Twenty-year warranty—TH 371
In a time of tight funding, DOTs need innovative ways to finance their programs. Warranties, explained Tom Ravn of Mn/DOT’s Office of Construction and Innovative Contracting, are under consideration as a way to spur new technology and knowledge development and achieve a higher performing road at a lower life-cycle cost.
One recent example is a $62 million, 20-year warranty that the New Mexico DOT purchased several years ago from Koch Industries. Maintenance costs savings of $89 million were projected for the 118-mile corridor, Ravn said.
In the fall of 2003, Mn/DOT solicited projects that might be suitable for warranties. A six-mile stretch of TH 371 from Little Falls to Camp Ripley was selected, and a contract was implemented with Koch, which put together specs for a typical section.
Mn/DOT then began negotiations with Koch for a 20-year warranty for the project, but a number of concerns arose. One was the maximum liability limit, which typically is 1.5 times the warranty cost. "Some people have a hard time with that concept," Ravn said. Another was the limit on Koch’s inflation risk clause (approximately 3 percent per year), which protects Koch from spikes in bituminous costs.
Because New Mexico’s corridor is already experiencing some heaving and cracking problems, another difference of opinion was what would happen when problems occur: Would fixes be short or long term? Would costs of closing the road to users be included? Other disagreements were whether bonding costs and expenses such as pavement rating would be applied to the maximum liability limit. "It surprised people in New Mexico when they found out what kinds of costs were being applied to that maximum liability limit," Ravn said.
"None were deal breakers," he explained, but the parties weren’t able to reach an agreement. The approach didn’t work here, he believes, because the roadway chosen had a good subgrade and didn’t include a lot of challenges, so "a warranty didn’t add a lot of value to the project."
Still, Ravn said, it was "good to go through the process, and it was not a wasted effort at all." Mn/DOT will build a section designed by Koch with some minor revisions, using oils not typically used and building a wider base course to support shoulders. The department was exposed to a different structural pavement design approach by Koch, as well as "radically different" quality assurance/quality control specs, part of which may be incorporated into future projects. Mn/DOT will also compare maintenance requirements for this section of road with adjacent sections.
Top Mn/DOT staff will be meeting to determine the short- and long-term direction for warranties, he added.