AASHTO SOC 2009 - Doug Gransberg 1

Performance Contracting Kiwi Style:

Building Good Roads and Keeping Them That Way

Douglas D. Gransberg, PhD, PEUniversity of Oklahoma

dgransberg@ou.edu

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MotivationMotivation• When the roads run through country When the roads run through country

like this, how can you let them go bad?like this, how can you let them go bad?

• If you stopped to take a picture of every If you stopped to take a picture of every beautiful scene, you wouldn’t get beautiful scene, you wouldn’t get anywhere.anywhere.

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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

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Results• Cost savings: 10% - 30%• Risk transfer to contractor promotes

innovation/initiative• Improved asset management and levels of

service• Accelerated construction• Reduced administration

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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.

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Contract Structure

Agency

ContractorConsultant Required Contractual Collaboration

AuditorCo

ntra

ct P

erfo

rman

ce

Contract Mngr

Design Mngr

Quality Mngr

Trade Subs

Ops Mngr

Own Forces

Design Products

Design Products

QMP Output

QMP Output

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Contract Manager Operations Manager

Monthly Programming Daily ReactiveAnnual Programming

GIS Based Highway Condition Rating System

Federal Highway Inspection & Monitoring Procedures

Daily Inspections + Client/Consultant/ Public Reports

Incident Response: Pot holes

Crack sealingTraffic ServicesEdge Markers

LandslidesRock Fall

Accident AnalysisOther Reactive

Maint.

Record Details

Consultant/ OwnerPrioritize Work

Consultant/ OwnerPrioritize Work

Assess Overall Workload by Ops & Contract Mngrs

Urgent:Contract

Non-Compliance

& Safety Work

High Priority:Programmed

Reactive Maintenance

Routine:Programmed PM, Rehab,

Replacement Preseal Repairs

Weekly/ Monthly Program for Work

Monthly Reporting

Computer Input Data

Annual Deterioration

Modeling & Site Confirmation

Site Survey & Draft Agreement

w/ Consultant

Detailed Site Investigation, NPV Calcs, &

Design

Final Annual Rehab/

Upgrade/Replacement Plan & Maint Intervention Strategy by Consultant

Detailed Design

Quantity Survey & Annual Plan Achievement

PBC Contractor’s Control Process

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GIS Real-Time Condition Status

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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.

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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

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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.

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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

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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

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The Results

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The Results - OPMOperational Performance Measure Compliance

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The Results - KPMPSMC 001 Network Mean Roughness

60

65

70

75

80

85

90

95

1 2 3 4 5 6 7 8 9 10

Contract Year

Mea

n N

AA

SRA

Cou

nt

Northern Network Contract Req't NorthSouthern Network Contract Req't SouthEast-West Network Contract Req't East-West

Worse

Better

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PMSC 001 Skid Resistance

00.25

0.50.75

11.25

1.51.75

2

Bench-mark

1 2 3 4 5Contract Year

Max

% w

/Ski

d R

esis

tanc

e <

0.45

Act % w Skid < 0.45 KPM Skid KPM Tolerance

Better

Worse

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PMSC 001 Crash and Social Cost Key Performance Measures

40

50

60

70

80

90

100

1 2 3 4 5

Contract Year

Perc

ent o

f NZ

Ave

rage

Crashes KPM Crashes Social Cost KPM Social Cost

Better

Worse

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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.

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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

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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

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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.

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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

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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

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Conclusions**• “Evolution not Revolution – Sensible

transfer of risk.”• “Reduced costs – 10% - 30% savings”• “Success is primarily about the people.”• Could work in US if wecan break the maint. vs.construction barrier.

** Tony Porter – Opus Consultants