Cost-effectiveness evaluation of warranty pavement projects

Warranty contracts are expected to enhance product quality and service life at lower life-cycle cost. Recognizing that such benefits could be offset by the generally higher costs of warranties, an assessment of the relative cost-effectiveness of warranty contracts compared to their traditional counterparts is currently of great interest. Using pavement data from Indiana, this paper evaluates the costs, effectiveness, and cost-effectiveness of warranty and traditional contracts. Effectiveness was measured in terms of pavement condition and treatment service life. The paper determined that the warranty contracts generally had higher agency costs but produced pavements with superior condition and service life, and lower construction periods and work-zone user costs, compared to their traditional counterparts. Over a 5-year period, the warranty contracts were found to be 27-30% less cost-effective than their traditional counterparts. Over the long term, the warranty contracts were found to be 70-90% more cost-effective on the basis of service life and 58-65% more cost-effective on the basis of both service life and pavement condition. The study results suggest that the higher long-term cost-effectiveness of warranty contracts is more perceptible when both cost and effectiveness are viewed over the entire life of the pavement treatment and when both agency and user cost are used in the cost analysis. The paper discusses certain aspects of such comparative evaluation studies that could lead to biased inferences and calls for careful screening of warranty and traditional contracts for such studies.