SB 370 REPORT

REVIEW OF COST AND TIME SAVINGS ON
HIGHWAY CONSTRUCTION AND
MAINTENANCE CONTRACTS

As Required by Senate Bill 370, 75th Texas Legislature
Texas Transportation Commission
Texas Department of Transportation
November 19, 1998

PREFACE
SB 370 passed during the 75th Legislative Session requires the Texas Department of Transportation to conduct a review of certain rules and laws. The intent of the amendment was to look at ways of building and maintaining highways faster and at reduced expense. 

Specifically, the statutory language is as follows: 

Transportation Code, Section 223.012. CONTRACTOR PERFORMANCE. 
(a) The department shall… 
(3) conduct a review to determine whether commission rules or state law should be changed to realize significant cost and time savings on state highway construction and maintenance projects. 
(b) Not later than December 1, 1998, the department shall file a report with the governor, the lieutenant governor, and the speaker of the house of representatives containing: 
(1) the results of the review conducted under Subsection (a)(3); and 
(2) recommendations on legislation the commission determines is necessary to realize significant cost and time savings on state highway construction and maintenance. 

The department’s Executive Director responded to this directive by forming a working group consisting of: 
·Gary K. Trietsch, P.E., Houston District Engineer; 
·Robert L. Wilson, P.E., Design Division Director; and 
·Thomas R. Bohuslav, P.E., Construction Division Director. 

The group was charged with ensuring that the department completed the task of reviewing Texas Transportation Commission rules and state law. They worked in conjunction with the Commission, and the department’s Administration, Legislative Affairs Office and Office of General Counsel to identify, develop, and refine the issues which are discussed in this report. 

The department viewed this report as an opportunity to discuss recent internal initiatives, as well as provide thoughtful options to the Legislature which may have a positive influence on the agency’s future operations. It was noted that recommendations resulting from this effort must be pursuable at the state legislative level. While a strict reading of the report’s requirements could be seen as limiting its scope to addressing recommendations that would have effect once a construction or maintenance project begins, the department also addressed project development issues in line with what it believes to be legislative intent. 

This report is divided into two sections. First, there is a discussion about rules and process changes which surfaced during the required review that either have been or will be made at the option of the Commission. This section also highlights initiatives the department has previously undertaken in an effort to speed up project development. Second, there is an analysis of statutory changes that could be enacted by the Texas Legislature. As directed by statute (Transportation Code, Section 223.012), this report will be filed with the Office of the Governor, Lieutenant Governor, and Speaker of the House of Representatives. 

I. FINDINGS OF THE REVIEW: RULE AND PROCESS CHANGES
The department’s analysis found that the following administrative changes will have a positive effect on the department’s ability to construct highways faster and at reduced expense. As noted, some have already been implemented and some are in the process of implementation. 

A. CONSTRUCTION CONTRACTS
1. A+B bidding and incentive/disincentive provisions.
In contrast to traditional bidding procedures which require acceptance of only the lowest responsive bid, "A+B" bidding involves time, with its associated cost, in the low bid determination. Under this method, each bid submitted consists of two components. The cost or "A" component is the traditional bid for the contract items and is the dollar amount of all
work to be performed under the contract. The time or "B" component is a bid of the total number of calendar days estimated by the contractor to complete the project. 

In A+B bidding, the bid for award consideration is based on a combination of the bid for the contract items and the associated cost of the time needed to complete the work based upon the following formula: (A) + [(B) x (daily road user cost + estimated contract administration liquidated damage rate)]. This formula is used only for award determination; contract payments are based solely upon the "A" component. If awarded, the days for project completion included in a contractor’s proposal become a part of the contract entered into by the contractor and department. Advantages of A+B bidding include: 

• Consideration is provided for the time component of a construction contract.  

• Favors contractor with most available resources to complete the project. 

• Encourages contractors to seek ways to compress the construction schedule. The potential for early project completion is therefore enhanced. 

As required by Transportation Code, Section 223.012(a)(1), a disincentive provision that assesses road user (travel delay) costs can be incorporated into the contract to discourage the contractor from overrunning the time "bid" for the project. In addition, an incentive provision could be included to reward the contractor if the work is completed earlier than the time bid. 

A+B bidding and road-user cost liquidated damages are not applicable to all projects. In some cases, calculation of travel delays do not generate values justifying the use of higher road user costs. In addition, A+B projects are more limited in application. When the benefits for early completion are outweighed by the cost of construction, higher
road-user costs are not considered beneficial to the public. Also, before a project can be considered for A+B bidding, all right of way must first be acquired, and utilities adjusted or relocated. This is so that a contractor can’t later claim that the department caused an inability to meet the contracted time frame. 

Currently the department is working to train employees in all districts about how to calculate road user costs.  Additionally, contractual language is being developed that can be utilized in construction contracts at the Commission’s discretion. Once this language is approved by the department, it will be available to be implemented state-wide. 

Status: A+B bidding has been used by TxDOT on a limited, trial-run basis. Results from the trial have been encouraging. The department has implemented policies and strategies for the greater use of incentive/disincentive on projects. 

2. Use of intermediate milestones.

The A+B bidding and incentive/disincentive contracting strategies referred to previously were discussed as being applied to a project as a whole. They may also be applied to projects on a phase-by-phase basis or to only a critical portion of a project. The contractual approach is to establish a completion milestone to the phase or portion of the project which is deemed most important. The allowable time to complete the work tied to the milestone is established by the department or by the contractor if A+B bidding is used. If the contractor fails to complete the intermediate milestone work, then the travel delay, or road user costs associated with the work, are assessed on a day-by-day basis.  An incentive may also be included to credit the contractor for early completion. 

Intermediate milestones provide flexibility to address the specific areas of projects that will have the most impact on the public. For instance, a contract may provide for the reconstruction of a five-mile section of roadway, a half-mile of which is through an urban area. An intermediate milestone could be established in the contract to provide for the accelerated completion of the urban section only. Other examples of where TxDOT has used intermediate milestones include: Work areas affecting malls, specific intersections, portions of a project to provide access to a university, and portions of a project to extend a toll road. In the last example, the daily value of the incentive/disincentive was based on an estimate of the daily tolls that would be received. 

The same concerns cited in the previous section regarding outstanding right-of-way acquisitions and utility relocation are also applicable to intermediate milestones. 

Status: Intermediate milestones have been used by TxDOT successfully in the past, and continue to be used. Department staff statewide is being made more aware of the tool and how to utilize it in contracts. 

B. MAINTENANCE CONTRACTS
1. Districts process contract execution when bonding requirements exist. Three districts (San Antonio, Brownwood and Bryan) have been used as "pilots" for studying the impact of handling the execution of locally let maintenance contracts including verifying that bond requirements have been met. The results of these pilot studies have indicated that this task can successfully be transferred to the districts from Austin headquarters.  Allowing the districts to perform this task decreases the time between letting and contract award by approximately two weeks. 

While support in the department exists for making this change, it should be noted that: 
1) Districts must have proper training for handling these duties. 
2) They must have adequate personnel. This is of special concern since districts’ authority to let contracts locally has increased from contracts below $100,000 to contracts below $300,000. This means more locally let contracts. 

Status: This transfer of responsibility will be optional at first for the districts. Headquarters can continue handling some or all of this work until districts have adequate training and personnel. 

2. Proposed debarment process for maintenance contractors.

Currently, performance bonds are only required on contracts of $100,000 or more. Therefore, on many contracts (those less than $100,000) if the contractor is declared in default, the districts must perform the work or proceed to re-let. This not only takes time, it also costs the department money. If a maintenance contractor defaults on a contract (bonded or not), the department may have them debarred. This prohibits the contractor from bidding on state work for one year. 

While it is not in the department’s interest to have undesirable contractors bid on projects, debarment can be very damaging for the contractor. However, at present, TxDOT only has the option to debar a maintenance contractor for one year maximum, or risk having the contractor be low bidder on other projects and again perform undesirably. 

Since the department’s primary objective is to have work performed, it may be advisable to have another option in dealing with "problem" contractors and to standardize the justification for debarment. The department is currently in the process of reviewing its debarring procedures and plans on addressing necessary changes with the Texas Transportation Commission. 

Status: Department staff is currently drafting a proposal for the Commission’s consideration that would allow the department to reduce a maintenance contractor’s bidding capacity by fifty percent before seeking a debarment. Also, the department could debar a contractor for a longer period in cases of repeated default. 

C. PROJECT DEVELOPMENT
1. Professional services procurement for preliminary engineering.

The department has rules in place that incorporate the two-step, qualifications-based selection process for professional service providers of architectural, engineering or surveying services as required by the Professional Services Procurement Act. The evolution of these rules and department procedures has been highly interactive with the industry. In September 1997, the department established minimum qualifications that have been incorporated in a database that
tracks firms precertified in many different categories of expertise typically used by the department. The database is utilized to determine qualified professional services for advertised department work. The purpose of this precertification process is to minimize routine data that was previously required to be submitted by firms each time they submitted a proposal. This not only costs the firms time and money but also requires large amounts of departmental time to review the proposals.  The current rules and procedures are again under review by TxDOT and industry. Proposals are planned for calendar year 1998 to further modify the process--with a two to four month selection time as the goal. Currently, eight to ten months are typically necessary to complete the selection process. Changes will be presented to the Transportation Commission in the coming months and a proposal will be open for public comment before formal adoption. The department is committed to a qualifications-based selection process and negotiating a fair and reasonable price. The department is also committed to a process that is open. The department currently does business with over four hundred different firms as either prime or sub-providers of professional services. 

Status: Current rules and procedures are under review by TxDOT staff and industry. Proposals are currently being initiated to speed up the consultant selection process. 

2. Administrative settlement in right of way acquisition.

Administrative settlement is a recently instituted policy that allows for one-time negotiation with a land owner when the department is seeking to purchase property. It replaced a previous procedure which only provided for eminent domain proceedings if the land holder refused the department’s one and only purchase offer. Under an administrative settlement, if the land owner believes that his/her property is more valuable than what the department has offered, the owner may submit a documented counter-offer to the department. In turn, the department may accept that purchase price. If the department does not believe that the proposed purchase price is appropriate, then it must opt for eminent domain. 

Since implemented in November 1, 1996 and through July 9, 1998, a total of 571 requests for administrative settlement were received. Of those received, 319 have been granted which otherwise would have gone to condemnation under former procedures. In Fiscal Year 1996 the condemnation rate statewide was 25 percent. In FY 1997 it was reduced to 15 percent. In FY 1998 it was further reduced to 13.5 percent. 

A single parcel on a project that goes through the eminent domain process could take from six weeks to three months longer to acquire than if the sale was negotiated. Over the life of a project, the number of parcels requiring eminent domain could significantly delay the construction of a facility. The administrative settlement procedure is a proven way to reduce acquisition time. Any procedure that decreases acquisition time results in significant savings of time and money over the life of a project. The administrative settlement procedure has proven to be a successful tool in significantly reducing the number of parcels which must be acquired through the judicial process. 

Status: Implemented. 

II. FINDINGS OF THE REVIEW: STATUTORY CHANGES
The department’s analysis found that the following statutory changes would have a positive effect on the department’s ability to construct highways faster and at reduced expense. 

A. CONSTRUCTION CONTRACTS/PRELIMINARY ENGINEERING
1. Commission authority to determine projects for design-build.

The design-build concept involves awarding a highway improvement project to a company which is responsible for both the design and subsequent construction phase of the project. Design-build authority would allow the department to let one design-build contract that includes both engineering services and construction. Then, once sufficient design work is done, the contractor could begin construction while the design is being finished. TxDOT would need close oversight of all phases to ensure that public health, safety and welfare are protected. 

There are currently two laws that prohibit this process from being considered on public works projects in Texas. The Professional Services Procurement Act requires a two-step, qualifications-based, selection and price negotiation process. Also, TxDOT is required to accept the lowest responsible bid for construction work. These laws were put into place to protect the public and assure competitive bidding on construction to maximize the use of public funds. The option to design-build in one contract requires enabling legislation for an exception to these laws to be used at the discretion of the Texas Transportation Commission. The evaluation of the design-build option should consider cost, as well as quality factors, time of completion, and "best value." 

Because design-build can be used to shorten final stage project development time, the Commission might use it in emergency situations, such as when a bridge is out, and replacement in the shortest time possible is critical to the public.  Design-build allows construction to begin before project design is totally complete. Another circumstance where design-build could be advantageous is when the design-build team becomes the operator/lessor of the facility. If the
design-build team must also operate the facility for ten to twenty years, and live with and correct any mistakes made during design or construction, then a short-term profit motive would be forced to accommodate longer-term quality issues. 

The Commission could also consider design-build if a special project were authorized with special or unanticipated funding. An example of unanticipated funding is the current interstate construction in Salt Lake City brought about because Utah’s legislature passed a special construction package in conjunction with the scheduled 2000 Winter
Olympics. This resulted in a very special unanticipated project with a definite time frame that would not allow sufficient time for the conventional design-bid-construct process. 

The department urges caution with design-build because this option could allow the development of contractual relationships between a designer and builder that might not promote the best design, proper construction processes or best materials utilized. Since this process may cost more in order to accomplish either design or construction in a
compressed time frame, this increase will have to be under close control by TxDOT as the owner of the facility. TxDOT will also need to retain close control of design-build projects in order to ensure that inferior materials are not used in the project merely to shorten time or increase profits for design-build contractors. The department is qualified to oversee and manage such projects effectively because of its strengths in the design, engineering and construction oversight facets of our business. 

Two federal laws inhibit use of federal funds in design-build. First, the Brooks Act requires qualifications-based selection of professional services. Second, construction is required to be awarded on a low-bid, competitive basis. There is a possible exception to these laws, if approved by the Federal Highway Administration according to criteria not yet determined. An exception is possible if state law allows for use of design-build, and if it is an Intelligent Transportation System project over $5 million or any other project over $50 million. These exceptions do not take effect until calendar year 2001. An additional exception allows for use of design-build on an emergency basis. 

Possible statutory change: Allow the Texas Transportation Commission to use the design-build option at its discretion. 

2. Quality and Value Issues in Professional Services Procurement.

Currently the department, and all public entities, are required to follow the qualifications-based selection procedures of the Professional Services Procurement Act. As part of this process, price is not a factor and is prohibited under law. Instead, a firm, or provider, is selected and then the price is negotiated with that firm to perform whatever professional architectural, engineering or surveying services may be required. This process is not only lengthy, but may not always provide the most cost-effective price to the taxpayers. Price comparisons and any references to value are prohibited by state law. At current contracting rates, approximately $1,380,000,000 will be spent over then next ten years without getting a second price. 

The department suggests that there could be a possibility of savings of both time and money if the Professional Services Procurement Act were amended for TxDOT. The department supports qualifications-based selection as appropriate, but feels that value should be incorporated. Once a short-list of providers has been determined which are each qualified to do the work, then it should be statutorily permissible for the agency to get priced proposals from all of those short-listed providers. Price could then be a consideration in determining which provider would be the best value for the state. 
However, it should not be a requirement to simply accept the lowest bid. The agency should be able to consider cost as a factor along with all other factors to deliver a high quality product in the shortest time and at the best available price.  Amending the Professional Services Procurement Act for a TxDOT exception could accomplish that goal. 

It should be noted that this could only be done where state funds pay the professional service cost. No federal funds could be used since this would conflict with federal statute. Currently and historically most design costs are state funded to maximize federal funds for construction and maintenance. However, if the procedure were changed at the state level
and found to be effective, then similar changes in federal legislation might result. 

Possible statutory change: Allow TxDOT to consider value in selection of professional services once a list of qualified firms has been selected. 

B. CONSTRUCTION AND MAINTENANCE CONTRACTING
1. Electronic funds transfer.

Electronic bidding allows contractors to submit their bids for contract work electronically to TxDOT. Its establishment will eliminate the need for contractors to either mail or deliver their bids. A major benefit of electronic bidding is that the contractors’ use of the system can reduce errors. In automating their bids, contractors will impose a computerized
self-check before transmittal, thereby ensuring that certain information is present and that mathematical calculations are correct. By eliminating these errors, electronic bidding will reduce the number of bids that are disqualified and ensure that TxDOT is able to consider as many responsive bids as possible. A possible hindrance to successful initiation of an electronic bidding system is related to the requirement that bidders submit a guaranty check along with their bid. A cashier’s check is required, which TxDOT returns within 72 hours to the losing bidders. The winning bidder’s check is held as a guaranty for up to 30 days until the contract is executed. While the electronic process will replicate the current manual bid process, TxDOT needs statutory authorization to receive a bid guaranty electronically, release an electronically transmitted guaranty, and take possession of the guaranty when necessary. 

Possible statutory change: Allow TxDOT to electronically verify, release and accept a bid guaranty. This authority should allow TxDOT to receive and disburse funds when necessary by electronic means, and then transfer those funds to the state treasury in the case of contractor default. 

2. Child support enforcement requirements.

The current statutory requirement that all bids submitted by a bidder must include the name and Social Security number (SSN) of all owners of 25 percent or more of the business on the bid document itself, has resulted in a total of 112 bids being considered non-responsive through August 1998, and thereby rejected for non-compliance. The purpose of this statute is to assist in the state’s child care collection efforts. TxDOT believes that the collection of the SSN of all bidders can be better collected through other TxDOT documents rather than on the bid itself. Highway improvement contracts are awarded on a low-bid basis and rejecting potential bids has resulted in decreased competition. The
potential result of reduced competition is an increased cost to the state for contracted services. 

Possible statutory change: Legislation could allow TxDOT to collect the required information (SSN of certain business owners) on either the pre-bid qualification form, which is also required of all bidders, or in another expedient and efficient manner. If any information relevant to owners of 25 percent or more of the business were to change, the bidder should be required by statute to update the Social Security numbers already on file. 

C. MAINTENANCE CONTRACTING
1. Performance bond requirement.

A governmental entity that enters into a public works contract with a prime contractor must require the contractor, before beginning the work, to execute with the governmental entity a performance bond if the contract is in excess of $100,000.  The performance bond is solely for the protection of the state or governmental entity awarding the contract. The performance bond must be in the amount of the contract and conditioned on the faithful performance of the work in accordance with specifications and contract documents. However, TxDOT is not authorized to require a performance bond for contracts under $100,000. 

Under the recent direction of the Texas Legislature, TxDOT has increased the amount of maintenance work contracted out to over 50 percent. Many of these maintenance projects are typically $100,000 or less, which in turn has increased the number of projects that have no performance bond. When a contractor defaults on a project under $100,000, the work must be re-advertised for bid or performed by state employees. Most maintenance work must be performed in a timely manner. If the work is not performed, unsafe conditions may exist or develop. 

Reducing the number of defaults on maintenance contracts is a high department priority. Of the 2,300 maintenance contracts that were awarded during fiscal years 1996 and 1997, eighty percent were unbonded. The default rate in fiscal year 1996 was 1.8 percent, but it increased to 4.3% in 1997, an increase of over 240 percent. When no bonds are posted or retainage withheld, contractors can walk away from a contract, thereby leaving the state without financial recourse. 

While the ability to require performance bonds will add to a contractor’s cost, it will also protect the department in cases where a contractor defaults. Currently, when there is a default on contracts with no performance bond attached, the department must either finish the work with state forces, execute an emergency contract or re-let another routine maintenance contract. In each instance, it costs TxDOT time and money. 

According to information supplied by several surety companies, the cost of a performance bond is $9.40 for each $1,000 of a contract. Therefore a contract of $80,000 would require a performance bond costing $752. It is TxDOT’s expectation that this cost will be passed on to TxDOT by a contractor as an added overhead cost. However, from
TxDOT’s perspective, absorbing this $752 is worthwhile to insure the timely completion of the contract in the event of a default. The department does not believe that this proposal would have a significant impact on maintenance contractors. 

Possible statutory change: Require performance bonds on contracts of $25,000 instead of the current $100,000. 

2. Award of contract to second bidder.

TxDOT is currently required to award maintenance contracts only to the lowest bidder. However, when a low bidder indicates after letting but prior to award of a contract that it has no intention of performing the contract, the department is still required by statute to award the contract to that contractor anyway. In these cases, the department must let the
default take place, then relet the contract. This could be solved by allowing the Commission to award the contract to the second bidder without ever awarding it to the first low bidder. However, this option must be left to the discretion of the Commission because such a scenario could invite collusion between the first bidder and the second bidder. 
Possible statutory change: Allow the Commission to award a maintenance contract to the second low bidder under rules
determined by the Commission. 

D. RIGHT OF WAY ACQUISITION
1. Right of entry.

TxDOT acquires rights of way for transportation projects. However, when conducting property appraisals, surveying, or acquiring property for a transportation project, the department lacks authority to enter private property unless expressly authorized. In order to provide TxDOT with the best possible information about potential parcels, including
environmental issues, TxDOT needs, but lacks the statutory authority, to have right of entry of private property for environmental surveys. Right of entry would provide TxDOT with key information on the potential for contamination, the presence of wetlands, historic and prehistoric resources, and other sensitive resources, prior to acquisition. Without
right of entry, TxDOT must make project decisions on alignments without having all necessary information. 

The National Environmental Policy Act of 1969 requires that significant federal actions receive the balanced consideration of social, economic and environmental impacts, and that NEPA documents fully disclose these impacts.  TxDOT has accomplished the full disclosure of environmental impacts with one exception – without right of entry,
TxDOT cannot fully disclose the particular impacts and issues of a particular parcel. In order to survey potential rights of way, written concurrence from property owners is needed. Often, owners will not allow these surveys to take place, requiring TxDOT to wait until after acquisition to discover the environmental status of a parcel. 

Without right of entry, TxDOT cannot complete the environmental analysis of a project until right-of-way acquisition is complete. Prior to acquisition, TxDOT coordinates projects with state and federal resource agencies to determine permit and mitigation needs. This often creates a duplication of effort, because TxDOT must go back to the resource
agencies following right-of-way acquisition. In addition, the department ends up paying more for environmental commitments by not knowing the full extent of environmental impacts on a given parcel. 

An example of the department’s lacking right of entry costing the state significant expense includes a site purchased in 1992 for the expansion of U.S. Highway 59 in Houston. The site was used as a bulk distribution location for gasoline and also as a gasoline service station. While only a portion of the tract was needed for highway purposes, the department was denied the ability by the property owner to test for contamination. Unfortunately, after acquisition, the tract was found to be extremely contaminated. Clean-up of the site cost the state $3.1 million dollars, on top of the "full-value" property acquisition cost of $1 million. 

One example of the department’s lacking right of entry directly leading to a significant delay is a State Highway 35 project in Houston. Multiple property owners refused the department entry for necessary wetland and archaeological studies. The refusals caused a twelve to eighteen month delay in the project. 

Possible statutory change: Provide TxDOT right of entry under certain conditions to private property for conducting property appraisals, surveying, or acquiring property. 

2. Timely Relocation of Utilities

The timely adjustment or accommodation of utility facilities is absolutely essential to the efficient and cost-effective delivery of transportation projects. Utilities possess statutory authority to occupy public rights of way including state highway rights of way. When highway improvements are made, utility facilities are required to adjust utilities to clear the project in compliance with the criteria contained in the TxDOT Utility Accommodation Policy. However, the department has no means to ensure that utilities are relocated in a timely manner. Many times TxDOT must either delay the letting of a contract or, if possible, require the contractor to work around utilities until they are moved. In fact, in
fiscal year 1998, eight projects were pulled from the letting schedule because utilities were not yet relocated to allow construction. Whether the delay is pre-letting or post-letting, these delays can considerably lengthen the time until construction is completed and cause significant expense due to the delays. 

Once a project has been let, construction delays caused by utilities can translate directly into claims filed against the department by contractors which have incurred additional overhead and direct costs as a result of the delay. For instance, in 1995 the department settled a claim filed by a contractor stemming from utility delays by compensating the contractor $3.6 million for increased costs due to utility relocation delay on a project in Travis County. Also in 1995, TxDOT settled a claim by compensating the contractor over $600,000 for delays due to utility relocation on a project in Montgomery County. 

It should also be noted that various utility companies may be working within highway right of way for up to a year prior to the time that an actual construction project goes to bid. In these cases, the general public may not distinguish between the utility and road contractors. And thus it appears that the construction lasts even longer. For all intent, it does. That is why it is critical for the utility companies to finish their work in a timely manner. 

Possible statutory changes: Although the department presently has no specific recommended statutory changes to current law to address this issue, the agency would like the Legislature to be cognizant of problems surrounding the timeliness of utility relocations. There are basically two approaches one could take to address this issue—providing an incentive for completing the work or penalties for inadequate performance. From the Commission's perspective, it is not prudent to
pay a utility an incentive to do something that the law requires them to do anyway. Utilities which are late in being relocated result in lengthening the project development and construction process, and increasing project costs. The department encourages the Legislature to explore initiatives which would have a positive effect on the relocation of
utilities adjacent to highway improvement projects 

III. CONCLUSION
The department appreciates the challenge to improve operations that the Legislature posed by mandating this report. As issues were examined and considered for possible conclusion, it became clear that the scope of issues could not be addressed without brief discussion of two significant matters that the body of this report does not address, funding and federal environmental issues. 

One of the most significant issues that the department faces in completing projects in a timely manner is the inability of highway funding to match inflation and increased demand for transportation. For instance, over the past five years, highway construction costs have increased an average of five percent per year. During the four-year span of the department’s Unified Transportation Program (UTP) planning document, a five percent loss of spending power per year
equates to twenty percent erosion. With a recent letting schedule of $2 billion per year, there is a $400,000,000 loss of purchasing power by the end of the four-year period. With an expected surge in transportation spending nationwide, the department expects the issue of inflation to impact even more heavily in the next several years. 

A good example of the long term erosion of the department’s financial ability due to inflation is a project in Houston. In 1967, a five-mile, ten-lane stretch of Interstate Highway 10 inside the 610 Loop was constructed at a cost of $3.5 million. TxDOT is now in the process of rehabilitating the original ten lanes. The low bid was $44.6 million--an
increase of 12.7 times the original cost of construction. In that same thirty year time period, TxDOT’s budget increased six times. 

The Commission requests that diversion of funds from Fund 6 be eliminated. The traveling public has shown tremendous support for using fuel taxes on transportation infrastructure. In 1988, an overwhelming 86.9 percent of voters supported a constitutional amendment to dedicate federal highway reimbursements for that purpose. In 1991, the Legislature increased the motor fuels tax. However, a significant amount of those funds have since been diverted for non-highway purposes. No single issue effects the speed of maintenance and construction projects more than funding. 

TxDOT strives to be environmentally sensitive, but a brief mention of the impact of environmental protection laws should help bring perspective to a report on construction cost and timeliness. Environmental protection laws have added complexity to highway planning and construction. In 1963, planning to build a new highway required surveying the land,
acquiring it and then construction. There are now 41 federal and state statutes that must be followed before construction begins. On major projects likely to cause significant impacts, the federally required Environmental Impact Statement (EIS) typically takes three to five years to prepare and process, adding to a project’s development period and increasing cost. An EIS is only required in a very limited number of projects, but these tend to have a high public profile. 

An environmental assessment, also a federal requirement, is required on approximately 30 percent of TxDOT construction projects. Projects for which environmental assessments are required are among the most complex construction projects. The assessment typically takes from six to twelve months. With both the EIS and environmental assessments, additional time is required when remediation is necessary. 

The legislative recommendations contained in this report are in response to the statutory requirement that the department review rules and statutes to determine appropriate changes that would enhance the department’s ability to construct projects less expensively or in a shorter time period. While not always mutually exclusive goals, some of the recommendations above could accomplish either increased speed or reduced cost at the expense of the other. For example, A+B bidding and design-build projects tend to increase the speed at which projects are completed, but can also tend to increase project cost. Recommendations such as right of entry, requiring performance bonds for maintenance contractors, and enhanced electronic funds transfer for electronic bidding would greatly assist the department’s efforts toward both increased speed and reduced cost.