Quantification of Risk Cost Associated with Short-Term Warranty-Based Specifications for Pavements

Abstract

To reduce overall costs and improve quality, many state highway agencies have begun investigating innovative contracting methods. One of the most important types of such innovative methods is warranty-based contracting. This method is tailored to shift performance-related risk from the agency to the contractor by means of warranty provision. Although the application of the warranty-based contracting method allows for a win–win situation in which agencies hedge the performance-related risk and contractors have more flexibility in design and construction process, there are many concerns about its implementation. One of the most important concerns is quantification of risk cost. A methodological framework was developed to quantify the risk cost, and decision-support models that can be used to analyze short-term performance warranties were formulated. The proposed methodology considers the characterization of the warranty system, the development of a structural reliability performance model based on the method of moments, and the formulation of two decision-support models: the risk cost model and the optimal warranty-based design model. To illustrate the methodology, the development of the proposed decision-support models is presented, along with the current AASHTO design method for flexible pavements, followed by a numerical example that demonstrates the results.