REPORT
DIGEST

 

Management Audit
of the

ILLINOIS DEPARTMENT OF TRANSPORTATION’S ROAD CONSTRUCTION PROGRAM

 

Released: May 1998

 

 

 

 

State of Illinois
Office of the Auditor General


WILLIAM G. HOLLAND
Auditor General


 

 

Iles Park Plaza
740 East Ash Street
Springfield, IL 62703
(217) 782-6046
TDD: (217) 524-4646

 

SYNOPSIS

Legislative Audit Commission Resolution 111

LAC Resolution Number 111 directed the Auditor General to conduct a management audit to determine whether costs paid by the Illinois Department of Transportation (IDOT) for roadbuilding materials are comparable with costs paid by other midwestern states, why there are cost differences, and whether changes in IDOT’s procurement methods are warranted. Based on a review of calendar year 1996 data for Illinois and six other midwestern states (Indiana, Iowa, Kentucky, Missouri, Ohio, and Wisconsin), we found:

  • IDOT’s average unit costs for selected pay items were higher than other midwestern states’ average unit costs for 9 of 10 major roadbuilding pay items examined, including excavation, asphalt, and portland cement concrete.
  • Factors contributing to these cost differences included Illinois’ higher labor costs, limited availability of certain materials, differences in project requirements, and differences in cost reporting among the states.
  • A lack of competition also resulted in higher roadbuilding costs in Illinois. Award amounts for IDOT’s 106 single bid contracts in 1996 averaged 0.64 percent above IDOT’s estimated cost, while 783 multiple bid contracts averaged 10.88 percent below the estimated cost. If the single bid contracts had come in at 10.88 percent below the estimate (as occurred on multiple bid contracts), the award amount would have been reduced by $8.9 million.
  • The accuracy of cost estimates, which serve as the benchmark to determine whether a project will be awarded, could be improved. Fifty-four percent of IDOT’s estimates were not within 10 percent of the low bid. There were also wide variations between IDOT districts.
  • Although IDOT’s process for receiving, opening, and recording bids is generally well controlled, some changes could make the process stronger, such as discontinuing the practice of publishing the list of potential bidders prior to the bid opening date, increasing the number of lettings, and centralizing the collection of bids.

This audit makes 12 recommendations to help control roadbuilding costs through the procurement process. IDOT fully or partly concurred with all of the recommendations.

 











































































In 1996, IDOT awarded 889 road construction contracts for a total contract of $896 million.


REPORT CONCLUSIONS

The Illinois Department of Transportation (IDOT) is responsible for constructing the State’s highway system. IDOT uses contractors for most road construction activities. In 1996, IDOT awarded 889 construction contracts for a total contract amount of $896 million. We compared IDOT’s roadbuilding material costs with those of six other midwestern states: Indiana, Wisconsin, Iowa, Missouri, Kentucky, and Ohio. Comparison of unit costs between states is complex because of a variety of factors.

We found considerable variations in the unit cost of selected pay items reported by IDOT and the other six states reviewed. A pay item is comprised of several types of costs, including labor, materials, equipment, and contractors’ overhead. In general, IDOT’s pay item unit costs were higher. For example, Illinois’ unit cost for a ton of surface course asphalt was almost 30 percent higher than the average unit cost reported by the other states. Illinois’ unit cost for a square yard of portland cement concrete pavement was 17 percent higher than the other six states’ average. In contrast, IDOT’s unit cost for structural steel was 12 percent below the average paid by the other states.

There are a number of factors which contribute to these cost differences. In general, Illinois’ highway construction labor costs were higher than other midwestern states. Other factors, such as selected higher material costs, labor practices, quantity of the pay item purchased, and differences in project requirements, also affect Illinois’ pay item unit costs.

States also report costs differently which accounts for some unit cost differences. For example, Illinois includes certain costs in selected pay items, such as mobilization and quality control/quality assurance, which some other states report separately.

The amount of the cost differences attributable to these factors is difficult to project because of the varying nature and composition of pay items, size and type of the projects, and ways in which contractors structure their bids.

There are, however, several factors related to IDOT’s contracting process that may also contribute to Illinois’ higher costs. While the number of contracts IDOT awarded to single bidders has decreased from 18 percent in the period 1987 through 1991 to 12 percent in 1996, further improvement is warranted. For all contracts awarded in 1996, when there were multiple bidders, the award amount averaged 10.88 percent below IDOT’s estimated cost for the project. When there was only one bidder, the award amount averaged 0.64 percent above IDOT’s estimate. If the single bid contracts had come in at 10.88 percent below the estimate (as occurred on multiple bid contracts), the award amounts would have been $8.9 million less.

IDOT’s current efforts to increase competition are limited. For example, IDOT does not routinely contact companies that received bid authorization but did not bid to determine why they did not bid. Also, while IDOT has general guidelines to govern its award decisions, it has not developed formal award policies or procedures, such as when to rebid a project if all proposals exceed the State’s estimate. We reviewed 43 projects rebid by IDOT in 1996. When these projects were rebid, the new low bid total ($21.2 million) was 8 percent lower than the original low bid total ($23.1 million), yielding a savings of $1.9 million. In 31 of the 43 projects, the original low bidder submitted an even lower bid when the project was rebid.

Other aspects of IDOT’s contracting process which may limit competition include publishing the names of contractors authorized to bid and releasing project estimate amounts after the bid opening. Both practices provide contractors with information they can use to limit competitive proposals.

Finally, the accuracy of IDOT’s project estimates could be improved. We found wide variation in the accuracy of estimates by IDOT district. Forty-six percent of IDOT’s estimates were within 10 percent of the lowest bid in 1996. Project estimates serve the critical role of controlling contract award amounts.

IDOT’S ROAD CONSTRUCTION PROGRAM

The Illinois Department of Transportation is responsible for constructing the State’s highway system. IDOT uses outside contractors for most roadbuilding activities. Digest Exhibit 1 summarizes road construction contracts by IDOT district. During calendar year 1996, IDOT awarded 889 road construction contracts totaling $896 million. Just over 40 percent of all the contract dollars awarded were for projects located in IDOT District One (Cook & surrounding counties). (Report pages 3-6)

Digest Exhibit 1
CONTRACTS BY IDOT DISTRICT
Calendar Year 1996

 

District

Number
of
Contracts

% of Total
Contracts

% of
Total
$

Total
Award

1

201

22.61% 40.29% $361,088,343

2

128

14.40% 10.25% $91,871,619

3

92

10.35% 8.81% $78,973,269

4

78 8.77% 6.60% $59,146,039

5

68 7.65% 6.19% $55,498,488

6

93 10.46% 10.16% $91,091,115

7

74 8.32% 3.90% $34,992,823

8

103 11.59% 8.89% $79,671,829

9

47 5.29% 4.62% $41,412,250

Statewide

5 .56% .28% $2,543,219

Total

889 100% 100% $896,288,995
Note: Percentage totals may not add due to rounding
Source: OAG analysis of IDOT data



In 1996, Illinois' average unit costs were higher than other midwestern states in 9 of 10 categories compared.


 

 

 

 


Many factors contribute to differences between the unit cost of road construction pay items, such as higher labor costs in Illinois, differences in project specifications, and diffrences in cost reporting.











The amount of competition for road contracts affects construction costs.



ROADBUILDING MATERIAL COSTS

Digest Exhibit 2 shows that when comparing calendar year 1996 statewide average unit costs for the most used road construction materials, Illinois’ unit costs were higher than the average of the other midwestern states in 9 of 10 categories compared, including excavation, asphalt products, reinforcing steel, and concrete products. For example, Illinois’ unit cost for a ton of surface course asphalt was almost 30 percent higher than the average unit cost reported by the other states. Illinois’ unit cost for a square yard of portland cement concrete pavement was 17 percent higher than the other six states’ average. In contrast, IDOT’s unit cost for structural steel was 12 percent below the average paid by the other states.

A comparison of individual projects also found that Illinois’ unit costs per pay item were generally higher than the unit costs paid by other states. Unit costs for roadbuilding pay items also varied within regions of Illinois. (Report pages 13-39)

REASONS FOR VARIANCES IN ROADBUILDING COSTS

Many factors contribute to differences between the unit cost of road construction pay items in Illinois and other midwestern states. Unit costs are based on the average of all low bidders’ costs and include not only material costs but also job-specific costs such as labor and equipment. Because each road construction job is unique, the unit costs for individual projects may vary considerably.

The notes to Digest Exhibit 2 address factors affecting pay item average unit costs. IDOT has limited control over some factors, such as the generally higher labor costs in Illinois (e.g., higher prevailing wage rates, labor practices, and workers’ compensation rates).

Other cost variables include whether the project is in a predominantly urban or rural area, the amount of competition in the area, the quantity of each material used in the project, the availability and quality of materials, differences in cost reporting among states (such as whether mobilization and quality control/quality assurance costs have separate pay items or are included as part of other pay items), differences in project requirements, and varying legal requirements among states. (Report pages 41-54)

COMPETITION FOR ROAD CONTRACTS

The amount of competition for road contracts affects construction costs. While the number of contracts IDOT awarded to single bidders decreased from 18 percent in the period 1987 through 1991 to 12 percent in 1996, further improvement is warranted. Single bid contracts awarded in 1996 had significantly higher award amounts relative to IDOT’s estimate than did multiple bid contracts.

Digest Exhibit 3 shows that the award amount for IDOT’s 106 single bid contracts in calendar year 1996 averaged 0.64 percent above IDOT’s estimate, but the 783 multiple bid contracts were 10.88 percent below IDOT’s estimate. If single bid contracts had come in at 10.88 percent below the estimate, the total amount awarded would have been reduced by approximately $8.9 million.

Single bid contracts were generally concentrated in IDOT Districts 3, 5, and 7. These districts are located in eastern Illinois along the Indiana border.


Digest Exhibit 2
COSTS OF SELECTED CONSTRUCTION MATERIALS
ILLINOIS AND OTHER MIDWESTERN STATES
(see notes on back)


FACTORS AFFECTING PAY ITEM AVERAGE UNIT COSTS SHOWN
IN DIGEST EXHIBIT 2

The differences in average unit costs by specific pay item shown in Exhibit 2-4 can be attributable to a number of factors. A pay item is comprised of several types of costs, including labor, materials, equipment, and contractors’ overhead. There are many factors which impact pay item costs reported by the various states. For example, Illinois generally has higher labor costs than the other states. Consequently, the higher cost of labor in Illinois can increase IDOT’s pay item unit costs versus those in other states. Other factors which impact costs include:

  • Higher workers compensation rates in Illinois
  • Work rules and local preference requirements regarding the staffing of road projects
  • More strict project requirements and specifications
  • Inability to obtain high quality aggregate from local supplies, thereby requiring more costly transport of this material
  • Quantity of a pay item used on a project

The amount of cost differences attributable to these factors is difficult to project because of the varying nature and composition of pay items, size and type of projects, and ways in which contractors structure their bids.

There were also differences in pay item reporting between Illinois and the other states reviewed. For example, Illinois does not separate mobilization costs from its pay items, which other states report separately. Consequently, the cost for some IDOT pay items may be higher because of the inclusion of mobilization costs. Other differences identified based on our review and a recent survey conducted by IDOT included:

Surface Course and Binder Course Asphalt: Unit costs for Missouri and Wisconsin exclude aggregate certification costs (about $1.00 per ton in Illinois). Also, Wisconsin unit costs for surface course asphalt exclude QC/QA (estimated at $1 - $2 per ton). Conversely, Illinois unit costs do not include anti-strip costs whereas Kentucky and Missouri unit costs do (estimated by IDOT at about $0.65 per ton).

Base Course Asphalt: Illinois uses base course asphalt primarily for temporary roads, side streets, or detour roads which can be a more costly use than new construction, according to IDOT.

Portland Cement Concrete: Unit costs for Indiana exclude the cost of sealing contraction joints. Indiana, Iowa, Kentucky and Missouri unit costs exclude subgrade preparation. Conversely, Illinois unit cost does not include QC/QA costs whereas Kentucky unit costs do. In addition, the thickness of the portland cement pavement varied among the states, with Illinois’ 9 inch pavement being the thinnest of the states reviewed.

Structural Concrete: Unit costs for Indiana, Iowa, Missouri, and Wisconsin exclude parapet costs; Missouri also excludes sidewalk costs. Kentucky and Wisconsin unit costs exclude the cost of protective shields. Conversely, Illinois unit cost does not include admixtures whereas the Iowa unit cost does. Also, Illinois unit cost does not include QC/QA whereas Kentucky and Ohio unit costs do.

Earth Excavation: Illinois unit costs for excavation include the costs of clearing, undercutting, compaction, dust control, overhaul, borrow material, settlement platforms, and disposal of unsuitable materials. Many of these items are paid for separately in other states, and may, therefore, lower their unit costs for excavation.

For a more detailed discussion of the pay items reviewed and the various factors affecting pay item unit costs, see chapters two through five of the audit report.

Digest Exhibit 3
VARIANCE OF AWARD AMOUNT FROM ESTIMATE FOR IDOT’S SINGLE BID AND MULTIPLE BID CONTRACTS
Calendar Year 1996

 

Contracts Awarded

Estimate
Amount

Award
Amount

Variance
from
Estimate

Single Bids

106

$ 77,194,790

$ 77,692,326

0.64% above

Multiple Bids

783

$918,558,994

$818,596,669

10.88% below

Source: OAG analysis of IDOT data
 

IDOT's current efforts to increase competition are limited.











There are several changes IDOT can make to its procurement process to help control road construction costs.


























 


The Department fully or partly concurred with all of the recommendations.



IDOT’s current efforts to increase competition are limited. For example, IDOT does not routinely contact companies that received bid authorization but did not bid to determine why they did not bid. Also, while IDOT has general guidelines to govern its award decision, it has not developed formal award policies or procedures, such as when to rebid a project if all proposals exceed the State’s estimate. We reviewed 43 projects rebid by IDOT in 1996. When these projects were rebid, the new lowest bid total was 8 percent lower than the original low bid total, yielding a savings of $1.9 million. In 31 of the 43 projects, the original low bidder submitted an even lower bid when the project was rebid.

We recommended that IDOT increase its efforts to encourage and develop competition on road construction projects in the State, and establish formal guidelines governing when to award roadbuilding contracts. (Report pages 55-67)

OTHER PROCUREMENT ISSUES

There are several other changes IDOT can make to its procurement process to help control road construction costs. These changes include improving the accuracy of cost estimates to avoid accepting inflated bids or rejecting valid ones. As shown in Digest Exhibit 4, 46 percent of the low bids on the 948 projects let by IDOT in 1996 were within 10 percent of estimate. The Federal Highway Administration’s contracting guidelines state that at least 50 percent of the project cost estimates should be within 10 percent (plus or minus) of the actual low bids. We also found wide variations among IDOT Districts in the frequency that low bids were within 10 percent of the estimate.

Regarding other procurement-related issues, we recommended IDOT should discontinue the practice of releasing cost estimates to the public, continue its efforts to identify and evaluate differences in project requirements between Illinois and other states to identify where cost savings can be realized, contact contractors whose prequalification lapses to determine the causes or reasons, improve controls over the letting process, take steps to avoid unnecessary change orders, and continue to explore the uses of value engineering and other innovative contracting procedures. (Report pages 69-87)

RECOMMENDATIONS

The audit report includes 12 recommendations to the Department of Transportation. In their written response, the Department fully or partly concurred with all of the recommendations. Excerpts of their response are included after each recommendation, and their entire response is in Appendix G of the audit report.

 

____________________________________
WILLIAM G. HOLLAND
Auditor General

May 1998