Chapter 2: Use of Warranties in Europe

European highway agencies are not so different from U.S. agencies. European transportation systems have growing capital project needs as well as a backlog of maintenance needs. They face many of the same political, financial, societal, and environmental challenges found here in the United States. One major difference, however, is the use of asphalt pavement warranties. Asphalt pavement warranties are a fixture of the European highway contracting structure. In the European countries visited by the scan team, warranties of varying lengths have been used for 10 to 40 years. In fact, many of the European hosts, most notably in Germany and Denmark, could not answer questions concerning the impetus for their warranty programs because the programs were initiated before they were born.

This chapter of the report introduces the fundamental warranty concepts used in Europe and being implemented in the United States and provides a context for the highway industry in Europe. It presents a set of definitions that are used throughout the remainder of the report. The context of the transportation community is then summarized for each of the counties visited. For better understanding of warranty use, the chapter presents the key aspects of how transportation is positioned within the political, economic, and technological structure. It provides items such as funding, owner structure, market structure, market competition, contractor associations, use of public-private partnerships, and the roles and responsibilities of the primary stakeholders in the transportation life cycle. Lastly, the characteristics of European asphalt pavement warranties are summarized for reference throughout the remainder of the report.

Warranty Definitions

Numerous different types of warranties have evolved in Europe and the United States. The following definitions describe the general categories of warranties (adapted from Anderson and Russell 1998; Colorado DOT [CDOT] 2001; Hamilton 2001).

Warranty: A type of performance-based contract that guarantees the integrity of a product and assigns responsibility for the repair or replacement of defects to the contractor.

Warranty period: The prespecified time in which the contractor is required to repair defects in the product. Warranty periods vary by type of warranty and type of product. The ideal warranty period should be long enough to provide assurance of pavement performance, but not so long as to unnecessarily inflate contract prices.

Materials and workmanship warranties: The contractor is responsible for correcting defects in work elements within the contractor's control during the warranty period. This includes distresses resulting from defective materials and/or workmanship. The owner is responsible for the pavement structural design. The contractor assumes no responsibility for pavement design or those distresses that result from the design. Some responsibility is shifted from the owner to the contractor for materials selection and workmanship.

Performance warranties: The contractor assumes full responsibility for pavement performance during the warranty period. In effect, the contractor guarantees that the pavement will perform at a desired quality level. The contractor assumes some level of responsibility, depending on the specific project, for the structural pavement or mix decisions.

While the terms warranty and warranty period are used almost universally throughout the world, the specific definitions of warranty types are not as clear. Particular attention must be given to the difference between material and workmanship and performance warranties because the risk allocation, particularly for design liability, varies a great deal between the two warranty types.

Context of Transportation in the Host Countries

The host countries for the scan were Denmark, Germany, Sweden, Spain, and the United Kingdom. The context of the transportation environment in these host countries is surprisingly similar to that of the United States. To better understand the environment in which these countries have implemented their warranty programs, it is useful to summarize the context of their transportation environment and their implementation of warranty programs.

Political, Economic, and Technological Structure

The political, economic, and technological structure of the host countries lends some insight into the successes of their warranty programs. The scan team specifically chose host countries with transportation environments that are similar to that of the United States so that the warranty lessons learned could be implemented more easily. All of the countries have a free market economy. Most have similar federal government structures for funding and planning, and state/local government structures for construction, administration, and maintenance. Table 2.1 summarizes the context of the transportation environment in the host countries.

Although our transportation environments are similar, there are some notable differences between the United States and a number of the host countries. The level at which the federal government participates in the development of specifications and designs varies. Germany probably exhibits the most control over plans and specifications on traditional projects while the Danish Road Directorate may give the most latitude to the industry in this area. In the area of PPPs, the United Kingdom yields much of the design control to the private sector while Germany and Spain maintain tighter control. The current U.S. system varies, but might be most closely related to the German system. The U.S. system is similar to that of the U.K. system prior to the formation of the British Highways Agency resulting from the Private Finance Initiative.

The host countries vary significantly in their use of PPPs to finance and maintain the structures. With the exception of Germany, all of the countries use some form of PPPs on a larger portion of their network than does the United States. The United Kingdom is most aggressively pursuing PPPs to build and maintain its network through the Private Finance Initiative. A portion of the United Kingdom's maintenance operations on major highways is undertaken by the private sector through term contracts. Likewise, much of Spain's and Sweden's maintenance is done through the private sector. The United Kingdom is also pursing an aggressive DBFO program that could make up as much as 25 percent of the new construction program in the next 8 years. Spain has recently begun a more aggressive PPP program. Germany, on the other hand, experimented with PPPs and stopped using the delivery method because they were not seen as a good investment (although there are some stakeholders who would like to open the doors to PPPs in the future again). Sweden and Denmark have used PPP tolls for bridges on a limited basis. All of the countries are employing some form of pavement performance contracts (PPCs) to tie construction, maintenance, and financing together. Denmark, Sweden, and the United Kingdom are more aggressively pursuing PPC programs. PPCs will be discussed in depth later in this report.

The most significant difference between the host countries and the United States is their allocation of maintenance operations to the private sector. Germany and Denmark most closely resemble the United States in that they maintain their highway networks through some portion of the government. Spain, Sweden, and the United Kingdom all rely on the private sector for a significant portion of their highway maintenance. This is accomplished through a series of term maintenance agreements where routine maintenance and repair is done in accordance with performance contracts. However, the warranty contracts in those countries that perform their own maintenance are similar to those that rely on the private sector for maintenance. In fact, the performance indicators for maintenance and warranties are based on the same measurements.

Warranty Program Background

The scan team was interested in the host countries' original motivation for using warranty programs. A series of questions were asked about how long the countries have been using these warranties, the percentage of the transportation programs that use warranties, the impact of the warranty program on the internal staff, the impact on the private marketplace, the current goals of the warranty program, and the description of internal and external barriers that were encountered in implementing the asphalt pavement warranty program. The host country representatives had difficulty answering these questions about the motivation for their traditional warranty program because the majority of programs had been in use well before the representatives began their employment with the agency. A number of hosts, specifically the Danish Road Directorate, Germany, and the Swedish National Road Association, could not specifically state when the warranty programs started because the warranty programs had been in use for more than 30 years. Table 2.2 provides a summary of the warranty program background, including when the programs started and the current warranty periods.

As seen in table 2.2, traditional material and workmanship warranties have been in use by all the countries for at least 30 to 40 years. However, the warranty programs have evolved in recent years to include performance warranties through the use of design-build, DBFO, and PPCs. All host countries employ at least material and workmanship warranties in the majority, if not all, of their projects. The use of performance warranties varied from country to country. For instance, the British Highways Agency could not provide the scan team with exact figures, but stated that design-build projects with performance warranties is its contracting method of choice. They also are employing an aggressive DBFO initiative and private term maintenance contracts, which include a warranty for performance throughout the life of the contracts (5 to 30 years or more). Germany uses 4-year material and workmanship warranties on all of its projects and has recently let two “functional contracts” that include a warranty of the product for 20 years. The Danish Road Directorate and the Swedish National Road Association were able to provide more specific data on their types of contracts, as seen in tables 2.3 and 2.4 and figures 2.1 and 2.2.

Figure 2.1: Danish pavement performance contracts (number of contracts).

Figure 2.2: Danish pavement performance contracts (warranty periods).

The motivation on the part of host countries for moving toward performance warranties of longer duration is similar to the reasons that we are moving toward warranties in the United States. The host countries stated that the longer-term performance warranties allow them to apply innovative technical and financial solutions to the goal of better performing pavements. Where short-term material and workmanship warranties presented little or no effect on the internal staff and the marketplace, the performance warranties were requiring new thinking on the part of both the highway agencies and the marketplace.

Conclusions

Asphalt pavement warranties are standard practices in all of the host countries and have been for at least 30 to 40 years. All of the countries will continue to use material and workmanship warranties in their standard contracting approaches. The German hosts stated the goals of their material and workmanship warranty program perhaps most succinctly through a description of the duties of an asphalt contractor described under German law.

1. Constructing projects in compliance with government specifications;

2. Constructing roadways that are state of the art, technically; and

3. Constructing roadways that have no defects that decrease their value or usability.

While all host countries generally shared these strict views on contractor duty, there was a sense of partnership and innovation toward the future with the use of performance warranty contracts. All of the host countries are moving toward pavement performance warranties and other methods of tying the contractor into the full life cycle of the product. There is a focus on quality and best value for the road user that is being delivered through a closer partnership between the public and private sector. The U.S. highway industry has much to learn from the extremely mature European warranty programs.