By Dene Cook, Project Manager, Cement & Concrete Association of N.Z. (CCANZ)
CONCRETE roads represent a real alternative to the traditional chip sealed or Open Graded Porous Asphalt pavement. One of the most significant reasons why New Zealand has not embraced this technology, which is commonplace in other parts of the world, can be put down to the way we evaluate pavement proposals.
The way we evaluate pavement proposals:
In New Zealand we evaluate paving alternatives using Transfund’s project evaluation manual (PEM) and recently incorporating the Land Transport Management Act and Strategy along with congestion and environmental considerations. The procedure is very comprehensive but contains two assumptions that distort the decision making process, and may in fact mean that the best option is not being adopted. This is significant because it is a primary duty of Transfund NZ to provide a ‘safe and efficient’ highway network.
25 Years versus 40 Years:
The first distortion arrives from the selection of a 25 year analysis period (clause 3.2.2 of the PEM). Although not specifically intended, this means that most designers choose a pavement for a lifetime of approximately 25 years. However, the pavement cost would only be 5-10% greater if the pavement was designed for 40 years. Is the 25 year design period essentially short changing future generations? The answer is yes!
To understand this consider two independent islands – one that designs roads for a 25 year life, and the other for a 40 year life. Let’s call these Short and Long Island respectively. Now assume that the Government of each island allocates an equal and constant amount to the construction and maintenance of pavements, which is essentially the case in New Zealand. Over one generation which island will have the most extensive roading network? The answer is the island with the 40 year design life philosophy (Long Island). Remember that both islands have invested the same amount each year into road construction/ maintenance, however Long Island will probably have 20-40% more roads than Short Island. So why does New Zealand use a 25 year design life? The answer is historic. New Zealand is a young country, and so is it’s roading network. The first roads were no more than tracks. With the advent of motorcars these tracks were slowly upgraded and sealed. The amount of work required to get the roads up to a minimum acceptable standard for the rapidly expanding national fleet was huge, and therefore a philosophy of getting as much done as possible with the money available was adopted. However, the New Zealand roading network has now matured, and so should our pavement design philosophy. It is time to rethink the fundamentals of the analysis period.
Research On Design Life:
Research is required to investigate the question ‘ The 25 year design life; do we get the greatest benefit to road users and the nation from every dollar spent on roading?’ .
10% Discount Factor:
Another integral part of the PEM is the discounting of both costs and benefits using a 10% discount factor. Although a common economic tool, its use in the roading environment may lead to the selection of projects that are not in the long-term interests of the country. For example consider an old concrete bridge that is in urgent need of repair. Let’s say for example a new bridge cost at year 1 was $1.5 million. It is not uncommon for the cost of repair to be approximately half the cost of a new bridge e.g. $750,000 (year 1). Let’s say we go a little absurd and propose that on a 7 year cycle half the cost of a new bridge will need to be spent again ($750,000 on years 8, 15, 22, 29, 36, 43 & 50) on the bridge to repair it. If a new bridge was constructed we could expect at least 50 years of almost maintenance free life. Over a 50 year period, because of this high discount factor, the regular maintenance option would cost, ($750,000 x 8 repairs = $6Mil not allowing for inflation), four times more than building a new bridge. It would appear common sense to build a new bridge. However, if the costs were evaluated using the PEM, and a 10% discount factor applied, the analysis would suggest that the maintenance option is the lower cost solution e.g. Add the discounted factors for each year together (out of the manual) = 1.82 then multiply by $750,000 = $1.365 Mil to maintain versus $1.5Mil to build new. The analysis guarantees that future generations are trapped in a cycle of maintenance rather than development.
Why does the PEM evaluation method select the maintenance option rather than what intuitively seems the correct solution of building a new bridge? The reason is that the 10% discount factor is significantly out of balance with the current economic conditions. If we were able to put money in the bank and achieve a 10% after tax interest rate, we would intuitively think about options that delayed expenditure so that we could grow our capital in the bank. However, when interest rates are low, as is the present situation, there is little to be gained by delaying capital expenditure.
Research on the effect of the Discount Factor:
Research is required looking at ‘The 10% discount factor, is it distorting the decision making process? Are we getting the greatest benefit to road users and the nation from every dollar spent on roading? We invite you to ask this question, ‘Is New Zealand spending more than it should on road maintenance and the importation of oil based products, when we can produce excellent roads using our own resources?’