities and labor, could lead to increased use of allowances or material/labor escalation clauses.
Application of other practices	The process of using a risk register as part of a PDB or CM/GC construction price negotiation could be applied in a similar manner to the procurement phase of a fixed price DB project.

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Q6. Sureties and Bonding
Performance and Payment Bonds	The participants shared the view that owners would benefit from an increased understanding of: How challenging it can be for contractors to obtain 100% performance and payment bonds for a mega project What the owner is really spending on these bonds, particularly as 100% of the project is never at risk at any point in time Alternative forms of security
Sureties and Progressive PDMs	Participants believe that use of progressive PDMs will lead to fewer demands and cost overruns. Once a successful track record of progressive DB or CM/GC projects is established, sureties should be able to reevaluate how they assess the associated risk, particularly on large PDB projects.

Q7. Other success factors to improve competition, reduce costs, result in better project outcomes
Rethinking “Competition”	Owners need to redefine how they think about “competition”. Instead of focusing on simply increasing the number of proposers, owners should focus on how to increase the quality of proposals. Quality of competition can be enhanced by providing more information to proposers and allowing proposers to rely on such information.
Reasonable Stipends	Owners often lack appreciation of what it costs industry to propose on a project. If stipends are offered, proponents are more willing to invest in success by doing increased site and geotechnical investigations).
Staffing Model	Projects where the owner is primarily represented by internal staff (as opposed to third-party PM/CM teams) are perceived as being more successful. The owner’s internal personnel are more interested in, and accountable for, the success of the project. There is less risk of delayed owner decision-making. With outsourced PM/CM firms, there can be questions regarding delegation of authority and the issue escalation process. Participants also observed that as owners outsource more project management functions to PM/CM firms, they are losing institutional knowledge.

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Q8. Showstoppers
Contractor’s Pursuit Decision	In addition to technical risks (e.g., ROW, geotechnical, etc.), other general factors used to assess a pursuit decision include: Commercial and contractual terms (e.g., unreasonable bonding requirements, insurance requirements, language indemnification, liquidated damages, approval times, etc.) Unreasonable contract durations Owner’s reputation, particularly that of the project champion and project management team (and for progressive projects, the experience and reputation of the ICE) Project “readiness” (Lack of project readiness can drive owners to transfer unmanageable risks to contractors for third-party issues, right-of-way delays, and other related issues and/or launch project without solid financial plans that could result in suspensions or terminations for convenience when funding is delayed. Opportunity cost of not applying resources elsewhere (participants noted that owners could do a better job of communicating with one another to understand the extent of work available and how this can impact industry’s capacity to take on new work) Potential competition (history working with the client, reputation/positioning in the market etc.) Potential teaming partners

Q8. Showstoppers

Contractor’s Pursuit Decision

In addition to technical risks (e.g., ROW, geotechnical, etc.), other general factors used to assess a pursuit decision include:

Commercial and contractual terms (e.g., unreasonable bonding requirements, insurance requirements, language indemnification, liquidated damages, approval times, etc.)
Unreasonable contract durations
Owner’s reputation, particularly that of the project champion and project management team (and for progressive projects, the experience and reputation of the ICE)
Project “readiness” (Lack of project readiness can drive owners to transfer unmanageable risks to contractors for third-party issues, right-of-way delays, and other related issues and/or launch project without solid financial plans that could result in suspensions or terminations for convenience when funding is delayed.
Opportunity cost of not applying resources elsewhere (participants noted that owners could do a better job of communicating with one another to understand the extent of work available and how this can impact industry’s capacity to take on new work)
Potential competition (history working with the client, reputation/positioning in the market etc.)
Potential teaming partners