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Asian Development Bank (ADB)

Manila, July 29th 2015

Road Asset Management and


Performance Based Contracts

Dr. Gunter Zietlow


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e-mail: g@zietlow.com
http://www.zietlow.com
http://www.performance-based-road-contracts.com

Overview of Presentation (1)


Introduction
What is Good Road Asset Management?

PBC concept

Background
Characteristics
Brief History
Benefits
Performance standards
Risks
Performance monitoring
Payment and Incentive Systems

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
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Overview of Presentation (4)


Implementation experiences in
developed and developing countries
Lessons learned
Role of financing institutions

Introduction

Source: Unknown

Road Conditions in the 1980s


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.

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.
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What is Good Road Asset


Management?

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.
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In the long run


the best way of effectively and
efficiently manage road related assets
is through Performance Based
Contracting (PBC)

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PBC Concept

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Performance Based Road Contracts

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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)

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)


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Mixture of method based contract and


performance contract

Characteristics of PBC

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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.

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.

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Characteristics of PBC (3)


Complexity
Routine and periodic
maintenance

Up to 30 years

Routine
maintenance
Construction, periodic and
routine maintenance

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10

12

14

Contract duration in years

Characteristics of PBC (4)


Relationship of required skills as a function
of the duration of PBC
Skills
Typical RAM skills
Prediction of asset deterioration
Quality assurance management

Typical contractor skills

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Duration of contract

Characteristics of PBC (5)


Road Network
Management and Operation

Routine
Maintenance

Winter
Services

Periodic
Maintenance

Emergencies

Rehabilitation

Improvements

Potential Scope of Services and Works


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Characteristics of PBC (6)


Contractual Relationship Full PBC

Client/
Road Administration
Full Performance Contract

Consultant/Contractor
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Audit
by Client
or External
Auditor

Characteristics of PBC (7)


Contractual Relationship with Hybrid Type PBC
Audit
by Client
or External
Auditor

Client/
Road Administration

Performance or
Conventional Contract

Road Manager
Engineer
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Hybrid type PBC

New Type
Contractor

Inspection of Compliance with Service Levels


Supervision for Admeasured Work

Typical Implementation of PBC


Options
A. Paved roads (corridor or network)
1. Pure routine maintenance
a)
b)
c)

2.

Rehabilitation, backlog maintenance, routine


maintenance, winter services, periodic
maintenance, Emergencies
a)

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Off-road maintenance (1-3 years)


All routine maintenance, except for risky items (1-5
years)
All routine maintenance (4-10 years)

b)

Only routine maintenance paid on lump-sum (510years), rest on unit prices


Paid on lump-sum (10-30 years)

Typical Implementation of PBC


B. Unpaved roads (corridor or network)
1. Pure routine maintenance
a)
b)

2.

Rehabilitation, backlog maintenance, routine


maintenance, winter services, periodic
maintenance, eEmergencies
a)

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Off-road maintenance (1-3 years)


All routine maintenance (1-4) years)

Only routine maintenance paid on lump-sum (4-5


years)

Brief History of PBC

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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

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Source: World Bank, 2006

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
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Benefits of PBC (2)


Road Users
Provides better and safer roads with
consistent conditions
Reduces road user cost

Consultants and Contractors

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Guarantees workload over longer


period
Provides potential for increased
margins
Opens excellent opportunities for
business growth

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
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Development of Road Maintenance


Cost in Sydney, Australia
100

% 1991 Rates

80

60

40

RTA (Team of the Roads and Traffic Authority of New South Wales)
SOR
Contract
Private
contractor
Performance
Transfield
ContractSpecified Road Maintenance Contract

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0
0
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10

20

30

40

Time (months from June 1991)

50

60

70

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
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Performance / Service Levels

Objectives
To satisfy the road user
accessibility
comfort
travel speed
safety

To minimize total system cost (cost to


road users and agency life-cycle cost
of assets)
To minimize environmental impacts
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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)

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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


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speed > 50 km/hr


............

Typical Service Levels and Response Times


for Paved Roads

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

8 hrs

4 hrs

2 hrs

1 hr

Typical Traffic Volumes


(Vehicles/day)

Cleanliness of pavement surface


and shoulders response time for
safety related matters (Response
time)
World Bank
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Distribution of Risk
In-house
Maintenance

Outsourcing
Specific
Maintenance
Works

Performance-Based
Road Management and
Maintenance Contracts
Shortterm

Mediumterm

Long-term Road
Concessions (BFOT)

Longterm

Risk to contractor increases


Risk to road agency decreases

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Performance Monitoring
Contractors self-control system with
verification by client
Joint inspections by client and contractor
at certain time intervals
Road user complaints

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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.
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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

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Key External and Internal Factors


Associated with the Implementation of
PBCs

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Framework
Legal
Multi-year contracting
Road maintenance regulations

Financial
Sufficient funding
Multi-year financing
Dedicated funds

Institutional
Separation of client and contractor
Privatization of road maintenance
Competition between contractors
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Role and Capacity of Road Agency


Role
Manage a road asset management
Implementation and development of PBCs
Management and Supervision of PBCs

Capacity
Understanding of PBC concept
Change of attitudes
Additional skills
Training and coaching
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Role and Capacity of Contractors


Role
Long-term road asset management
Proactive
Services to the road user

Capacity
Understanding of PBC concept
Change of attitudes
New skills (road asset management)
Lack of sufficiently qualified contractors
Training and coaching
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Role and Capacity of Consultants


Role
Promoter
Designer
Supervisor / Manager
Trainer / coach

Capacity
Understanding of PBC concept
Change of attitudes
New skills
Training and coaching
Lack of sufficiently qualified consultants
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Implementation Experiences

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Complexity of PBCs
Complexity
New Zealand 1998

Birmingham UK
27 years

Ukraine 2014

Estonia 1995

MAC UK 2004
Future Malaysia 2016

Micro enterprieses
Latin America
China
US 1997
Bangladesh

Finland 2008

Punjab India 2012

Serbia 2004
Finland1998

Estonia 2008
Malaysia 2000

Argentina 1994 (RMC)


Croatia 2015
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10

12

14

Contract duration in years

Estonia

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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 ERAs road network (16500
km, mainly gravel roads) is maintained under
hybrid type performance contracts

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
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2009 , eight 1-year routine maintenance PBCs


2010, two 2-year routine maintenance PBCs

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
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rural roads with local community groups


(Yunnan Province)

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
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2000, 6 area-wide 15-year PBCs covering all national


roads, only routine maintenance paid on lump sum

Lessons Learned (1)

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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

Lessons Learned (2)

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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

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
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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
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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!

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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
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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

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Upcoming work

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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
ksakamoto@adb.org

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