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Transport Forum 2005

Transport Forum 2005. Options for Implementing Performance-based Contracts. by Cesar Queiroz, Lead Highway Engineer, ECSIE Washington, DC, March 7-11, 2005. Presentation Outline. Importance of Road Infrastructure & Maintenance Evolution of Civil Works Execution

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Transport Forum 2005

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

  7. 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%

  8. 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

  9. 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

  10. 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

  11. 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)

  12. 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

  13. 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

  14. 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

  15. 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)

  16. 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

  17. 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.org/transport/roads/c&m_docs/pmmr_final.doc

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

  19. Bid Evaluation / Contract Amount

  20. Supervision Arrangements • Consultants (individual or firm) • Road Agency staff (e.g., Argentina, Estonia)

  21. Quality Control/Assurance • Contractor’s self-control arrangements • Formal monthly inspections • Supervisors (formal/informal inspections) • Project Manager (formal/informal inspections) • Road users

  22. Payments under PBC:

  23. 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

  24. Dispute Settlements • Mutual consultation/direct negotiation (site inspection, progress meetings and collaborative discussions of each party’s position) • Arbitration (e.g., Dispute Review Board) • Adjudication (e.g., Dispute Review Expert) • Appeal to the Court

  25. 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

  26. Lessons Learned:Planning 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

  27. Lessons Learned:Contracting • 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

  28. Lessons Learned:Management 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

  29. Thank you!

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