Effects of Pavement Spatial Variability on Contractor’s Management Strategies

Performance-based maintenance contracts are becoming an increasingly popular method of outsourcing pavement maintenance work. These contracts transfer performance-related risks to contractors with the objective of reducing the total cost of maintenance over the pavement life cycle by leveraging on the efficiencies of private sector management. In such contractual settings, transportation agencies hedge their exposure to poorly performing pavements that require frequent attention. However, this comes with a price. Contractors price in their bids a premium to account for such scenarios. This paper presents a model for contractors to determine optimal management strategies by taking into account the inherent spatial variability in pavement's structural characteristics. The model considers a tradeoff between economies of scale associated with managing longer pavement sections and the risk reduction benefits with managing relatively smaller, e.g., more homogeneous sections. The results indicate that the length of optimal management sections depends not only on the expected contract penalty costs (disincentive costs), but also the ability of the contractor to explore economies of scale. The model is illustrated using typical data available to transportation agencies.