National Academies Press: OpenBook

Chip Seal Best Practices (2005)

Chapter: Chapter Four - Contract Administration

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Suggested Citation:"Chapter Four - Contract Administration." National Academies of Sciences, Engineering, and Medicine. 2005. Chip Seal Best Practices. Washington, DC: The National Academies Press. doi: 10.17226/13814.
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Suggested Citation:"Chapter Four - Contract Administration." National Academies of Sciences, Engineering, and Medicine. 2005. Chip Seal Best Practices. Washington, DC: The National Academies Press. doi: 10.17226/13814.
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Suggested Citation:"Chapter Four - Contract Administration." National Academies of Sciences, Engineering, and Medicine. 2005. Chip Seal Best Practices. Washington, DC: The National Academies Press. doi: 10.17226/13814.
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Suggested Citation:"Chapter Four - Contract Administration." National Academies of Sciences, Engineering, and Medicine. 2005. Chip Seal Best Practices. Washington, DC: The National Academies Press. doi: 10.17226/13814.
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Suggested Citation:"Chapter Four - Contract Administration." National Academies of Sciences, Engineering, and Medicine. 2005. Chip Seal Best Practices. Washington, DC: The National Academies Press. doi: 10.17226/13814.
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Suggested Citation:"Chapter Four - Contract Administration." National Academies of Sciences, Engineering, and Medicine. 2005. Chip Seal Best Practices. Washington, DC: The National Academies Press. doi: 10.17226/13814.
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INTRODUCTION The administration of a chip seal project has an immense impact on not only the cost of the project, but also its ultimate performance. The distribution of risk through the chip seal contract can create either an incentive to furnish the best pos- sible quality or a bias to deliver the bare minimum. For exam- ple, the heavy use of method specifications that describe in detail the chip seal construction process essentially absolves contractors of long-term performance liability as long as they can prove that they followed the agency’s method specifica- tions to the letter. Therefore, it is important for owners to for- mulate the most appropriate contracts for their chip seal proj- ects. This chapter offers direction on best practices for the administration of successful chip seal programs, from project development to post-completion. The types of contracts used, project planning and programming, and contract management procedures will be discussed. CONTRACT TYPES Transportation infrastructure contracts have traditionally been awarded using a low-bid process that is often required by leg- islation at the state and local level. The survey identified two primary types of low-bid contracts: unit price and lump sum. Lump-sum contracts are warranted in construction projects where the scope of work can be easily quantified. On the other hand, unit-price contracts are used in those situations where the aforementioned conditions do not exist (Clough and Sears 1994). The owner assumes the risk of quantity overruns by agreeing to pay for the actual units applied, rather than pay- ing a premium for transferring the risk of quantity overruns to the contractor by means of a lump-sum price. Given that chip seal projects usually are limited to a defined area of pave- ment, quantity surveys should be fairly straightforward and not highly variable. Therefore, lump-sum contracts, including the total cost of the project plus mobilization and traffic con- trol, could be used without the agency’s incurring a substan- tial cost increase. The survey results revealed that Arkansas and Nevada are using lump-sum contracts for their chip seal projects. Arkansas also reported that it was getting excellent chip seal results. Contracting procedures vary significantly between North American and international respondents. As can be seen in Figure 18, North America favors the use of unit-price con- tracts. As evident by the proportion of international responses 20 totaling more than 100%, international agencies seem to prefer a mix of unit-price and lump-sum contracts, and they have also contracted with design–build, whereby the chip seal contractor is responsible for both the design and the construction. The greater reliance on lump-sum contracts by inter- national respondents is significant when one considers that all of those nations have developed their own chip seal design methodologies that are based on a much more detailed set of engineering measurements than those used in either the McLeod or the Kearby design methods. Perhaps their more scientific approaches to chip seal design allow those coun- tries to feel more comfortable in transferring the construction material quantities risk to their respective construction indus- tries. Under volumetric unit-price contracts, the contractor has an economic incentive to install as much asphalt and aggregate as possible and thus might construct the seal in a manner not beneficial to the life of the chip seal (Gransberg et al. 1998). Changing the measurement of the chip seal pay quantities to a surface area reverses this incentive. The sig- nificance of having an engineering-based design method that does allow for significant adjustments in the field is that quantity overruns may likely be reduced because the profit motive for the contractor disappears. CONTRACT MANAGEMENT Chip seal contract management practices in essence define the constraints within which chip seals are designed and con- structed. There are a number of contract management issues that must be addressed to ensure that the ultimate perfor- mance of the chip seal is purely a function of the quality of the design and construction and not adversely influenced by external administrative constraints. The clarity of the con- tract documents is essential, because the agency can enforce only what is in the contract. Construction Season The literature review showed that chip seals applied early in the summer appeared to perform better than those applied at the end of the summer (McHattie 2001). It is not known what the temperature following chip seal placement will be, so the only way to address that concern is to limit the con- struction season. This is because these early season chip seals CHAPTER FOUR CONTRACT ADMINISTRATION

21 have more time to cure before being subjected to cold temper- atures. Thus, it seems that a best practice is to award chip seal contracts accordingly to allow for early summer con- struction, which maximizes curing time before the first cold spell. The British have incorporated an element of risk man- agement into their chip seal design process that relates to the season in which the chip seal will be placed. Figure 19 is taken from Road Note 39 and illustrates this approach to selecting the proper timing within the chip seal season for construction. Survey respondents were asked to specify their allowable chip seal construction season. Analysis showed that the chip seal season is actually not nearly as variable for chip seal proj- ects as for other highway construction projects such as hot mix paving. Most agencies, regardless of location, contract for a chip seal program of approximately 4 months in north- ern areas to roughly 5 months farther south. The season is constrained by daily temperature and weather requirements aimed at making sure that the chip seal is applied in the warmest, driest weather possible for the geography. This topic leads into a discussion of the timing in advertising and awarding the chip seal contract, which is commonly called bid letting. 94% 6% 100% 86% 71% 22% 0% 20% 40% 60% 80% 100% United States Canada AU, NZ, UK, SA Unit Price-Low Bid Lump Sum-Low Bid Design-Build FIGURE 18 Types of chip seal contracts. FIGURE 19 Road Note 39 construction season chart (Source: Design Guide for Road Surface Dressing, Road Note 39 1996).

Bid Letting Project planning can provide critical input into the contract management aspects of highway maintenance. Typical proj- ect planning requires the letting of the chip seal project to fol- low, proceed, or coincide with other road works (patching, crack sealing, line painting, etc.). Patching and crack sealing should be completed as far in advance of the chip seal con- struction as possible to permit maximum curing time for those items (Wegman 1991). The Washington State constructability study verified that patches and crack sealing are common causes of bleeding owing to localized increase of asphalt content over the sealed cracks and patches (Jackson et al. 1990). One study found that these activities should be completed a minimum of 6 months before the chip seal to allow time for the patches to cure and evaporate most of the volatiles (Gransberg et al. 1998). Early preparation efforts can be realized only with effective coordination between the agency’s maintenance operations and contracting group. Therefore, planning main- tenance activities should be performed with consideration of the construction schedule. A contract management system with the ability to plan pavement preparation methods such as patching and crack sealing in the year before chip sealing would be ideal. Another best practice is for chip sealing projects to be contracted in a way that will maximize curing time. Thus, practices such as letting the contract late in the chip seal season should be avoided wherever possible. In line with the best practice of maximizing curing time, contract management should restrict late mobilization of the project, and agencies should enforce the contract’s seasonal limitations in those cases in which the chip seal contractor has fallen behind schedule. Contractor Competition and Competence The number of contractors bidding for an agency’s contracts is an important determinant of both quality and price. Research indicates that larger chip seal contracts produce a better quality of chip seals, because the better qualified contractors appeared to be more attracted to larger contracts, both in terms of quality control and fielding their best equipment and most experienced personnel (Gransberg at al. 1998). Survey respon- dents were asked to specify their typical project length. As shown in Figure 20, the typical overseas chip seal project is, to the extent possible, more than twice as long as its North American counterparts. Although typical chip seal project lengths were generally not provided from the counties and cities that responded to the survey, the trend was for counties and cities to express that their organizations encounter problems attracting a satisfac- tory number of bidders as shown in Figure 21, where 88% of those respondents indicated that they did not have an adequate 22 number of qualified chip seal contractors competing for their projects. The same phenomenon is found with state DOTs that do not routinely use chip seals as part of their PM pro- gram. The smaller dollar value of projects within these agen- cies may isolate them from attracting qualified contractors. RISK AND WARRANTIES Contracts are the legal instruments used to distribute risk between the owner and the contractor in the construction industry. The type of construction contract has a significant bearing on how the project’s risk will ultimately be allocated. This extends beyond the risk differential between unit-price and lump-sum contracts and into the amount of design that is completed by the chip seal contractor. Some of the survey respondents indicated that they buy chip sealing services as a commodity purchase rather than a construction project, and they allow the chip seal contractor to determine the exact combination of materials and methods. Thus, the distribution of chip seal project performance risk, along with those con- tractual mechanisms to ensure that the contractor is held re- sponsible for that risk, has been explored. The relationships between these mechanisms, specifically bonding and war- ranties, and their associated impact on chip seal performance 17 18 42 0 10 20 miles 30 40 50 United States Canada AU, NZ, UK, SA FIGURE 20 Typical length in miles of chip seal projects. 55% 45% 78% 22% 100% 13% 88% 0% 20% 40% 60% 80% 100% United States Canada AU, NZ UK, SA Counties and Cities Yes No FIGURE 21 Response to adequate number of experienced chip seal contractors.

23 will be detailed. Because risks are interrelated with respon- sibility, an agency needs to carefully determine its role in the design and construction of the chip seal so as to most equi- tably allocate risk between the agency and the contractor. CONTRACT RISK Considering different contract types along a continuum of risk allocation allows one to distinguish risk based on proj- ect responsibilities. Essentially, there are four categories of contract information that must be evaluated to ascertain the risk allocation contained in a chip seal contract: 1. Design responsibility—Who does the design, the owner or the contractor? 2. Level of material specification prescription—Are end- product, performance, or method specifications used? 3. Level of construction methods prescription—Can the contractor choose the construction method and equipment? 4. Warranty content and period—What are the specific data? Figure 22 illustrates the continuum of chip seal contract risk and relates the four categories to the type of contract risk that is inherent to each point on the continuum. It should be noted that the three examples shown in the figure are not the only possibilities that can be observed. However, they do represent the majority of this study’s findings in both the lit- erature review and the survey responses. Input-Driven Contracts As shown in Figure 22, input-driven contracts are differenti- ated by the agency’s having the responsibility to prescriptively specify the chip seal’s design and construction methods. Basi- cally, the agency specifies where, when, and how (Sprayed Sealing Guide 2004). The contractor simply gets paid for any equipment and materials used on the project. Such contracts are likely to be found with agencies that perform their own field adjustments of application rates, for the contractor cannot be expected to be responsible for the decisions of the agency. Therefore, under input-driven contracts, the contractor is gen- erally not held responsible for end-product performance; it is simply accountable for workmanship. Such contracts have the effect of making performance unwarrantable, because all proj- ect risk is allocated to the agency. Input-driven contracts are found in both Minnesota and Texas, two states with extensive and successful chip seal programs. Output-Driven Contracts For a contractor to guarantee performance, it needs to have input into the design of the project (Stephens et al. 2002). Output-driven contracts, exhibited in the center of the con- tract risk continuum, specify the where and when but allow the contractor’s responsibilities to broaden into control over design and construction methods. As a result of the contrac- tor’s having some control over the end product, output-driven contracts are warrantable. The contractual arrangement in Ohio is an example of how end-product specifications allow the contractor to assume a greater level of project risk. Performance-Driven Contracts Overseas, chip seal contracts are increasingly moving toward performance-driven contracts (Sprayed Sealing Guide 2004). These contracts, as illustrated at the extreme right of the con- tinuum, no longer have the agencies specifying where, when, or how. That network decision is now the responsibility of the contractor (Sprayed Sealing Guide 2004). All design and construction liabilities are assumed by the contractor, with the agency’s only responsibility being to specify outcome. Exam- ples of this type are found in New Zealand. The surface tex- ture of the chip seal projects is measured by using the sand patch test after the end of 1 year, and the payment is adjusted according to whether the project’s macrotexture has performed as designed. This is a country where hot-mix asphalt pavement is authorized only on roads carrying 20,000 ADT or more (B. Pidwerbeski, Fulton Hogan, Ltd., Christchurch, New Zealand, unpublished interview, Jan. 23, 2004). New Zealand also has many of the environmental challenges faced in the northern United States and Canada in its mountainous areas, where maintenance chip seals installed on top of two- or three-course surface treatments must be resistant to snow- plowing (Owen 1999). Input Driven Output Driven Performance Driven Owner Designed Owner or Contractor Designed Contractor Designed Prescriptive Specification Prescriptive Specification Performance Specification Owner’s Construction Methods Contractor’s Construction Method Contractor’s Construction Method Construction Unwarrantable Construction Warrantable Long-Term Warranties Maximum Risk Contractor Maximum Risk Owner FIGURE 22 Contract risk continuum.

WARRANTIES Warranties in highway construction are defined as “a guaran- tee of the integrity of a product and of the contractor’s respon- sibility for repair or replacement of deficiencies” (Anderson and Russell 2001). The goal of a warranty in highway con- struction is to effectively transfer any risks controlled by the contractor to the contractor—basically distributing risk in a more equitable manner (Notes for the Specification . . . 2002). Warranties may also minimize the agency’s risk by provid- ing a method to require that the contractor correct failures that are the result of defective materials or workmanship. Most agencies generally require a warranty bond to transfer this risk; the bond provides the assurance that the materials and workmanship of the contractor will not fail soon after project completion and acceptance (Hancher 1999). For instance, Ohio’s warranty requires the contractor to provide a 75% maintenance bond for a 2-year period (Supplemental Specification 882 . . . 2002). The key point is that the risk would be allocated to the party that has most control over the risk (Anderson and Russell 2001). Therefore, when it is believed that the risk is likely to be beyond the contractor’s control, limitations should be placed on the warranty. For instance, in Ohio, the chip seal warranty is restricted to two-lane routes with less than 2,500 ADT and those projects, which do not qualify as PM, are not eligible for having warranty requirements (Supplemental Specification 882 . . . 2002). Warranty Requirements The majority of information obtained on this topic was derived from the survey responses. For this discussion, the survey addressed the types of contracts used, inspection force respon- sibilities, and warranty requirements. Figure 23 illustrates the 24 proportion of respondents with warranty requirements on their chip seals. A major disparity between U.S. contracting practices and those of Canadian and overseas agencies lies in the use of warranties. International chip seal programs show a clear man- date toward the implementation of warranty requirements for their chip seal programs. The issue of warranties in the United States was addressed in a comprehensive study of the TxDOT chip seal program (Gransberg et al. 1998). In that state, the construction industry viewed the issue as one of not being able to control the risk that the traffic actually placed on a newly chip sealed road. Additionally, the industry believed that the longitudinal variation in the existing surface condi- tion was so great that it virtually discounted the design cal- culations to a mere set of formulas to estimate the quantities for the unit-price contract, not a precise engineering design. Therefore, the prevailing notion among both the construction community and TxDOT personnel was that a chip seal was patently unwarrantable. Although warranties are an issue that needs to be addressed not only in Texas but throughout the United States, the situation shown by the international and Canadian responses appears to indicate that this risk can be adequately managed. Warranty Duration The length of the warranty period required to detect deficien- cies is a concern. The survey responses noted that the most common warranty period for chip seals projects is 1 year. Of the 16 international agencies that have warranty requirements, all but the Yukon Territory of Canada responded that their warranty periods were 1 year in duration. Table 4 illustrates the warranty durations of the six states that have warranty requirements. New Zealand’s Experience with Performance-Driven Contracts New Zealand’s use of sound engineering principles seeks to minimize the uncertainty and variability associated with their chip seal program. The use of these sound engineering prin- ciples seeks to optimize material application rates to the point where the end-product specifications in their performance- 19% 81% 89% 11% 100% 0% 20% 40% 60% 80% 100% United States Canada AU, NZ, UK, SA Yes No FIGURE 23 Proportion of respondents requiring warranties. State with Warranty Warranty Duration California 2 Years Michigan 2 Years Nevada 2 Years New York 1 Year Ohio 3 Years Wyoming 4 Weeks TABLE 4 U.S. STATES WITH CHIP SEAL WARRANTIES

25 driven contracts transfer the risk of the project to the con- tractor. Research in New Zealand has shown that there has not been any significant increase in bid prices to reflect the shift in risk caused by their performance-driven contracts (Owen 1999). New Zealand’s experience illustrates that when warranties are used in association with performance and end- product specifications, the contractor is provided with the incentive to pursue more innovative technologies and meth- ods for highway projects, leading to economic benefits for all parties involved in the highway construction process (Owen 1999). Perhaps this is a fundamental reason why New Zealand and its Australian neighbors have taken the art out of chip seal- ing, and developed engineering-based chip seal programs. That the expected service life of a chip seal in these two nations is twice as long of that expected by North American agencies speaks for itself. It should be noted that Michigan had a similar experience when it experimented with chip seal warranties. Research on the Michigan experience noted that “The final results gave contractors greater flexibility [empha- sis added] in selecting the materials and application methods used for warranted surface treatments” (Galehouse 1998). CONTRACT ADMINISTRATION CONCLUSIONS AND BEST PRACTICES This chapter has shown the need for an objective project selection and prioritization system that maximizes the eco- nomic benefits of a chip seal. The major conclusion from the warranty portion of the study relates the level of owner pre- scription to the ability of the owner to impose a warranty requirement on the chip seal contractor. Essentially, as the highway agency demands to retain more specific control over materials and methods, the balance of performance risk swings more toward the agency, and the chip seal contractor becomes merely an instrument to execute the agency’s professional judgment, and the ability to effectively warrant the final prod- uct greatly diminishes. However, if the agency wants the con- tractor to assume the majority of the performance risk through a warranty, the agency must allow the chip seal contractor to make the salient detailed materials and methods decisions and to control the outcome of those decisions through pro- mulgated performance specifications. The survey responses from the states indicated that they rate their resultant chip seal product as good to excellent no matter where the states are located on the risk continuum. Therefore, it is impossible to recommend one end of the spectrum over the other. The level of performance liability that a given agency wishes to assume must become a business and policy decision tempered by both the business and political climate in which the proj- ects will be built and the past experience of the agency itself. Therefore, the following four contract administration best practices have been identified: 1. Letting chip seal contracts in time to permit early sea- son construction; 2. Timing the letting of the contract to allow sufficient time for the curing requirements of preconstruction pavement preparation activities; 3. Packaging chip seal contracts in jobs large enough to attract the most qualified contractors; and 4. For warranty chip seal projects, giving the contractor latitude to determine the final materials and methods used to achieve a successful chip seal. Because Transit New Zealand has been successfully using this warranty method argues strongly that it can be success- fully implemented in the United States as well. The measuring of New Zealand chip seal project macrotexture after 1 year of service and then adjusting the maintenance contract payment as a function of actual performance versus design performance creates a strong financial incentive for chip seal contractors to both design and install the best possible chip seal.

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TRB’s National Cooperative Highway Research Program (NCHRP) Synthesis 342: Chip Seal Best Practices examines ways to assist in the development and implementation of pavement preservation programs by identifying the benefits of using chip seal as part of a preventive maintenance program and by highlighting advanced chip seal programs in use around the world. The report includes approximately 40 best practices in the areas of chip seal design methods, contract administration, equipment practices, construction practices, and performance measures. According to the report, the increased use of chip seals for maintenance can be a successful, cost-effective way of using preventive maintenance to preserve both low-volume and higher-volume pavements.

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