IMPLEMENTATION OF WARRANTED ITEMS

IN STATE OF OHIO HIGHWAY

CONSTRUCTION PROJECTS

EXECUTIVE SUMMARY

In response to House Bill 163, effective July 1, 1999, a set of warranty contract documents have been developed for implementation in highway construction projects. These documents also meet constraints of federal rules for federally funded highway projects. The contract documents were developed by teams of Ohio Department of Transportation (ODOT), Federal Highway Administration (FHWA) and affected industry personnel. Included in the development was a review of warranty practice for highways around the country by interviewing all 50 states Departments of Transportation (DOTs). Of course, most said, "good luck and let us know how you make out".

The implementation of warranties in a low bid contracting environment presents many potential benefits and challenges. Many are obvious and many are not. The most important obvious benefit to be achieved, if properly specified, is better product performance which means better use of taxpayer money and less impact on highway users due to closures for repairs. A second obvious benefit is the ability for industry to use it's knowledge more productively. Primarily this means an attitudinal shift from 'getting in and getting out' of a project to getting in, getting out and doing it the best we know how.

Some challenges associated with implementation of warranties can be substantial.

For industry, the ability of any company to carry substantial bonding on multiple items on multiple projects for up to 7 years per bond is in question. As well, smaller companies will have a very difficult, if not impossible, time obtaining any bonding, thus eliminating them from warranty contracts. This is significant to Ohio industry when little correlation exists between company size and work quality. Also a challenge for industry are the unknowns associated with being evaluated on performance. Contractors haven't had to be measured for performance many years into the future before and therefore have limited knowledge of what to expect is some cases.

For the bonding companies much reservation exists. While most concede bonds are obtainable in today's growing market there are tremendous unknowns in the quick implementation of warranties in highway projects making it very difficult for bonding companies to determine their risks associated with selling bonding. As well, when the market turns downward what impact will this have on the ability or willingness to bond or on buying bonds?

For ODOT the most significant challenge is in the development of meaningful contract documents that will allow the industry flexibility in construction practice while not giving up standards which exist to ensure desired product quality. In a low bid contracting environment, should these standards not be maintained or improved, quality will decrease.

With the above in mind ODOT and industry have worked diligently these past months to develop a process to implement the legislated warranty requirements. The warranty contract documents are currently being selectively applied to highway projects to meet the bill requirements for fiscal year 2000. This process will progress with project sales to July 1, 2000. Following this a report will be written conveying impacts, costs, and expected success of the warranted projects. With this limited experience adjustments to contract documents will be made for meeting the final requirement of a warranty on all controlled access, multilane pavements in 2001 as well as application of other warranted items in ODOT contracts. ODOT sees at this point no major obstacles to successful implementation of warranties.

TABLE OF CONTENTS

Page
Executive Summary
Introduction and Background 1
National State of Practice
Opportunities and Challenges
Development and Implementation
Tables
Table 1 Warranty items, Periods & Criteria
Table 2 Warranted and performance items list/status
Appendices
Appendix A Warranty Requirements, Ohio H. B. 163, 7/1/99
Appendix B State DOT Contacts
Appendix C Industry Comments

INTRODUCTION and BACKGROUND

As required in House Bill 163 passed by the Ohio House of Representatives, this report is written to convey plans for implementation of warranty provisions of the bill in ODOT contracts.

The process to achieve implementation takes into account the history and use of warranties around the country as well as in Ohio.

Discussions in the late winter of 1999 between State Representatives, ODOT administration and the contracting industry resulted in the drafting of what would become warranty provisions in House Bill 163. The bill was sponsored by Representative Core in the 123^rd General Assembly and became effective July 1, 1999. The warranty provisions are in a temporary law section and a permanent law section. The warranty sections of the bill are in Appendix A.

The temporary law section requires this implementation report which shall contain the number and type of projects meeting the permanent law requirements. Finally, a separate report of implementation and analysis is due by December 31, 2000.

The permanent law section sets forth the volume of warranty projects and minimum warranty periods, depending on the items. Two categories for volume are used; capital construction projects and capital construction program. The first requires one-fifth or 20% of projects which simply means all construction project contracts (Federal or State). The second requires one-tenth or 10% of the ODOT program value in dollars.

As well, the permanent law section sets forth the minimum warranty period for specific warranty items. Newly constructed pavement (asphalt or concrete) shall have at least a seven year warranty. Rehabilitated pavement shall have five years minimum. Other items for warranty are up to the discretion of the director beyond those listed for a two year warranty.

Some minor language concerns do with the legislation. One is with the suggested items for a two year warranty. In retrospect a couple of these items are not practical candidates for warranty while other items may be good to add to the list. Also, some definition could be added for preventative maintenance as some disagreement over the intent exists between industry and ODOT. These minor concerns will be pursued thru recommendation at a later date.

The entire bill can be located on the web at: http://www.legislature.state.oh.us/bills.cfm?ID=123_HB_163

The idea for warranties in highway construction has been around thru the 1990s. Warranties for highway construction have been used in Europe for many years. Although the contracting environment in Europe is quite different from the United States many of the benefits of warranties are still desirable. Should the current limitations of contracting practice in the U.S. not be an obstacle those benefits will be realized. To allow for a look at warranties the Federal Highway Administration (FHWA) in 1995 approved a means for states to use warranties in highway projects with federal funding. The FHWA rule stated that warranty provisions must be for a specific construction product or feature, routine maintenance items are not eligible, and warranties are prohibited for items not within the control of contractors.

ODOT has some experience with warranty development in the US. In 1992 ODOT participated in the development of an early FHWA warranty contract document for a specific type of pavement treatment. In 1996 ODOT, as a result of an ODOT quality initiative, began development of an asphalt pavement warranty for use on pilot projects. Utilized at that time for some guidance were contract documents developed in Wisconsin and Indiana. In 1997 three projects were sold using the new Ohio warranty specification for asphalt. In 1998 one additional project was sold with the same specification.

The lessons learned from these early experiences have been applied to new contract documents for implementation of warranties.

NATIONAL STATE OF PRACTICE

Beyond trial warranty projects constructed around the country in the 1990's little has been accomplished nationwide to move warranties forward in order to determine their full practical impacts on quality levels and contracting practice. Appendix B shows the existing practice for warranties for all fifty states as of this year based on the DOT representatives we conversed with. All projects encountered have warranted only one specific construction feature. The warranty duration ranged from one year to five years. Construction on most projects was completed between 1992 and 1997. Most projects have federal aid funding and are constructed on high traffic volume, interstate highways. Note that while there were constructed projects, particularly in states such as Wisconsin and Michigan, all, with the exception of Michigan for specific items, are in a trial phase only and are moving very cautiously.

Copies of those states' contract documents for trial projects were obtained and reviewed for innovative techniques and potential application. Not surprisingly, identical implementation challenges existed with all the states reviewed as did with Ohio. In the final analysis ODOT, industry and suppliers had to sort thru all the major issues of warranty contract document development. The possible outcomes of poor warranty contract document development are significant. Should the warranty contract document be too restrictive to construction companies a heavy cost to the organization might be unduly incurred. Should the contract documents be too loose contract bidding pressures will, in time, produce quality in some cases inferior to current quality levels.

In summary, the use of warranties in state contracts for highway construction is a new and innovative practice to all and careful consideration at all phases is necessary.

OPPORTUNITIES AND CHALLENGES

Opportunities

• The most significant potential benefit from warranties expected by ODOT is the increased quality of products in highway contracts.
• Warranties provide assurance to ODOT that the contractor will correct early failures. This in turn reduces costs of early maintenance.
• Use of warranties will encourage innovation. Contractors will be able to utilize their existing personnel and knowledge to a higher degree than before.
• Use of warranties will instill a higher focus on overall project quality as a part of the contractor's construction process.
• Large construction companies will be less risk to surety companies and will enable success with the warranty program.

• The use of warranties may not always improve overall quality for some warranted items. In a low bid contracting environment the trend will be to minimize cost once contractors learn where to be less attentive and still meet warranty requirements.
• The impact of warranties on the contracting industry is not fully known. Smaller companies who have a record of good work for ODOT will have a more difficult time obtaining and carrying bonding than larger companies.
• The potential for increased litigation exists. This could hurt widespread adoption of warranties.
• An entire project of many construction items is not covered under a blanket warranty. Since a contract is only with a prime contractor enforcement of an individual warranty feature constructed by a subcontractor is unclear at this time.
• The surety companies expressed concerns with the bonding periods and capacities for any company performing multiple projects. All risks to them are unknown as it is completely new to them.
• Warranties are only as good as the contractor and the surety company involved. Both can leave the business in a warranty period.
• The product design period may be much greater than the warranty period. As such, ODOT has maintenance responsibility for the product for the majority of the product life and yet is faced with giving up much in the way of traditional design criteria for the contractor to do warranty work.
• Can ODOT warrant the existing conditions on a project? Can traffic and loads be accurately accounted for and what impact will illegal loads have on a warranted project? Will these unknowns hold up in litigation?
• True analysis of initial cost and total project life cost vs maintenance savings are completely unknown at this time. Few warranty projects around the country have been in place long enough to make definite conclusions on cost/ benefit.
• Will contractors be able to acquire the technical expertise to accomplish warranty work if not a part of a company presently?

DEVELOPMENT and IMPLEMENTATION

Implementing warranties for any product for highway construction involves pulling all of the resources and knowledge of an agency together for the best chance of success and minimizing risk. However, the contract documents cannot be successfully developed and contracts cannot be sold and successfully applied without full input from industry, suppliers and surety companies.

Contract Document Development

To reach the goal of implementable contract documents for warranty products used in highway construction each warrantable item must be addressed individually considering all associated risks and goals. As such, ODOT undertook meeting or exceeding the requirements of the legislation by forming teams of individual experts from within ODOT and from industry. These work groups then somewhat independently undertook the task of meeting over a several month period to arrive at acceptable warranty criteria for each warranted highway construction item. It is estimated that to date nearly 50 separate planning meetings and over 225 individuals from ODOT, industry and suppliers have met to address the development of these individual warranty items. As well, common contract language for warranty methods and processes were developed that could be applied to most warranty items.

Table 1 shows the developed warranty items with criteria and warranty periods. Table 2 gives the items and current status of development.

Two items are not in Table 1 that were required in the legislation. These are raised pavement markers and guardrail. Raised pavement markers are removed every few years for reflector replacement. A poor installation warranty method already exists thru a different contract procedure. Guardrail is not a good warranty candidate. The tests for quality are more efficiently performed in a lab as a means of pre-qualification than in the field. Since installation of guardrail is a major safety issue the installation must be checked prior to project completion. ODOT has never experienced a good installation go bad later.

Table 1

Warranty Items, Periods & Criteria

Item	Spec #	Period	Application	Criteria
Asphalt	SS 880	5 / 7 years	Designed rehabilitated/new pavement 3 inches or greater overlay thickness	Cracking-500ft/.25 inch, disintegrated areas-none, flushing-125SF, previous patching-300SF, rutting-.25in 5yr, .38in 7yr
Asphalt??	SS 890	3 years	Other overlays on multilane, divided, trial	Disintegrated areas-none, previous patching-300SF, rutting-1yr
Concrete	SS 884	7 years	Designed pavement structure	Cracking-see SS 884, disintegrated areas-1SF, faulting-3/16in, joint seal-none
Deck Overlay	SS 892	2 years	First overlay only	Popout-none, Delamination-none
New Deck	SS 893
Bridge Paint	SS 885	5 years	Any place old spec used	Visible rust, blisters, peeling, scaling, slivers, mis-applied over debris etc, incomplete coating, coating damage by contractor
Microsurfacing	SS 881	3 years	For average to good existing conditions	Bleed/flush-300SF, loss-120SF, raveling-300SF, rutting-.25in
Chip Seal	SS 882	3 years	Same	Patterns->40%, bleed/flush->5%, loss>10%/>20%
Hot Recycling	SS 886	3 years	Same and good structure	Disintegrated-none, flush-125SF, previous patch-300SF, rut-.25in
Crack Seal	SS 825/925	2 years	For average to good existing conditions	Debond->1% linear in 10 joints, or any > 2 FT
Saw & Seal	SS 889	2 years	As part of rehab overlay	Missed joint-none, same as above
Pavmnt Marking	SS 887	1,3,5 years	Depends on marking type	reflectivity, color fade, material loss
Landscape??

Table 2 Status list of warranty/ performance items - as of Sept 10, 1999

Asphalt: (5 and 7 year, working on probable 3 year; different applications)