Performancebased Management and Maintenance of Roads PMMR Gunter
Performance-based Management and Maintenance of Roads (PMMR) Gunter Zietlow SRE 2010 Module 1 / Day 2 e-mail: g@zietlow. com www. zietlow. com
Overview of Presentation l l l SRE 2010 Module 1 Day 2 Introduction Benefits and disadvantages of PMMR Performance standards and response times Risk identification, sharing, and mitigation Performance monitoring Payments and incentive systems
Overview of presentation (2) l l l SRE 2010 Module 1 Day 2 Data management and ownership Tender design and evaluation Changes required by the client and consulting and contracting industry Implementation experiences and strategy Lessons learned
Overview of Presentation l SRE 2010 Module 1 Day 2 Introduction
SRE 2010 Module 1 Day 2
SRE 2010 Module 1 Day 2
Importance of Timely Maintenance l SRE 2010 Module 1 Day 2 When roads are in poor condition every $ “saved” in road conservation will cost: l $ 3 to road users in additional vehicle operating costs and l $ 2 to the road administration (or the tax payer) in reconstruction and rehabilitation costs.
Contracting-Out Road Maintenance Can Save Money l l l SRE 2010 Module 1 Day 2 Routine and periodic road maintenance done by inhouse 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. African and Asian countries were following suit.
Type of Contracts l Unit price contract (admeasured) l l l Performance based contract l l l Performance Standards or Service Quality Criteria Fixed monthly payments if performance standards are complied with Hybrid contract l SRE 2010 Module 1 Day 2 Unit rates for work items Payments are based on quantity of completed work Mix of performance standards and unit rates for work items
Performance-Based Management and Maintenance of Roads (PMMR) l l SRE 2010 Module 1 Day 2 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, and to do the physical works himself or subcontract with certain restrictions as long as he meets the performance standards during the whole contract period.
Performance-Based Management and Maintenance of Roads (PMMR) cont. l l SRE 2010 Module 1 Day 2 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 rates for works agreed case by case.
Performance-Based Management and Maintenance of Roads (PMMR) cont. l l SRE 2010 Module 1 Day 2 Payment deductions are being made for noncompliance 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 -4 years.
Contract Complexity and Duration Complexity Up to 30 years Routine and periodic Routine Construction, periodic and routine maintenance SRE 2010 Module 1 Day 2 2 4 6 8 10 Contract duration in years 12 14
Scope of Services of PMMR (1) Management of the Road Network Routine Maintenance Emergencies SRE 2010 Module 1 Day 2 PMMR Periodic Maintenance Improvements Rehabilitation
Scope of Services of PMMR (2) Management of the Road Network Routine Maintenance Emergencies SRE 2010 Module 1 Day 2 PMMR Periodic Maintenance Improvements Rehabilitation
Scope of Services of PMMR (3) Management of the Road Network Routine Maintenance Emergencies SRE 2010 Module 1 Day 2 PMMR Periodic Maintenance Improvements Rehabilitation
Scope of Services of PMMR (4) Management of the Road Network Routine Maintenance Emergencies SRE 2010 Module 1 Day 2 PMMR Periodic Maintenance Improvements Rehabilitation
Contractual Relationship (1) Client/ Road Administration Performance Contractor SRE 2010 Module 1 Day 2 Audit by Client or External Auditor
Contractual Relationship (2) Audit by Client or External Auditor Client/ Road Administration Performance or Conventional Contract Road Manager SRE 2010 Module 1 Day 2 Performance Contractor Performance Audit Supervision for Admeasured Work
Performance-Based Management and Maintenance of Roads (PMMR) is also referred to as l Performance Specified Road Maintenance Contract, PSMC (Australia and New Zealand) l Highway Asset Management Contract (USA) l Maintenance Service Level Contract (Latin America) l Output- and Performance-based Road Contract, OPRC (World Bank) SRE 2010 Module 1 Day 2
Brief History of PMMR l l l l SRE 2010 Module 1 Day 2 l 1988 British Columbia, Canada 1990 Argentina 1994 -98 Colombia, Uruguay, Chile, Brazil, Peru 1995 Sydney, Australia 1996 Virginia, USA 1998 New Zealand, Finland 2001 Chad, Zambia, England, India, Spain. . .
SRE 2010 Module 1 Day 2 Source: World Bank 2006
Overview of Presentation SRE 2010 Module 1 Day 2 l Introduction l Benefits and disadvantages of PMMR
Benefits to the Road Agency l l l l SRE 2010 Module 1 Day 2 l 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 Reduces workload
Benefits to Others l Road Users l Provides better and safer roads with consistent conditions l Reduces road user cost l Consultants and Contractors l Guarantees workload over longer period l Provides potential for increased margins l Opens excellent opportunities for business SRE 2010 Module 1 Day 2 growth
Examples of reported savings by introducing PMMR l l l SRE 2010 Module 1 Day 2 Australia Canada Finland New Zealand Sweden USA Savings in % 15 -35% 10 -20% 30 -35% 15 -30/40% 30% 10 -18%
Development of Road Maintenance Cost in Sydney PMMR SRE 2010 Module 1 Day 2
Reasons for Reduction in Road Maintenance Cost Drivers of savings: Incentives / competition / long-term management l Modern management and work procedures l Increased productivity l Total life cycle costing l Just-in-time maintenance l Work package optimization l Use of latest technologies SRE 2010 Module 1 Day 2
Mobile Pothole Patching CONVENTIONAL METHOD Average Unit Cost: $120 per patch * Production = 20 -30 patches per day MOBILE PATCHER Average Unit Cost: $22 per patch *Production = 120 patches per day SRE 2010 Module 1 Day 2 Courtesy VMS
Disadvantages of PMMR l Road Agency l Tends to prolong tender period l Requires new procedures, mentality change of SRE 2010 Module 1 Day 2 staff, and training l Might lead to loss of information if contractor is not obliged to supply detailed information on condition, interventions and inventory of the road l Loss of flexibility l Loss of expertise l Might reduce competition
Disadvantages of PMMR l Road Users l None l Consultants and Contractors l Increases risks l Requires mentality change of staff, new procedures, and training SRE 2010 Module 1 Day 2
Overview of Presentation l Introduction Benefits and disadvantages of PMMR l Performance standards and response times l SRE 2010 Module 1 Day 2
Objectives of Performance Standards l l l SRE 2010 Module 1 Day 2 To satisfy the road user regarding l accessibility l comfort l travel speed l safety To minimize total system cost (cost to road users and agency – life-cycle cost of assets) To minimize environmental impacts
Examples of Performance Indicators/Standards l l l SRE 2010 Module 1 Day 2 l 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. . .
Examples of Performance Standards SRE 2010 Module 1 Day 2 Asset Class Component Performance Standards Pavement Potholes >15 cm Roughness (a) Roughness (b) Rutting Cracks > 3 mm No potholes IRI < 2. 0 (A), < 2. 8 (U) IRI < 2. 9 (A), < 3. 4 (U) < 12 mm (A), < 10 mm (U) Sealed Gravel surfaces Potholes >25 cm Roughness Thickness of gravel layer No potholes IRI < 6 (U), < 1 (C) > 10 cm (C, U) Paved Shoulders Potholes Cracks > 3 mm Joints with pavement No potholes Sealed Vertical alignment < 1 cm (C, U) a asphalt; b bituminous surface treatment; A Argentina; C Chile; U Uruguay
Examples of Performance Standards Paved roads Fair Good Very Good Excellent Typical Traffic Volumes (Vehicles/day) Less than 250 – 1000 5000 - plus Potholes (Max Dia of any single pothole) 400 mm 300 mm 200 mm None allowed Potholes(max number in any 1000 m with diameter greater than 100 mm 10 5 1 None allowed 28 days 14 days 7 days Patching (Response time) SRE 2010 Module 1 Day 2 World Bank Sample Bidding Document for OPRC
Overview of Presentation l Introduction Benefits and disadvantages of PMMR Performance standards and response times l Risk identification, sharing, and mitigation l l SRE 2010 Module 1 Day 2
Distribution of Risk In-house Maintenance Outsourcing Specific Maintenance Works Performance-Based Road Management and Maintenance Contracts Shortterm Mediu m-term Long-term Road Concessions (BFOT) Longterm Risk to contractor increases SRE 2010 Module 1 Day 2 Risk to road agency decreases
Risk Identification There are three fundamental risks: l background risks – – – l Political, legal and regulatory risks Monetary and macro-economic risks Force majeure, cost risks, a risk of exceeding initial cost estimates for the construction or operation of the project, and l SRE 2010 Module 1 Day 2 revenue risks if the client does not pay on time
Overview of Presentation l Introduction Benefits and disadvantages of PMMR Performance standards and response times Risk identification, sharing, and mitigation l Performance monitoring l l l SRE 2010 Module 1 Day 2
Performance Monitoring l l SRE 2010 Module 1 Day 2 Contractor’s self-control system Formal monthly inspections Informal inspections Road user complaints
Self-Control Unit of Contractor l l SRE 2010 Module 1 Day 2 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
Performance Monitoring l l SRE 2010 Module 1 Day 2 Formal monthly inspection jointly by contractor and client taking between 10 and 30% of the road network selected at random or alternatively the Contractor performs a monthly inspection report that is being verified by the client for payment purposes; Informal inspections done once a week; 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.
Overview of Presentation l Introduction Benefits and disadvantages of PMMR Performance standards and response times Risk identification, sharing, and mitigation Performance monitoring l Payments and incentive systems l l SRE 2010 Module 1 Day 2
Payments l l SRE 2010 Module 1 Day 2 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 rates and quantities of work performed Emergency and improvement works to be paid based on unit prices and quantities of work performed PMMR contracts should include schedules of rates as well, at least for emergency works
Incentive Systems l l l SRE 2010 Module 1 Day 2 Monthly fixed payments to be reduced if contractor does not comply with the service level or performance standards Contractor has 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) 1998 SRE 2010 Module 1 Day 2 Performance Standards No pothole > 2 cm deep on paved roads No edge failure on paved roads Penalty in US$ 110/day/pothole No rutting > 20 cm long and 12 mm deep on paved roads No cracking or raveling on paved roads 66/day/rut Source: World Bank 110/day/failure 88/week/km
Example for Penalties per Day for Noncompliance with Service Levels Performance Standards Concerning: SRE 2010 Module 1 Day 2 Penalties in % of monthly lump-sum payment per km of road per day Potholes 50% Corrugation 50% Rutting 50% Traffics Signs 25% Vegetation Control 25% Drainage 50%
Overview of Presentation l Introduction Benefits and disadvantages of PMMR Performance standards and response times Risk identification, sharing, and mitigation Performance monitoring Payments and incentive systems l Data management and ownership l l l SRE 2010 Module 1 Day 2
Data Management and Ownership l l l SRE 2010 Module 1 Day 2 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.
Overview of Presentation l 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 l Tender design and evaluation l l l SRE 2010 Module 1 Day 2
Tendering l l Legal and financial feasibility Preparation of bidding documents – – – SRE 2010 Module 1 Day 2 l l Scope of Work Time frame Pure performance-based or hybrid Role of contractor in preparing bidding documents Risk allocation Pre-qualification Evaluation criteria
Example of Bidding Documents l l SRE 2010 Module 1 Day 2 Sample Bidding Document: Procurement of Works and Services under Output- and Performance-Based Road Contracts (World Bank 2006) State Highway Maintenance Contract Proforma Manual SM 032 (Transit New Zealand 2007)
Overview of Presentation l l l l l SRE 2010 Module 1 Day 2 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 Tender design and evaluation Changes required by the client and consulting and contracting industry
Changes Required l Road administration – – – l Consultants – – l Procedures Training Contractors – SRE 2010 Module 1 Day 2 Attitudes Procedures Training Road users – Control of road conditions (claims)
Overview of Presentation l 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 l Implementation experiences and strategy l l l l l SRE 2010 Module 1 Day 2
First Pilot Project Uruguay l l l Extension: 359 km Contract period was 4 years Deadlines to comply with performance indicators: l 2 months for potholes l 6 months for other defects on main roads l one year for all roads l SRE 2010 Module 1 Day 2 l The contractor is being paid a fixed monthly fee Sanctions for non-compliance
PMMR - Uruguay SRE 2010 Module 1 Day 2 Source: DNV Uruguay
Pilot Project Montevideo SRE 2010 Module 1 Day 2 Source: Municipality of Montevideo
PMMR, New Zealand (1) l l SRE 2010 Module 1 Day 2 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
First Performance Based Road Management and Maintenance Contract in the State of Virginia l l SRE 2010 Module 1 Day 2 l Maintain and refurbish 1250 lane-miles on three Interstate Highways, 62 rest areas, and 7 visitor centres 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
Colombia Cooperatives l l SRE 2010 Module 1 Day 2 >300 micro-enterprises for routine maintenance only 30 -50 km of roads with 10 -15 people each 1 road management firm supervises 4 -6 micro-enterprises Micro-enterprises receive extensive training
Guatemala SRE 2010 Module 1 Day 2
SRE 2010 Module 1 Day 2 Courtesy: Road Fund Honduras
Bangladesh Labor Contracting Societies l l SRE 2010 Module 1 Day 2 Off pavement maintenance only Simple performance levels Simple incentive scheme Predominantly in rural areas
Overloading SRE 2010 Module 1 Day 2
Weigh Station in Argentina SRE 2010 Module 1 Day 2
Overview of Presentation l 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 l Implementation experiences and strategy l l l l l SRE 2010 Module 1 Day 2
Implementation Strategy l Phased introduction of service level criteria. l l Increase time span of contracts. l l l SRE 2010 Module 1 Day 2 l Routine maintenance Roughness and friction Deflection 1 to 2 years 4 to 5 years < 12 years Monitor implementation process.
Make Use of Available Knowledge and Experiences l l l Invite experts in PMMR Arrange visits to countries which have implemented PMMR Use recourses available on the internet – – – SRE 2010 Module 1 Day 2 – Sample Terms of Reference for consultancy services Sample bidding documents Case Studies Relevant presentations and papers
Overview of Presentation l 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 l Lessons learned l l l SRE 2010 Module 1 Day 2
Lessons Learned (1) l l SRE 2010 Module 1 Day 2 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
Lessons Learned (2) l l SRE 2010 Module 1 Day 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)
Lessons Learned (3) l l SRE 2010 Module 1 Day 2 Performance Contracts need strict performance monitoring and application of penalties for noncompliance Include Dispute Resolution Mechanism Performance Contracts might not produce cost saving immediately Use of available expertise can save money and frustration
VISION Business Opportunities SRE 2010 Module 1 Day 2 No potholes Transport Cost
Thank you for your attention Gunter Zietlow SRE 2010 Module 1 / Day 2
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