Guidelines for the Use of Pavement Warranties on Highway Construction Projects (2011)

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45 Pavement warranties for roadway construction have been used in the United States for more than 100 years. Since the passage of a 1995 federal rulemaking on warranties, however, warranty use on DOT construction projects has accelerated dramatically, and the use of pavement warranties for HMA and PCC has grown significantly in the past 10 years. The majority of these are relatively short-term materials and workmanship warranties used in conjunction with the traditional low-bid method of contracting. However, a few DOTs have used or experimented with long-term performance warranties in con- junction with design–build or alternative contracting methods or maintenance agreements in line with practices common in Europe and other parts of the world. Literature, survey, and workshop findings indicated that the primary objectives for warranty use are to improve product performance and enhance project quality. Other important objectives are to ensure compliance with specifications, increase contractor responsibility for the work, promote innovation or new technologies, and improve life-cycle performance. The findings also revealed that there were three types of warranties currently in use, each with unique objectives and considerations for a project. Additionally, few agencies had developed formal guidelines for project selection or warranty implementation. DOTs that did refer to formal detailed guidelines, such as Caltrans, used guidelines designed for a specific type of war- ranty (materials and workmanship) and category of project (pavement preservation). Additionally, several states delegated authority for the application of warranties to the district level, resulting in variations within the DOT organization in terms of how pavement warranties are applied. With a limited number of formal guidelines, the research team performed content analyses of pavement warranty specifications to better classify the type of warranty typically applied by the DOTs using pavement warranties. Types of warranties applied ranged from 1-year materials and work- manship to 25-year performance warranties. The decision to use a specific type of warranty was often determined by programmatic considerations such as the DOT’s ability to use alternative contracting, the DOT’s ability to develop and implement performance specifications, the availability of bonding, and the expected level of competition. Additionally, the research team categorized the types of projects in which DOTs typically applied warranties as part of the project selec- tion criteria. Results showed that warranted projects ranged from rural to urban and included preservation applications, rehabilitation projects, and new construction. It was apparent based on the literature review and target interviews with experienced DOTs that the decision to apply a warranty involved a combination of programmatic issues and project-level selection criteria. A three-part warranty decision tool was developed to address both the programmatic and the project-level selection criteria. It was determined that warranties can be applied to a wide range of projects with successful results as long as the DOT aligns its stated goals or objectives with the type of warranty that would have the greatest likelihood of or least risk in achieving those stated goals or objectives. DOT experience with developing warranty provisions was further summarized and issues or lessons learned that affected the implementation of warranties were outlined. These included selecting appropriate performance indicators aligned with warranty type, determining minimum thresh- olds or ranges based on DOT objectives and experience, and determining how remedial or corrective actions are defined and handled. As a preferred practice, joint industry–DOT work groups have developed performance thresholds using historical experience or model projects. With more experience, some DOTs plan to refine thresholds to better reflect actual performance. In some cases, contractors have proactively performed elective maintenance to avoid callbacks and reme- dial work, and there is evidence that contractors are more willing to improve the initial quality of work to avoid potential remedial action in the future. The implementation of warranties often changes risk allocation and traditional roles and responsibilities, particularly C H A P T E R 4 Conclusions and Recommendations

those related to inspection, quality control, and testing. DOTs have different views on shifting this responsibility to the private sector. The DOTs that have shifted greater responsibility for inspection and quality management to the contractor have reported significant savings in resources. This reallocation appears more likely to occur when warranties are used in con- junction with design–build or other alternative contracting systems that shift greater control to the contractor for design and construction. The use of warranty bonds to secure performance during the warranty period has been a standard industry practice in the United States, but in some states this practice has resulted in reduced competition or lack of bids. Sureties have also not provided bonds for longer-duration warranties, limiting their effectiveness and leading some DOTs to explore alter- natives to bonding. These alternatives include extensions to the performance bond, warranties tied to prequalification, graduated payment, and other strategies designed to reduce the cost to and burden on the contracting community. The specific outcomes of this research project were (1) to develop a project-level selection tool for DOTs to aid in the selection of candidate projects for warranty application, (2) the development of best practice guidelines incorporating the selection tool and various other programmatic and project- level considerations for the implementation of pavement warranties, and (3) the development of model technical provisions for both HMA and PCC pavements. The selection tool, guidelines, and model technical provisions developed as a product of this research are intended to address issues in the development and implementation of warranties for highway construction and strategies that will garner greater support from the industry and improve the overall implementation and effectiveness of warranties. Recommended actions to improve warranty implementation are • Development of definitions and guidance for understanding and applying warranty types; • Development of a decision tool for project selection and warranty application; • Use of consistent, reliable historical data to set performance thresholds and balance risk; • Alignment of key performance indicators with PMS data to streamline the warranty monitoring and evaluation process; • Clarity on exclusions and remedial actions, such as the level of repair expected for remedial actions and the materials and techniques that may be used; • Further development of and experimentation with alterna- tives to bonding to promote competition; • Use of alternative contracting in conjunction with warranties to allocate contractor responsibility for performance, to promote innovation, and to implement long-term warranty durations; and • Use of model pavement warranty technical provisions to promote consistency in how specifications are drafted, and suggested language to promote clarity in terms of contrac- tual obligations and roles and responsibilities based on warranty type. In the larger context of performance specifications, short- term Type 1 and 2 warranties represent a transition between prescriptive or material and method specifications and per- formance specifications in the sense that warranty provi- sions do not encompass the pavement life cycle or include all the factors that contribute to performance. These warranty provisions for pavements typically exclude subbase, drainage, and embankment features or other factors related to pave- ment design or construction methods that may affect per- formance. However, as DOTs gain experience with long-term performance warranties or maintenance provisions found in design–build–maintain or PPP agreements, most if not all of the pavement features and factors that affect pavement performance will fall under contractor control. This will require a fundamental shift in risk allocation, contracting and surety practices, and business culture before it becomes more commonplace in the United States. Research is needed to better understand life-cycle costs, predict the factors affecting long-term performance, and change contracting and business models before Type 3 performance warranties will be more commonplace and widely implemented in the United States. Warranties have a long history of use for maintaining and enhancing quality on highway construction projects in the United States and elsewhere. By improving where and how pavement warranties are implemented, owners, contractors, and highway users can realize tangible and long-lasting benefits from their use. 46