Performance Based Contracting in Estonia. Word Bank PBC

Resource Guide

César QueirozConsultant, Former Highways Adviser

World BankWashington, D.C., February 1, 2011

Evolution of road maintenance management and Performance-Based Contracting (PBC) in Roads – 3rd BBL

Presentation Outline• Performance-based contracting in Estonia– Pioneers in ECA: Estonia and Serbia– Coverage of the national road network– Features and requirements– Road users’ satisfaction

• Resource Guide for Performance-based Contracting

• PBC is not limited to roads• PBC, road concessions and the distribution of

risks between the public and the private sectors

• Conclusions

PBC in Estonia• 1995 – the Estonian Road Administration

(ERA) launched two pilot performance-based contracts for road management and maintenance

• 1995 to 2000 - ERA tested several one-year and two-year PBCs

• 2001 to 2009 Several 5-year PBCs awarded; coverage reached 100% of ERA’s network (16,487 km)

• Since 2010: 7-8 year long PBC contracts; prices adjusted annually

Some Features of PBC in Estonia

• Cover routine maintenance and winter maintenance (snow removal, snow blowing, ice cleaning)

• No rehabilitation is included • Contracts are purely performance based• Following initial use of supervising

consultants, supervision is currently done directly by ERA

• Fewer complaints from road users• Substantial reduction in ERA’s work force

PBC in Estonia (cont’d)• Current number of performance-based road

maintenance contracts: 18• 13 contracts with private companies • 5 contracts with state owned companies• 2011-2012: ERA plans to privatize the

remaining state owned companies. An attempt to do so in 2010 failed because their contracts will close in 2011 – the private sector showed no interest without long-term contracts

Performance Requirements in Estonia• Paved roads: evenness of road; amount of

surface defects; condition of shoulders, road signs, road marking; side visibility distance; general appearance

• Gravel roads: evenness and cross section of road surface, side visibility distance, general appearance of road

• Bridges: condition of pavement, sidewalks, handrails, joint sealant, drainage system, piers, embankment, river bed

• http://www-esd.worldbank.org/pbc_resource_guide/Case-Estonia.htm

PBC Satisfaction in Estonia

• 2006 Winter Road Users Survey: 50% of polled road users considered the traffic conditions on main roads good or very good

• 2009-2010 Winter Road Users Survey: 66% of polled road users considered the traffic conditions on main roads good or very good

• Government is also satisfied. ERA and the Ministry of Economic Affairs and Communications intend to continue to use the PBC approach

Source: Personal correspondence with ERA on January 31, 2010

Performance-based Contracting in Serbia: Two Pilot Contracts

• 2004 – the Public Enterprise Roads of Serbia (PERS) awarded two pilot performance-based contracts for road management and maintenance under WB-supported project

• Area-wide contracts covering two regions, Macva and Kolubara (about 1,180 km or 8% of the country’s national road network)

• Funding: 9% PERS budget, 91% World Bank

• Contracts satisfactorily completed in 2009

• http://www.putevi-srbije.rs/index.php/en/

Some Features of Serbian Pilot Contracts

• Three-year contracts, with a two-year extension option

• Supervision: a local consulting firm

• Procurement: ICB using WB Standard Bidding Document with modifications approved by RPM

• Six local and international firms prequalified

• Advance payment: 10% of contract price

• Hybrid contracts: lump sum (routine and winter maintenance) and quantity based items

• http://www-esd.worldbank.org/pbc_resource_guide/Case-SerbiaMn.htm

Serbia: PBC alive after the pilots?

• 2009 – the Public Enterprise Roads of Serbia (PERS) awarded a PBC contract to a local company, PZP Valjevo (which was a subcontractor to PZP Beograd and Alpine for the two pilots), for Macva and Kolubara regions

• Will PERS extend the use of PBC to the remaining of the national road network?

PBC in Other ECA Countries• Albania: Four output and performance based

road maintenance contracts awarded in 2009

• Ukraine: Ongoing WB-supported Roads and Safety Improvement Project includes TA to assist Ukravtodor to launch two pilot performance-based road maintenance contracts

• Armenia: PBC contracts first awarded in 2007, for three years. Bidding documents being updated/revised based on experience gained. Second wave of PBC contracts to be awarded in 2011

World Bank Resource Guide for Performance-based Contracting

• Assists road agencies in developing countries to launch or enhance a PBC program to manage and maintain their road networks

• Contains practical documentation to– identify a PBC approach to fit specific conditions in a

given country– design bidding and contract documentation– develop an efficient PBC implementation strategy

• Produced under a partnership between the UK DFID and the World Bank

• http://go.worldbank.org/YRWQT6YL80

World Bank Resource Guide for Performance-based Contracting• Sample Bidding Documents• 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

PBC in Different Countries

• Long-term PSMC in AU, NZ, Canada (3-10 years)

• CREMA (Contrato de REcuperation y MAntenimiento) in Argentina, Brazil, Uruguay

• Warranty contracts in the USA

• Asset Management and Maintenance Contracts in Virginia, USA

• DBFO (up to 30 yr) in UK, Finland, Portugal

• Some are hybrid type of contracts (i.e., quantity-based and performance-based)

Factors favoring PBC

• A study found that “large projects with strong competition, long duration, long outsourced road sections that incorporate crack sealing, pothole repair, illumination repair/maintenance, and mowing activities, favor outsourcing under PBC”

• Cost Savings Analysis of Performance-Based Contracts for Highway Maintenance, Journal of Infrastructure Systems, ASCE, December 2010

Performance-based Contracts Are Not Limited to Roads

• Airports in Alaska

• Waterways in Argentina

Use of Performance-based Contracts in Alaska

• 146 performance-based maintenance contracts for airports, seaplane facilities and roads

• Minimal performance standards• Started using PBC in 1980s• Good results• Source: Frank Richards, “Use of Performance

Based Maintenance Contracts in Alaska,” 2005

Use of Performance-based Contracts for Waterways in Argentina

• “Hidrovia Waterway Concession” – Rio Parana, Rio de la Plata waterway between Santa Fe and the Atlantic Ocean (800 km)

• The contractor maintains the fairway (10.2-m depth) and the signalization over the concession life (1995-2013) and collects toll from the ships that navigate the fairway

• Very good results

• Source: Jan Van den Driessche and Carl Heiremans, “Performance-based Contracting in the Dredging Industry,” 2007, and http://www.jandenul.com/

21

Distribution of Risks between the Public and Private Sectors

• PBC can help transfer the contractual performance and management risks from the public to the private sector

• How much risk should the public sector transfer to the private sector?

Allocation of RisksAllocation of Risks

Force AccountHigh

RISKTO

PUBLIC SECTOR

LowRISK TO PRIVATE SECTOR High

Traditional Maintenance Contracts

PBC

BOT

Decreasing Public Risks,

Increasing Private Risks

BOO

M&O Concessions

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 (2006). “Sample Bidding Document - Procurement of Works and Services under Output- and Performance-based Road Contracts,” October 2006. http://go.worldbank.org/NMR4NH2CU0

PPIAF/WB Toolkit for Public-Private Partnerships in Roads & Highwayshttp://go.worldbank.org/P2XMGNYLD0

Performance Indicators for Maintenance Workshttp://www.ppiaf.org/documents/toolkits/highwaystoolkit/2/2-31.html#Anchor-Specific-35882

Some basic references (cont’d)• Training Course for Performance-Based Management and

Maintenance of Roads http://go.worldbank.org/75K6S7W2O1

• Road Management Catalog http://go.worldbank.org/6NJUB6UOP0

• Gunter Zietlow’s PBC website: http://www.performance-based-road-contracts.com

• “Cost Savings Analysis of Performance-Based Contracts for Highway Maintenance,” by Anastasopoulos, McCullouch, Gkritza, Mannering and Sinha. Journal of Infrastructure Systems, ASCE, Volume 16, Issue 4, pp. 227-354, December 2010 http://scitation.aip.org/iso

• Estonian Road Administration (ERA) Annual Reports http://www.mnt.ee/index.php?id=12453 http://www.mnt.ee/?lang=en

• Personal correspondence with Mart Puust, Dep Dir General, ERA, Jan 31, 2011