Jeff Hisem led the review of the meeting agenda (see Appendix A of these minutes). Roundtable Introductions and Items of Interest

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1 AASHTO Technical Committee on Cost Estimating October 2 and 3, 2007 St. Louis, Missouri Meeting Minutes, Work Plan, and Action Items MEETING MINUTES Welcome and Agenda Review Vice Chair, Jeff Hisem of Ohio welcomed the Technical Committee (TC) members. The previous Chair, Frank Csiga of Nevada has retired from Nevada DOT. Maria Burke of Texas and Joseph Weber of New Jersey were unable to attend. Keith Platte represented AASHTO. The TCCE will need to staff the vacant Chair position. Representatives from the following firms and agencies attended as guests during at least part of the TCCE meeting: - Kentucky Transportation Cabinet - Louisiana Department of Transportation and Development - Info Tech - California Department of Transportation (Caltrans) - Georgia Department of Transportation - Maine Department of Transportation Jeff Hisem led the review of the meeting agenda (see Appendix A of these minutes). Roundtable Introductions and Items of Interest John Riedl, Oregon. - ODOT s program is $2 billion. ODOT has been going through a major market adjustment. The biggest issue is the reduction in revenues. Both ODOT and the consultant market are concerned about future work. Washington State DOT s large program has affected the contractor market and inflation. ODOT has cut and modified programmed projects (e.g. instead of replacing bridges 40% of the bridges are now being repaired). This will affect life cycle costs. There is a concern about consultant experience and quality control. Fuel consumption in Oregon is on the decline which affects gas tax revenues. Jim Frick, South Carolina. SC DOT s 7- year bonding program is over and funding has dried up. SC DOT is now paying off the bonds. Fuel prices have gone up and caused an increase in construction costs. The pre-construction section has been reorganized. A Regional Production Group (8) in each region now does the entire preconstruction work, although there still is a Headquarters pre-construction office. All estimating has been consolidated in one group from cradle to grave. SC DOT has expanded contract fuel adjustments (e.g. liquid asphalt, paving, pipe, base work, full depth patching, etc.) SC DOT worked with AGC to determine adjustments. The use of fuel adjustments has

2 probably had a good effect on bids. There is less risk carried by contractors. SC DOT is more into the maintenance business now. Gas tax revenues are now going down a little in SC because people are driving less. Darrell Richardson, Georgia. Georgia has $2.5 billion in lettings. After updating the cost estimates in the program, $7.7 billion in projects had to be removed to keep the program fiscally constrained. After that GA DOT analyzed their project selection and estimate preparation processes, including PPP and D/B. D/B procurements save time and therefore should save on inflation costs. However, if was difficult for GA DOT to get more than 3 bidders. Local Planning Organizations usually underestimate their projects. Unfortunately, when GA DOT makes the necessary adjustment, the DOT is blamed for increases that approach 5 times the original estimate. Fuel consumption in George appears to be leveling off. Roger Bierbaum, Iowa. Iowa has $500 million annual program with currently about $800 million in active contracts. Most of Iowa DOT s work is completed by small construction companies. Iowa DOT usually gets 7 to 9 bidders and procures smaller contracts. There have not been huge price increases on Iowa DOT construction projects. One of Iowa DOT s biggest issues is that out of state construction companies are buying and consolidating smaller Iowa contractors. This will probably have an impact on competition in the future. Current gas tax revenue will probably not be sufficient to fund future needs so Iowa DOT is looking at PPPs. Iowa DOT only uses a contract fuel index for earthwork. This has been used since the late 1970 s. AGC says that the contractors do not want more indices. Tim Quinn, Minnesota. Minnesota has two bonding packages. Minnesota DOT is currently developing 10 year plans and is using 3 to 4 year STIPs. There is over $2 billion in available bonding. The Twin Cities are experiencing growth and congestion. Recently, there has been significant advance construction which has resulted in the State s cash balances being spent down. Minnesota DOT has created a task force to study project uncertainties and manage them throughout the program. Consultants and Universities are looking at the NCHRP Report and Washington State DOT s CEVP. The gas tax in Minnesota is not indexed. The recent bridge collapse cost is $393 million. Design/Build best value procurements was used for the bridge replacement. The contract cost is $30 to $50 million more than estimated. Minnesota is looking for relief funding from local or federal sources in the amount of $250 million. Prior to this D/B contract, Minnesota DOT had previously had 5 D/B contracts. Mike Fowler, Vermont. The Vermont Agency of Transportation (AOT) is a smaller state program, about $300 million per year. State funds are minimal; most of the funding is federal. Most projects are 80% federally funded. VT AOT is using 5 year budgets. Inflation is added at the project level. Maintenance projects are now becoming more prevalent. New construction is becoming less of a priority. Cost estimating is still done by designers using AASHTO s Trnsport software. For asphalt work, 90% of the market share is with one contractor. Contracts in the range of $5 to $10 million have tripled competition and VT has seen better prices.

3 Dave Kent, New York. New York has a new governor a new commissioner and new chief engineer. The DOT is reorganizing. Projecting inflation is becoming a hot topic. New York DOT is focusing process reviews on preliminary and conceptual estimates this year. They are also looking at new estimating software packages and at risk-based estimating. The DOT will probably procure consultant assistance for risk analysis and are currently working with Washington State DOT. Recently a $100 million job in New York City has no bidders and was redesigned to reduce risks. There has been a reduction in bidders throughout New York State. The Tappan Zee bridge project will include light rail and may cost $15 to $20 billion. However, funding has not been identified. Lesly Tribelhorn, Montana. Montana s program is about $300 million per year. Most projects are federally funded. Montana DOT has a 5 to 6 year construction plan. There are still cost increases. Accounting for inflation has been a challenge. Montana DOT includes indirect costs of about 12% on all projects. Montana DOT is also using risk a based approach when evaluating cost estimates. Norie Calvert, Maryland. There is a lot of work going on in Maryland. There are three major projects: Woodrow Wilson Bridge; Intercounty Connector; and the Interstate 95 Express Toll Lanes (which includes the Baltimore Beltway and 2 other interchanges to the Delaware state line). The base realignments at Fort Meade, Bethesda, and Aberdeen Proving Grounds all need roadway and capacity improvements. Maryland is planning on a 10 to 20 cent gas tax increase to fund BRAC and bridge work. Maryland sets the inflation rate for all agencies (including the State Highway Administration) which is now about 3.5% per year. Maryland SHA s goal is to deliver 90% of its published projects with the bids within 110% of the originally funded estimates. Currently the SHA is meeting 64% of its goal. SHA uses a diesel price adjustment for only major projects lasting 2 years or more with major earthwork and paving. Maryland SHA has been using Design/Build procurements for about 10 years. Maryland SHA has seen large increases in environmental costs along with lighting and electrical costs. Maryland SHA is also using risk based assessments when evaluating cost estimates. Greg Davis, Florida. Construction prices in Florida are starting to get back to normal. Florida DOT has about $3.2 billion is lettings and have an average of 4.5 bids per contract. The decline in Florida s housing market has freed up a lot of resources of labor and equipment. Recently, Florida courts revoked mining permits for a large area southern Florida. Mining of limestone and aggregate have stopped 1/3 of mining until new permits can be obtained. This has significantly limited sources by about 25% for limestone and 50% for aggregate. As a result prices are going up on limestone and aggregate related items. Florida will be implementing risk-based estimating. They have set up a pilot workshop for 3 major projects using Golder. Florida DOT has used scope alternates to mitigate high bids without re-letting the project. Florida DOT is also going through reorganization.

4 Jay Drye, Washington State. Washington State DOT s previous secretary is gone. The new secretary is the former Secretary s Chief of Staff. Washington State DOT is at the peak of delivering projects funded with the 2003 and 2005 gas tax increases. Most of the funding is State funded, not federally funded. A tax increase to fund projects for the Puget Sound Regional Transportation Improvement District failed to pass November 2007 ballot. Washington State DOT now uses fuel price adjustments and is focusing on Project Management. One innovative delivery technique used by Washington State DOT is Construction Manager as Contractor. Ryan Griffith, Kentucky. The Kentucky Transportation Cabinet has an annual program of $400 to $700 million. Last year the program was about $1 billion and this year it may be as much as $1.5 billion. The KTC has issued bonds to fund their program. Prices are becoming stable in Kentucky and contractors are relatively busy. If bonds are not issued for the next few years, the program will decrease. Maintenance projects are estimated at $300 to $350 million per year. The Louisville Bridges Project may use the majority of the future funding in Kentucky. Kentucky has a flat gas tax which would need to be increased to fund the Louisville Bridges. In January, the KTC started using Design/Build procurements and currently has 10 projects. Travis Koestner, Missouri. Missouri s program is about $1.2 billion per year but will probably be decreasing in the next few years (e.g. $700 in 2009). Missouri DOT gets good completion and averages 4.7 bidders per letting. Missouri s alternate paving projects get over 5 bidders on average. Some contractors are coming from Iowa. On projects over $20 million, over 6 bidders may respond. Missouri DOT currently has 3 Design/Build contracts. Missouri DOT uses DOT cost based estimating with some minor items using bid based. Most Missouri DOT jobs are federally funded. The Missouri gas tax is 17 cents. Jeff Hisem, Ohio. Ohio starts with a $1.1 billion annual program. Then Jobs in Progress (implemented by the former governor) adds $500 million every year for next 10 years. However, revenue sources did not turn out as expected. Inflation caused last year s program to hit $1.4 billion. For the FY 2007 program, inflation was added at all projects at 11.6%. Ohio River project bids came in at $17 to $18 million over the Engineer s Estimate and $20 million over planning estimates. With the new party in the Governor s office, the Ohio DOT is still waiting on new direction and a chief of staff to appoint assistant and deputy directors. Ohio DOT is taking a strong stand on not awarding projects with high bids. Ohio DOT has been developing a cost index since September 2004 and forecasts inflation every 6 months. Ohio DOT s 5 year program is already $3 billion short (without inflation). Ohio DOT s inflation rates are projected at 10% in FY 08 and FY 09; 8% in FY 10; 6% in FY 11, and 5% in FY 12. Forecasting inflation is becoming an issue in cost estimating. There is a need to identify what credentials do inflation forecasters need in cost estimating.

5 Each TCCE member stated their top three state issues: OHIO: 1. Consistent planning estimates (TOP) 2. Inflation forecasting 3. Analyzing bidding practices NEW YORK: 1. Guidelines for preliminary/conceptual estimating (appropriate contingencies) (TOP) 2. Inflation forecasting (material escalation) 3. Implementing risk-based estimating OREGON: 1. Consolidated estimating software system (TOP) 2. Growing funding gap 3. Market consolidation SOUTH CAROLINA: 1. Develop strong cohesive preliminary estimating program (TOP) 2. Now an executive cabinet agency (no longer legislative) 3. Implementing alternate pipe material program GEORGIA: 1. Updating the tracking of estimates throughout life of project (TOP) 2. Quality control on estimates (training program for estimators) 3. Design/Build estimates (comfort level) IOWA: 1. Long range estimates (TOP) 2. Loss of competition 3. Impact of material cost increases MINNESOTA: 1. Long range estimates (inflation forecasting) (TOP) 2. Scope management (municipal consent law) 3. Field cost supplemental agreement change orders VERMONT: 1. Cost/schedule associated with stormwater mitigation (TOP) 2. Estimating costs for asset management systems (cross, long range) 3. Estimating the value of bituminous concrete millings given to contractors MONTANA: 1. Project budget accountability and cost dieting (TOP) 2. Inflation forecasting (market and material) 3. Questions with funding MARYLAND: 1. Ensuring adequate competition (TOP) 2. Inflation forecasting (market, material) 3. Maintaining consistent project scope FLORIDA 1. Cost risk analysis (TOP) 2. Cost based estimating 3. Construction cost estimating performance measures WASHINGTON: 1. Real estate acquisition costs (TOP) 2. Environmental mitigation costs 3. Conceptual/planning level estimates KENTUCKY: 1. Lack of competition (TOP) 2. Design/Build estimates 3. Bid review MISSOURI: 1. Funding (TOP) 2. Need major bridge contractors 3. More innovative contracting methods for design/bid/build projects Notes: Preliminary means 0 to 5% in WA; and 0 to 90% in SC. Appropriate contingency use may be included in the risk issues or the guideline issues.

6 Status Report of Action Items/Goals from 2006 Portland, Maine Meeting (See Agenda in Appendix) Bullet 1 The first three estimating chapters have been posted on the AASHTO website for review. Once the next three estimating chapters are posted, all 6 chapters will be submitted for balloting and publication. Bullet 2 Ryan Griffith (Lead), Travis Koestner, and Tim Quinn will review all definitions in the first three chapters for consistency. They will provide any recommended revisions to the TCCE. The will also check for consistency with the definitions in the NCHRP 574 Report. *DUE DATE December 1, 2007* After the next three chapters are developed this group will review those definitions for consistency, too. See Bullet 3. Bullet 3 The review draft for the next three chapters in the Guide will be developed as follows: Chapter 1 - Parametric Estimates (Mike Fowler, Lead). The first review draft will be distributed to the TCCE for comments. *DUE DATE January 31, 2008* Chapter 2 Probabilistic Cost Estimating (Jay Drye, Lead). The first review draft has been sent out with no comments received to date. There are still some minor revisions to be completed. The second review draft will be distributed to the TCEE for comments. *DUE DATE November 30, 2007* Chapter 5 Inflation Forecasting (John Ridel, Lead) There is more work needed (economic) for chapter 3. The draft needs to be adjusted based on the intended audience. The chapters 1 and 2 may also need restructuring. There are still issues to be resolved with Jeff Hisem s group. The first review draft will be distributed to the TCCE for comments. *DUE DATE February 28, 2008* The TCCE will have 2 months to review and comment on all drafts. Please e- mail all comments or if no comments, a negative response. The Lead for each Chapter will manage revisions. Then each Lead will send the Chapter to Ryan Griffith and Tim Quinn for formatting. Then the three Chapters will be combined with the initial three chapters and posted on the TCCE website by Keith Platte. Ryan Griffith and Tim Quinn will own the Word files for the documents and send PDF files to the TCCE. For the initial three Chapters, the TCCE should encourage other states to take a look and give comments. Comment pages should be included on the website that includes contact information and how and where to send the comments. The comments should be sent to the Chair and Vice Chair. They will forward it to the appropriate person.

7 Bullet 4 The TCCE should incorporate the findings of NCHRP Report 574 where appropriate during the review of all Chapters in the Guide. Bullet 5 Completed. The 2007 TCCE Work Plan was submitted to the Subcommittee on Design Bullet 6 Completed. The agenda is included in Appendix A. Bullet 7 Completed. Meeting invitations and agenda were sent out. Bullet 8 Completed. There were no FHWA Cost Estimating Training Classes in NHI is developing this class and will conduct its second pilot on October 9 and 10 in Los Angeles, at Caltrans District offices. After that, the class will be included in the NHI catalog. Bullet 9 Completed. FHWA sent out a draft of the minimum standards for review to the TCCE. Bullet 10 Completed. A short briefing on work of the TCCE was given at the Subcommittee on Design meeting in June The response was that the TCCE work is welcome. Bullet 11 Two NCHRP 20-7 Research Proposals will be developed and submitted by the end of January 2008 so it can be submitted prior to the AASHTO Spring Meeting in May Price Indexes (Mike Fowler, Lead). 2. Contractor Competition (Tim Quinn, Lead; Roger Bierbaum, Ryan Griffith, Jack Young (guest Caltrans), and Keith Platte). This proposal is to create a synthesis of best practices and methods to maximize competition. This could include strategies involving packaging projects, scheduling lettings, sizing projects, programming, construction scheduling. AASHTO may have survey and research data. Each TCCE member provided information on cost estimating guidance in each state Minnesota Minnesota s guidance is under development. It will include procedures and policy on when and how estimates are prepared. The result will be a training and policy manual. Minnesota DOT will be working with the Center for Transportation Studies and consultants. This should assist with estimates in the STIP and 10 year plans. South Carolina Clemson University is currently conducting research for South Carolina DOT. The final report will contain best practices on developing Engineer s Estimates.

8 Montana Montana has an interim guide that promotes estimate consistency from planning through design. Missouri Missouri has a basic estimating manual and also has a 2 hour training course on project scoping. Once this TCCE finishes its Estimating guidance, Missouri will probably adopt that. Washington State Washington State DOT has a 25 page document and has developed a 2 day class and notebook. Currently, estimating quality assurance and quality control is the biggest issue. Ohio Ohio s planning estimates are released to the public, however official engineer s estimates are not. Ohio DOT has guidelines for parametric and planning estimates are on its website. Right now guidance for official estimates is about 2/3 complete, but will not be posted on the Internet. FHWA has asked for a process review for estimating from the plan file until sale. This may result in another set of how-to documents. Also, succession planning is an issue. Ohio s current estimators have a lot of experience but once they are gone, a manual will be needed for future hires, especially now that there is more and more scrutiny on cost estimates. Oregon Oregon DOT has draft guidance, but nothing has been official adopted. Oregon will probably follow the guidance that will be prepared by this TC. Georgia Georgia has no guidance and will probably follow the guidance that will be prepared by this TC. Iowa Iowa is waiting on the guidance that will be prepared by this TC. Vermont Vermont is waiting on the guidance that will be prepared by this TC. New York Guidance for estimating bridge costs is on the New York DOT web site. There is also internal guidance regarding bid evaluation. Some regions have preliminary estimating guidance their regional websites. Maryland In Maryland, all estimates are prepared by designers. The Project Engineer will then pull all the estimates together. Maryland SHA does have a guidance document and it is updated every year. The cost estimating manual is internal and not posted on the Internet, but can be posted on the AASHTO Website if desired. Florida Florida is waiting on the guidance that will be prepared by this TC. Kentucky In Kentucky, there is one central office that prepares Engineer s Estimates. After a recent review, it was determined that a cost estimating manual is needed. Work has started but is currently on hold.

9 GOALS: Goal 1: Should there be an additional chapter the TCCE guidance? Examples could be: Tracking estimates and tracking performance by using measurements and benchmarks. Using Quality Control/Quality Assurance procedures. Comparing as-bid to as-built costs and identifying design, or construction administration issues. Program level vs. project level estimates. Construction scheduling. When reviewing the TCCE guidance members should make sure scheduling is covered. Real Estate costs. The second part of the NCHRP report is to look at right-of-way costs. The TCCE should have follow this and be ready to review it when it comes out, which may be around March The report will be on taking and damage costs, but there will be no discussion on forecasting. The results of this NCHRP report could be summarized in a chapter of the TCCE guidance. Goal 2: This goal will be put on hold until FHWA proceeds with establishing minimum standards for cost estimating Goal 3: Assistance could be for the Technology Transfer reviews (e.g. Bridge Deck Material Practices) or for Accelerated Construction Technology Transfer workshops and peer reviews. OTHER ISSUES (What s important?): A forum is needed to involve all States, including those not represented on the TCCE regarding cost estimating issues. How can the TCCE do that? How can the TCCE get all states included? By acclimation, the TCCE recommends Lesly Tribelhorn as the next chair. David Kent will serve as Vice-Chair. The TCCE has 3 vacancies (one from Region 1 and two from Region 4). Appendix B for these minutes is the presentation made by Missouri DOT during the TCCE meeting on Highway Construction Costs.

10 Potential Future Issues: How to preparing for an Audit. There are different types (e.g. formal, casual, internal, external, etc.). The best way to prepare is to follow written guidelines and document what you are doing. What are the effectiveness of price indices used by the State DOTs and FHWA ( )? Oregon is currently studying price indices, including the FHWA Technical Advisory. At this time, FHWA has no plans to modify the TA. RESEARCH PROPOSALS 20-7: At the TCCE meeting it was decided that Mike Fowler will finalize his proposal for a Price Index study to be submitted before the Spring Annual Meeting in May Another proposal for maximizing contractor competition should also be prepared. Both proposals should be completed for TCCE review prior to the end of January SUMMARY OF ACTION ITEMS: Ryan Griffith (Lead), Travis Koestner, and Tim Quinn will review all definitions in the first three chapters for consistency by December 1, 2007 The review draft for the next three chapters in the Guide will be developed as follows: o Chapter 1 - Parametric Estimates (Mike Fowler, Lead) by January 31, 2008 o Chapter 2 Probabilistic Cost Estimating (Jay Drye, Lead) by November 30, 2007 o Chapter 5 Inflation Forecasting (John Ridel, Lead) by February 28, 2008* After review, each Lead will send the Chapter to Ryan Griffith and Tim Quinn for formatting. Then the three Chapters will be combined with the initial three chapters and posted on the TCCE website by Keith Platte. Two NCHRP 20-7 Research Proposals (Price Indexes and Maximizing Contractor Competition) will be developed and submitted by the end of January 2008 so it can be submitted prior to the AASHTO Spring Meeting in May Jeff Hisem will work with Keith Platte to have a TCCE Chair approved by AASHTO quickly.

11 Keith Platte will inform TCCE members that absences for two consecutive years impact the ability of the TCCE to complete its work. Keith Platte will send an to Standing Committee on Highways, Subcommittee on Construction and Subcommittee on Design to notify them about the estimating Guide posted on the TCCE website and the availability of the ListServ. Keith Platte will then send a follow up asking if the Guide was used and if there are any questions, comments for ideas for improvements. Jeff Hisem will make a similar announcement at the TEA Conference. Each TCCE member is encourage to share State cost estimating guidance and have it posted on the TCCE website. Links or documents should be sent to Keith Platte. Jim Sinnette will send a draft survey to TCCE members by October 31, This survey will be for the FHWA Division Office and the State DOT. Some sample questions are: o Are you aware of the TCCE Guide? o Would you use the TCCE Guide to assist in creating your own practices? o Would you use the TCCE Guide as State guidance? o Do you have a formal cost estimating process? o If so, can you provide manuals and internet links? o Do you use performance measures for your estimating process? o What do you consider best practices in cost estimating? o What are your needs regarding cost estimating? Each TCCE member should obtain estimating contacts for states in your region. Use these contacts to let them know what is coming from the TCCE and let them know about the TCCE website. Keith Platte will provide Chief Engineer/Construction Engineer/Design Engineer and Subcommittee on Design member contact information. The TCCE should maintain this list of contacts. Keith Platte will provide a RAP report to the TCCE. Keith to check on the R/W Committee AASHTO to see if there is a study on R/W. TCCE members who are interested in participating on the John Ridel s Task Force on the integration of the Transport estimating modules should provide resumes in response to his . Jim Sinnette will draft a policy regarding the creation of a peer review team to conduct cost estimate reviews for review by the TCCE.

12 The TCCE is prepared to review the second part of the NCHRP Report 574 regarding right-of-way costs. Develop draft agenda for next year s TCCE meeting. Develop Draft TCCE 2008 Work Plan.

13 APPENDIX A AGENDA

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17 APPENDIX B Missouri DOT Presentation on Highway Construction Costs

18 Highway Construction Costs Natalie Roark, P.E. MoDOT An Overview of Highway Construction Cost Conference

19 Highlights Sponsored by FHWA, AASHTO, AGC and ARTBA September 11, 2007 Hilton St. Louis Airport Construction Industry Federal Agencies State DOTs Consultants

20 Highlights Industry Economists presented forecasts about construction costs. State DOTs presented steps to mitigate construction cost increases. Construction Industry identified practices that impact overall costs.

21 Economic Outlook Ken Simonson, Chief Economist of AGC 2004 to 2006 runaway materials costs Prices have slowed or even reversed, but not for long By end of 2007: materials costs 6 to 8% rise wages 5% rise

22 Economic Outlook Ken Simonson, Chief Economist of AGC Materials: next 3 to 6 mos. Falling Prices: wood, gypsum, plastics Rising Prices: diesel, asphalt, copper

23 Economic Outlook Ken Simonson, Chief Economist of AGC Why High Material Costs? Same Types of Materials required on given job Same materials in demand worldwide (China, Asia, India) Shipping rates rising

24 Economic Outlook Ken Simonson, Chief Economist of AGC 2007 Summary 2008 Summary Total Construction Spending: -6% to 3% Residential: -15% to 20% Non-residential: +10 to 15% Material cost: +3% to +5% Labor costs: +4.5% to 5.5% Total Construction Spending: +1.5% Residential: +1% to 3% Non-residential: +3 to 7% Material cost: +6% to +8% Labor costs: +5% to 6%

25 Summary Economic Outlook Ken Simonson, Chief Economist of AGC Construction costs slowed at end of 2006, but short-lived More increases expected as economic growth continues in U.S. and Asia High material prices b/c of strong demand for like materials

26 Economic Outlook William Buechner, VP for Economics and Research ARTBA Highway Construction Labor and Overhead up 27% since 2003 Material Costs up 43% since 2003

27 Economic Outlook William Buechner, VP for Economics and Research ARTBA Gas Tax 18.3 cent Gas tax not raised since 1993 Rising Highway Construction costs reduced purchasing power 2007 equivalent would have to be 28.8 cents

28 Economic Outlook William Buechner, VP for Economics and Research ARTBA Guaranteed Funding and Earmarks Anticipated Guaranteed Funding for FY09 w/ avg. 4.4% increase per year: $41.9B Guaranteed Funding after effects of Hwy Cost inflation: $34B $10B of unobligated funds for FY07

29 Economic Outlook William Buechner, VP for Economics and Research ARTBA Highway Account Balance -$4.3B HA balance projected for FY09 $27B vs. $42B for FY09 due to increased hwy construction costs

30 Economic Outlook William Buechner, VP for Economics and Research ARTBA Summary Federal Hwy funding due to SAFETEA-LU has barely covered higher costs State DOTs shouldn t expect any additional funding in FY08 Federal Hwy funding for FY09 even lower

31 Asphalt & Diesel William H. Haveland, Conoco Phillips Company, Houston, TX World Crude Oil Production: 85MMB/D World Crude Oil Reserves: 1,292 BB Demand has risen 9% since 2002 Demand at 98% of world daily delivery capacity Vulnerable to supply disruptions caused by storms, accidents, breakdowns, political unrest

32 Asphalt & Diesel William H. Haveland, Conoco Phillips Company, Houston, TX 2005 U.S. Product Demand MB/D Gasoline: 9,000 Diesel: 4,000 Jet Fuel: 1,800 Asphalt: 500

33 Asphalt & Diesel William H. Haveland, Conoco Phillips Company, Houston, TX Refineries Last new U.S. refinery built in 1976 In 2006: 131 U.S Refineries No. of Asphalt Refineries decreased 42% from 2000 to 2006 No. of Coking refineries increased 13% from 2000 to 2006

34 Asphalt & Diesel William H. Haveland, Conoco Phillips Company, Houston, TX Coker Production Gasoline Jet Fuel, Kerosene No. 2 Oil Very Little asphalt or No. 6 Oil

35 Asphalt & Diesel William H. Haveland, Conoco Phillips Company, Houston, TX Coking Economics Gasoline/Diesel Pricing Aug 07: $95/ BBL Less Distribution: 6/BBL Net: $89/BBL KC Asphalt Pricing Aug 07: $54.50/BBL Less Distribution: 7.15/BBL Net: $47.35/BBL Lost Value of Asphalt vs. Gasoline: $41.65/BBL

36 Asphalt & Diesel William H. Haveland, Conoco Phillips Company, Houston, TX Coking Economics $874,650 per day added margin for Coker Refineries 3.1 years Pay-off for Coker Refineries Initial investment somewhat higher refining cost result more profit

37 Asphalt & Diesel William H. Haveland, Conoco Phillips Company, Houston, TX Summary Crude production at maximum rates based on existing infrastructure U.S. Refining at maximum capacity No new refineries in near term Asphalt has to be more competitive with light products Asphalt has to trend faster with crude oil prices

38 Steel Matthew Habenicht, Mittal Steel, PA Raise in Prices w/ China s Economic Development Scrap Prices Up Plate Prices have been stable, but demand going up through 2010 High Performance Grade Steel available in 45 States: 5 to 10% Reduction in Cost

39 Aggregates Dave Smith, Martin Marietta, Raleigh, NC 3% Growth Rate of Materials Needed for Southern States Significant Barriers to Entry (Permits, etc.) Higher Investment Requirements Greater Shipping Distances

40 DOT s s Perspective Dananth K. Prasad, P.E., Chief Engineer, Florida DOT Statewide Average Prices Earthwork: $5.55/cuyd ( 34.1%) Asphalt: $97.04/ton ( 7.1%) Structural Concrete: $630.02/cuyd ( 31%) Structural Steel: $2.16/lb ( 4.4%) Reinforcing Steel: $0.90/lb ( 9.1%)

41 DOT s s Perspective Dananth K. Prasad, P.E., Chief Engineer, Florida DOT Steps to Mitigate Construction Costs Optimize Contract Scheduling Better Manage Risk w/ Materials Availability Flexible Design and Engineering Contract Scope and Length

42 DOT s s Perspective Kevin Keith, P.E., Chief Engineer, Missouri DOT Statewide Average Prices 80.0% Percent Increase in Price of Steel, Concrete, Asphalt (compared to 2003) Percent 70.0% 60.0% 50.0% 40.0% 30.0% 29.6% 56.6% 38.4% 29.6% 62.7% 52.7% 42.3% 20.0% 10.0% 0.0% -10.0% 13.3% 0% Calendar Year Pavement Concrete (per cubic yard) All Mixes Asphalt (per ton) Reinforcing Steel (per pound)

43 DOT s s Perspective Kevin Keith, P.E., Chief Engineer, Missouri DOT Cost Saving Techniques Practical Design Value Engineering Performance Plus Alternate Bidding

44 DOT s s Perspective Thomas Boshuslav, Texas DOT Cost Saving Techniques Cost Control Report developed in October 2006, Savings for : Maintenance Pavement Structures Markings Competition

45 Wrap-Up Session Build what you need; not what you want and be safe Alternative Bids; let market determine costs Do more standardization of specs for cost savings Scheduling flexibility; time is money

46 Wrap-Up Session Flexibility with completion dates & understand night work is expensive Liquidated damages cost the DOT s Constructability Reviews are good; get contractor input early. Look at entire program for budgeting; not just one project

47 Contact Information Highway Construction Cost Increases and Competition Issues Web Page contracts/price.cfm