Performance Warranties for Roads: An Idea Whose Time Has Come

Almost any new appliance comes with a warranty. If the product is defective, you can usually take it back to be fixed or replaced at the expense of the manufacturer or the seller. Likewise, most new cars come with warranties. In fact, most of us wouldn’t think of buying an appliance or a car that came without one. Why should it be any different with the roads we as taxpayers buy?

Performance warranties on highway projects, already used in at least 10 states and eight European countries, are becoming a hot topic in Michigan. The quality of Michigan road construction has been generally good but instances of poorly built roads deteriorating quickly are fueling the warranty discussion. The Michigan Transportation Commission has endorsed the concept and the Michigan Department of Transportation (MDOT), which has used warranties for road materials and workmanship in the past, is seriously considering how to put them in place for entire road construction projects. Some at MDOT would like contractors to guarantee their work for 10 years and be fully responsible for repairing roads that fall apart before the warranty expires.

The proper duration of a warranty for a particular stretch of road—whether 7 years, 10 years, or whatever—depends on factors that include the expected usage by motorists. And the state should not implement a warranty policy without examining how its own design specifications and contract terms can sometimes thwart contractors’ best efforts to build durable roads. Contractors can’t warranty poor designs. But the notion of some type of performance guarantee is unassailable. Taxpayers and road users have a right to get good value for their dollars and should not be poorly serviced by roads that have to be torn up and replaced every two or three years.

The experience with road warranties in neighboring Wisconsin demonstrates that they can work well. In 1995, the Wisconsin Department of Transportation (WisDOT) began implementing five-year warranties that required asphalt contractors to perform corrective work whenever a predefined “distress threshold” was exceeded. In June 2001, WisDOT issued a five-year progress report whose findings are full of lessons for Michigan.

The WisDOT report declares that its warrantied pavements are “performing better than typical pavements” and, by its best estimates, actually cost less per mile than standard (nonwarrantied) projects. Warrantied projects require less supervision and testing than standard projects, thereby reducing the state’s costs and giving motorists more value for their gas tax dollars. Wisconsin has carefully crafted its warrantied contracts so they still allow contractors to innovate in quality management, construction practices, and the use of additives. The report’s bottom line: “Warranties appear to be a superior means for delivering asphaltic pavements to the public.” There’s no reason to believe that if done right, some type of warranty would not work for concrete as well as asphalt, and in Michigan as well as Wisconsin.

Incentive provisions, now under consideration in Wisconsin, could be included in Michigan warranty contracts to reward builders for speed in construction and exceptionally good performance. When California offered such incentives after the devastating 1994 Northridge earthquake, contractors rebuilt damaged roads in record time and ultimately saved the state considerable sums of money.

There are other reasons to consider performance warranties for road construction. One is that retirements and needed cuts in state government spending have reduced the size of MDOT’s staff. A smaller bureaucracy simply must modernize the way it provides roads for Michigan motorists and commerce. Transferring more responsibility (and liability) for quality road construction and repair from MDOT to private contractors is an important step in that direction.

Another reason is Michigan’s state and local tax burden, which exceeds that of 35 states. Greater value for road dollars can obviate or reduce the need for even higher taxes and make Michigan’s tax climate more competitive.

Finally, Michiganians need a reason to be confident that their hard-earned tax dollars are being well spent. Performance warranties would provide such a reason. When Gov. Engler fills two vacancies on the transportation commission this year, he should choose people who support warranties and have a pro-consumer perspective.

As long as keeping Michigan roads in tip-top shape is a state responsibility, the state should use contract innovations like performance warranties to meet its obligation.

(Joseph G. Lehman, P.E., a registered professional engineer in the state of Michigan, is executive vice president of the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. More information on Michigan government is available at www.mackinac.org. Permission to reprint in whole or in part is hereby granted, provided the author and his affiliation are cited.)