Development of a Means to Calculate Project-Specific Liquidated Damages on ALDOT Projects Exceeding $20 Million

Abstract

This research effort sought to create a justifiable means for developing a project-specific liquidated damages (LD) calculation method for high value projects to be adopted by the Alabama Department of Transportation (ALDOT). The procedure outlined is to be used biennially to update the project-specific methodology for LD rates for highway construction projects exceeding $20 million. After conducting a literature review of LDs and other common contract provisions (i.e., incentive/disincentives (I/Ds) and road user costs (RUCs)) a survey was administered to 51 State Highway Agencies to establish a state-of-the-practice regarding the application, development, project staffing requirements, audit and review, and enforceability of LDs, I/Ds, and RUCs. The survey response rate was 88% (45 out of 51). This state-of-the-practice knowledge was taken into account when comparing LD calculation methods from other states to the current ALDOT LD methodology. This report presents a comparative quantitative analysis of three different LD methodologies: 1) a method currently used the Florida Department of Transportation (FDOT); 2) a methodology implemented by the Washington Department of Transportation (WSDOT) and Oregon Department of Transportation (ODOT)); and a project-specific LD calculation model using multiple regression analysis. The multiple regression model, created using IBM© SPSS Statistics, allowed for a list of project-specific factors to consider initially to monitor the sensitivity of including a different number of years in model creation. At the conclusion, the study found a similar LD estimating performance between the WSDOT/ODOT methodology and the multiple regression model, outperforming both the FDOT approach and ALDOT’s current LD estimating practice. Different configurations of the WSDOT/ODOT method and regression model yielded LD estimating accuracy ranging between -12% and +10%, while the accuracy obtained by ALDOT with its current schedule of LDs is around -29%. Likewise, an assessment conducted at the agency-level showed that, with its current LD provisions, ALDOT has only recovered 73% of the additional engineering and inspection (E&I) damages incurrent by the agency due to the late completion of high value projects between 2008 and 2015. Better percent recoveries around 106% and 93% were obtained with the WSDOT/ODOT and regression models, respectively.