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14 Pavement life-cycle therefore, FHWA's current recommendations on LCCA strategies (see Figure 4) procedures for estimating life-cycle costs for pavement alter- natives should be used. Determine LCCA framework LCCA parameters 4.3.1 Direct/Agency Costs Direct/agency costs include the physical costs of pave- ment activities (initial construction/rehabilitation costs and Historic bid Estimate Estimate future M&R costs), salvage value, and supplemental costs. tabulations/ actual costs direct agency costs road user costs Routine reactive-type maintenance costs typically are ignored because they generally are not very high and not substantially different between pavement types (Walls and Smith 1998). Compute NPV of Compute NPV of agency costs road user costs Physical Costs of Pavement Activities Physical cost estimates are developed by combining quanti- Next step: ties of construction pay items with their unit costs. It is impor- see Figure 15 tant to obtain sufficient and reliable unit cost data from available sources, such as historical bid tabulations. Recent Figure 8. Evaluation of life-cycle costs. highway projects, undertaken within the last 5 to 7 years within the region, are preferred sources for historical cost data. These data often are compiled and summarized on a regular basis for are randomly drawn from the defined frequency distributions, project estimation purposes. and the selected values are used to compute one forecasted Unit cost estimates can be derived from the unit price life-cycle cost value. The sampling process is repeated hun- data of the lowest bid, three lowest bids, or all bids tendered dreds or even thousands of times, thereby generating a on similar projects. Each average unit price must be adjusted "pseudo-population" of forecasted life-cycle cost values for to the present day to account for the effects of inflation, the pavement strategy. The resulting forecasted costs are ana- and consideration should be given to filtering out prices lyzed and compared with the forecasted results of competing biased by projects that included atypically small or large alternatives to identify the most cost-effective strategy. quantities of a particular pay item. Using inflation-adjusted It is proposed that the probabilistic LCCA computation and quantity-filtered unit price data, the mean cost of each approach be used when reliable historical data exist to model pay item, as well as key variability parameters (standard one or more of the input parameters (e.g., standard devia- deviation, range), can be computed for use in the economic tions of discount rate, unit costs, pavement service life). analysis. The effect of cost adjustment factors on the final These data can be obtained from agency files (variable bid cost of the pavement should be evaluated when bid tabula- prices, survival analysis of pavement lives to get means and tions are used. standard deviations and annual discount rates over time). Cost-based estimates can be used in situations where the If such data cannot be obtained, a deterministic approach historical bid-based estimates are not available or defendable. should be used. Examples of such situations include projects with unique characteristics, new materials/technologies, geographical influ- ences, market factors, and the volatility of material prices. A 4.3 Estimation of Initial combination of cost-based and historical bid-based estimates and Future Costs also can be used. Pavement industry groups can be consulted The estimated life-cycle costs are used in the economic to help identify appropriate data sources for cost-based esti- analysis to identify the most cost-effective pavement alter- mates. Engineering judgment must be applied wherever native. The life-cycle costs include direct costs incurred by necessary. the agency for initial construction and future M&R activ- The time from completion of estimate to bid advertisement ities, as well as costs incurred by road users. Only the dif- should be as short as possible to reflect market prices at the time ferential costs of alternatives are considered to evaluate of construction, while allowing sufficient time for internal whether substantive differences can be identified among review. If necessary, the cost estimates should be updated before competing alternatives. Guidance on LCCA is evolving; bid advertisement.

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15 Salvage Value design traffic loads to the cumulative traffic to date, with the difference between these values representing the remain- Salvage value is the estimated value of a pavement asset at ing life of the pavement. Another method is to perform struc- the end of the analysis period. It includes two components: tural capacity testing and compare the measured value with structural design limiting criteria to determine the remaining Remaining service life. The structural life remaining in the life of the pavement. pavement at the end of the analysis period. Residual value. The value of the in-place pavement materi- als at the end of their service lives less the cost to remove and Supplemental Costs process the materials for reuse. Supplemental costs, applicable to anticipated future M&R events, can be grouped into three categories: Salvage values are used in the economic analysis, as the in- service performance of different alternatives depreciate at Administrative costs. Contract management and adminis- different rates. The end of the analysis period very often does trative overhead costs. not coincide with the end of the alternative's service life. On Engineering costs. Design and construction engineering the other hand, the residual values are different for compet- costs, construction supervision costs, and materials testing ing alternatives but not very large; when discounted over the and analysis costs. analysis period, the residual values generally have little effect Traffic control costs. Traffic control setup and communi- on the NPV. cations costs. One method of determining the value of a pavement's remaining life is to determine the depreciated value (at the end If these costs are approximately the same for different alter- of the analysis period) of the costs of initial construction and natives, then these costs can be ignored. Because estimating subsequent M&R. Depreciation is an accounting term used to these costs can be difficult and time-consuming, an alternative attribute costs across the life of the asset. Straight-line depreci- method to consider is to specify them as a percentage of the ation is the simplest and most commonly used technique for total project-level pavement costs. estimating salvage value at the end of the analysis period. Depreciation can be applied to both the structural and func- 4.3.2 Indirect/User Costs tional life components of a pavement (see Figure 9). A func- tional improvement cost relates to those treatments that do not Although borne by highway users, the user costs are given add structural capacity. Typically, this includes preventive and serious consideration by agencies, since an agency acts as the corrective maintenance and improvements to the pavement proxy for the public. User costs are an aggregation of time delay ride, such as surface treatments, thin overlays, and localized costs, vehicle operating costs, crash costs, environmental costs, mill-and-fill treatments. In computing the depreciation of and discomfort costs associated either with work zones or any functional treatments, the life of the functional treatment can- time during normal (nonrestricted) operating conditions. In not exceed the structural life of the pavement. many instances, since the absolute value of user costs of the The structural remaining life of the pavement can be deter- project far exceeds the direct-agency costs, user costs are eval- mined by several methods. One method is to compare the uated independently without combining with the direct costs. Analysis period Improvement cost $ Functional Structural treatment addition Value of remaining life Pavement Age, years Remaining life Annual Depreciation = Cost of Improvement / Life Span Figure 9. Example of depreciation curves for structural and functional improvements.