Performance Contracting Kiwi Style: Building Good Roads and Keeping Them That Way

1. Performance Contracting Kiwi Style:Building Good Roads and Keeping Them That Way Douglas D. Gransberg, PhD, PE University of Oklahoma dgransberg@ou.edu AASHTO SOC 2009 - Doug Gransberg

2. Motivation • When the roads run through country like this, how can you let them go bad? • If you stopped to take a picture of every beautiful scene, you wouldn’t get anywhere. AASHTO SOC 2009 - Doug Gransberg

3. Performance Contracts • Two types: • Pure performance-based • Mixed with method-based • Two models: • Complex – entire network in defined area • Simple – single feature; pavement only, bridge only • Duration: 3 - 10 years AASHTO SOC 2009 - Doug Gransberg

4. Results • Cost savings: 10% - 30% • Risk transfer to contractor promotes innovation/initiative • Improved asset management and levels of service • Accelerated construction • Reduced administration AASHTO SOC 2009 - Doug Gransberg

5. Complex – PBC w/ATC • Blurs the line between construction and maintenance. • Adds rehabilitation projects to PBC. • Adds small upgrade/reconstruction projects to PBC. • Operates like a long term CM/GC with O&M. AASHTO SOC 2009 - Doug Gransberg

6. Contract Structure AASHTO SOC 2009 - Doug Gransberg

7. PBC Contractor’s Control Process AASHTO SOC 2009 - Doug Gransberg

8. GIS Real-Time Condition Status AASHTO SOC 2009 - Doug Gransberg

9. Contractor’s Bidding Rationale • “Clear understanding of the Client’s expectations • Achieving “Best for Road”, and meeting the specified outcomes • Superior systems, strategies and tools • Strong local knowledge • Developing best practice • Rigorous self-auditing • Smart treatments and programming • Regular, accurate, user-friendly and informative reporting • Strong relationships” Simon Hunt, Fulton Hogan, Ltd. AASHTO SOC 2009 - Doug Gransberg

10. The REAL Rationale • Clear understanding of client • Price the consultant • Price the “real” expectations • “Best for Road” • Superior technical knowledge = lower cost treatments – also means more network covered for $$$. • Strong local knowledge • Identify areas of network that are above standards & price accordingly AASHTO SOC 2009 - Doug Gransberg

11. The REAL Rationale • Rigorous self-auditing • Find the noncompliance BEFORE the consultant and fix it with “smart treatments & programming” • Strong relationships • Know the client’s hot buttons • Know the consultant’s preferences • Know the public’s local issues • Maximize profit margin within the constraints spelled out in the contract. • Get the next contract for the same network. AASHTO SOC 2009 - Doug Gransberg

12. Contract Quality Plan • Key to profitability and getting the next contract • List the key project objectives • List the performance measures for each key project objective • Identify the risks of achieving each of the performance measures • Specify the Methodology to minimize, isolate or eliminate the risks such that the Client and Consultant has a high degree of confidence that the Performance Measures will be achieved AASHTO SOC 2009 - Doug Gransberg

13. Contract Quality Plan • Identify relevant means for each Performance Measure to ensure compliance • Develop the detailed Contract Quality Achievement Plan for each KPI. • Detailed testing regime to meet or exceed the specified requirements AASHTO SOC 2009 - Doug Gransberg

14. The Results AASHTO SOC 2009 - Doug Gransberg

15. The Results - OPM Operational Performance Measure Compliance AASHTO SOC 2009 - Doug Gransberg

16. The Results - KPM AASHTO SOC 2009 - Doug Gransberg

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19. The Payment Scheme • Lump sum 10-year contract • Indexing per Ministry of Commerce • Three possible progress pay systems: • Unit price – bid pricing • Lump sum – Rehab, upgrade, & replace projects not in tender offer • Performance output payment • Incentive/disincentive scheme for all three • 12-36 month bond/escrow for features with deterioration models. AASHTO SOC 2009 - Doug Gransberg

20. Contractor’s Perspective • Essentially bidding a cash flow rather than a dollar amount. • Focus on performance-paid items first • Get incentive every month • Unbalance from high risk items to low risk items • Evaluate non-maintenance work • Predict client/consultant’s preferred design • Identify viable design alternates • Price accordingly AASHTO SOC 2009 - Doug Gransberg

21. Contractor’s Perspective • Price local knowledge of the network’s actual condition versus the condition described in the RFP. • Evaluate impact of aggressive pavement preservation program that exceeds OPM on ability to extend service life beyond contract completion AASHTO SOC 2009 - Doug Gransberg

22. Contractor’s Perspective • Evaluate deterioration models • Know their sensitivity to inputs • Know their ability to model actual conditions • Quantify their relative effectiveness • Price accordingly • Price cost of contractor QA activities ahead of Consultant QA actions versus cost of noncompliance. AASHTO SOC 2009 - Doug Gransberg

23. The Impact • Contractors like these contracts – must be profitable • Drove FH to create a 4-5 person “Technical Services Group” • Headed by a PhD Pavement Expert • Own labs, own software development capability, forensic analysis • “in-house” consultant to operations managers & superintendents AASHTO SOC 2009 - Doug Gransberg

24. The Impact • Compete for and win research contracts • Write/present papers on results • Develop and submit standard test procedures • Residual Emulsion Binder Extraction to ASTM. • Ultra High Pressure Watercutter Specification to NZTA • Why? • Superior technical knowledge = Technical credibility in a small country • R&D costs recovered in the PBC contract AASHTO SOC 2009 - Doug Gransberg

25. Conclusions** • “Evolution not Revolution – Sensible transfer of risk.” • “Reduced costs – 10% - 30% savings” • “Success is primarily about the people.” • Could work in US if we can break the maint. vs. construction barrier. ** Tony Porter – Opus Consultants AASHTO SOC 2009 - Doug Gransberg