Transaction-Cost Economic Analysis of Institutional Change toward Design-Build Contracts for Public Transportation

This study uses institutional economics to shed light on many of the issues plaguing the evaluation of design-build contracting. The purpose is to assist lawmakers in the State of California as they contemplate the adoption of enabling legislation. In institutional economic terms, design-build involves the switch from public to private ordering of design services such that the design firm, which used to serve as the public client’s advocate during construction, is instead at the service of a general contractor or constructor. California is relatively rich in institutions supporting union agreements and environmental protection. In the transition to design-build dramatic changes to procedures, roles, and responsibilities ensue, which may include impacts to organized labor. Existing research suggests that design-build shortens delivery schedules by allowing construction to begin before design is complete, but the benefits of shortened schedules may come at the expense of public participation if design information presented during environmental review is inadequate. Should California use design-build? Picture a planner responsible for deciding whether a stretch of highway should be developed with design-build or design-bid-build procedures. Which process is more efficient? If design-build is more efficient, do such gains come at the expense of organized labor and environmental compliance? These questions were addressed through a transaction-cost economic analysis of recently completed design-bid-build and design-build projects in several states, with attention to variations in the institutions governing transportation delivery from state to state.