Scandinavian Working Papers in Economics

Working papers in Transport Economics,
CTS - Centre for Transport Studies Stockholm (KTH and VTI)

No 2014:20: Degrees of freedom in road construction

Johan Nyström (), Hans Lind () and Jan-Eric Nilsson ()
Additional contact information
Johan Nyström: VTI, Postal: Centrum för Transportstudier (CTS), Teknikringen 10, 100 44 Stockholm, Sweden
Hans Lind: KTH, Postal: Centrum för Transportstudier (CTS), Teknikringen 10, 100 44 Stockholm, Sweden
Jan-Eric Nilsson: VTI, Postal: Centrum för Transportstudier (CTS), Teknikringen 10, 100 44 Stockholm, Sweden

Abstract: One policy that is believed to increase the rate of innovation and the level of productivity is to move from Design-bid-build contracts (DBB) to Design-Build contracts (DB). A common view is that the latter provides the contractor more degrees of freedom to enable innovation. This hypothesis consists of two steps, first that DB actually has more degrees of freedom and secondly that more degrees of freedom leads to more innovation. This paper focuses on the first step and is based on a review of five road construction projects – two labelled DBB and three DB. It is demonstrated that there is a gap between the textbook definition of the two types of contracts and the actual design of the examples. The degrees of freedom for the contractor are restricted in both DB and DBB contracting and no significant difference in this dimension could be established. Based on this lack of difference in the five projects, the expectation of innovation for the labelled contracts cannot be settled. Some possible rational reasons for the client to restrict the degrees of freedom are also suggested.

Keywords: Innovation; Contracting; Design Bid Build (DBB); Design and Build (DB)

JEL-codes: D86; H57; L74

15 pages, October 24, 2014

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