Asian Development Bank (ADB) Manila, July 29th 2015
Road Asset Management and Performance Based Contracts
Dr. Gunter Zietlow Zietlow 1
e-mail: g@zietlow.com http://www.zietlow.com
Overview of Presentation (1) Introduction What
is Good Road Asset Management?
PBC
concept
Background Characteristics Brief
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History Benefits Performance standards Risks Performance monitoring Payment and Incentive Systems
Overview of Presentation (2) Key
external and internal factors associated associate d with the implementation of PBCs Framework
(Legal, Financial, Institutional) Role and capacity of road agencies Role and capacity of consulting and contracting industry 3
Overview of Presentation (4) Implementation
experiences in developed and developing countries Lessons learned Role of financing institutions
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Introduction
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Road Conditions in the 1980’s In
spite of their importance, roads in many developing countries are still under-financed, under-financ ed, poorly managed and badly maintained. Normally,
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only 20- 40% of the amounts required is being spent on routine and periodic maintenance. a d n e t w o r k s are in 1/3 of the m a i n r o ad good 1/3 in regular and 1/3 in poor condition.
Importance of Timely Maintenance When
roads are in poor condition condition every $ “saved” in road conservatio conservation n 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?
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Road Asset Management (RAM)
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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.
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 Performance
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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)
Mixture 16
of method based contract and performance contract
Characteristics of PBC
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Performance or Service Levels define 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 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 works might be paid based on unit prices for works agreed case by case.
Characteristics of PBC (2)
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Deductions are being made for non-compliance with terms and conditions of contract, especially with respect to the service levels. Duration of 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.
Characteristics of PBC (3) Complexity Routine and periodic maintenance
Up to 30 years
Routine maintenance Construction, periodic and routine maintenance
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2
4
6
8
10
12
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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 21
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 23
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 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 ............. 26
D r i v e r s : ef e f f i c i e n c y a n d e f f ec ec t i v e n e s s
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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 28
Benefits of PBC (2) Road
Users
Provides
better and safer roads with consistent conditions Reduces road user cost Consultants
and Contractors
Guarantees
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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 w ere reported 30
Development of Road Maintenance Cost in Sydney, Australia 100
% 1991 Rates
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60
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RT A (Team (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 31
10
20
30
40
Time (months from June 1991)
50
60
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Some Reasons for Reduction in Road Maintenance Cost Drivers of savings: In cen tives
/ c o m p e t i ti t i o n / l o n g - t er e r m m a n ag ag e m en t
Modern
management and work procedures Increased labour productivity Total life cycle costing Just-in-time maintenance Better use of latest technologies 32
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 – agency – l i f ee -c y c l e c o s t ) of assets To minimize environmental impacts 33
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: safety: Potholes not
bigger than 15cm in diameter, ruts ru ts <15mm deep, friction coefficient >0.4, etc. value: Cracks not Preserve road asset value: 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 35
travel time: Average travel
speed > 50 km/hr ............
Typical Service Levels and Response Times for Paved Roads
Typical Traffic Volumes (Vehicles/day)
Less than 250
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
Cleanliness of pavement surface and shoulders response time for safety related matters (Response time) World Bank 36
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 Contractor’s
self -control -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. 39
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 Implementati Implementation on 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 42
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 43
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 44
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 45
Implementation Implementati on 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 47
2
4
6
8
10
12
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Estonia 1995 – the 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 (16500 As of 2008 100% of ERA’s road network (16500 km, mainly gravel roads) is maintained under hybrid type performance contracts
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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 58
Lanka
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 60
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) Pilot
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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 d e v e l o p i n g countries Project preparations requires consultants which have experiences in implementing PBCs in similar environments
A
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Right mix of unit price items and performance items Effective monitoring system Effective penalty system
gradual implementation of PBCs seems to be more sustainable Local contractors should be favoured
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 69
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)
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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
Role of Financing Institutions (2)
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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 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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