Financial analysis of project delivery systems: Road projects' operational performance data revisited

Research output: Book/ReportReport

1 Citation (Scopus)

Abstract

A Project Delivery System (PDS) refers to the organizational framework of a project that defines the control mechanisms and the relationships between actors and their incentives. It is of major importance to the project owner as it, for instance, contributes to the project's level of efficiency. This publication compares the cost efficiency of Design-Bid-Build (DBB), Construction Management at-fee (CM), Design-Build (DB), Design-Build-Operate (DBO) and Design-Build-Finance-Operate (DBFO) in road management based on an (earlier reported) international data capture focusing on the operational performance of these PDSs. Operational performance refers to the activity-based cost performance of an organization characteristic to a PDS where the timing of the activities is taken into consideration. On these premises a financial analysis that takes into account financing arrangements and corresponding payment systems was made to determine the systems' present costs to a road authority based on relevant market estimates. Moreover, a step towards understanding their overall efficiency was taken by focusing also on differences in speed of delivery which result in expenses or savings to the user community. The financial analysis of the costs to the owner revealed that, apart from the evenly matched DBB and CM, the broader the scope of services supplied by one contract in the case of public-financed systems (DBB, CM, DB and DBO), the more cost efficient the PDS. If the early commissioning advantage is included in the analysis, especially CM, but also DB improves its competitiveness in relation to the other PDSs. The variation in the financial estimates has no influence on the ranking of public-financed PDSs in practice. DBFO's competitive position is not absolutely clear, but it seems to be in the middle category with DB. Consideration of the early commissioning advantage, however, makes CM (that enables fastest commissioning) nearly equal or in some cases even better than DBFO, which, on the other hand, increases its superiority over DBB. It must be remembered though that the scheme is, in general, sensitive to project properties and constraints, and fluctuations in the financial and construction markets. The PDSs of the analysis were applied to a relatively large road project in well-known conditions where all PDSs could be considered be applicable.
Original languageEnglish
Place of PublicationEspoo
PublisherVTT Technical Research Centre of Finland
Number of pages62
ISBN (Electronic)978-951-38-7231-1
ISBN (Print)978-951-38-7230-4
Publication statusPublished - 2008
MoE publication typeNot Eligible

Publication series

SeriesVTT Tiedotteita - Meddelanden - Research Notes
Number2445
ISSN1235-0605

Fingerprint

Project delivery
Business performance
Roads
Financial analysis
Design/build
Bid
Costs
Owners
Finance
Control mechanism
Ranking
Competitiveness
Incentives
Relevant market
Activity based costs
Fluctuations
Financing
Fees
Construction management
Expenses

Keywords

  • road procurement
  • project delivery systems
  • project finance
  • road management
  • financial analysis
  • cost comparison

Cite this

Lahdenperä, P. (2008). Financial analysis of project delivery systems: Road projects' operational performance data revisited. Espoo: VTT Technical Research Centre of Finland. VTT Tiedotteita - Meddelanden - Research Notes, No. 2445
Lahdenperä, Pertti. / Financial analysis of project delivery systems : Road projects' operational performance data revisited. Espoo : VTT Technical Research Centre of Finland, 2008. 62 p. (VTT Tiedotteita - Meddelanden - Research Notes; No. 2445).
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Lahdenperä, P 2008, Financial analysis of project delivery systems: Road projects' operational performance data revisited. VTT Tiedotteita - Meddelanden - Research Notes, no. 2445, VTT Technical Research Centre of Finland, Espoo.

Financial analysis of project delivery systems : Road projects' operational performance data revisited. / Lahdenperä, Pertti.

Espoo : VTT Technical Research Centre of Finland, 2008. 62 p. (VTT Tiedotteita - Meddelanden - Research Notes; No. 2445).

Research output: Book/ReportReport

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AB - A Project Delivery System (PDS) refers to the organizational framework of a project that defines the control mechanisms and the relationships between actors and their incentives. It is of major importance to the project owner as it, for instance, contributes to the project's level of efficiency. This publication compares the cost efficiency of Design-Bid-Build (DBB), Construction Management at-fee (CM), Design-Build (DB), Design-Build-Operate (DBO) and Design-Build-Finance-Operate (DBFO) in road management based on an (earlier reported) international data capture focusing on the operational performance of these PDSs. Operational performance refers to the activity-based cost performance of an organization characteristic to a PDS where the timing of the activities is taken into consideration. On these premises a financial analysis that takes into account financing arrangements and corresponding payment systems was made to determine the systems' present costs to a road authority based on relevant market estimates. Moreover, a step towards understanding their overall efficiency was taken by focusing also on differences in speed of delivery which result in expenses or savings to the user community. The financial analysis of the costs to the owner revealed that, apart from the evenly matched DBB and CM, the broader the scope of services supplied by one contract in the case of public-financed systems (DBB, CM, DB and DBO), the more cost efficient the PDS. If the early commissioning advantage is included in the analysis, especially CM, but also DB improves its competitiveness in relation to the other PDSs. The variation in the financial estimates has no influence on the ranking of public-financed PDSs in practice. DBFO's competitive position is not absolutely clear, but it seems to be in the middle category with DB. Consideration of the early commissioning advantage, however, makes CM (that enables fastest commissioning) nearly equal or in some cases even better than DBFO, which, on the other hand, increases its superiority over DBB. It must be remembered though that the scheme is, in general, sensitive to project properties and constraints, and fluctuations in the financial and construction markets. The PDSs of the analysis were applied to a relatively large road project in well-known conditions where all PDSs could be considered be applicable.

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KW - project delivery systems

KW - project finance

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KW - financial analysis

KW - cost comparison

M3 - Report

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T3 - VTT Tiedotteita - Meddelanden - Research Notes

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Lahdenperä P. Financial analysis of project delivery systems: Road projects' operational performance data revisited. Espoo: VTT Technical Research Centre of Finland, 2008. 62 p. (VTT Tiedotteita - Meddelanden - Research Notes; No. 2445).