Title: Transport Forum 2005
1Transport Forum 2005
Options for Implementing Performance-based
Contracts
- by
- Cesar Queiroz,
- Lead Highway Engineer, ECSIE
- Washington, DC, March 7-11, 2005
2Presentation Outline
- Importance of Road Infrastructure Maintenance
- Evolution of Civil Works Execution
- Advantages and Disadvantages of PBCs
- Bidding Bid Evaluation
- Supervision Quality Control
- Payment Liquidated Damages
- Dispute Settlements
- Lessons Learned and WB Study on PBC
3Economic Development and Road Infrastructure
GNI (/pop)
logGNI 1.39 logPRD R squared 0.76 98 countries
Source Queiroz and Gautam 1992
4Ruins of a bridge over the Danube River in Novi
Sad, Yugoslavia, targeted in a NATO strike in
1999
5Importance of Timely Maintenance
- Timely maintenance of 12 billion could have
saved 45 billion needed for road reconstruction
in Africa - A well maintained paved road should last for 10
to 15 years before resurfacing, but lack of
maintenance can lead to severe deterioration in 5
years
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7Evolution in the Executionof Civil Works
- Force account (or direct labor)
- A public sector monopoly (public contractor)
- Corporatized public sector contractors
- Private sector contractors
8Separating Planning Management from
Implementation of Road Maintenance
- Avoid conflicting responsibilities
- Control costs and maintain quality
- Introduce competition and reduce costs,
frequently 20 to 30
9Forms of Price based Contracts
- Lump sum - payment based on a single price for
the total work - Admeasure - payment based on quantity of
completed work and tendered rates (bill of
quantities) - Performance - payment based on performance (or
results) achieved
10Risk Allocation Between Client Contractor
- Lump sum, admeasure and performance contracts
contractor bears much of the risk - Cost-reimbursable contracts client bears the
main risk - Currently most agencies favor admeasure contracts
11PBC Has Several Names
- Performance Specified Maintenance Contract
(PSMC) - Performance Based Management and Maintenance of
Roads (PMMR) - Output Based Service Contract
- Performance Based Road Asset Management and
Maintenance Contract
12PBC in Different Countries
- Long-term PSMC in AU, NZ, Canada (3-10 yrs)
- CREMA (Contrato de REcuperation y MAntenimiento)
in Argentina, etc. - Warranty contracts in USA
- Asset Mgnt Maint Contracts in VA, USA
- DBFO (up to 30 yr) in UK, Finland, Portugal
- Some are hybrid type contracts (i.e.,
quantity-based and performance-based)
13Why PBC?
- Reduced administration less effort to measure
works - Avoid frequent claims and contract amendments to
increase quantities of activities - Client focus pay on the basis of user-related
performance indicators - More responsibility to contractors stimulates
initiative and innovation - Development of a new industry and creation of
additional job opportunities
14Disadvantages of PBC
- Longer tendering period
- Perceived loss of control and flexibility by road
agencies - Uncertainty of long term relationship
- Lack of some (or unclearly specified) performance
standards and level of service - Possible unfair competition for smaller
contractors
15Allocation of Risks
100
Force Account
Maintenance Contracts
PBC
RISK TO PUBLIC SECTOR
Concessions
BOO
Decreasing Public Risks, Increasing Private Risks
0
100
RISK TO PRIVATE SECTOR
16For PBC Contractors are Free to Decide
- What to do
- When to do
- How to do
- Where to do
- To do physical works themselves, or subcontract
to others (some restrictions may exist)
17Prior to Bidding
- Definition of road sections or network to be
contracted out - Inventory of the road assets and their conditions
- Selection and definition of Key Performance
Indicators (KPI) - Methods of KPI measurement
- Definition of likely maintenance possible
rehabilitation - Preliminary cost estimates
18Bidding
- Prequalification highly recommended
- Hold pre-bid technical seminars with potential
bidders (detailed review of concept and
specifications) - Adjustment of bidding documents with the help of
consultants - WB Sample Bidding Document http//www.worldbank.o
rg/transport/roads/cm_docs/pmmr_final.doc
19Evaluation Criteria of Bids
- Once technical expertise, experience, staffing,
quality control/quality assurance, management
have been checked, then - Bid price
20Bid Evaluation / Contract Amount
21Supervision Arrangements
- Consultants (individual or firm)
- Road Agency staff (e.g., Argentina, Estonia)
22Quality Control/Assurance
- Contractors self-control arrangements
- Formal monthly inspections
- Supervisors (formal/informal inspections)
- Project Manager (formal/informal inspections)
- Road users
23Payments under PBC
24Liquidated Damages
- Reduced payment
- Suspended payment
- Fines (different for each KPI and response time
e.g., 440 per day per pothole) - Demerit Points System (Sweden, Serbia)
- Failure to fulfill administrative duties
- Failure to perform routine maintenance
- Failure to perform winter maintenance
25Dispute Settlements
- Mutual consultation/direct negotiation (site
inspection, progress meetings and collaborative
discussions of each partys position) - Arbitration (e.g., Dispute Review Board)
- Adjudication (e.g., Dispute Review Expert)
- Appeal to the Court
26Advantages of Rehabilitation Included in PBC
- An incentive for the contractors to perform well
to avoid increased maintenance costs in future in
order to comply with performance indicators
defined in the contract - Feasibility of PBC on roads in fair to poor
condition
27Lessons LearnedPlanning of PBC
- Define clear and simple performance standards and
measures before advertising bids - Include only maintainable roads (unless
rehabilitation is included) - Have consistent documents and requirements
- Do not try to impose too many risks on the
contractor
28Lessons LearnedContracting
- Ensure solid and credible financing of contract
during the entire contract period - Use of small local contractors Only after
adequate preparation and training, and for
contracts with very simple requirements (or as
subcontractors) - Build in a Dispute Resolution Mechanism
29Lessons LearnedManagement of PBC
- Supervision consultants need to fully understand
their role ( control service level and assure
overall technical quality - - but no
micro-control and micro-management) - Road Agency staff need to understand their
changed role (e.g., from performing quality
control to focusing on quality assurance) - Arrange regular formal and informal communication
links with contractors, including regular review
sessions
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31Thank you!