Performance contracting is designed to encourage the use of innovative products like temporary signals that adjust automatically based on traffic volume. Photos: Michigan DOT
Performance contracting is designed to encourage the use of innovative products like temporary signals that adjust automatically based on traffic volume. Photos: Michigan DOT
The extra time and materials cost of paving the shoulder was justified by the advantages of keeping two lanes of traffic open throughout construction.
The extra time and materials cost of paving the shoulder was justified by the advantages of keeping two lanes of traffic open throughout construction.

Highways for Life (HfL) is a Federal Highway Administration (FHWA) initiative to encourage innovations in design and construction that will improve pavement quality, increase traffic safety, and extend roadway service life.

One component of the program is “performance contracting,” an approach to bidding and awarding projects in which contractors assume greater risk while gaining increased flexibility and potentially higher profits. At the same time, highway agencies get to communicate specifically what they want to achieve — for example, fewer traffic delays or a longer-lasting overlay — in their projects and hold contractors accountable for agreed-upon outcomes.

A rural rehabilitation project, completed in November in Clare County, Mich., served as a test and demonstration of the process. The rehabilitation covered 5.5 miles, including replacing the superstructure on two bridges, of M-115. Both Michigan DOT (MDOT) and the contractor judge the project to be highly successful.

The project had been designed and planned for construction in 2007, but state budget shortfalls led to its postponement. Around that time, HfL was soliciting inquiries from states interested in proposing pilot projects. MDOT Development Engineer and Project Manager Jack Hofweber thought the program might be a way to move the M-115 rehab forward.

HfL held a workshop on performance contracting in Lansing, Mich., in April 2007, for contractors and MDOT officials and employees to learn more about the concept. Contractors expressed concerns about having enough project control to offset their risk and the need for MDOT to establish clear and reasonable performance goals. Officials were concerned about how susceptible to claims the process would be and how to determine the types of innovation they should allow or encourage. The workshop helped both parties better understand what to expect.

The department applied for and received $1 million in HfL funding for the M-115 project.

MDOT revamped the rehab specifications in accordance with performance contracting guidelines, setting up performance targets in a number of areas before putting it out for bids. Goals included minimum pavement ride quality measurements, a requirement for long-term serviceability, targets for minimizing traffic closures and delays, and protecting the safety of workers and motorists.

Bidders were asked to submit plans for meeting or exceeding each goal and to explain specific innovative steps they'd take to do so. MDOT reviewed and weighted the scoring for each bid to reward innovation and short- and long-term benefits to the traveling public.

Winning contractor Central Asphalt Inc. of Mount Pleasant, Mich., proposed a significant change from the project's original design. The original plan was to remove the existing asphalt top layer, repair any cracks and fill the joints in the underlying asphalt pavement, then place a new surface layer of asphalt.

Central Asphalt, however, opted to rubblize and remove all the existing asphalt before placing the new asphalt. This would increase the initial cost of materials, but reduce the labor involved in joint and crack repairs. Equally important, it would eliminate the possibility of reflection cracks in the renewed surface layer. Required to guarantee performance for five years rather than MDOT's standard three-year materials-and-workmanship warranty, the firm hoped this approach would promote the pavement's longevity.

To reduce traffic delays and enhance the safety of both workers and motorists, the company created a temporary driving lane by paving over an existing shoulder. The extra time and materials cost was justified by the public advantages of keeping two lanes open throughout the project. Traffic continued to flow more smoothly during construction, and with less potential for injuries, than if flaggers had been employed to direct it. Another innovation addressing the same goals was the use of temporary traffic signals that adjusted automatically based on traffic volume.

In reconstructing the two bridge superstructures that were part of the contract, Central Asphalt used precast components rather than casting the concrete in place. That decision sped up construction and contributed to timely completion of the work.

Performance contracting offered flexibility that facilitated the work. “Because we were responsible for the quality of the work and had to provide a five-year warranty for its performance, we did all our own inspections,” says Central Asphalt President Aaron White. “MDOT was more hands-off [than it would be with a more traditional contract], which made our schedule more flexible.”

Central Asphalt earned an incentive bonus for completing the project one and a half weeks ahead of schedule, and White says his team was happy with the way the job came out. “The only snag was in handling field changes,” he says. “Because performance contracting was new to everybody involved, there were some gray areas we had to work out.”

MDOT is prepared to use performance contracting procedures again, even in the absence of HfL funding. “We're already looking to do it again for an upcoming project in Midland,” Hofweber says.

Highways for Life is preparing a report on the project that will summarize the lessons learned and analyze the economic value of the innovations used. The report will be available through the HfL Web site ( in June.

HfL is a discretionary program under SAFETEA-LU, the federal transportation bill that authorized funding for fiscal years 2005 through 2009. According to Nancy Singer of FHWA, funds for additional projects are not available, and future grants will depend on the provisions of new transportation legislation to be crafted later this year. “Regardless of funds, the HfL philosophy of using innovation and performance goals will continue as an important FHWA initiative,” Singer says.

— Kenneth A. Hooker is a freelance writer based in Oak Park, Ill.

Performance-driven paving

Seven questions to raise — and answer — before deciding to hand over the reins.

In performance contracting, the owner agency defines a set of performance goals for a project, without spelling out the means by which the goals must be met. Bidders submit proposals that explain how they intend to meet the goals and at what price. Bids are evaluated not on price alone, but also on the additional value each bidder's plan is expected to provide. The owner agency agrees to a base price for meeting the project goals, as well as bonuses to be paid for exceeding the goals and penalties to be assessed for falling short. The contractor takes responsibility for the quality of the work and provides a warranty to ensure its serviceability.

Performance contracting offers opportunities to try new construction methods and techniques that might otherwise be precluded. The funding offered by the program was designed to help “federal-aid-eligible” projects — essentially, state DOTs — cover potentially higher initial costs and overcome obstacles to innovation.

While the methodology gives contractors more freedom to decide how best to meet the goals of a construction project, other requirements — such as American Association of State Highway and Transportation Officials (AASHTO) standards, Manual of Uniform Traffic Control Devices (MUTCD) guidelines, state DOT policies, and environmental regulations — still apply.

To help determine if performance contracting might be suitable for a particular project, the Federal Highway Administration (FHWA) suggests considering whether the following conditions are met:

  • Both the owner agency and the contractor community support the concept.
  • The project is goal-oriented and the goals are under the contractor's influence.
  • The owner agency is able to use incentives and disincentives.
  • The contractor has flexibility in how to perform the work.
  • The owner agency has adequate resources for both contract development and performance measurement.
  • The owner agency is able to use best-value or enhanced low-bid award processes.
  • There is enough time for contract development and workforce education.

As part of the Highways for Life program, the FHWA has produced the Performance Contracting Framework, a comprehensive guide that explains the concept and how state and local agencies can implement it. The Framework includes recommended processes, lessons learned, and sample materials that were developed with input from both public- and private-sector stakeholders. It's available for free at

Next month: In light of skyrocketing prices, contractors have been pressuring state and local road-building agencies to lower the cost of asphalt pavement by increasing the allowable contents of reclaimed asphalt. We'll report on how agencies are responding.