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