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http://www.zietlow.com
http://www.performance-based-road-contracts.com
Dr. Gunter Zietlow
Road Asset Management and
Performance Based Contracts
Asian Development Bank (ADB)
Manila, July 29th 2015
2
Overview of Presentation (1)
Introduction
What is Good Road Asset Management?
PBC conceptBackground
Characteristics
Brief History
Benefits
Performance standards
Risks
Performance monitoring
Payment and Incentive Systems
3
Overview of Presentation (2)
Key external and internal factors
associated with the implementation
of PBCs
Framework (Legal, Financial,
Institutional)
Role and capacity of road agencies
Role and capacity of consulting and
contracting industry
4
Overview of Presentation (4)
Implementation experiences in
developed and developing countries
Lessons learned
Role of financing institutions
5
Introduction
6
Source: Unknown
7
Road Conditions in the 1980’s
In spite of their importance, roads in
many developing countries are still
under-financed, poorly managed and
badly maintained.
Normally, only 20- 40% of the amounts
required is being spent on routine and
periodic maintenance.
1/3 of the main road networks are in
good
1/3 in regular and 1/3 in poor condition.
8
Importance of Timely
Maintenance
When roads are in poor condition
every $ “saved” in road conservation
will cost:
$ 2 to road users in additional
vehicle operating costs and
$ 2 to the road administration (or
the tax payer) in reconstruction
and rehabilitation costs.
9
What is Good Road Asset
Management?
10
Road Asset Management (RAM)
Good Road Asset Management is a
systematic process of maintaining,
upgrading, expanding and operating
road, bridge and road side assets, using
engineering principles with sound
business practice to effectively and
efficiently allocate and utilize resources
for the provision of well defined levels of
service to satisfy public expectations.
11
Steps to Implement RAM
Establish a complete inventory
Establish a complete condition assessment
Estimate the value of the asset
Predict future demand of traffic and service needs
(including overloading)
Predict asset deterioration (PMS, BMS)
Establish service levels
Estimate maintenance and upgrading needs and costs
Set up funding scenarios for the regular and timely
maintenance and upgrade of the road related assets
Secure funding
Define an implementation strategy (RAM Plan)
Implement the RAM Plan
Road Asset Management is a Permanent Process
12
Benefits of RAM
Consistent good level of service
Reduced life-cycle cost
Reduced road user cost
Ability to monitor and track performance
Improve transparency in decision making
Ability to predict consequences of funding
decisions and future funding needs
Decreased financial, operational and legal
risk
13
In the long run
the best way of effectively and
efficiently manage road related assets
is through Performance Based
Contracting (PBC)
14
PBC Concept
15
Performance Based Road Contracts
Performance Contract (Western Australia)
Asset Management Contract (USA)
Performance-Specified Maintenance
Contract (Australia, New Zealand)
Contract for Rehabilitation and
Maintenance (Argentina, Brazil)
Area Maintenance Contract (Finland,
Ontario/Canada)
Managing Agent Contract (UK)
Output and Performance Road Contract
(World Bank)
16
Type of Contracts
Method based contract
Unit rates for work items
Payments are based on quantity of
completed and measured work
Pure performance contract (PBC)
Performance Standards or Service Quality
Levels
Fixed monthly payments if service quality
levels are complied with
Hybrid contract (PBC)
Mixture of method based contract and
performance contract
17
Characteristics of PBC
Performance or Service Levels define the
minimum conditions of road, bridge and traffic
assets as well as the management and operation
of the assets during the entire contract period,
leaving it mainly to the contractor as to how to
achieve them.
Lump sum payments are made periodically
(mainly monthly) and might be adjusted in
accordance with the change of certain factors,
like inflation or unexpected increases of traffic
volume.
Major emergency, rehabilitation and improvement
works might be paid based on unit prices for
works agreed case by case.
18
Characteristics of PBC (2)
Deductions are being made for non-compliance
with terms and conditions of contract, especially
with respect to the service levels.
Duration of contracts should at least include one
periodic maintenance cycle (4-5 years for gravel
roads and 8-12 years for bituminous roads). Pure
routine maintenance contracts are normally
between 1-3 years. Pilot contracts may be of
shorter duration.
19
Characteristics of PBC (3)
Complexity
Contract duration in years
2 4 6 12108 14
Routine
maintenance
Routine and periodic
maintenance
Construction, periodic and
routine maintenance
Up to 30 years
20
Characteristics of PBC (4)
Duration of contract
Relationship of required skills as a function
of the duration of PBC
Typical RAM skillsPrediction of asset deterioration
Quality assurance management
Typical contractor skills
Skills
21
Characteristics of PBC (5)
Road Network
Management and Operation
Routine
Maintenance
Periodic
Maintenance
Rehabilitation ImprovementsEmergencies
Potential Scope of Services and Works
Winter
Services
22
Characteristics of PBC (6)Contractual Relationship Full PBC
Client/
Road Administration
Consultant/Contractor
Full Performance Contract
Audit
by Client
or External
Auditor
23
Characteristics of PBC (7)Contractual Relationship with Hybrid Type PBC
Client/
Road Administration
Road Manager
Engineer
New Type
Contractor
Performance or
Conventional ContractHybrid type PBC
Inspection of Compliance with Service Levels
Supervision for Admeasured Work
Audit
by Client
or External
Auditor
24
Typical Implementation of PBC
Options
A. Paved roads (corridor or network)
1. Pure routine maintenance
a) Off-road maintenance (1-3 years)
b) All routine maintenance, except for risky items (1-5
years)
c) All routine maintenance (4-10 years)
2. Rehabilitation, backlog maintenance, routine
maintenance, winter services, periodic
maintenance, Emergencies
a) Only routine maintenance paid on lump-sum (5-
10years), rest on unit prices
b) Paid on lump-sum (10-30 years)
25
Typical Implementation of PBC
B. Unpaved roads (corridor or network)
1. Pure routine maintenance
a) Off-road maintenance (1-3 years)
b) All routine maintenance (1-4) years)
2. Rehabilitation, backlog maintenance, routine
maintenance, winter services, periodic
maintenance, eEmergencies
a) Only routine maintenance paid on lump-sum (4-5
years)
26
Brief History of PBC
1988 British Columbia, Canada
1990 Argentina
1994-98 Colombia, Uruguay, Chile, Brazil, Peru
1995 Sydney, Australia, Estonia
1996 Virginia, USA
1998 New Zealand, Finland
2001 Chad, Zambia, England, India, Spain
.............
Drivers: efficiency and effectiveness
27
Source: World Bank, 2006
28
Benefits of PBC (1)
Road Agency
Reduces maintenance cost (based on the same level of service!)
Avoids frequent claims and contract amendments to increase quantities of works by contractor
Avoids road rehabilitation
Improves quality of works
Improves control and enforcement of effective road quality service levels
29
Benefits of PBC (2)
Road Users
Provides better and safer roads with
consistent conditions
Reduces road user cost
Consultants and Contractors
Guarantees workload over longer
period
Provides potential for increased
margins
Opens excellent opportunities for
business growth
30
Reported Savings by Introducing
Performance Contracts
New Zealand: 15-22%
Australia: 10-35%
Brazil: 15%
USA: 10-18%
Finland: 18%
Alberta, Canada: 20%
Savings are reported against traditional unit price
contracts
In addition, quality improvements were reported
31
Development of Road Maintenance
Cost in Sydney, Australia
0 10 20 30 40 50 60 70
Time (months from June 1991)
0
20
40
60
80
100% 1991 Rates
RTA
SOR Contract
Transfield ContractPerformance Specified Road Maintenance Contract
(Team of the Roads and Traffic Authority of New South Wales)
Private contractor
32
Some Reasons for Reduction in Road
Maintenance Cost
Drivers of savings: Incentives /
competition / long-term management
Modern management and work
procedures
Increased labour productivity
Total life cycle costing
Just-in-time maintenance
Better use of latest technologies
33
Performance / Service Levels
Objectives
To satisfy the road useraccessibility
comfort
travel speed
safety
To minimize total system cost (cost to road users and agency – life-cycle cost of assets)
To minimize environmental impacts
34
Service Levels and Response Times
Fulfil objective
Clearly defined
Objectively measurable
Affordable
In compliance with the law (law of public
roads, ordinance on maintenance and
protection of roads)
35
Relationship between Objectives
and Service Levels
Improve road safety: Potholes not bigger than 15cm in diameter, ruts <15mm deep, friction coefficient >0.4, etc.
Preserve road asset value: Cracks not wider than 3mm, potholes not bigger than 15cm, obstruction of drainage channels <15% of flow area, etc.
Reduce vehicle operating cost: Roughness IRI < 3
Reduce travel time: Average travel speed > 50 km/hr
............
36
Typical Service Levels and Response Times
for Paved Roads
Typical Traffic Volumes
(Vehicles/day)
Less
than 250
250 –
1000
1000 -
5000
5000 -
plus
Potholes (Max Dia of any single
pothole)
400mm 300mm 200mm 100mm
Repair of potholes (Response time) 28 days 28 days 14 days 7 days
Cleanliness of pavement surface
and shoulders response time for
safety related matters (Response
time)
8 hrs 4 hrs 2 hrs 1 hr
World Bank
37
In-house
Mainte-
nance
Outsourcing
Specific
Maintenance
Works
Performance-Based
Road Management and
Maintenance Contracts
Long-term Road
Concessions (BFOT)
Short-
term
Medium-
term
Long-
term
Risk to contractor increases
Risk to road agency decreases
Distribution of Risk
38
Performance Monitoring
Contractor’s self-control system with
verification by client
Joint inspections by client and contractor
at certain time intervals
Road user complaints
39
Payment and Incentive Systems (1)
Fixed periodic payments for scope of works and services contracted under performance or service levels, mainly for routine maintenance works.
Payments based on unit prices and quantities of work performed typically for “risky” work items such as Emergency and Unforeseen Works and often for periodic maintenance and rehabilitation works as well.
40
Payment and Incentive Systems (2)
Periodic fixed payments to be reduced if contractor does not comply with the performance service levels
Contract to be terminated prematurely for underperformance
Some contracts include bonus payments
Payment and incentive systems vary widely from one country to another
41
Key External and Internal Factors
Associated with the Implementation of
PBCs
42
Framework
LegalMulti-year contracting
Road maintenance regulations
FinancialSufficient funding
Multi-year financing
Dedicated funds
InstitutionalSeparation of client and contractor
Privatization of road maintenance
Competition between contractors
43
Role and Capacity of Road Agency
RoleManage a road asset management
Implementation and development of PBCs
Management and Supervision of PBCs
CapacityUnderstanding of PBC concept
Change of attitudes
Additional skills
Training and coaching
44
Role and Capacity of Contractors
RoleLong-term road asset management
Proactive
Services to the road user
CapacityUnderstanding of PBC concept
Change of attitudes
New skills (road asset management)
Lack of sufficiently qualified contractors
Training and coaching
45
Role and Capacity of Consultants
RolePromoter
Designer
Supervisor / Manager
Trainer / coach
CapacityUnderstanding of PBC concept
Change of attitudes
New skills
Training and coaching
Lack of sufficiently qualified consultants
46
Implementation Experiences
47
Complexity of PBCs
Complexity
Contract duration in years
2 4 6 12108 14
Estonia 1995
Estonia 2008
Serbia 2004
New Zealand 1998
Ukraine 2014
US 1997
MAC UK 2004
Finland1998
Croatia 2015
Finland 2008
Birmingham UK
27 years
Micro enterprieses
Latin America
China
Bangladesh
Argentina 1994 (RMC)
Punjab India 2012
Future Malaysia 2016
Malaysia 2000
48
New Zealand (1)
First performance contract covering 406 km of national roads was let for 10 years in 12/98
Contract cost was 15% below comparable cost of traditional contracting
Performance standards are very well elaborated
System of quality control by the contractor (quality manual, quality plan, quality system procedures) in place
49
New Zealand (2)
In 2000 a similar contract was concluded
Two years later a third contract covering
1040 km of local roads and 122 km of state
highways
While the first contract resulted in 15%
savings the latest one came in 22% below
the cost estimate for comparable
conventional contracts
More than 10% of the national roads are
maintained under performance contracts
50
First Performance Based Road
Management and Maintenance Contract in
USA, Virginia (Comprehensive Agreement for Interstate
Highway Asset Management Services)
Maintain and refurbish 1250 lane-miles on
three Interstate Highways, 62 rest areas,
and 7 visitor centres
5+ year contract since early 1997
131 million US$ for 5 years with
approximately 16% savings over VDOT
cost
Contractor is VMS
15% of work is done by VMS staff
51
Washington D.C.Performance-Based Asset Preservation
pavement (344 lane-miles)
drainage (2950 catch
basins, 7 miles of ditches)
roadside and landscape
(450,000’ of curb and
gutter)
bridges (109 structures)
tunnels (4 major)
snow and ice control
traffic control and safety
(108,270’ guardrail,
51 crash attenuators)Source: FHWA
52
Mobile
Pothole
Patching
CONVENTIONAL METHOD
Average Unit Cost:
$120 per patch
$900 per lane mile
$5,900 per ton
* Production =
20-30 patches per day
MOBILE PATCHER
Average Unit Cost:
$22 per patch
$38 per lane mile
$880 per ton
*Production =
120 patches per dayCourtesy VMS
53
Finland
1998 first 3-year area maintenance
contract with some performance elements
Since 2003 Finnra moved to 3-year, 5-year
and 7-year hybrid contracts for routine
maintenance and winter services
78% of contracts were won by the Finish
Road Enterprise under competitive
bidding
Lump-sum payments represent 75-80% of
contract amount
54
Estonia
1995 – the Estonian Road Administration (ERA)
launched two pilot performance contracts for
routine road maintenance for national roads
1995 to 2000 - ERA tested several one-year and
two-year contracts, including winter
maintenance
Since 2000 several 5-year contracts have been
awarded
Since 2006 ERA moved to 7-year contracts
As of 2008 100% of ERA’s road network (16500
km, mainly gravel roads) is maintained under
hybrid type performance contracts
55
Argentina
PBCs in 2012
100% of national roads
(32000 km out of which
10000 km toll concessions)
2100 km of provincial roads
56
Overloading
Source: unknown
57
Weigh Station Caminos del Río Uruguay
58
Asian Countries (1)
India
2013, Tamil Nadu, WB, 5-year PBCs with a total
of 640 km
2009, Andhra Pradesh, WB, 3 OPRCs active , 34 OPRCs implemented or under preparation (10000 km)
2012, Punjab, WB, 10- year OPRC, 203 km
Nepal
2003, WB, 2-year PMBC, 114 km
2005, WB, four 5-year PMBC, about 50 km each
2007, ADB, 5-year PMBC, 77 km
Sri Lanka
2009 , eight 1-year routine maintenance PBCs
2010, two 2-year routine maintenance PBCs
59
Asian Countries (2)
Malaysia
2000, 6 area PBCs for all national roads for 15
years each, in the process of prolongation
Performance based toll road concessions,
1800 km, program started in 1983
Vietnam
2009, WB, one 3-year PBC, 300 km of national
highway
China
2009, ADB, 4-year simple PBCs on 1300 km of
rural roads with local community groups
(Yunnan Province)
60
Asian Countries (3)
Afghanistan 2006, EC, one 3-year PBC 140 km, routine + winter
maintenance paid on lump sum
2008, 5 PBCs on 1523 km of national and regional roads;
2011 two more PBCs on 250 km
Tajikistan Two 3-year PBCs with initial repairs (10km) each 75 km
long, lump sum for routine and winter maintenance
Indonesia 2010, two 3-year PBCs, 21 and 11 km, basically
rehabilitation contracts
Malaysia 2000, 6 area-wide 15-year PBCs covering all national
roads, only routine maintenance paid on lump sum
61
Philippines (1)
Pilot Projects, NRIMP I, 3 years (2002 –
2005) LTPBMC PACKAGE 1, 109 km
LTPBMC PACKAGE 2A, 33,3 km
LTPBMC PACKAGE 2B, 111,8 km
Scope Performance Based Routine Maintenance
Performance Based Preventive Maintenance
Maintenance Backlog Reduction
Penalty system for non-compliance
Monthly inspection
62
Philippines (2)
Percentages of scope of work
13,75%
64,20%
15,21%
1,37%
1,31%4,16%
Pbm
Preventive
Backlog Reduction
Facilities for theEngineers
Contingencies
Daywork
63
Philippines (3)
Results
Package 2A was seen as successful despite
the short length
Package 2 B faced major problems due to
insufficient design (pumping problems)
Contract amount basically stayed within
estimate
Contractor had no incentive to work
proactively since he was told what to do based
on the result of monthly inspections
Payment reductions for non-compliance were
rather low and penalties not applied rigorously
64
Philippines (4)
NRIMP IITender documents were prepared in 2007
5-year contracts
655 km length (3- 4 contracts)
High traffic volumes
Different types of pavements
Scope: Rehabilitation, backlog maintenance,
routine maintenance and periodic maintenance
Detailed engineering design
Tender documents based on WB Sample
OPRC
Capacity of local contractors was not adequate
to undertake full PBC/OPRC
65
Philippines (5)
Proposal to tender routine maintenance on
performance bases only and the other works
on unit price bases was refused by World
Bank representative
Efforts to go to prequalification was stalled in
2008
Another consultant was appointed to start the
process again for Manila South Road (207 km)
and Manila North Road (234 km)
2013 award for a 5-year LTPBM for Manila
South Road, Pagsanjan-Tayabas-Lucena and
Tiaong-Lu cena Di version Road-Pagbilao-Sta.
Elena, Camarines Norte, Chinese Contractor
66
Lessons Learned (1)
Highly positive in developed countries
Mainly positive in developing countries with few
teething problems
Progress depends on the attitude of the road
administration, the ability of consultants and
contractors to implement PBC as well as the
political backing of PBC
Substantial cost reductions have been realized
with few exceptions
Road conditions have improved
PBC supports efforts to secure long-term
financing of road maintenance
67
Lessons Learned (2)
Pilot projects are the best way to
implement performance contracts
Performance Contracts have to be tailored
to each specific situation
Preferably roads should be in
“maintainable” conditions
Qualification of contractors and
supervisory staff of the client is key to
success. To be reflected is PBC design
Risks shall be assigned to the party that
can best bear and manage the risk
68
Lessons Learned (3)
Additional lessons learned in developing
countries
Project preparations requires consultants
which have experiences in implementing
PBCs in similar environments Right mix of unit price items and performance items
Effective monitoring system
Effective penalty system
A gradual implementation of PBCs seems
to be more sustainable
Local contractors should be favoured
69
Lessons Learned (4)
History of road construction and
maintenance, a detailed condition survey
and cost estimate needs to be made
available to tenderers
Training and coaching of client and
contractors during the implementation
phase helps to adjust to the new
contracting system
Subcontractors need training as well
Overloading problems need to be taken
care off
70
Lessons Learned (5)
Payment reductions for non-compliance
shall be applied strictly and shall be high
enough to make the contractor to comply
Escalation of payment reductions shall be
foreseen for continued non-compliance
Once under PBC roads should remain
under PBC
PBCs are not a silver bullet. Conditions
need to be conducive!
71
Role of Financing Institutions (1)
International Finance Institutions (ADB,
WB, IDB, EBRD) have promoted and
financed performance based road
contracts for more than 15 years
Supporting the institutional and financial
reform process
Supporting the Asset Management
approach
Support a stepwise and sustainable
implementation of PBCs
72
Role of Financing Institutions (2)
Financing of consulting services:
awareness seminars, training programs,
feasibility studies, contract design and
bidding process, training and coaching
during project implementation
Financing of works and services
Providing payment guarantees to PBC
contractors
73
74
75
Upcoming work
Reference note on Performance Based
Road Maintenance Contracts
Analysis of RAM practices in CAREC
countries
Compendium of good practices on RAM
in CAREC countries
Hands-on project support in CAREC
countries
For details contact Ko Sakamoto (CWTC) at
