Pay Factors for Asphalt-Concrete Construction: Effect of Construction Quality on Agency Costs

Contractor pay incentives serve two important objectives: 1) they encourage the paving contractor to construct pavements having decidedly superior performance in comparison to those simply meeting minimum specification requirements while, at the same time, maintaining costs at reasonable levels and 2) they provide a rational alternative for dealing with marginally inadequate/adequate construction. Many factors must be considered in the establishment of pay schedules that not only realize these objectives but are also agreeable to both contractor and highway agency alike. The approach taken herein focuses principally on economic impacts to the highway agency. It assumes that an appropriate penalty for inferior construction should be the added cost to the highway agency. It also assumes that the bonus for superior construction should be no greater than the added savings to the highway agency. Smaller maximum bonuses are likely to be necessary to insure budgetary integrity and, coupled with the penalties, may provide sufficient incentive to the contractor for improving construction quality. For new construction, these agency costs/savings are associated primarily with subsequent pavement rehabilitation. Inferior construction hastens future rehabilitation and may increase the cost of rehabilitation as well. As a result, inferior construction increases the present worth of future rehabilitation costs. Superior construction, on the other hand, reduces the present worth of these costs largely by deferring the future rehabilitation. The difference in present worths of rehabilitation costs, as constructed versus as specified and as expected, provides a rational basis for setting the level of penalty/bonus for inferior/superior construction quality.