What is Performance Contracting?

1. What is Performance Contracting? Transportation Research Board86th Annual Meeting Session 403, Performance Contracting “Delivering Performance and Harnessing the Innovation of the American Industry” January 22, 2007 Sidney Scott, III, P.E. Trauner Consulting Services, Inc.

2. What Performance Contracting is Not: • “Just tell me what to do, I want to build it and move on” • Traditional way of doing business • The way we have always done it • Price driven (lowest price) • Burden/risk is on the owner to design, specify, and control the work • Recipe or M&M specifications describing: • Materials (products) used • Methods (processes required)

3. What is Performance Contracting?: • “Tell me what you want, but don’t tell me how to do it.” • Goal or results-oriented • Best-value driven (LCC) • Doesn’t dictate how (except essential needs or functions) • Rewards innovation • Rewards “better-than-the-minimum” outcome

4. Trends in Highway Contracting Prescriptive Requirements Performance Contracting Performance Warranty Performance-based Maintenance Best-Value Design-Build Incentives Highways for Life QC/QA End-Result

5. Performance Specifying • Umbrella definition • “A statement of required results with criteria for verifying compliance” (CSI) • Categories • QC/QA or End-Result Specifications • Performance Warranty provisions • Performance-based or -related Specifications • Design-Build

6. Performance Contracting • Strategic Roadmap (2004) • What do we want? • How do we order it? • How do we measure what we ordered? • How do we know we got what we ordered? • What do we do if we don’t get what we ordered?

7. High-Level Goals (HFL) Safety Congestion Reduction Improved Quality User satisfaction Project Goals Time-savings Cost-reduction Traffic Management Environmental Innovation What do We Want?

8. Best-Value Fixed-Price Sealed Bidding Sole Source Selection Price and Other Key Considerations Price Considerations Qualification Considerations Historically Private Sector Typically Negotiated Prequalification Processes • - • - • - • Historically Public Sector • Typically Fixed-Price • Open Bidding How Do We Order it?

9. How Do We Order it?

10. Considerations • Can the work be described in terms of end result performance? • Smoothness • Strength • Durability • Aesthetic features • Time • Safety

11. Considerations • Are there multiple means and methods (alternatives) for achieving intended results? • Are specified alternatives practical and economical? • If multiple factors contribute to the desired result, can they be identified? • Are factors measurable and testable?

12. Traffic Management  Worker Safety  Pavement Quality  Pavement Safety  Time  User Satisfaction  Time thru work zone Incident Rate Smoothness (IRI) Skid Resistance % ahead of schedule Survey How do We Measure What We Ordered?

13. How Do We Know We Got What We Asked For? • Trust but Verify • Tests • Rapid and Reliable • Repeatable • Achievable and Economical

14. What Do We Do if We Don’t Get What We Asked For? • Incentive/Disincentive (I/D) Strategies • Promote “better than the minimum” performance • Pay Adjustment Systems • I/D for quality • Payment based on Value Received or LCC • Shared Risk Contingency

15. Summary • Performance contracting is new way of doing business • A cultural shift • Not for all projects • Requires risk/reward sharing • Requires a framework and specifications

16. What is Performance Contracting? Transportation Research Board86th Annual Meeting Session 403, Performance Contracting “Delivering Performance and Harnessing the Innovation of the American Industry” January 22, 2007 Sidney Scott, III, P.E. Trauner Consulting Services, Inc.