Contracting in highway maintenance and rehabilitation: Are spatial effects important?

Highway agencies around the world strive to improve practices for infrastructure maintenance and rehabilitation, using project delivery policies that range from total ‘in-house’ responsibility to complete privatization, with a number of flexible contracting policies such as performance-based contracting, variants of design-build-maintain, and lane rentals among others between these two extremes. In this paper, we present a methodology that duly accounts for underlying spatial effects and estimates the expected cost savings of innovative contracting policies for highway maintenance and rehabilitation relative to in-house execution of these activities. Spatial econometric modeling is used to analyze highway contract data from 49 countries. We also investigate the marginal effects of key explanatory variables on contract cost savings using spatial multipliers. Our findings show that there are significant relationships between cost savings and contract characteristics, and that there is an apparent direct relationship between the average cost savings of contracts in a country and contract average cost savings and contract sizes in neighboring countries.