Performance-based management and maintenance of roads (PMMR)

Performance-based management and maintenance of roads (PMMR)
University of Birmingham Senior Road Executive Programme Restructuring Road Management, Birmingham, 30 April to 5 May 2006 Performance-based management and maintenance of roads (PMMR) by Dr. Gunter Zietlow

Overview of Presentation (1)
Introduction Benefits and disadvantages of PMMR Performance standards and response times Risk identification, sharing, and mitigation Performance monitoring Payments and incentive systems

Data management and ownership Customer perception and community involvement Tender design and evaluation Changes required by the client and consulting and contracting industry Implementation experiences and strategy Lessons learned

Overview of Presentation
Introduction

Importance of Timely Maintenance
When roads are in poor condition every $ “saved” in road conservation will cost: $ 3 to road users in additional vehicle operating costs and $ 2 to the road administration (or the tax payer) in reconstruction and rehabilitation costs. What does this mean for the economy of a country? Due to the poor road condition in many developing countries between 1% and 3% of GDP are being wasted because of additional vehicle operating and road rehabilitation costs. Including additional accident cost as well as freight losses the total waste will increase to between 2% and 5% of GDP per year.

Contracting Out Road Maintenance Can Save Money
Routine and periodic road maintenance done by in-house labor is being replaced more and more by contracts with the private sector worldwide. 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. Besides trying to increase the amount of financial recourses for road maintenance it is of utmost importance to use existing funds more effectively and efficiently. The gains by contracting out road maintenance very much depend on the competitiveness and qualification of the private contractors for road maintenance.

Type of Contracts Unit price contract (admeasured) Lump sum contract
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 Performance Standards or Service Quality Criteria Fixed monthly payments if performance standards are complied with Hybrid contract Mixture of performance contract and unit price contract Unit price contracts give incentives to the contractor to maximize work inputs like manpower, equipment and materials. Lump sum contracts define the output (works completed) at a specific target date. Performance based contracts define target outcomes (performance standards) to be met over the entire contract period. For example to keep the road free of potholes over the entire contract period that can be several years.

Performance-Based Management and Maintenance of Roads (PMMR)
Performance Standards 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 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 standards during the contract period Some restrictions apply like abiding by certain quality standards set by the client or to labour or environmental laws. This might restrict the use or disposal of certain materials or the manner of executing some of the works. Nevertheless, such restrictions normally leave enough room for innovations to improve effectiveness and efficiency.

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. Price adjustment formulas reflecting the change of prices of the most important inputs like labour and materials are being used in most of the PMMR. A good examples for such formula can be taken from the State Highway Maintenance Contract Proforma Manual SM032, Maintenance Specifications, Transit New Zealand, 1 March In this case the adjustment will be made once only in each calendar year. The adjustments are being made based on formulas covering the labor cost index, various producer price indices, and the farm expenses price index. Since the traffic volume and composition have a major impact on road maintenance cost, price adjustments might be necessary if significant deviations from the projected data will occur. This might be taken care off by either reducing or increasing the monthly fixed payments depending on the impact on road maintenance cost.

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. Bonus payments might be considered as well for exceeding the contracted performance standards. The PMMR in Washington DC is one example for such bonus payments.

Performance-Based Management and Maintenance of Roads
Complexity Up to 30 years Routine and periodic Routine Periodic maintenance is referring to the periodic application of overlays or surface treatments in the case of black top roads and re-gravelling in case of gravel roads. To include construction, improvements and/or rehabilitation works in a PMMR gives incentives to the contractor to execute works to a high quality standard. This will help to avoid the often experienced tendency of contractors to execute to deliver poor quality works, since he will have to maintain the road for a long period at a fixed price. Construction, periodic and routine maintenance 2 4 6 8 10 12 14 Contract duration in years

Scope of Services of PMMR (1)
Management of the Road Network Routine Maintenance Periodic Maintenance PMMR includes routine maintenance only Emergencies Improvements Rehabilitation PMMR

Management of the Road Network Routine Maintenance Periodic Maintenance PMMR includes routine and periodic maintenance (overlays and re-graveling) Emergencies Improvements Rehabilitation PMMR

Management of the Road Network Routine Maintenance Periodic Maintenance PMMR includes routine and periodic maintenance as well as minor emergency, improvement, and rehabilitation work and some management tasks of the management of the road network. The management of the road network includes tasks such as: Attending to traffic accidents Operating a traffic management information system Operating a telephone emergency system Traffic counts Attending to road user complaints Managing a long-term asset management system ……. Emergencies Improvements Rehabilitation PMMR

Management of the Road Network Routine Maintenance Periodic Maintenance PMMR includes all services including the management of the road network. This is the case of a typical road concession that often includes the construction as well. A typical PMMR that includes all the services mentioned above is the PMMR in Virginia, USA. PMMR in the USA: Virginia Case Study, Kent Lande, P.E., Chief Engineer and Vice President, Louis Berger, Transport Forum 2005, World Bank, 2005 Emergencies Improvements Rehabilitation PMMR

Contractual Relationship of PMMR (1)
Audit by Client or External Auditor Client/ Road Administration Performance Contract This is the situation where there roles of the road engineer/consultant and the contractor are combined. The performance monitoring is done by the client directly or by an external auditor. Consultant/Contractor

Contractual Relationship of PMMR (2)
Audit by Client or External Auditor Client/ Road Administration Performance or Conventional Contract Performance Contract This is the situation where there role of the road engineer/consultant is separated from the contractor. The role of the Road Engineer/Consultant is the same as in traditional contracts in respect to items which are subject to a schedule of rates (unit prices) and as for performance specifications his role would be more equivalent to that of an auditor. Road Engineer Consultant Contractor Performance Audit Supervision for Admeasured Work

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

Brief History of PMMR 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) The development of Performance Contracts for road maintenance started in the late 1980’s and early 1990’s. First British Columbia in Canada contracted out its road maintenance in But performance standards were still more oriented towards work procedures and materials to be used, rather than result oriented, very much limiting the contractor in the application of new technologies. Shortly afterwards, Argentina concessioned approximately kilometers of its national roads, using end result performance specifications for the maintenance services and a penalty system for not meeting response times for rectifying deficiencies. In the mid 1990 the maintenance of another kilometers was contracted out using similar performance specifications. But this time without applying tolls, since average traffic levels were below 2500 vehicles per day and therefore could not sustain a tolling system. These contracts are also referred to as CREMA, contracts for rehabilitation and maintenance. In the mid 1990’s Uruguay started its first pilot scheme of Performance Contracts on a small network of 359 kilometers of its national roads. In the same year Montevideo followed suit by contracting out the maintenance of 150 kilometers of its main arterial urban roads. The new contracting scheme proved to be so successful that now, only five years later, 50% of the national roads in Uruguay are being maintained through Performance Contracts. Several other countries in Latin America such as Brazil, Chile, and Colombia have started similar contracts and others such as Ecuador, Guatemala, and Peru are planning to do so. Most of these contracts include partial rehabilitation to bring roads to maintainable conditions. Today more than kilometers of roads in Latin America are being maintained under Performance Contracts. Australia started its first Performance Contract in 1995 covering 459 kilometers of urban roads in Sydney (Frost, M. and C.Lithgow. 1996). Since then several new contracts have been implemented in New South Wales, Tasmania, and Southern and Western Australia. Some of them as so called hybrid contracts, where some of the works are being paid based on quantities and unit prices an others based on performance criteria. In 1998 New Zealand let its first Performance Contract for the maintenance of 406 kilometers of national roads. Presently, 10% of New Zealand’s national roads are maintained using the new contract scheme. In the United States of America, the State of Virginia pioneered a Performance Contract called “Asset Management and Maintenance Contract” for the maintenance of 402 kilometers of Interstate Highways in Four years later Washington D.C. followed suit with a similar contract that covers 119 kilometers of federal roads (Federal Highway Administration. 1999). Both contracts are considered pilots. Several other states have started to contract out maintenance on parts of their road networks applying a mixture of performance specifications and unit prices. Since than, several other countries have started Performance Contracts such as Chad in 2000, India (Karnataka), and Spain, to name a few of them. As the World Bank, the Asian Development Bank, the European Bank for Development and Reconstruction, and the Inter-American Development Bank are promoting this new contracting scheme world-wide numerous countries have either started or are planning to introduce PMMR.

Introduction Benefits and disadvantages of PMMR

Benefits of PMMR (1) Road Agency Reduces workload
Helps to assures long-term maintenance funding Provides better transparency and accountability Reduces maintenance cost Improves customer focus Improves control and enforcement of quality standards Avoids frequent claims and contract amendments to increase quantities of work by the contractor Reduces road rehabilitation Reduces risks

Consultants and Contractors
Benefits of PMMR (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

Examples of reported savings by introducing PMMR
Australia Savings in % Sydney 35 Tasmania 20 Western Australia New South Wales 37 New Zealand Virginia (USA) 15 The examples are indicative at best, since the basis of comparison is not always the same.

Development of Road Maintenance Cost in Sydney
(Team of the Roads and Traffic Authority of New South Wales) New South Wales initiates pilot road maintenance contract project in Australia In 1990 the Roads and Traffic Authority of New South Wales (RTA) initiated the development of a pilot road maintenance contract in its Sydney region. The objective was to establish the feasibility of contracting road maintenance and to measure differences in cost, quality, and responsiveness between a contractor and the RTA workforce. Prior to the time when the pilot contract was let, road maintenance was essentially a government monopoly. The private sector had little involvement other than as an activity, or job, contractor; see Improving Quality and Cutting Costs through Performance Contracts - Australian Experiance , Malcolm Frost, General Manager, Infrastructure Maintenance and Christine Lithgow, Manager, Contract Legal Services, World Bank Road Management Training Seminar Washington DC, USA December 1996. “The RTA pilot comprised two contracts with the private sector and, for the purposes of comparison, a “contract agreement” with the RTA workforce entity responsible for the network prior to the pilot. The 2 private sector contracts were: (a) Maintenance management contract A contract for the provision of maintenance management services, including network inspection, defect prioritisation, work definition and direction, budget development and control, quality assurance of works, treatment design, and reporting. This contract included a specifically designed "Code of Practice" as its technical specification, which defined the level of performance, in terms of intervention standards, expected from the maintenance manager. The initial contract was awarded for a 2-year term, and included 2 networks of approximately 100 kilometres of roads in western Sydney. The works delivery on one network was a private sector contractor (see (b) below) and on the other network was the RTA workforce. Identical documentation and management procedures were used on both networks. (b) Maintenance delivery contract A comprehensive Schedule of Rates contract for the provision of maintenance services, which involved the delivery of works as directed by the contracted maintenance manager in accordance with the time, cost and quality requirements specified in the direction. The contract utilised standard construction contract conditions and specifications, which were heavily modified to make them appropriate to a maintenance contract. The contract was a Quality Assurance contract. After tender, the initial contract was awarded for a 2-year term, and included a network of approximately 100 kilometres of roads in western Sydney.” “Together, the 2 contracts constituted a form of "performance contract" where the product was identified by the performance parameters defined in the maintenance manager's Code of Practice. However, the RTA's retention of budgetary control limited the latitude of the contractor in this instance. The style of maintenance services contract allowed for a detailed evaluation of the comparative costs and productivity of the contractor with the RTA. Such an evaluation is difficult with a performance specified style of contract.” “The results of the pilot over its initial twelve months were impressive and beyond initial expectations. The contractor demonstrated an ability to respond to all emergency situations, which arose, including accidents and a prolonged flood and storm emergency. The contractor's emergency response capability completely satisfied the requirements of the police and other emergency services agencies. There was no identified or demonstrated difference in the quality of the work undertaken by the contractor and the RTA. The maintenance manager quickly adopted network management processes, and procedures, that were equal to, or in some cases superior to, those traditionally used by the RTA. At the commencement of the contract term the contractor's average costs were measured at 16% less than those of the RTA's workforce operating under similar operating conditions. Over the first twelve months of the contract term the RTA's workforce achieved measured improvements in average productivity of 22%. This improvement was a direct result of the introduction of competition into the workplace. Over the term of the contract the condition of the assets and the level of service provided was maintained. As contractual work is initiated in response to road need, without consideration of resource utilisation constraints, the effectiveness of the distribution of the routine maintenance budget improved by an average 10%. This means that 10% more of the budget was able to be diverted to activities supporting the safety and structural outcomes of road maintenance than was possible in non-contract areas, where the need to utilise available resources led to the scheduling of a greater proportion of labour intensive environmental works than required by the needs of the network”, see Frost and Lithgow 1996. Re-tendering of these maintenance services has produced even more spectacular savings. The second tender in 1993 brought down the private sector contractor’s average rates of maintenance services by 37% in relation to RTA’s rates in 1991 (Frost and Lithgow 1996,6), while the third round of tenders in 1996 produced average rates which were even 52% lower than the 1991 reference rates of the RTA. During this time the competing workforce of the RTA managed to reduce their rates by approximately 40% overall (Frost and Lithgow 1996). Private contractor Performance Specified Road Maintenance Contract Source:

Cutting Cost by Contracting Out Road Maintenance
Based on the many experiences by changing from in-house road maintenance to “traditionally” contracting out in Latin America and Asia cost savings have been reported between 30% and 50%. Even more savings have been experienced when changing from “traditional” to PMMR. Total savings of PMMR with regard to in-house maintenance cost is 50% to 70%. Cost comparison between road maintenance by force account (in-house) and contracting out

Reasons for reduction in road maintenance cost
Drivers of savings: Incentives / competition / long-term management Modern management and work procedures Increased productivity Total life cycle costing Just-in-time maintenance Work package optimization Use of latest technologies These are the reasons listed by VMS based on there experiences with the first PMMR in Virginia, USA. Performance Led Comprehensive Agreement for Virginia Interstate Highway Asset Management Services, USA, Kent O.. Lande, Dan Dennis, IRF Symposium on “Financing in Transportation Projects”, Vietnam, 1999.

Disadvantages of PMMR Road Agency Road Users
Tends to prolong tender period Requires new procedures,mentality change of staff, and training Might lead to loss of information if contractor is not obliged to supply detailed information on condition, interventions and inventory of the road Loss of flexibility Loss of expertise Might reduce competition Road Users None Consultants and Contractors Increases risks Requires mentality change of staff, new procedures, and training

Introduction Benefits and disadvantages of PMMR Performance standards and response times

Definitions Performance Indicator (or Service Quality Indicator) is a characteristic of an output that can be measured such as an aspect of quality, quantity or timeliness, which enables a comparison of performance against a desired standard, norm, goal or target value. Performance (or Service Quality) Standard, Criteria, Target Value, Intervention Level or Benchmark is the desired level of performance. Performance Index relates the value of a performance indicator to a desired Standard, Criteria, Target Value, Intervention Level or Benchmark.

Performance Standards
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 To define the “right“ performance standards is a rather challenging task. The objective is to satisfy a set of goals such as to satisfy comfort and safety of road users to minimize total systems cost, including the long-term cost of preserving road, bridge and traffic assets and the cost to the road user, and to minimize environmental impacts To avoid ambiguity, performance standards have to be clearly defined and objectively measurable.

Examples of Performance Indicators/Standards
Absence of potholes and control of cracks and rutting, which affects safety and pavement performance; Roughness of the road surface, which affects vehicle operating cost; Amount of obstruction of the drainage system to avoid destruction of the road structure; Friction between tires and road surface for safety reasons; Retro reflexivity of road signs and markings for safety reasons

Scope of Contract (Assets and Services) Example Washington DC, USA
Drainage System Pavement, incl. markings Traffic assets (safety, signs, markings, signals, etc.) Roadside Assets Bridges Tunnels Traffic Services Emergency Response Snow & Ice Control

Examples of Performance Standards (1)
Asset Class Component Performance Standards Pavement Potholes Roughness (a) Roughness (b) Rutting Cracks > 3mm No potholes IRI < 2.0 (A), < 2.8 (U) IRI < 2.9 (A), < 3.4 (U) < 12mm (A), < 10mm (U) Sealed Gravel surfaces Roughness Thickness of gravel layer IRI < 6 (U), < 1 (C) > 10cm (C,U) Paved Shoulders Joints with pavement Vertical alignment < 1cm (C,U) These are examples reflecting the situation in the year 2000. a asphalt; b bituminous surface treatment; A Argentina; C Chile; U Uruguay

Examples of Performance Standards (2)
Asset Class Component Performance Standards Drainage system Obstructions Structures No obstructions. Should allow for unhindered flow of water Structurally sound with no damages Road signs and markings Road signs Reflectivity of Road markings Complete, visible, and clean > 160 mcd/lx/sqm (Argentina), > 70 mcd/lx/sqm (Chile) Right of way Vegetation Foreign objects < 15 cm height of grass (Argentina) 5 –15 cm height of grass (Uruguay) No foreign objects allowed a asphalt; b bituminous surface treatment; A Argentina; C Chile; U Uruguay

Performance Standards and Response Times: Examples of New Zealand
This example is taken from the State Highway Maintenance Contract Proforma Manual SM032, Maintenance Specifications, Transit New Zealand, 1 March 2005. As traffic conditions vary from road section to road section, different sets of parameters will create minimal system cost, taking into account road maintenance and vehicle operating costs. The application of the Highway Design Model (HDM) can be helpful to define some of these parameters, such as the IRI.

Typical Service Levels for Paved Roads (1)
Fair Good Very Good Excellent Typical Traffic Volumes (Vehicles/day) Less than 250 250 – 1000 plus Potholes (Max Dia of any single pothole) 400mm 300mm 200mm None allowed Potholes(max number in any 1000m with diameter greater than 100 mm 10 5 1 Patching (Response time) 28 days 14 days 7 days Cracking (Response time) Cleanliness of pavement surface and shoulders response time for safety related matters 8 hrs 4 hrs 2 hrs 1 hr Cleanliness of pavement surface and shoulders response time for all other matters 5 days 3 days World Bank

Typical Service Levels for Paved Roads (2)
Fair Good Very Good Excellent Typical Traffic Volumes (Vehicles/day) Less than 250 250 – 1000 plus Rutting 4 cm 3 cm 2 cm Rutting (Response time) 56 days 28 days Patching (Response time) 14 days 7 days Raveling (Response time) Loose Pavement edges (Response time) Height of Shoulders vs. Height of pavement 7.5 cm 5.0 cm Height of Shoulders vs. Height of pavement (Response time) Paved shoulders (Response time) World Bank

Introduction Benefits and disadvantages of PMMR Performance standards and response times Risk identification, sharing, and mitigation

Distribution of Risk 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 The nature of PMMR allocates responsibility for work selection, design and delivery solely to the contractor. Hence, the choice and application of technology and the pursuit of innovation in materials, processes and management are all up to the contractor. This allocates higher risk to the contractor compared to the traditional contract arrangement, but at the same time opens up opportunities to increase his margins where improved efficiency and effectiveness of design, process, technology or management are able to reduce the cost of achieving the specified performance standards. The longer the contract period the higher the risk taken by the contractor. Nevertheless, the contractor should not be burdened with excessive risks that he cannot control. This will certainly lead to higher contract prices since they would reflect such excessive risk. Therefore, the party who can best manage or bear the risk should take this risk. For example, major emergencies and force majeure should be born by the client.

Risk Identification There are three fundamental risks:
a background risk Political, legal and regulatory risks Monetary and macro-economic risks Force majeure, a cost risk, a risk of exceeding initial cost estimates for the construction or operation of the project, and a revenue risk if the client does not pay on time

Risk Sharing PMMR requires the principle acceptance of sharing risk between the client and the contractor. Private actors are willing to take some of the project risks, provided that the nature of the risks relates to their expertise so that they will be able to properly assess the consequences. The expected remuneration is proportionate to the level of risk they will bear. Asking the private sector to bear risks that could best be handled by the public sector will usually result in either withdrawal of the private partners who refuse to take the risk, or premature termination by the contractor, with the possibility of him going bankrupt.

Risk Mitigation Background risks Technical risks Revenue risks
Born by client Technical risks Pavement history and condition Geological conditions Drainage and flooding Revenue risks Payment adjustment formula Road maintenance fund Social acceptability Involvement of the road agency’s staff Involvement of the public

Introduction Benefits and disadvantages of PMMR Performance standards and response times Risk identification, sharing, and mitigation Performance monitoring

Performance Monitoring
Contractor’s self-control system Formal monthly inspections Informal inspections Road user complaints Key to success of PMMR is an effective and efficient performance monitoring and adjustment system that includes incentives for good performance, including sanction for poor performance.

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 Such self-control unit of the contractor is very important and a significant shift in the way business has been done in the past. This requires a major mind-shift and new expertise, which needs training and time to adapt.

Performance Monitoring Inspection System in Uruguay
Inspections for purposes of payment done once a month taking 10% of the road network selected at random different stretches of 1 km length; Informal 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. Performance monitoring is key to the success of this new way of contracting road maintenance. Appropriate control procedures as well as penalties for non-compliance have to be well defined in the contract documents. Procedures defined in various contracts, as well as experiences, vary. In the case of road concessions in Argentina inspectors are inspecting the road and making random checks to verify compliance at least twice per month. Over time, inspectors become more experienced and familiar with trouble spots along the roads. Experience underlines the importance of having a well-documented inventory of the road as well as daily records of activities undertaken by the contractor. This helps to understand the specific behavior of the roads and contributes to better preventive maintenance. Inspectors and personnel of the contractors went through a valuable phase of learning and adaptation to arrive at an effective control system. In Argentina a very important role is given to the active participation and control of the road user. Each toll station is keeping a complaints and suggestions book and users are encouraged to report incidents to the Road Administration. Extensive use of this mechanism has helped to improve road conditions and has revealed an increasing satisfaction of the road users with the new scheme. As for the CREAMA contracts performance monitoring and payment procedures are very similar to the ones in Chile. In Chile there are four kinds of inspections: (i) monthly inspections cover 10% of the roads under contract. Selection of stretches of 1 km each is based on a random sample well defined in the contract; (ii) weekly inspections looking at 5% of the roads randomly selected; (iii) non-programmed inspections to respond to complaints by road users; and (iv) follow-up inspections to verify that appropriate action has been undertaken by the contractor to rectify non compliance. Payments to the contractor are based on the results of the monthly inspections. A percentage of compliance is being calculated based on a formula using the results of each individual performance standard as input data. Full payment will only be made on 100% compliance.

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 These programs and plans have been previously executed by the road administration.

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 to operate, monitor, measure and analyze the processes Defines action required to achieve the planned results and continually improve the process In order to enable the contractor to manage the contract properly and the road administration to monitor, it is vital that the contractor has a proper management and quality control system in place. Since more and more road agencies are adopting the ISO 9001:2000 and it is recommended to only pre-qualify contractors who are certified accordingly.

Introduction Benefits and disadvantages of PMMR Performance standards and response times Risk identification, sharing, and mitigation Performance monitoring Payments and incentive systems

Payments Fixed monthly payments for scope of work and services contracted under service level or performance standards Rehabilitation works may be paid as fixed monthly payments as well or based on unite prices and quantities of work performed Emergency and improvement works to be paid based on unit prices and quantities of work performed PMMR should include schedules of rates as well

Bonuses and Penalties Monthly fixed payments might be reduced if contractor does not comply with the service level or performance standards Contractor might have to pay penalties for not rectifying deficiencies within the response times given Contractor might get bonus payments if he exceeds the performance standards

Example of Penalties for not Rectifying Deficiencies within Specified Response Times (CREMA, Argentina) Performance Standards Penalty in US$ No pothole > 2cm deep on paved roads 110/day/pothole No edge failure on paved roads 110/day/failure No rutting > 20cm long and 12mm deep on paved roads 66/day/rut No cracking or raveling on paved roads 88/week/km Travel speed of at least 50km/hr on earth and 70km/hr on gravel roads 176/day/km No potholes > 2cm on paved shoulders 44/day/pothole Drains, ditches, culverts and other drainage structures to be clean 44/day/structure The example is taken from Areawide Performance-Based Rehabilitation and Maintenance contracts for Low-Volume Roads (Seventh International Conference on Low-Volume Roads), Mm. Guillermo Cabana, Gérard Liautaud, Asif Faiz, World Bank, Dirección Nacional de Vialidad (Agentina), 1999. Source: World Bank

Bonus System Bonus payment if contractor exceeds service level criteria Amounts Limitations Bonus payments are not common in PMMR. One example is the contract in Washington DC, whereby the contractor receives additional payments of up to 2% if he exceeds 80% the performance specifications. Normally, performance standards should be set at an optimal level, reflecting the trade-off between cost and benefits. If exceeding the performance standards adds value to the road user and/or the road agency the contractor should receive an incentive to do so and receive part of the added value. In some concession contracts, the improvement in road safety is encouraged by a bonus scheme, as for example in the UK.

Adjustment for rise and fall in costs: Example New Zealand
All prices in the price schedules and the lump sum payment are subject to adjustment for rise and fall in costs. The adjustment will be made once only in each calendar year. The adjustments are on formulas covering labor cost index, various producer price indices, and farm expenses price index.

Introduction Benefits and disadvantages of PMMR Performance standards and standards and response times Risk identification, sharing, and mitigation Performance monitoring Payments and incentive systems Data management and ownership

Data Management and Ownership
Collection and management of data is being shifted mainly to the contractor. Road agency needs to ensure that data previously collected by the agency is being collected by contractor and transferred to the agency. Proper procedures have to be included in contract for collecting and managing data by contractor.

Introduction Benefits and disadvantages of PMMR Performance standards and response times Risk identification, sharing, and mitigation Performance monitoring Payments and incentive systems Data management and ownership Customer perception and community involvement

Road User Perception and Involvement
Involvement of road users in the planning stage Information disclosure Consultation on service level indicators and during operation Publication of basic contract information Publication of relevant service level indicators Consultation on relevant service level specifications and the compliance by the contractor

Introduction Benefits and disadvantages of PMMR Performance standards and response times Risk identification, sharing, and mitigation Performance monitoring Payments and incentive systems Data management and ownership Customer perception and community involvement Tender design and evaluation

Tendering 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 Before embarking on such pilot scheme, it is necessary to analyze its legal and financial feasibility first. One of the most important legal aspects is the maximum contract period allowed by law. In most of the countries in Latin America, for example, the maximum contact duration is restricted to either four or five years, making it necessary to change laws in order to accommodate long-term contracts. Financing has to be secured for the entire duration of the contract. For example, one pilot project in Brazil had to be abandoned only after one year of operation due to a shortage of funds. Prior to the preparation of the bidding documents a number of steps have to be taken to define the road network to be contracted out, to make an inventory of the assets involved and to determine its condition, to select and define the performance standards, select and define the methods of measuring those standards, to define the likely maintenance and possibly rehabilitation works, and to prepare preliminary cost estimates. The data on the inventory and the conditions of the assets are given to the potential contractor as reference only. It is the responsibility of the contractor to make sure that the information is correct, since he has to assume responsibility for meeting the performance criteria. For the preparation of bidding documents, existing bidding documents used for road construction can be used, but they will have to be adapted to suit the special nature of Performance Contracts. Performance Contracts that are being used in other countries might be helpful. Since Performance Contracts are new for road administrations and contractors alike, close cooperation between both parties is vital for success. Both sides have to be comfortable with the contractual arrangement and understand the risks involved. In all Performance Contracts that have been let until now, road administrations and contractors have closely worked together in preparing the bidding documents. In some countries such as Uruguay the road administrations, which were used to prepare bidding documents without consulting contractors, had to adjust to the new situation, because of a lack of interest from contractors to embark on the new contracting scheme. In the United States it was the contractor who actually initiated the process and presented a draft of the bidding documents to the road administration. In this case the Virginia State Parliament had to pass a law first to allow for unsolicited bids to be accepted by the Virginia Department of Transport. In all the other Performance Contracts competitive bidding procedures have been used after pre-qualification of potential contractors. Especially in the case of pilot schemes the qualification of the contractor is a major factor besides the overall price. Therefore, the contractor who offers the lowest price does not necessarily wins the contract. Performance Contracts shift much of the risk, which is normally assumed by the road administration, to the contractor. Therefore, the potential bidders have to be given sufficient time to prepare their bids. This time of course is much longer than in the case of “traditional” maintenance contracts. It is recommended to pre-qualify well qualified contractors only that have a proven track record of good cooperation with the road agency. For further details see Workshop on Implementation of PMMR.

Examples of Bidding Documents
Procurement of Works and Services under Output- and Performance-based Road Contracts and Sample Specifications, The World Bank, Washington, D.C., September 2005 State Highway Professional Services Contract Proforma Manual, Transit New Zealand, December 2005 Will be discussed in detail later.

Introduction Benefits and disadvantages of PMMR Performance standards and response times Risk identification, sharing, and mitigation Performance monitoring Payments and incentive systems Data management and ownership Customer perception and community involvement Tender design and evaluation Changes required by the client and consulting and contracting industry

Changes Required Road administration Consultants Contractors
Attitudes Procedures Training Consultants Contractors Road users Control of road conditions (claims) A separate module will deal with this issue.

Introduction Benefits and disadvantages of PMMR Performance standards and response times Risk identification, sharing, and mitigation Performance monitoring Payments and incentive systems Data management and ownership Customer perception and community involvement Tender design and evaluation Changes required by the client and consulting and contracting industry Implementation experiences and strategy

First Pilot Project Uruguay
Extension: 359 km Contract period was 4 years Deadlines to comply with performance indicators: 2 months for potholes 6 months for other defects on main roads one year for all roads The contractor is being paid a fixed monthly fee Sanctions for non-compliance

AUSTRALIA PMMR Actually, more than kilometers of road are being managed and maintained under PMMR in several provinces of Australia Some of the contracts are hybrid contracts (some works are being paid on a unit price basis) Reported savings are between 15% and 35%

Contract cost was 15% below comparable cost of traditional contracting
PMMR, New Zealand (1) First 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

PMMR, New Zealand (2) In 2000 a similar contract was concluded and Two years later a third PMMR 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 New Zealand will continue to expand PMMR

PMMR, New Zealand Services Covered
Management of the asset Routine, periodic maintenance and rehabilitation of assets incl. bridges Collection and management of asset inventory data Call-out and attendance to emergencies Response to public request, complaints and feedback

First Performance Based Road Management and Maintenance Contract in the State of 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 centers 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

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, crash attenuators) Source: FHWA

Colombia Cooperatives
>300 micro-enterprises for routine maintenance only 30-50 km of roads with people each 1 road management firm supervises 4-6 micro-enterprises Micro-enterprises receive extensive training

Bangladesh Labor contracting societies
Off pavement maintenance only Simple performance levels Simple incentive scheme Predominantly in rural areas

Implementation Strategy

“Ideal” Conditions for PMMR
Well developed contracting environment with local contractors experienced in road maintenance Road agency with good contract management experience, committed to the PMMR concept Good knowledge and data of network, maintenance needs and cost Network does not need major rehabilitation Financing secured for contract duration

Phased introduction of service level criteria.
Performance-Based Management and Maintenance of Roads - Implementation Strategy - Phased introduction of service level criteria. Routine maintenance Roughness and friction Deflection Increase time span of contracts. 1 to 2 years 4 to 5 years < 12 years Monitor implementation process.

Make Use of Available Knowledge and Experiences
Invite experts in PMMR Arrange visits to countries which have implemented PMMR Use recourses available on the internet Sample Terms of Reference for consultancy services Sample bidding documents Case Studies Relevant presentations and papers

Introduction Benefits and disadvantages of PMMR Performance standards and response times Long-term asset modeling Risk management strategies and processes Performance monitoring Payments and incentive systems Data management and ownership Customer perception and community involvement Tender design and evaluation Changes required by the client and consulting and contracting industry Implementation experiences and strategy Lessons learned

Lessons learned (1) Financing needs to be secured for the entire contract period. Performance Contracts have to be tailored to each specific situation Pilot schemes should be carefully planned and implemented Road have to be in “maintainable” conditions Each Performance Contract has to be tailored to each specific situation. Performance Contracts are still in an early stage of development and differ widely from country to country and even within countries. Studying the experiences of existing Performance Contracts in several countries is recommended before embarking on this new type of contract. Pilot schemes for contracting out road maintenance based on performance standards should be carefully planned and implemented. The complexity of the contracts, especially with regard to performance standards, road surfaces and contract duration should be based on past experience in contracting out road maintenance, the ability of the road administration to prepare and monitor such contracts, and the qualifications of local contractors to manage this new type road maintenance contract. Wherever there is little experience with contracting out road maintenance, a gradual approach is recommended, starting with short-term contracts and simple performance standards with regard to the control of potholes and cracks and the cleaning of the drainage system. Whenever roads are not in maintainable conditions, prior rehabilitation is necessary, either based on unit prices or included in the fixed monthly payments the contractor receives over the contract period. Roads should be in a maintainable condition. that means they should be in good or regular condition. If roads do not satisfy this criteria they should be excluded or rehabilitated either before or during the implementation of the PMMR.

Lessons learned (2) Full Performance Contracts should include at least one periodic maintenance cycle Risks shall be assigned to the party that can best bear and manage the risk Qualification of contractors and inspectors is key to success All contractors should use proper Quality Management Systems (QMS) Whenever circumstances permit, Full Performance Contracts, include the routine and periodic maintenance, should be longer than five years and should include periodic maintenance in order to maximize the potential benefits.The longer the contract the greater is the incentive for the contractor to try-out and apply new technologies and to optimize resource allocation. Risk shall be assigned to the party that can best manage the risk. Assigning to many risks to the contractor will result in proportionally higher cost of the contract. Well-qualified contractors and inspectors are key to the success of Performance Contracts. Training programs which have been conducted for small-scale enterprises and inspectors in Uruguay and Honduras have shown good results. Equally, traditional contractors require training in modern management techniques and the application of new maintenance procedures and technologies. All contractors should use a proper Quality Management System (QMS) like the ISO , covering all aspects of the contract scope

Lessons learned (3) Performance Contracts need strict performance monitoring and application of penalties for non-compliance Include Dispute Resolution Mechanism Performance standards need to be developed further Performance Contracts might not produce cost saving immediately Proper performance monitoring and strict application of penalties for non-compliance have proven to be critical to the success as well. Wherever road administrations did not properly monitor the performance of the contractor or did not apply proper penalties for non-compliance, contractor's performance was deficient. The inclusion of a Dispute Resolution Mechanism is important for all contracts, but is especially recommended for pilot pilot projects since it is more a situation of trial and error. Performance standards need to be developed further. The development of performance standards is still in its early stage. Until now each road administration has developed its own standards by slightly modifying the ones they used before for in-house labor or contractors. Performance Contracts might not result in cost savings immediately. Until now only the contracts in Australia, New Zealand and the United States have reported substantial cost savings. As for the contracts in Latin America no comparable cost analysis has been undertaken. Nevertheless, same of the contracts have been awarded for lower prices that expected by the road administrations, which indicates possible cost savings. But contracts also might turn out to be more expensive than expected. Recently, the DNER of Brazil had to cancel a tender for Performance Contracts, as the prices offered were much higher than expected. This was mainly due to the high risks perceived by the bidders that the government might not honor its payment commitments. Therefore, a balanced approach towards the distribution of risks is recommended. The party that controls the risks should also take the risks.

Thank you for your attention

Performance-based management and maintenance of roads (PMMR)

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Performance-based management and maintenance of roads (PMMR)

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