What's the Best Delivery Method for Road Projects?

In an article entitled in Financial analysis of road project delivery systems, 14 Journal of Financial Management and Construction 61 (2009), two authors from the VTT Technical Research Centre of Finland, Pertti Lahdenpera and Tiina Koppinen, expanded on an earlier study they performed to identify the most cost effective manner to commission a road.  In the earlier study, the authors did not consider financing issues, including the option to use private-financing; in the instant study, they did.

The authors analyzed five different delivery methods:  Construction Management-Agency ("CMA"; a.k.a. CM-at-fee or CM-not-at-risk), Design-Build ("DB"), Design-Bid-Build ("DBB"), and Design-Build-Operate ("DBO") and Design-Build-Finance-Operate ("DBFO" -- a form of public-private partnership or P3).  Interestingly, especially given some of the conclusions, the authors did not consider CM-at-risk, where, unlike CMA, the construction manager is contractually obligated and responsible for delivering the project.

The authors utilized a DCF or Discounted Cash Flow analysis to determine and compare the various project delivery methods' present costs.  They considered the cost to the owner and the cost to society, the latter including an estimate of €1 million for each month of delay in commissioning a road.  Among other various assumptions and estimates, they excluded taxes and assumed all work was out-sourced.  The assumption that all services are out-sourced raises an interesting question of whether a comparison of CMA, DBB, and DB with operation and maintenance being performed in-house changes the outcome.  The authors also performed sensitivity analyses to determine what impact a change in estimates had on a procurement's present costs (e.g. a change in interest rates).

Based on the results, the authors ranked the procurement methods where public financing is used.  DBO was "clearly" the most efficient in terms of an owner's costs, followed in order by DB, CMA, and DBB (i.e. DBB costs the most).  DBFO's competitive position was not absolutely clear, but it seemed to be in the middle with DB and less costly than DBB and CMA.  With CMA being the fastest to commissioning, the need for early commissioning can render CMA superior to DBFO.  Not surprisingly, the authors further found that DBFO was affected the most when performing sensitivity analyses; changes in assumptions affected the others in a similar fashion.    

With austerity measures necessarily in place in many regions of the world, one must wonder if DBFO will become more prevalent for commissioning roads than DBO and other procurement methods notwithstanding DBFO may according to this study be more expensive.