In 1998 the New Mexico State Highway and Transportation Department (NMSHTD) agreed to pay $60 million for a 20-year pavement warranty on their Route 44 project (NM 44, now US 550). The warranty includes a ceiling clause that caps total expenditures at $110 million. As the first long-term highway warranty in the United States, the transaction set a controversial precedent that parties interested in innovative highway contracting, including other state department of transportations (DOTs), the USDOT, sureties, and contractors, view as a test case for evaluating pricing and cost-effectiveness. An interim audit report published by the State of New Mexico [Abbey (2004). Rep. to the Legislative Finance Committee, State Highway and Transportation Department, Santa Fe, N.M.] provides invaluable fiscal projections and challenges the cost effectiveness of the $60 million expenditure. This paper presents an independent analysis of the effectiveness of the warranty clauses. Based upon NMSHTD data, the analysis conten...