Speed and Efficiency in Government Procurement of Transportation-Related Construction Services

Project summary:

Rapid contract execution is increasingly important in government procurement of construction services for the military, in response to natural disasters, and in the building of transportation infrastructure. However, in spite of a demonstrable need, academic literature has paid little attention to speed as a factor in contract mechanism design. This is not entirely surprising because when multiple factors are involved, it is not possible to find simple rules that will be optimal for all situations. The focus of this research is therefore on a specific but important class of problems dealing with procurement of construction services by state departments of transportation (DOTs). Transportation-related construction is a significant economic activity; monthly spending by the 50 states on highway and street construction averaged over 72 billion dollars during the first five months of 2006. Nearly all of these services are performed by contractors. State DOTs have been using a variety of experimental procedures to realize speedier contract execution, without the benefit of formal analysis or proof of cost effectiveness. The problem is further complicated by the presence of significant uncertainty about raw material prices and scope of work, as well as informational asymmetry. This research focuses on developing mathematical models to help DOTs evaluate experimental contracting mechanisms in use, optimize contract parameters, and identify contract clauses that divide risk more equitably without increasing moral hazard.