performance-ased managent and maintenance of roads

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    Procurement of

    Performance-Based Management and Maintenance

    of Roads

    (Output-based Service Contract)

    The World Bank

    Washington, D.C

    February 2002

    Important Notice to Users of this Document

    This Sample Bidding Document for Performance-Based Management and Maintenance of Roads has

    been issued by the World Bank on a trial basis in response to a growing demand worldwide for this type of service. It is structured to fit the specific nature of the Performance-Based Contract for Management

    and Maintenance of Roads (PMMR) and differs substantially from traditional contracts for civil works.

    The basic difference is that a PMMR contract is an ―output‖ based contract instead of an ―input‖ based type as used traditionally for civil works. In particular, most of the remuneration to be paid to the

    contractor is not based on quantities of works measured by unit prices for works inputs, but on measured ―outputs‖ reflecting the “service quality levels” of the roads under contract. These service

    quality levels are defined in the contract.

    The present document is designed to allow for a certain degree of flexibility in its use according to the specific needs of the road network under contract (called ―the Road‖ or ―Roads‖ in this document). The main focus of the contract is on maintenance services to be provided by the contractor, including

    physical works on the Roads under contract which are needed to maintain the agreed service quality levels, but also all activities related to the management and evaluation of the road network under contract. However, the contract also allows for the execution of (i) Initial Rehabilitation Works to be

    carried out at the initial stage of the contract to bring the Roads up to pre-defined standards; (ii)

    Improvement Works aiming at adding new characteristics to the Roads in response to new traffic,

    safety or other considerations; and (iii) Emergency Works comprising of activities needed to reinstate

    the Roads after damage resulting from unforeseen natural phenomena with imponderable consequences.

    It should be noted that this sample bidding document is not designed for roads or road networks in very poor condition which would require major initial rehabilitation works. For such cases, rehabilitation works using standard civil works contracts should be carried out previous to launching the PMMR

    program because the Rehabilitation Works in such circumstances would impose excessive risks upon the contractor if bidded under an ―output‖ basis as included in this PMMR document. Consequently, the cost of Rehabilitation Works should not represent more than approximately 40 percent of the total

    contract amount, subject to the previous risk analysis. This document is also not meant for use for very small contracts (less than US$3-5 million) because in that case, a management contract with a

    Consulting firm or other arrangements could be more appropriate.

    Further explanations on the nature and character of Performance-Based Management and Maintenance

    Contracts for Roads are made on the following pages and elsewhere within this document.


    1. The present sample bidding document has a general structure based on the World Bank’s

    Standard Bidding Document (SBD) for Works. Given the specific characteristics of performance-

    based services for the management and maintenance of roads, significant modifications have however been made in most sections of the document including several aspects found in the World Bank’s

    Standard Bidding Documents for Supply and Install. In particular, the General Conditions of

    Contract have been rewritten in order to take into account the specific nature of the services to be provided by the Contractor, which go much beyond the mere execution of pre-defined physical works and to include the ―output‖ basis in the contract. The contract covers an array of activities needed to maintain a certain service quality level for road users, including many activities related to the management and periodic evaluation of the road network under contract. It further includes carrying out Initial Rehabilitation Works to bring the Road up to pre-defined standards, Improvement

    Works specified by the Employer aiming at adding new characteristics to the Roads in response to new traffic, safety or other conditions and Emergency Works needed to reinstate the Roads after

    damages have occurred as a result of natural phenomena with imponderable consequences (such as strong storms, flooding and earthquakes) under the conditions defined in the contract. This document also includes sample Performance Specifications which are recommended to be included in the

    Specifications which should be part of the bidding documents, but which may be modified by the user if needed.

    2. This preface summarizes the concept of Performance-Based Management and Maintenance of Roads. For legal purposes the text of the main body of this document is binding and takes precedence over this preface.

    3. Performance-based contracting for the management and maintenance of road networks is a new concept designed to increase the efficiency and effectiveness of road maintenance operations. It should ensure that the physical condition of the roads under contract is adequate for the need of road users, over the entire period of the contract which is normally several years. This type of contract significantly expands the role of the private sector, from the simple execution of works to the management and conservation of road assets.

    4. In traditional contracts for maintenance works, the Contractor is responsible for the

    execution of works which are normally defined by the Road Administration or the Employer, and the Contractor is paid on the basis of unit prices for different work items, i.e., a contract based on ―inputs‖ to the works. While this modality often brings improvement over force-account maintenance

    practices, the results are in many cases still less-than-optimal. The problem is that the Contractor has the wrong incentive, which is to carry out the maximum amount of works, in order to maximize its turnover and profits. Under this traditional way of ―contracting out‖ maintenance works, it has been observed that even if a lot of work is carried out and much money is spent, the overall service quality for the road user depends on the quality of the design given to the Contractor who is not accountable for it and the results are sometimes not satisfactory.

5. The Performance-Based Management and Maintenance Contract tries to address the issue

    of inadequate incentives. During the bidding process, contractors compete among each other by proposing a fixed monthly lump-sum fee per km of road to be paid to them. It is important to understand that contractors are not paid directly for ―inputs‖ or physical works (which they will undoubtedly have to carry out), but for ―ouputs,‖ i.e., the initial rehabilitation of the road to pre-

    defined standards (if so required by the bidding documents), the maintenance service of ensuring certain quality levels on the roads under contract and specific improvements (if so required by the bidding documents). The monthly lump-sum remuneration paid to the Contractor will cover all physical and non-physical maintenance services provided by the Contractor, except for unforeseen emergency works which would be remunerated separately. The initial rehabilitation works which have been explicitly specified by the Employer in the contract, would be quoted on the basis of measurable output quantities and paid as performed. In order to be entitled to the monthly payment for maintenance services, the Contractor must ensure that the roads under contract comply with the service quality levels which have been specified in the bidding document. It is possible that during some months he will have to carry out a rather large amount of physical works in order to comply with the required service levels, and very little work during other months. Yet his monthly payment remains the same as long as the required service levels are complied with. One fundamental feature of the performance-based contract is that the Contractor is responsible for designing and carrying out the actions he believes are necessary in order to comply with the service quality levels stated in the contract. The service quality levels are defined from a road user‘s perspective and may include factors such as average travel speeds, riding comfort, safety features, etc. If the service quality is not achieved in any given month, the payment for that month may be reduced or even suspended. Under the performance-based contract, the Contractor has a strong financial incentive to be efficient. In order to maximize profits, he must reduce his activities to the smallest possible volume of intelligently designed interventions, which nevertheless ensure that pre-defined outputs (measured indicators of service level) are achieved and maintained over time. This type of contract makes it necessary for the Contactor to have a good management capacity. Here, ―management‖ means the capability to define, optimize and

    carry out in a timely basis the physical interventions which are needed in the short, medium and long term, in order to guarantee that the roads remain above the agreed service quality levels. In other words, within the contract limitations and those required to comply with local legislation, technical and performance specifications and environmental and social regulations, the Contractor is entitled to independently define: (i) what to do, (ii) where to do it, (iii) how to do it, and (iv) when to do it. The role of the Road Administration and of the Employer is to enforce the contract by verifying if the agreed service levels have been complied with, as well as all other legislation and regulations the Contractor must comply with.

    6. Maintaining a road network includes routine and periodic tasks. Routine maintenance consists of many different tasks frequently necessary to maintain the function of the road (such as pothole repairs, cleaning of drainage, sealing of cracks, cutting of vegetation, etc.). Periodic maintenance consists of predictable and more costly measures of a less frequent nature designed to avoid road degradation (such as resurfacing, asphalt concrete overlays, etc.). Intelligent management, the timeliness of interventions and the adequacy of technical solutions are critical. It is expected that the use of private specialized firms under performance-based contracts will unleash significant efficiency gains, and stimulate innovation in comparison with traditional road administration practices.

    7. Road conditions can be expressed through indicators for service quality levels, and these are used under the performance-based contract to define and measure the desired performance of the Contractor. In the Performance-Based Management and Maintenance Contracts, the service level indicators are thus the accepted minimum thresholds for the quality levels of the roads for which the Contractor is responsible.

    8. Under the terms of the contract, the Contractor will also be responsible for the continuous monitoring and control of road conditions and service levels for all roads or road sections included in the contract. This will not only be necessary to fulfill the contract requirements, but it is an activity which will provide him with the information needed in order to be able (i) to know the degree of his own compliance with service level requirements, and (ii) to define and plan, in a timely fashion, all physical interventions required to assure that service quality indicators never fall below the indicated thresholds. Under the performance-based contract modality, the Contractor will not receive instructions from the Employer concerning the type and volume of works to be carried out. Instead, all initiative is given to the Contractor who should do whatever is necessary and efficient to achieve the quality levels required. This concept is expected to lead not only to significant efficiency gains, as mentioned earlier, but also to technological innovation.

    9. The beneficiaries of the new concept are expected to be the road users, the Road Administration, and the contractors or other private sector enterprises. In a wider sense, future generations will be able to benefit from a better preservation of past investments in roads. Road users will be able to know the service level they can expect in retribution for the payments they make for the use of the infrastructure (tolls, tariffs, user fees, taxes, etc.). The Road Administration should benefit by obtaining better overall road conditions at the same level of expenditures. For contractors and other private sector enterprises, the new type of contracts should open up new business opportunities, in which longer contract periods provide a more stable business environment. But it may be the future generations who will perhaps benefit most, since they will not have to pay for the reconstruction of roads destroyed because of a lack of maintenance today.

    10. Although design of the works to be carried out is under the responsibility of the Contractor, this type of procurement requires good preparation engineering work. It is necessary to prepare a good set of information on the actual conditions of the road. If initial rehabilitation works are required, the Employer should define the level of quality (or standard) to be achieved by the Contractor for delivery and completion during this initial phase of the contract. If improvement works are sought, a well-designed bill of quantities defining specific outputs for bidders to price and, later on, allow measurement and payment of the Contractor, is of paramount importance. Emergency works, although impossible to quantify in advance, will certainly be necessary. To allow bidders to offer prices a unit price bill of quantities (similar for civil works under unit prices) with quantity estimates should be prepared for bidders to price for bid evaluation purposes. Later on, these unit prices and real measured volume of works executed will be used for payments. Another important area requiring good engineering advice is to define if the initial rehabilitation works should be included in this contract or be carried out in advance under a separate ―standard‖ civil works contract. This decision depends in each case on the risks that the Borrower (and his advisor) understands as possible to be administered cost-effectively by the Contractor. In general, if those initial works represent more than 40% of the contract value, the risks may be too high and an initial separate contract may be warranted. However, if the Employer wants to have initial rehabilitation works based on a pre-defined design and use this

    document to connect it to future maintenance by the same Contractor, the documents needs to be adapted. In this case, the bill of quantities for initial rehabilitation works should be modified to become similar to those for emergency works and the measurement and payment clauses should be modified for a ―input‖ type contract.

    11. When Initial Rehabilitation Works and Improvement Works are not specified in the bidding document, it is expected that in order to comply with the contract, the Contractor will most likely have to carry out different types of works, including some small initial rehabilitation and improvements, routine maintenance activities and periodic maintenance works. The definition of the exact nature of the works, their timing, their costing and their implementation is left to the judgment of the Contractor. This means that his capacity must be above the usual capacity of a traditional civil works contractor. In fact, an essential capacity needed is the capacity to manage roads, while the actual physical execution may either be carried out by the Contractor himself, or by different specialized firms participating in a Joint Venture with the main contractor, or under subcontracts. Joint Ventures may include Engineering firms and medium, small and even micro-enterprises. Consequently, a well-designed prequalification process is highly recommended in order to ensure that only qualified bidders participate in the bidding process, even though, the present bidding document can also be used when postqualification is envisaged. In the design of the prequalification requirements the borrower should consider if the experience of specialist sub-contractors (like an engineering consultant) should be allowed to be added to those of the applicants. The activities which may be delegated by the main contractor to subcontractors not participating in the prequalification process should be listed in the Special Conditions of Contract and bidders should be alerted about this point in the Bid Data Sheet. 12. Some emergency works should always be foreseen. Those are meant to remedy unexpected damages which occur as a result of extraordinary natural phenomena, and which affect the normal use of the road network, or the safety and security of the users. For emergency works, the contract limits the responsibility of the Contractor, establishing that the Employer will approve execution of services and a separate remuneration based on specific amounts proposed by the Contractor for each case, on the basis of volume of works estimated at each time and on unit prices included in the bid and in the contract. A provisional sum is normally set aside for emergency works.

    13. The Contractor should be entitled to implement an axle load control system, based on the legislation and in cooperation with local police authorities.

    14. Bidders will present their financial offer for: (i) the initial rehabilitation works (if so required in the bidding data), in the form of a lump-sum amount, however, indicating the quantities of measurable outputs to be executed in order that the road achieves the performance standards specified in the bidding documents. Payments will be made in accordance with the progress in the execution of those measured outputs; (ii) the maintenance services in form of the amount of the monthly lump-sum payment demanded by the bidder according to the conditions of contract (this will be a monthly amount applicable throughout the duration of the contract); (iii) the improvement works (if so required and for the improvements indicated in the bidding documents) in the form of unit prices for outputs of each type of improvement works; payments for improvements will be made in accordance with quoted unit prices for those outputs; and (iv) unit prices for emergency works in the form of a traditional bill of quantities. Payments will be made for each emergency on a case-by-case basis, in the amount of a lump-sum value estimated by the Contractor and approved by the Employer, on the basis of the

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