Unit Price or Lump Sum? A Stochastic Cost-Based Decision-Making Tool for Design-Bid-Build Projects

Abstract

The appropriate selection of procurement tools and strategies is a key factor in the successful completion of construction projects. Despite the increasing use of alternative project delivery methods by the public agencies, the traditional design–bid–build (DBB) approach is still the most used and accepted project delivery method in the US. The purpose of this study is to present an innovative tool that introduces an objective criterion into the selection of resurfacing projects for design–bid–build —lump sum (DBB-LS) projects. This criterion consists of a comparison of the stochastic construction cost estimate for a candidate project if procured under DBB-LS versus its stochastic cost estimate if a unit price (UP) approach is used. The proposed decision-making tool was developed using non-linear regression techniques, Monte Carlo Simulation, and data from 86 resurfacing projects completed by the Florida Department of Transportation (FDOT) between January 2015 and March 2017: 63 UP and 23 LS projects. To facilitate the use of the tool by decision makers, the mathematical functions involved in the cost comparison between these two approaches have been comprised into a nomogram, allowing a quick approximation of the probability of having a lower cost under each compensation approach and the potential savings or extra costs of using an LS provision. The nomogram also allows the estimation of potential LS cost implications under different confidence levels, providing FDOT with the ability to make decisions at different levels of risk.