Recent Experience and Lessons Learned with the Use of

Performance BasedContracts (PBC) and PPP

César Queiroz, Ph.D.Roads and Infrastructure Consultant

Stockholm, SwedenNovember 6, 2007

Seminar: Performance Based Contracting and PPP

Presentation Outline• Forms of price-based contracts• Where have PBC approaches been

used?• What have been the results?• What are the potential pitfalls?• World Bank Resource Guide on PBC• From PBC to PPP• Lessons Learned

Importance of Timely Maintenance

• It is estimated that $1 spent on timely maintenance can save more than $3 that would be required for road reconstruction

• A well maintained paved road should last for 10 to 15 years before resurfacing, but lack of maintenance can lead to severe deterioration in 5 years

Forms of Price based Contracts

• Lump sum - payment based on a single price for the total work

• Admeasure - payment based on quantity of completed work and tendered rates (bill of quantities)

• Performance - payment based on performance (or results) achieved

PBC in Different Countries• Performance specified maintenance contract

in AU, NZ, Canada (3-10 years)• CREMA (Contrato de REcuperacion y

MAntenimiento) in Argentina, Brazil, Uruguay• Warranty contracts in USA• Asset Mgnt & Maint Contracts in VA, USA, now

Turnkey Asset Maintenance Services• DBFO (up to 30 years) in UK, Finland, Portugal• Some are hybrid type contracts (i.e., some tasks

are quantity-based; others, performance-based)

Why PBC?• Reduced administration: less effort to

measure works • Avoid frequent claims and contract

amendments to increase quantities of activities

• Client focus: pay on the basis of user-related performance indicators

• More responsibility to contractors stimulates initiative and innovation

• Development of a new industry and creation of additional job opportunities

Potential Pitfalls of PBC• Longer tendering period• Perceived loss of control and

flexibility by road agencies• Uncertainty of long term relationship• Lack of some (or unclearly specified)

performance standards and level of service

• Possible unfair competition for smaller contractors

Success Factors for PBC• Training workshops • Technical studies• Prequalification of contractors• Bidding process • Supervision arrangements• Facilitation during pilot contracts

World Bank Sample Bidding Document

Output- and Performance- based Road Contract (OPRC)

http://www.worldbank.org/procure/

Payments under PBC Contracts: Mostly based on the service provided

• The contractor has to ensure that road users get a certain Level of Service

• Level of Service defined in terms of usability, road surface conditions, safety features, roadside assistance, etc.

• Specifications included in Contract describe Level of Service expected for each road

• If a Level of Service indicator is not complied with, an assessment in financial terms is deducted from the contractor’s monthly invoices

Level of Service: Paved Roads• Roughness• Potholes / Patching• Cracking• Cleanliness of surface• Rutting / Ravelling• Broken pavement edges• Shoulder drop-off, condition• Drainage cleanliness, condition• Vegetation control

Supervision Arrangements for Quality Assurance

• Determine adequate supervision arrangements: consultants (individual or firm); road agency staff (e.g., Argentina, Estonia)

• Prepare Terms of Reference (TOR) for supervision

• Train road agency staff and consultants

• Coach supervisors during initial period

An Example of Invitation for Bid with Expected Outcome and Tolerance

• Virginia Department of Transportation, Invitation for Bid IFB# 156-RT, Issued on July 27, 2007

• Scope: Turnkey Asset Maintenance Services of I-81 and I-66 sections (about 320 km)

• Mandatory Pre-bid Conference: August 20, 2007• Technical Proposal Due Date: October 2, 2007• Initial Contract Period: April 15, 2008 to April 14,

2013• http://www.virginiadot.org/projects/constSTAN-I81-

overview.asp

I-81 is one of the eight top truck routes in the U.S.

Corn poppies in the median of I-81 near Dixie Caverns

An Example of Legal Framework:Commonwealth of Virginia, USA

• The Public-Private Transportation Act of 1995 is the legislative framework enabling the Commonwealth of Virginia to enter into agreements authorizing private entities to acquire, construct, improve, maintain, and/or operate qualifying transportation facilities

• http://www.virginiadot.org/business/resources/PPTA-overview.pdf

Reconciling the Interests of Three Actors

Road Agency

Contractor

Road Users

Road Agency • Objective: meet public demand for

safe and smooth roads; reduce budget expenditures

• Alternatives: force account, admeasure, performance-based, concessions

• Appropriate use of consultants

Road Users• Acceptable level of service• Safety

Contractor• Risks and profit competitive with

other investment alternatives

World Bank Resource Guide for Performance-based Contracting• Sample Bidding Document• Sample TOR for preparation of PBC

projects and support to bidding process

• Sample TOR for Supervision• Sample TOR for Facilitator / Trainer• Sample Technical Specifications• WB Technical Note No. 27 on PBC• Actual Contracts• Resource People

Lessons Learned:Contracting

• Ensure solid and credible financing of contract during the entire contract period

• Use of small local contractors: Only after adequate preparation and training, and for contracts with very simple requirements (or as subcontractors)

• Build in a Dispute Resolution Mechanism

Lessons Learned:Management of PBC

• Supervision consultant’s role: control service level and assure overall technical quality - - but no micro-control and micro-management

• Road agency staff changed role: fromperforming quality control to focusing on quality assurance (no longer counting cubic meters…)

• Arrange communication links with contractors, including regular review sessions

Lessons Learned:Planning of PBC

• Define clear and simple performance standards and measures before advertising bids

• Include only “maintainable” roads (unless rehabilitation is envisaged)

• Have consistent documents and requirements

• Do not try to impose too many risks on the contractor

From PBC to PPP…but PPPs are not new!

• Toll road at Wadesmill in Hertfordshire, UK, established in 1663 by Act of Parliament

• 19th century concessions: toll roads, bridges, tunnels in US; railways in France; subway in London

• Suez (1860) and Panama (1880) canals• Decline around 1930 (great depression)• Resurgence in the 1980s: collapse of the

state-owned monopoly paradigm

The Maysville Turnpike, USA, 1830

U.S. 1 in South Carolina, 1921

A toll house at the approach to a bridge

Backup at Toll Plaza

Bay Bridge toll booths, beach-bound traffic

August 1999

Source: The Washington Post

Riverside Freeway, SR 91, CA• First fully automated toll road (free-flow

system), 16-km long, opened on December 27, 1995

• Serves commuters on Riverside Freeway (SR 91), Orange County, south of Los Angeles

• Original developer and operator: California Private Transportation Company

• Achieved cash flow break-even in mid-1998 (can pay operating and debt expenses from revenues)

Riverside Freeway, SR 91, CA

SR 91 Express Toll Lanes

SR 91 Express Toll Lanes

SR 91 Express Toll LanesTypical PM Peak

Toll Collection System: overhead antennas and transponder

Florida Motorway: EPass on the Left, Traditional Toll on the Right

Dulles Toll Road (Both Sides) and Dulles Airport Access Road

Dulles Toll Road: E-ZPass on the Left, Traditional Toll on the Right

Heavy Goods VehicleCharging in Germany

• Since 1th January 2005, all trucks exceeding 12 tons pay for each kilometer of motorway traveled

• Fee is based on emission classes and number of axles

• GPS-based “on board unit” (OBU) mounted on a truck

Source: http://www.tollroadsnews.com/cgi-bin/a.cgi/rwXBNl0REdmcEIJ61nsxIA

Toolkit for PPP in HighwaysThe toolkit is structured under five headings and includes a library and interactive financial simulation model

Available at the World BankAvailable at the World Bank’’s web site: s web site: www.worldbank.orgwww.worldbank.org/highways/highways

Road Concession Options and the Distribution of Risks

Option Construction Demand Performance

Tolls Private Private Private

Shadow Tolls Private Private Private

Avail. Fees Private Public Private

Hybrid Private Pri/Pub Private

Allocation of RisksAllocation of RisksForce Account

High

RISKTO

PUBLIC SECTOR

LowRISK TO PRIVATE SECTOR High

Maintenance Contracts

PBC Concessions

Decreasing Public Risks,

Increasing Private Risks

BOO

Thank you!

Some Basic ReferencesWorld Bank (2006). “Resource Guide for Performance-based Contracting.” Washington, D.C. http://www.worldbank.org/transport/roads/resource-guide/index.html

World Bank (2005). “Performance-based Contracting For Preservation and Improvement of Road Assets.” Transport Note No. 27. Washington, D.C. http://www.worldbank.org/transport/roads/resource-guide/Docs-latest%20edition/PBC/trn_27_PBC_Eng_final_2005.pdf

World Bank (2005). “Sample Bidding Document: Output- and Performance-based Road Contract (OPRC).”http://www.worldbank.org/procure/

World Bank (2003). “Toolkit for Public-Private Partnership in Highways.” Public-Private Infrastructure Advisory Facility (PPIAF) and World Bank. http://rru.worldbank.org/Documents/Toolkits/Highways/index.htm

WB PPP-related Sites• Toll Roads and Concessions

http://www.worldbank.org/transport/roads/toll_rds.htm

• How to Hire Expert Advice on PPP http://rru.worldbank.org/Toolkits/Documents/Advisors/Full_Toolkit.pdf

• Labor Issues in Infrastructure Reform www.ppiaf.org/Reports/LaborToolkit/toolkit.html

• Toolkit for PPP in Highways http://rru.worldbank.org/Toolkits/PartnershipsHighways/

World Bank Websites on Performance-based Contracts

• Resource Guide for Performance-based Contracting http://www.worldbank.org/transport/roads/resource-guide/index.html

• Training Course for Performance-Based Management and Maintenance of Roads http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTTRANSPORT/EXTROADSHIGHWAYS/0,,contentMDK:20706624~pagePK:148956~piPK:216618~theSitePK:338661,00.html

• Road Management Catalog http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTTRANSPORT/EXTROADSHIGHWAYS/0,,contentMDK:20735996~pagePK:210058~piPK:210062~theSitePK:338661,00.html

Cesar QueirozRoads and Transport Infrastructure

ConsultantWorld Bank, 1818 H Street NW

Washington DC 20433 USATel +1 202-473 8053Mob +1 301-755 7591

Email: cqueiroz@worldbank.orghttp://www.worldbank.org/transporthttp://www.worldbank.org/highways