Development of Performance Warranties for Performance Based Road Maintenance Contracts
Ozbek, Mehmet Egemen
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Performance based contracting in the transportation arena is a rather recently implemented concept which has a few number of applications in the United States up to date. Nonetheless, the US Department of Transportation has vigorously promoted (by issuing memorandums to be distributed to the Highway Agencies and State Departments of Transportation) the conversion of traditional contracts to performance based contracts to reach a goal of 80% of the service contracts and actions being performance based by the end of fiscal year 2004 (Tomanelli 2003.) Virginia Department of Transportation (VDOT) has been one of the first state agencies that took the initiative of using a performance based contract for the maintenance of a portion of its interstate highway system. This initiative resulted in the establishment of the "Comprehensive Agreement for Interstate Highway Asset Management Services" between VDOT and a private contractor in 1996 which resulted in the privatization of highway maintenance services. One of the important aspects of this contract related to this research is that it does not encompass any warranty clauses. In other words, the contractor does not provide any warranty to the VDOT for the services it is obligated to undertake. The contract is mute in this subject, making the contractor incur no liability for the underperformance of the maintenance activities. According to this research, this might lead to some cases which VDOT would not be willing to encounter. Just like performance based contracting, the use of warranties in highway contracts in the United States is a quite new concept which mainly dates back to 1995. There are different views possessed by different parties about the possible outcomes of implementing warranties in highway contracts. Nonetheless, this research proposes that the incorporation of warranty clauses into the VDOT issued performance based road maintenance contracts is vital to ensure the quality and durability of the work after the project completion. According to this research, warranty clauses, if developed carefully, give the contractor the motivation to implement superior maintenance practices to improve the overall conditions of the assets during the contract period. This is done in order to lengthen the life of each asset item and achieve the long term performance. Ultimately, the incorporation of warranty clauses is believed to reduce the risk imposed upon VDOT. Within the context of the discussion presented above, this research first illustrates that the complete satisfaction of one of the parties (VDOT) may be in question due to the absence of the warranty clauses within the contract, then lists and explores the benefits that would/may be gained by the incorporation of warranty clauses into the contract, and finally develops a warranty clause template and proposes it to be used in the future performance based road maintenance contracts issued by VDOT. At the bottom line, this study aspires to help the party in question (VDOT) to reduce the risk imposed upon it and to improve the future performance based road maintenance contracts it will issue. This research uses the VDOT contract as a baseline to define the problem and to propose a solution (i.e. the developed warranty clause template) for that. Nonetheless, some of the principles and approaches used during the development of the warranty clause template can also be referred to for the development of warranty clauses for the performance based road maintenance contracts issued by the other state DOTs.
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