For this segment of The Transportation Facts, we discuss the various contracting methods that are being used by owner agencies (often the state and local governments) and contractors in Michigan. We often hear the term “innovative contracting,” but there is little known outside the industry of what that actually means. In Michigan, several different contracting methods are used to ensure the most efficient use of infrastructure dollars as possible.

Owner agencies dictate the method used for each project. The vast majority of projects coordinate bids through a design, bid, build contract. In this delivery method, the owner — which for state highways would be the Michigan Department of Transportation (MDOT) — designs a project and puts it out for bid to pre-qualified contractors to quote. The department then accepts the lowest qualified bid, and agency and contractor move forward with the construction process.

MDOT, as well as other owner agencies, can also decide to deliver projects through additional contracting methods. Michigan has built projects under design/build, design/build/finance, design/build/finance/maintain, construction manager/general contractor (CMGC) and Public Private Partnerships (P3s). Under these types of projects, the owners, the engineering consultants and the contractors work together on the design.  On a handful of projects, financing from a private entity has been utilized. However, just like any other transaction where financing is made available, the principal plus interest must be paid off, and thus this method is considered to be similar to bonding and so is used on a limited basis.  These methods are typically used for specialty projects or those with high price tags.

There are many different “tools in the toolbox” for road agencies to use at the appropriate times. Not all delivery methods will produce cost savings in every situation, either.  Typically the methods listed are chosen for a variety of reasons like timing to get the project started or construction complexity.  Engineering consultants, contractors, and owners (who all know the existing conditions of a project and have knowledge of all potential variables that exist), are the proper authorities to make these delivery method decisions.