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31 Prohibited or Discouraged by State Law Prohibited or Discouraged by Agency Policy or Guidelines Potentially Higher Bid Prices Local Contractor Resistance (Other Than Bonding) Bonding Problems, Bonding Company Resistance Perceived Negative Impact on Competition Negative Experience of Other Agencies Possible Increase in Disputes or Litigation with Contractors Too Burdensome Administratively Other 0 2 4 6 8 10 12 14 16 18 20 Number of Respondents FIGURE 14 Perceived impediments, risks, and drawbacks of warranty use. mation as helpful; these responses are incorporated within M1" are used. Characteristics of the interviewed firms are each affected item in Figure 15. noted in Table 5. Most of these firms have been engaged in work involving warranties; all are familiar with performance- Among "Other" information of interest were the following based specifications and speak from experience. Although the topics: contractors work in different geographic regions and deal with a range of pavement marking materials, their willing par- Conflicts with existing pavement or other warranties or ticipation in the project interviews may reflect a self-selected bonds, sample. Attempts to identify a wider range of views from firms How to deal with multi-year warranties in the context of of different characteristics (e.g., small-sized firms or firms not desired closeout of federal-aid projects, and as familiar with performance-based specifications) were not How to allocate responsibility between contractor and successful. Supplementary findings from other studies are manufacturer. cited to fill this gap. The interviews, together with the responsibilities called for PERSPECTIVES OF PRIVATE INDUSTRY in the specifications in Appendix D (web only), demonstrate Overview that pavement marking materials manufacturers potentially can fulfill several roles in serving state DOTs and other clients Telephone interviews were held with seven pavement mark- and their contractors: (1) to provide a product that meets or ing contractors and two marking materials manufacturers to exceeds specifications; (2) to back product performance with a obtain private sector perspectives on pavement marking war- warranty that conforms to client requirements; (3) to provide ranties. These entities are identified in Appendix C. To keep technical services to clients and their contractors; for example, this discussion focused on the issues at hand, general desig- recommendation of proper method of application/installation, nations such as "Contractor A" and manufacturer "Company technical advice on correction of problems, and contractor

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32 Agency Experience with Different Types of Warranties Duration of Warranty Types of Performance Measures That Are Used Values of Performance Thresholds That Are Used Methods to Enforce Acceptable Performance Specific Additional Costs of Warranties Specific Cost Savings and Benefits of Warranties Ways to Align Agency Policies and Procedures to Promote Warranty Use Discussions with Industry to Familiarize Them with Warranties Other Aspects of Warranty Administration and Use Other Desired Information No Additional Information Needed by This Agency 0 2 4 6 8 10 12 14 16 18 20 Number of Respondents FIGURE 15 Additional information desired. training and certification; (4) through product sheets, manu- public. The manufacturers related quality to their ability to facturer recommendations, and other technical data to support manage the several aspects of jobs they are involved in. One- and supplement client specifications; and (5) to serve as a gen- source accountability avoids finger-pointing and yields sav- eral contractor where allowed and appropriate on pavement ings in life-cycle costs with benefits to agency and the pub- marking projects. lic. Several firms saw warranties as a wave of the future and believed strongly in their value and benefit, notwithstanding General Positions on Warranties risks and drawbacks that are discussed here. All interviewed firms believed in providing a quality pave- Another contractor likewise saw a role for warranties, but ment marking job, and their comments supported the notion spoke about them more in terms of one approach among sev- that quality-oriented firms perform their projects to the same eral options to provide quality performance cost-effectively. high standards and levels of commitment regardless of In this view, warranties were one way of achieving a guaran- whether or not the projects involve a warranty. One contrac- teed level of performance at a price or additional cost. The tor pointed out that although two-thirds of pavement marking additional cost will be borne either by the agency in paying a job cost is for materials, using better (i.e., longer life) mate- higher bid price or by the contractor if the cost of additional rials will yield life-cycle cost savings with attendant benefits work to maintain the specified performance was not included to all parties: the agency, motoring public, and the contractor in the bid. However, agencies need not rely solely on war- itself. The firms supported warranties that are structured fairly ranties if high-quality materials, strong and effective (but and enforced. This approach promotes use of quality prod- reasonable and achievable, not onerous) specifications, and ucts and proper installation procedures that yield brighter, correct installation methods are called for and provided. more durable, more consistently performing markings with Good techniques and products that are available today can attendant benefits to the highway agency and the motoring readily achieve longer, higher-performance service lives; for

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33 TABLE 5 PRIVATE SECTOR FIRMS INTERVIEWED FOR THIS STUDY Designation U.S. or Description and Remarks in Report Canadian Contractor A U.S. Works with primarily waterborne paint under a warranty in several states. Contractor B U.S. Works with various materials (e.g., paint, thermoplastic, polyurea, and tape) in a state under delayed acceptance warranties (i.e., after one winter); no multi-year warranties. Contractor C U.S. Works in a single state applying waterborne paint, tape, thermoplastic, and RPMs. Jobs are with state agency (for new highway construction) and cities and counties (for maintenance). One year is longest warranty period the firm has undertaken. Contractor D U.S. Works worldwide applying waterborne paint for airfield markings. Has worked to produce handbook on airfield pavement markings, but warranties are not yet used in aviation practice. Contractor E Canadian Works in three provinces on highway line painting, and thermoplastic and MMA markings in urban areas. Manufactures own durable marking materials (not epoxy), primarily for urban areas. Performance-based specifications at provincial level are calendar or seasonally based, with duration typically 1 year or less. Warranties for municipal governments are 2 to 5 years for durable materials; more a materials and workmanship warranty. Contractor F Canadian Works for provincial and municipal governments applying paint and thermoplastic. Performance-based specifications are calendar or seasonally based, with duration typically 1 year or less for provincial work. Contractor G Canadian Applies paint and thermoplastic pavement markings and inlaid markers for several provincial, territorial, and local governments. Performance-based specifications are calendar or seasonally based, with maximum duration of 1 year for provincial work. Manufacturer: U.S. Products include durable preformed tape, wet-reflective paint, RPMs, and Company M1 wet reflective thermoplastic. A standard warranty is provided on the high- performance tape, but the manufacturer will work with agencies and contractors on individual project arrangements and warranties of other products. Manufacturer: U.S. Products include durable pavement marking materials: epoxy, polyurea, Company M2 urethane, and--for warranty work--a specialized multi-polymer based on premium raw materials. RPM = raised pavement markers, MMA = methyl methacrylate. example, use of recessed markings in Northern climates; high- sophistication regarding pavement marking warranties. The quality, durable marking materials; correct placement and comments here therefore represent a blend of very basic con- application of materials (e.g., glass beads in paint); and cerns and suggestions, combined with observations and pro- increased specification and measurement of wet retroreflec- posals for improvement at a more advanced level. tivity. A strong relationship between materials supplier and contractor is very helpful toward these ends. All of these These findings generally agree with earlier findings in a methods can help to avoid, where appropriate, the need to contractor survey and interviews by Bayraktar et al. regard- occupy the road annually to redo pavement markings. ing warranties generally, not just for pavement markings. Although there were some indications of contractor innova- Beyond this positive stance toward pavement marking tion owing to warranties (e.g., use of better equipment, new warranties the interviewed firms presented a range of views materials, and innovative technologies and methods), only 2 regarding the use of warranties and their role in future high- or 3 of 16 responding contractors identified with these types way construction, risks and risk mitigation, and suggestions of innovations. Most contractors (10 of 16) noted, rather, a for ways to get greater value added from warranty projects. greater consciousness of quality in construction, and 5 of 16 Within the geographic areas in which the interviewed firms reported applying better workmanship and the opportunity to work, highway agencies vary in their level of experience and provide greater design input (Bayraktar et al. 2004, 2006).

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34 Risk and Risk Mitigation Warranty provisions and administration are potentially risk factors and may need to be evaluated in the bid deci- Notwithstanding general support for warranties, the firms col- sion (and if bid and won, dealt with further during project lectively identified a number of risks that contractors and performance). Following are examples of administrative materials manufacturers may face on a project. Although these risk related to the technical performance of pavement risks have been organized into four major categories here for markings. Other examples of risk related to more general ease in explanation, the risks are interconnected, and bidders warranty administration are given in a following section. and materials vendors must deal with the total situation when The degree of control allowed the materials sup- deciding whether and how to bid the job. The four major cate- plier and contractor during installation strongly gories are technical, administrative, financial, and business- influences perception of risk (Companies M1 and reputation risk. As an example of interconnectedness, prob- M2). Company M2 referred to the key role of mate- lems in the technical or administrative aspects of a warranty rials providers in managing this type of risk as one- specification may lead to associated risks in the financial and source accountability. business-related arenas. Risks associated with project bonding Too high a required performance level (i.e., one that requirements and miscellaneous other topics are also covered. might lead to any proposed product to fail and/or require restriping more than once annually) would be a risk. Technical Risks and Risk Mitigation Performance requirements need to be looked at in Technical risks arise with the failure to use the right material the context of site conditions, as mentioned earlier. and installation method (including preparation) for a given The presence of heavy truck traffic, a need for tight project. Dealing with this risk involves several tasks; for turning maneuvers by these heavy vehicles, or other example, understanding road operating conditions, the pave- causes of encroachment that would shear the pave- ment surface, and geographical and environmental site con- ment markings all increase risk (Company M1). Performance requirements also need to be consis- ditions; knowing the correct installation method and per- forming it correctly with a trained crew; and maintaining tent with reasonable expectations of specified good communication among all parties. Both manufacturers materials. For example, setting minimum retro- referred to this basic risk, and contractors elaborated with reflectivity levels too high for paint is unrealistic several examples. and will virtually guarantee failed performance (Contractor F). The failure to match materials properties (e.g., correct Pavement marking installation is better performed bead application in paint) to site and environmental con- in daytime, but this is not always possible. Contrac- ditions is a risk (Contractor A). Contractor C believes tors must work with agencies to accommodate that some state specifications are outdated and therefore project requirements and possible nighttime work do not call for the best material. All material used on a (Company M2). job must have a certificate of compliance; where materi- On roadways with high traffic volume, Company M2 als options are allowed, all would meet specifications will use a specialized subcontractor for traffic control, fully. Contractor E interpreted this type of risk as cor- overseen by a supervisor certified by the American Traf- rectly identifying pavement surface and environmental fic Safety Services Association (ATSSA), who is famil- conditions that can affect performance. For example, iar with MUTCD requirements. This specialized traffic with respect to asphalt, there are 12 types of surfacing subcontractor, together with the trained and certified they deal with (e.g., chip seal, hot-mix asphalt resurfac- installation subcontractor, forms a Quality and Safety ing, rubber-based asphalt, and recycled asphalt). One "A" Team for the project. must understand the implications of each type for adhe- According to Contractor E, there are still issues with sion, cracking, compatibility (particularly with chip variability of readings on retroreflectivity devices and seals) with respect to bonding and bleeding, and need for the need for correct calibration. This contractor believes proper preparation and cleaning. Contractor F noted that the best result is obtained by driving at night and paint is affected by humidity in coastal regions, a factor observing the visibility of markings by eye. Also, "wet" that has not been addressed by a client agency that has retroreflectivity pavement marking products are still in set very tight completion dates for pavement marking their infancy and are now being evaluated by agencies. work. (An adjacent jurisdiction has not been able to achieve these more restrictive specifications.) Another area of technical risk has to do with disruption of Lack of good performance data and/or technical the "level playing field" that is presumed to exist among specifications on pavement markings are a risk. Not competing bidders on a project. Well-specified warranties enough research and testing have been done to define promote higher quality workmanship and materials. The performance reliably. Regarding paint, Contractor A interviewed firms believe that in the absence of warranties believes that test strips do not give a true indication of some competitors may attempt to cheat on quality require- performance. ments, particularly if the highway agency lacks sufficient

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35 resources to conduct proper inspection and jobsite monitor- At the other extreme, it is important that specifications ing. There is also a question as to who will monitor in-place not be too stringent for the specified pavement marking markings and how deficient materials and lengths will be material; for example, minimum retroreflectivity levels determined (e.g., the particular inspection or test method) to that are set too high in a paint specification so as to be identify the degree of repair or replacement needed. unrealistic. Performance requirements, scheduling of the work sea- Contractor D is involved in airfield pavement markings, son, and priorities should accommodate differences in and has developed a handbook on the subject for the Innova- climate, geography, and altitude. tive Pavement Research Foundation (IPRF) (Airfield Marking One contractor reported projects where safety-related Handbook 2008). Much of the technical information that provisions were included contractually but not able to be informs airfield practice comes from the highway industry fully enforced because of DOT personnel reductions. The and, in some areas, airfield practice is not as advanced as that contractor preferred that all bidding competitors realize for highways. Examples of areas where airfield pavement that safety provisions will be enforced. Other contractors marking specifications could be strengthened include con- observed that safety and traffic control, as well as inspec- tractor training and certification, greater use of enforceable tions for quality control, were tasks that they or third criteria within civilian and military specifications, and institu- parties could perform on behalf of the agency. tion of more regular, formalized, and comprehensive inspec- tion programs (operations personnel do observe the pavement markings, but may miss a gradual degradation in visibility and Administrative Risks and Risk Mitigation: retroreflectivity). Comments based on the contractor's expe- Project Bonding rience in developing the airfield pavement markings hand- book echoed opinions of highway practitioners; for example, The issue of performance bonds for pavement marking work the importance of minimum retroreflectivity values at instal- drew several different comments. One company was able to lation and during the expected service life, a belief that good obtain bonding for a 5-year period with no issues, although it specifications with enforceable requirements leads to a better admitted that smaller, nonspecific contractors (i.e., those that pavement marking product, and the desirability of moving do not work regularly on particular categories of pavement toward performance specifications and certification pro- markings such as longitudinal striping) might have a problem. grams. It is important that airport design consultants under- Another company found it difficult to get warranty bonding stand the characteristics of both pavements and paints (e.g., to for more than a 2-year period. A third firm mentioned that it specify materials that resist the staining of white paint). generally does not need a warranty bond, although it has had a few jobs that required one, and there were no problems in obtaining one. A fourth firm had considered a job with a Administrative Risks and Risk Mitigation: 5-year warranty. The bonding company would not grant a Specifications bond and the contractor did not bid on the job. The bonding company would have granted one for 2 years, and would have The interviewees supported clear, strong, effective specifica- considered a 3-year bond, but not one of 5-year duration. The tions and proper, ongoing agency inspection and enforcement contractor's relative inexperience with long-line work may of work requirements. In reviewing the comments by different have been a factor in the bonding decision. contractors here, it is important to recognize that their client agencies represent varying levels of experience and degree of The earlier study by Bayraktar et al. provided further comfort with warranties and performance-based contracting insights into the impact of bonding requirements. These find- generally. Some comments thus may refer to agencies that are ings related to highway warranty projects in general, not nec- relatively new to warranties and performance-based specifica- essarily pavement marking projects. Surety companies that tions, whereas other comments reflect experience with agencies responded to the Bayraktar et al. survey were unanimous in that have more mature warranty programs and well-developed their perception that small firms would likely be eliminated on performance specifications. warranty projects. Although the risk evaluation methods used on warranty projects are the same as those used on nonwar- The contractors did not favor projects with "easy" or ranty projects, the risk assessments are not adequate to deal "cookbook" specifications, particularly those that were with the longer-term obligations that warranties entail. Lack- not sufficiently performance-based; that is, specifica- ing appropriate risk evaluation methods, the surety companies tions that did not clearly identify required technical per- prefer to deal with larger contractors, which tend to have larger formance levels for measures such as retroreflectivity, amounts of working capital. Responding to contractor diffi- nor other performance criteria that would define failure. culties in obtaining bonds, the Florida DOT has implemented Contractors noted that slack specifications could also another assurance approach based on the prequalification of lead to unrealistically low bid pricing, which could drive contractors as a condition of bidding, and has eliminated war- a lower installed quality of pavement markings. Con- ranty requirements. Failure to correct problems after project tractors seeking to maintain proper quality might sense completion in accordance with the contract can result in a con- a competitive disadvantage and not bid the job. tractor being removed from the prequalification list. Most of

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36 the state DOTs reported that the warranty bond is required performance. Repetitive violations on projects might be cause when the contract is signed (surety companies would prefer to for a contractor to "sit it out" for a period on future work. Con- issue the bond after the completion of project work), and all tractors reported that some agencies have provisions for con- DOTs noted that the face value of the bond is not reduced. tractor evaluation, but do not apply them, and not every agency Three-quarters of the contractors claimed that they are not con- prequalifies contractors. The interviewees expressed frustration strained by their bonding capacity in bidding and performing when other contractors won a "warranty" project strictly on the work; 25% reported that they are (Bayraktar et al. 2004, 2006). basis of a low bid and then took advantage of the situation. Administrative Risks and Risk Mitigation: Financial Risks and Risk Mitigation Other Topics The interviewed firms discussed two types of financial risk: Contractors raised other topics in warranty administration. (1) having insufficient reserves to fund warranty repairs, and Calendar-based performance periods (refer to Figure 3) are (2) having a situation where agency payments to contractors potentially a problem where geography and climate may through the warranty period are not in step with the pace at reduce the available work time. For example, a mid-May which project costs are incurred. start of the work season may not be realistic at high altitudes, where mountain passes are still subject to snow. It is impor- With regard to the first type of financial risk, interviewed tant that the timing of the working season be coordinated contractors and materials manufacturers plan for a certain between agency and contractors. Another contractor believed amount of repair work and maintain the funding to accomplish that a performance evaluation period from April through that target if needed. It was believed that some agencies use November was too stringent. For materials such as thermo- warranties as a scare tactic, which stresses the relationship plastic, durability requirements actually were more a materi- with the contractor. A balance is needed in relating time to als warranty than a performance warranty. money through liquidated damages. An incentive program is preferred, in which the contractor is awarded additional money Contractors differed somewhat in their reactions to vary- for premium performance--that is, performance exceeding ing methods and styles of warranty contract administration warranty requirements. Combining incentives with measured among agency districts. Some believed that more uniform penalties would keep contractors honest and instill the appro- and consistent practices would be desirable. Another observed, priate negative consequences for those contractors thinking of however, that administrative differences do not affect their not fully complying with the performance warranty. work performance. This company recognized that agencies With regard to the second category of financial risk, dif- are facing a paradigm shift, and the company tries to be open ferent approaches that agencies use to pay contractors for in helping them deal with the transition to warranties. work under warranty--and staged payments or step payments in particular--were presented earlier in the section on agency An agency's approach to administering a warranty con- perspectives. Company M2 mentioned that it has discussed tract was seen by several firms as a potential opportunity for a the subject of financial modeling with agencies--that is, how win-win result. The materials manufacturers both voiced the should payments for a project under multi-year warranty be opinion that the degree of control of a job is an important distributed through the term of the warranty: determinant of quality. Company M2 described its role as providing one-source accountability in fulfilling warranty What is the rationale in scheduling partial payments in specifications. One-source accountability avoids finger-point- the out-years as opposed to paying the contractor fully ing by recognizing and dealing with risks in several areas. in year 1? Conversely, what are the financial and other Good planning, work execution, and keeping on top of things implications of paying 100% up front in year 1 as help ensure that the pavement marking product performs well. opposed to lesser amounts (e.g., 60%, 40%, or 30%)? Both vendors manufacture premium pavement marking mate- What is the limit in first-year payment that an agency rials having standard 4-year warranties, with variations possi- would be willing to pay given demonstrated performance ble case-by-case. The firms prefer to be involved in inspec- on the part of the contractor? tions--they perform their own inspections and are also on site How could payments be staged to be fair to both agency when the agency performs its inspection. Company M2 voiced and contractor? (Contractor A cited an example of a the belief that inspections at 1-year intervals are sufficient for multi-year warranty in which payments extended to out- warranty enforcement, but more frequent inspections--for years, even though most of the contractor's costs occurred example, 2 to 3 times per year--are preferred for internal in Year 1. The contractor decided not to bid the job.) quality control. A contractor favored longer-term contracts as a way of promoting a good relationship with the owner and This matter of staged payments (or step payments) is an achieving greater client satisfaction. emerging issue that will likely take on increasing significance and attract greater industry awareness as more states begin to Prequalification of contractors and materials was believed to use pavement marking warranties and as the durations of war- be a good idea, as is a scorecard or evaluation process on job ranty periods lengthen.