Performance-Based Road Management and Maintenance Contracts

1. Ministry of Transport and Communications, Kazakhstan World Bank / European Bank for Reconstruction and Development / Asian Development Bank Road Asset Management Workshop, 31 May – 3 June 2005 Astana, Kazakhstan Performance-Based Road Management and Maintenance Contracts Dr. Gunter Zietlow e-mail: gunter.zietlow@gtz.de http://www.zietlow.com

2. Overview ofPresentation • Introduction • Brief history of Performance Contracts • Main reasons for implementing Performance Contracts • Service level criteria and response times • Performance monitoring and payments • Bidding and award of contract • Implementation experiences and strategy • Lessons learned

3. Overview ofPresentation • Introduction

4. Poor maintenance

5. Importance of timely Maintenance • When roads are in poor condition every KZT “saved”in road conservation will cost: • KZT 3to road users in additional vehicle operating costs and • KZT 2to the road administration (or the tax payer) in reconstruction and rehabilitation costs.

6. Contracting out road maintenance can save a lot of money • Routine and periodic road maintenance done by in-house labor is being replaced more and more by contracts with the private sector. • Studies made by the World Bank in the 1980’s revealed that contracting out road maintenance to the private sector can reduce maintenance cost by between 30% and 50%. • Latin American countries where among the first to replace in-house labor by contracts with the private sector. • Asian countries in general are still lagging behind.

7. Type of contracts • Unit price contract (admeasured) • Unit rates for work items • Payments are based on quantity of completed work • Lump sum contract • Definition of total work • Payment based on single price for total work • Performance based contract • Service level criteria (performance criteria) • Fixed monthly payments if service level criteriaare complied with • Hybrid contract • Mixture of performance contract and unite price contract

8. Performance-Based Management and Maintenance of Roads (PMMR) • Service level criteria define the minimum conditions of road, bridge and traffic assets as well as the management and operation of the assets , leaving it to the contractor as to how to achieve them. • The contractor is free to decide • What to do • When to do • How to do • Where to do • To do the physical works himself or subcontract (with certain restrictions) as long as he meets the performance indicators during the contract period

9. Performance-Based Management and Maintenance of Roads (PMMR) cont. • Lump sum payments are made periodically and might be adjusted in accordance with the change of certain factors, like inflation or traffic volume. • Major emergency, rehabilitation and improvement works might be paid based on unit prices for works agreed case by case.

10. Performance-Based Management and Maintenance of Roads (PMMR) cont. • Deductions or penalties are being made for non-compliance with terms and conditions of contract, especially with respect to the service level criteria. • Duration of contracts should at least include one periodic maintenance cycle (4-5 years for gravel roads and 8-10 years for bituminous roads). Pure routine maintenance contracts can be 1-2 years.

11. Performance-Based Management and Maintenance of Roads Complexity Up to 30 years Routine and periodic Routine Construction, periodic and routine maintenance 2 4 6 8 10 12 14 Contract duration in years

12. 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

13. Performance-Based Management and Maintenance of Roads (PMMR) is also referred to as • Performance Specified Road Maintenance Contract (Australia and New Zealand) • Highway Asset Management Contract (USA) • Maintenance Service Level Contract (Latin America)

14. Scope of Services of PMMR (1) Management of the Road Network Periodic Maintenance Routine Maintenance Emergencies Improvements Rehabilitation PMMR

15. Scope of Services of PRRM (2) Management of the Road Network Periodic Maintenance Routine Maintenance Emergencies Improvements Rehabilitation PMMR

16. Scope of Services of PMMR (3) Management of the Road Network Periodic Maintenance Routine Maintenance Emergencies Improvements Rehabilitation PMMR

17. Scope of Services of PMMR (3) Management of the Road Network Periodic Maintenance Routine Maintenance Emergencies Improvements Rehabilitation PMMR

18. Contractual Relationship of PMMR (1) Audit by Client or External Auditor Client/ Road Administration Performance or Conventional Contract Performance Contract Road Engineer Consultant Contractor Performance Audit Supervision for Admeasured Work

19. Contractual Relationship of PMMR (2) Audit by Client or External Auditor Client/ Road Administration Performance Contract Consultant/Contractor

20. Overview ofPresentation • Introduction • Brief history of Performance Contracts

21. Brief history of Performance Contracts • 1988 British Columbia, Canada • 1990 Argentina • 1996/7/8 Uruguay, Chile, Colombia, Brazil • 1995 Sydney, Australia • 1996 Virginia, USA • 1998 New Zealand • 2000 Chad • 2001 India (Karnataka) • 2001 Spain (Alava)

22. Examples of PMMR in Latin America (12/2001) * Cleaning of drainage system and right of way

23. Overview ofPresentation • Introduction • Brief history of Performance Contracts • Main reasons for implementing Performance Contracts

24. Main reasons for implementing Performance Contracts • Reduces maintenance cost • Provides better transparency • Improves customer focus • Improves control and enforcement of quality standards • Improves overall road conditions • Helps to reduce road user costs and road rehabilitation costs

25. Overview ofPresentation • Introduction • Brief history of Performance Contracts • Main reasons for implementing Performance Contracts • Service level criteria and response times

26. Service level criteria • Objectives • To minimize total systems cost • To satisfy the road user • accessibility • comfort • travel speed • safety • To minimize environmental impacts • Service level criteria and response times • Examples

27. Examples of service level criteria • International Roughness Index (IRI) • Absence of potholes and control of cracks and rutting • Minimum amount of friction between tires and road surface • Maximum amount of obstruction of the drainage system • Retro reflexivity of road signs and markings • ............

28. Scope (assets or services) • Drainage System • Pavement, incl. markings • Traffic assets (safety, signs, markings, signals, etc.) • Roadside Assets • Bridges • Tunnels • Traffic Services • Emergency Response • Snow & Ice Control

29. Examples of service level criteria (1) a asphalt; b bituminous surface treatment; A Argentina; C Chile; U Uruguay

30. Examples of service level criteria (2) a asphalt; b bituminous surface treatment; A Argentina; C Chile; U Uruguay

31. Service level criteriaand response times

32. Performance Specified MaintenanceContract, New Zealand

33. Mainly input (hours worked) or output based (lane kilometers cleared) payment with some outcome based criteria like the response time of one hour when called upon or snow level reaches 2 inches. • Pure performance contract: the contractor receives a lump-sum per year and the client calls the contactor to achieve bar pavement within 24 hrs. http://www.vmsom.com/news/pro-paper.asp

34. Overview ofPresentation • Introduction • Brief history of Performance Contracts • Main reasons for implementing Performance Contracts • Service level criteria and response times • Performance monitoring and payments

35. Quality control and assurance • Formal monthly inspections • Informal inspections • Contractors self-control system • Road user complaints

36. Performance monitoringInspection system in Chile • Inspections for purposes of payment done once a month taking 10% of the road network selected at random different stretches of 1 km length; • Regular inspections done once a week selecting 5% of the network at random; • Inspections due to complaint by the public; and • Follow-up inspections to verify if contractor rectified deficiencies detected by one of the inspections mentioned above.

37. CHILESystem of payment • During the monthly inspection the compliance of performance standards is being evaluated for each category having different importance. Based on a pre-established formula compliance is calculated as a percentage which is multiplied by the monthly payment foreseen for 100% compliance. During the first year of the contract compliance has been around 95%, mainly due to deficiencies related to road safety and right-of-way. In addition, penalties are being applied if the contractor does not rectify deficiencies within the time periods defined in the contract.

38. Evaluation of service level for a one-km test section (World Bank) The overall coefficient of compliance for a specific road (or road section) in a particular month is determined by calculating the simple average of the coefficients of compliance of all test sections of that month within the road concerned.

39. Example of penalties for not responding to rectify deficiencies within specified response times (CREMA, Argentina)

40. Self-Control Unit of Contractor • Own organizational structure with qualified personnel • Verifying continuously the compliance with the service level criteria • Monthly reporting of compliance to client using standard formats • Participating in monthly formal inspections

41. Performance monitoring by contractor Example Virginia, USA • Asset inventory and condition assessment (updated annually) • Pavement management program • Bridge management program • Safety management and traffic control plan • Emergency response plan • Hazardous materials communications plan • Customer response plan • Public information plan • Annual work plan updated every 3 months

42. Quality Management System ISO 9001:2000 “Quality Management System – Requirements” requires contractor to establish, document, implement, and maintain a QMS that: • Identifies processes • Illustrates sequences and interactions • Identifies criteria and methods to ensure effectiveness • Documents resources and information necessary operate, monitor, measure and analyze the processes • Defines action required to achieve the planned results and continually improve the process

43. Overview ofPresentation • Introduction • Brief history of Performance Contracts • Main reasons for implementing Performance Contracts • Service level criteria and response times • Performance monitoring and payments • Bidding and award of contract

44. Bidding and award of contract • Legal and financial feasibility • Preparation of bidding documents • Scope of Work • Time frame • Pure performance-based or hybrid • Role of contractor in preparing bidding documents • Risk allocation • Pre-qualification • Evaluation criteria • Contract award

45. Examples of Bidding Documents • Sample Bidding Document for Performance-based Management and Maintenance of Roads prepared by the World Bank (World Bank 2002) • State Highway Maintenance Contract Proforma Manual SM032 (Transit New Zealand 2002)

46. Overview ofPresentation • Introduction • Brief history of Performance Contracts • Main reasons for implementing Performance Contracts • Service level criteria and response times • Performance monitoring and payments • Bidding and award of contract • Implementation experiences

47. Uruguay

48. Pilot ProjectUruguay • Extension: 359 km • 154 km bituminous concrete • 88 km concrete • 37 km bituminous surface treatment • 21 km forced impregnation • 59 km gravel • Variable conditions • 30 km of roads need initial rehabilitation and others require strengthening during the contract period.

49. Pilot Project Uruguay Examples of Service Level Criteria • Remaining thickness of gravel surface layer: • 5 cm during and 10 cm at the end of the contract period • Roughness ( IRI ) of pavements: • < 2,8 for bituminous concrete • < 3,4 for bituminous surface treatment • < 6 for gravel • Bituminous surfaces • Absence of potholes • Settlements < 10 mm • Shoulders • Absence of potholes and settlements

50. Pilot Project Uruguay Examples of Service Level Criteria • Drainage systems, like culverts and ditches, should be clean to allow for a permanent free flow of water. • Right of way should be clear of trash and other foreign objects. • Vegetation should not exceed 6 cm on the median strip and 15 cm up to 5 m from the borders of ditches. • Traffic signs and markings: standards defined by the Traffic Department apply.