Analysis of Material Source Mergers and Acquisitions on Project Delivery Quality and Costs

Acquisitions and mergers are completed for many reasons in the highway construction industry such as normal company growth, increase market share, and materials source growth. Sometimes consolidations improve business operations and quality without adversely affecting competition. In other instances mergers or acquisitions may reduce competition. Highways and roadways are generally owned by state and local governmental agencies, and highway owner agencies use competitive bidding to encourage reasonable construction costs with quality materials and workmanship. The Federal Highway Administration's (FHWA) provides Federal-aid highway funding to the States and provides oversight to insure federal requirements for highway construction projects are followed. This includes the overall costs for highway construction project delivery and all the materials that make up a highway project. In a typical highway project 20-30% of the project costs are generally those costs associated with aggregate, Portland cement, bituminous cement and steel materials for bridges and pavements (1). The current Fixing America's Surface Transportation (FAST) Act Highway Program has authorized $221 billion over the next 5 years for Federal-Aid Highway Program. Congress establishes the funding distribution formula and FHWA executes the law as stewards of the taxpayers to insure those funds are used in a cost effective way. Under 23 U.S.C. 112, FHWA has a responsibility for ensuring the bidding process employs fair competition requires all Federal-aid construction projects to be ". . . awarded by competitive bidding, unless the State transportation department demonstrates, to the satisfaction of the Secretary, that some other method is more cost effective or that an emergency exists. Contracts for the construction of each project shall be awarded only on the basis of the lowest responsive bid submitted by a bidder meeting established criteria of responsibility." FHWA's regulations implementing Section 112 require States to ". . . assure opportunity for free, open, and competitive bidding, including adequate publicity of the advertisements or calls for bids." (23 CFR 635.104(a)). These policies assign FHWA and the States with the responsibility for establishing and maintaining an open, competitive environment in all aspects of the procurement and administration of Federal-aid construction contracts. (1) FHWA Highway Statistics, Distribution of Costs on Federal-aid Highway Construction Contracts over $100,000,000 on the National Highway System for CY 2001 through 2004. http://www.fhwa.dot.gov/policy/ohim/hs04/htm/costpie.cfm