United States Department of Transportation
i
Renegotiation of highway construction contracts : an economic analysis of change orders issued by the Vermont Agency of Transportation, 2004-2009.
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2013-05-01
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[PDF-667.62 KB]
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Abstract:We provide a complete report of our research on change orders and strategic bidding in Vermont over
the period 2004-2009. Our investigation provides the Vermont Agency of Transportation with a
quantitative view of the scope of change orders, and their statistical determinants during this period.
In part one of the report we provide descriptive statistics and figures on the pattern of change orders on
Vermont transportation projects. In part two of the report we provide econometric analysis of change
orders and bidding behavior. Our econometric model focuses on three groups of factors: (1) the
characteristics of the project (type of construction and items required), (2) the characteristics of the
economic environment (e.g., fuel price volatility, macroeconomic conditions), and (3) bidding
environment (the number of characteristics of bidding firms) and strategic interactions. Our analysis
lends support to the hypothesis that bidders act strategically to take into account the possibility of
renegotiation when they submit bids. We model several important strategic considerations in the
analysis of number and size of change orders. In part three we perform simulation exercises to
evaluate whether alternative policies can reduce costs to the public. Finally, we link specific behavior
to strategic manipulation of bids in the face of renegotiation and propose ways to avoid higher costs.
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