Fifth International Conference on Construction in the 21 st Century (CITC-V) “Collaboration and Integration in Engineering, Management and Technology” May 20-22, 2009, Istanbul, Turkey Estimating Pavement Maintenance Costs under Performance-Based Contracts Kamalesh Panthi, Syed M. Ahmed, Rizwan U. Farooqui Department of Construction Management, Florida International University, Miami, FL, USA kpant003@fiu.edu, ahmeds@fiu.edu, rfaro001@fiu.edu Abstract Performance-based maintenance contracts differ significantly from method-based contracts that have been traditionally used to maintain roads. Road agencies around the world have moved towards a performance based contract approach because it offers several advantages like cost saving, better budgeting certainty, better customer satisfaction with better road services and conditions. Payments for the maintenance of road are explicitly linked to the contractor successfully meeting certain clearly defined minimum performance indicators. It is indeed a difficult task to estimate contract value of these maintenance works when no definite quantity of work is known. There is an abundance of literature when the objective function is to determine how much of the road section can be managed with the available funding. On the contrary, when the objective function is to determine how much money is required to maintain the road to certain specified performance conditions, there seems to be a dearth of knowledge. Estimating the value of these contracts based on the performance specified by the transportation agencies to maintain them over a certain period of time is the main aim of the research. For this, rather than evaluating the cost of maintaining the road based only on a single performance criteria such as pavement condition index, multiple performance criteria such as cracking, rutting and, roughness are taken into consideration in developing a model to estimate the cost of such maintenance contracts. Markov chain process has been utilized to model the stochastic degradation of the road condition over a certain period of time. Preventive and rehabilitative maintenance activities of varying amount are then proposed over the maintenance contract period so as to limit the distress condition within the specified threshold. Based on the proposed program of preventive and rehabilitative maintenance works over the period of the maintenance contract awarded to the contractor, cost is finally estimated. Keywords Performance-based contracts, Road, Risk, Transition probability matrix, Maintenance 1. Introduction Performance-based contracts may be viewed as warranty contracts that specify the output or outcome required from the finished product. When the output or outcome required from such a product extends over a number of years, or when the performance is observed over an extended period of time, they become long term warranties or long term performance-based contracts. For infrastructure projects, for instance- highway projects, performance warranties for the procurement and management of transportation infrastructure can be classified into three categories (Federal Highway Agency, 2003): 444