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Transport Forum 2005

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Options for Implementing Performance-based Contracts by Cesar Queiroz, Lead Highway Engineer, ECSIE Washington, DC, March 7-11, 2005 Presentation Outline Importance ... – PowerPoint PPT presentation

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Title: Transport Forum 2005


1
Transport Forum 2005
Options for Implementing Performance-based
Contracts
  • by
  • Cesar Queiroz,
  • Lead Highway Engineer, ECSIE
  • Washington, DC, March 7-11, 2005

2
Presentation 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

3
Economic Development and Road Infrastructure
GNI (/pop)
logGNI 1.39 logPRD R squared 0.76 98 countries
Source Queiroz and Gautam 1992
4
Ruins of a bridge over the Danube River in Novi
Sad, Yugoslavia, targeted in a NATO strike in
1999
5
Importance 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

6
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7
Evolution in the Executionof Civil Works
  • Force account (or direct labor)
  • A public sector monopoly (public contractor)
  • Corporatized public sector contractors
  • Private sector contractors

8
Separating Planning Management from
Implementation of Road Maintenance
  • Avoid conflicting responsibilities
  • Control costs and maintain quality
  • Introduce competition and reduce costs,
    frequently 20 to 30

9
Forms 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

10
Risk 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

11
PBC 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

12
PBC 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)

13
Why 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

14
Disadvantages 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

15
Allocation 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
16
For 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)

17
Prior 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

18
Bidding
  • 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

19
Evaluation Criteria of Bids
  • Once technical expertise, experience, staffing,
    quality control/quality assurance, management
    have been checked, then
  • Bid price

20
Bid Evaluation / Contract Amount
21
Supervision Arrangements
  • Consultants (individual or firm)
  • Road Agency staff (e.g., Argentina, Estonia)

22
Quality Control/Assurance
  • Contractors self-control arrangements
  • Formal monthly inspections
  • Supervisors (formal/informal inspections)
  • Project Manager (formal/informal inspections)
  • Road users

23
Payments under PBC
24
Liquidated 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

25
Dispute 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

26
Advantages 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

27
Lessons 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

28
Lessons 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

29
Lessons 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

30
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31
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