Ministry of Transport and Communications Kazakhstan World Bank

Ministry of Transport and Communications, Kazakhstan World Bank / European Bank for Reconstruction and Development / Asian Development Bank Road Asset Management Workshop, 31 May – 3 June 2005 Astana, Kazakhstan Performance-Based Road Management and Maintenance Contracts Dr. Gunter Zietlow 1 e-mail: gunter. zietlow@gtz. de http: //www. zietlow. com

Overview of Presentation 2 Ø Introduction Ø Brief history of Performance Contracts Ø Main reasons for implementing Performance Contracts Ø Service level criteria and response times Ø Performance monitoring and payments Ø Bidding and award of contract Ø Implementation experiences and strategy Ø Lessons learned

Overview of Presentation Ø Introduction 3

Poor maintenance 4

Importance of timely Maintenance 5 Ø When roads are in poor condition every KZT “saved” in road conservation will cost: ØKZT 3 to road users in additional vehicle operating costs and ØKZT 2 to the road administration (or the tax payer) in reconstruction and rehabilitation costs.

Contracting out road maintenance can save a lot of money Ø Routine and periodic road maintenance done by in-house labor is being replaced more and more by contracts with the private sector. Ø 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%. Ø Latin American countries where among the first to replace in-house labor by contracts with the private sector. Ø Asian countries in general are still lagging behind. 6

Type of contracts Ø Unit price contract (admeasured) Ø Unit rates for work items Ø Payments are based on quantity of completed work Ø Lump sum contract Ø Definition of total work Ø Payment based on single price for total work Ø Performance based contract Ø Service level criteria (performance criteria) Ø Fixed monthly payments if service level criteria are complied with Ø Hybrid contract Ø Mixture of performance contract and unite price contract 7

Performance-Based Management and Maintenance of Roads (PMMR) Ø Service level criteria define the minimum conditions of road, bridge and traffic assets as well as the management and operation of the assets , leaving it to the contractor as to how to achieve them. Ø The contractor is free to decide Ø Ø Ø 8 What to do When to do How to do Where to do To do the physical works himself or subcontract (with certain restrictions) as long as he meets the performance indicators during the contract period

Performance-Based Management and Maintenance of Roads (PMMR) cont. 9 Ø Lump sum payments are made periodically and might be adjusted in accordance with the change of certain factors, like inflation or traffic volume. Ø Major emergency, rehabilitation and improvement works might be paid based on unit prices for works agreed case by case.

Performance-Based Management and Maintenance of Roads (PMMR) cont. Ø Deductions or penalties are being made for non-compliance with terms and conditions of contract, especially with respect to the service level criteria. Ø 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 -2 years. 10

Performance-Based Management and Maintenance of Roads Complexity Up to 30 years Routine and periodic Routine Construction, periodic and routine maintenance 11 2 4 6 8 10 12 14 Contract duration in years

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 12

Performance-Based Management and Maintenance of Roads (PMMR) is also referred to as Ø Performance Specified Road Maintenance Contract (Australia and New Zealand) Ø Highway Asset Management Contract (USA) Ø Maintenance Service Level Contract (Latin America) 13

Scope of Services of PMMR (1) Management of the Road Network Routine Maintenance Emergencies 14 PMMR Periodic Maintenance Improvements Rehabilitation

Scope of Services of PRRM (2) Management of the Road Network Routine Maintenance Emergencies 15 PMMR Periodic Maintenance Improvements Rehabilitation

Scope of Services of PMMR (3) Management of the Road Network Routine Maintenance Emergencies 16 PMMR Periodic Maintenance Improvements Rehabilitation

Scope of Services of PMMR (3) Management of the Road Network Routine Maintenance Emergencies 17 PMMR Periodic Maintenance Improvements Rehabilitation

Contractual Relationship of PMMR (1) Audit by Client or External Auditor Client/ Road Administration Performance or Conventional Contract Road Engineer Consultant 18 Performance Contractor Performance Audit Supervision for Admeasured Work

Contractual Relationship of PMMR (2) Client/ Road Administration Performance Contract Consultant/Contractor 19 Audit by Client or External Auditor

Overview of Presentation Ø Introduction Ø Brief history of Performance Contracts 20

Brief history of Performance Contracts Ø 1988 British Columbia, Canada Ø 1990 Argentina Ø 1996/7/8 Uruguay, Chile, Colombia, Brazil Ø 1995 Sydney, Australia Ø 1996 Virginia, USA Ø 1998 New Zealand Ø 2000 Chad Ø 2001 India (Karnataka) Ø 2001 Spain (Alava) 21

Examples of PMMR in Latin America (12/2001) No contracts Total km Duration Type of maintenance Av. annual US$/km Argentina 59 11295 5 CREMA 11000 Argentina 11 3623 4 Km months 2100 Brazil 7 2000 5 CREMA 7000 280 11487 1 routine 1500 2 747 5 CREMA 3200 130 4200 1 routine 1500* Uruguay 7 1473 4 -5 CREMA 7000 Uruguay ME 9 1768 2+2 routine 3800 Country Colombia ME Chile Guatemala ME 22 * Cleaning of drainage system and right of way

Overview of Presentation Ø Introduction Ø Brief history of Performance Contracts Ø Main reasons for implementing Performance Contracts 23

Main reasons for implementing Performance Contracts Ø Reduces maintenance cost Ø Provides better transparency Ø Improves customer focus Ø Improves control and enforcement of quality standards Ø Improves overall road conditions Ø Helps to reduce road user costs and road rehabilitation costs 24

Overview of Presentation Ø Introduction Ø Brief history of Performance Contracts Ø Main reasons for implementing Performance Contracts Ø Service level criteria and response times 25

Service level criteria Ø Objectives Ø To minimize total systems cost Ø To satisfy the road user Ø accessibility Ø comfort Ø travel speed Ø safety Ø To minimize environmental impacts Ø Service level criteria and response times Ø Examples 26

Examples of service level criteria 27 Ø International Roughness Index (IRI) Ø Absence of potholes and control of cracks and rutting Ø Minimum amount of friction between tires and road surface Ø Maximum amount of obstruction of the drainage system Ø Retro reflexivity of road signs and markings Ø. . .

Scope (assets or services) Ø Drainage System Ø Pavement, incl. markings Ø Traffic assets (safety, signs, markings, signals, etc. ) Ø Roadside Assets Ø Bridges Ø Tunnels Ø Traffic Services Ø Emergency Response Ø Snow & Ice Control 28

Examples of service level criteria (1) Asset Class Component Service Level Criteria Pavement Potholes 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 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) 29 a asphalt; b bituminous surface treatment; A Argentina; C Chile; U Uruguay

Examples of service level criteria (2) Asset Class Service Level Criteria Drainage system Obstructions No obstructions. Should allow for unhindered flow of water Structures Structurally sound with no damages Road signs and markings Road signs Complete, visible, and clean Reflectivity of Road markings > 160 mcd/lx/sqm (Argentina), > 70 mcd/lx/sqm (Chile) Right of way 30 Component Vegetation < 15 cm height of grass (Argentina) 5 – 15 cm height of grass (Uruguay) Foreign objects No foreign objects allowed a asphalt; b bituminous surface treatment; A Argentina; C Chile; U Uruguay

Service level criteria and response times 31

Performance Specified Maintenance Contract, New Zealand 32

• • 33 Mainly input (hours worked) or output based (lane kilometers cleared) payment with some outcome based criteria like the response time of one hour when called upon or snow level reaches 2 inches. Pure performance contract: the contractor receives a lump-sum per year and the client calls the contactor to achieve bar pavement within 24 hrs. http: //www. vmsom. com/news/pro-paper. asp

Overview of Presentation Ø Introduction Ø Brief history of Performance Contracts Ø Main reasons for implementing Performance Contracts Ø Service level criteria and response times Ø Performance monitoring and payments 34

Quality control and assurance Ø Formal monthly inspections Ø Informal inspections Ø Contractors self-control system Ø Road user complaints 35

Performance monitoring Inspection system in Chile 36 Ø Inspections for purposes of payment done once a month taking 10% of the road network selected at random different stretches of 1 km length; Ø Regular inspections done once a week selecting 5% of the network at random; Ø Inspections due to complaint by the public; and Ø Follow-up inspections to verify if contractor rectified deficiencies detected by one of the inspections mentioned above.

CHILE System of payment Ø During the monthly inspection the compliance of performance standards is being evaluated for each category having different importance. Based on a pre-established formula compliance is calculated as a percentage which is multiplied by the monthly payment foreseen for 100% compliance. During the first year of the contract compliance has been around 95%, mainly due to deficiencies related to road safety and right-ofway. In addition, penalties are being applied if the contractor does not rectify deficiencies within the time periods defined in the contract. 37

Evaluation of service level for a one-km test section (World Bank) 38 The overall coefficient of compliance for a specific road (or road section) in a particular month is determined by calculating the simple average of the coefficients of compliance of all test sections of that month within the road concerned.

Example of penalties for not responding to rectify deficiencies within specified response times (CREMA, Argentina) Service level criteria Penalty in US$ No pothole > 2 cm deep on paved roads 110/day/pothole No edge failure on paved roads 110/day/failure No rutting > 20 cm long and 12 mm deep on paved roads 66/day/rut No cracking or raveling on paved roads 88/week/km Travel speed of at least 50 km/hr on earth 176/day/km and 70 km/hr on gravel roads No potholes > 2 cm on paved shoulders 39 44/day/pothole Drains, ditches, culverts and other drainage structures to be clean 44/day/structure

Self-Control Unit of Contractor Ø Own organizational structure with qualified personnel Ø Verifying continuously the compliance with the service level criteria Ø Monthly reporting of compliance to client using standard formats Ø Participating in monthly formal inspections 40

Performance monitoring by contractor Example Virginia, USA Ø Asset inventory and condition assessment (updated annually) Ø Pavement management program Ø Bridge management program Ø Safety management and traffic control plan Ø Emergency response plan Ø Hazardous materials communications plan Ø Customer response plan Ø Public information plan Ø Annual work plan updated every 3 months 41

Quality Management System ISO 9001: 2000 “Quality Management System – Requirements” requires contractor to establish, document, implement, and maintain a QMS that: Ø Identifies processes Ø Illustrates sequences and interactions Ø Identifies criteria and methods to ensure effectiveness Ø Documents resources and information necessary operate, monitor, measure and analyze the processes Ø Defines action required to achieve the planned results and continually improve the process 42

Overview of Presentation Ø Introduction Ø Brief history of Performance Contracts Ø Main reasons for implementing Performance Contracts Ø Service level criteria and response times Ø Performance monitoring and payments Ø Bidding and award of contract 43

Bidding and award of contract Ø Legal and financial feasibility Ø Preparation of bidding documents Ø Scope of Work Ø Time frame Ø Pure performance-based or hybrid Ø Role of contractor in preparing bidding documents Ø Risk allocation 44 Ø Pre-qualification Ø Evaluation criteria Ø Contract award

Examples of Bidding Documents Ø Sample Bidding Document for Performance-based Management and Maintenance of Roads prepared by the World Bank (World Bank 2002) Ø State Highway Maintenance Contract Proforma Manual SM 032 (Transit New Zealand 2002) 45

Overview of Presentation Ø Introduction Ø Brief history of Performance Contracts Ø Main reasons for implementing Performance Contracts Ø Service level criteria and response times Ø Performance monitoring and payments Ø Bidding and award of contract Ø Implementation experiences 46

Uruguay 47

Pilot Project Uruguay Ø Extension: 359 km Ø 154 km bituminous concrete Ø 88 km concrete Ø 37 km bituminous surface treatment Ø 21 km forced impregnation Ø 59 km gravel Ø Variable conditions 48 Ø 30 km of roads need initial rehabilitation and others require strengthening during the contract period.

Pilot Project Uruguay Examples of Service Level Criteria Ø Remaining thickness of gravel surface layer: Ø 5 cm during and 10 cm at the end of the contract period Ø Roughness ( IRI ) of pavements: Ø < 2, 8 for bituminous concrete Ø < 3, 4 for bituminous surface treatment Ø < 6 for gravel Ø Bituminous surfaces Ø Absence of potholes Ø Settlements < 10 mm Ø Shoulders 49 Ø Absence of potholes and settlements

Pilot Project Uruguay Examples of Service Level Criteria Ø Drainage systems, like culverts and ditches, should be clean to allow for a permanent free flow of water. Ø Right of way should be clear of trash and other foreign objects. Ø Vegetation should not exceed 6 cm on the median strip and 15 cm up to 5 m from the borders of ditches. Ø Traffic signs and markings: standards defined by the Traffic Department apply. 50

Pilot Project Uruguay Deadlines, Payments, and Sanctions Ø Contract period: 4 years Ø Deadlines to comply with performance indicators: Ø 2 months for potholes Ø 6 months for other defects on main roads Øone year for all roads 51 Ø The contractor is being paid a fixed monthly fee per kilometer and type of road surface. Ø Sanctions for non-compliance

Pilot Project Uruguay Redeployment of Displaced Staff Ø Started with 2 routine maintenance contracts and 1 maintenance contract for traffic signs and markings with former road agency’s staff. Ø Contracts have been let for 2+ 2 years. Ø The former road agency’s staff had the right to take up their former employment with the road agency, if they wish to do so, within one year of contract commencement. 52

PMMR Uruguay Improvement in road conditions Contractor Year Very good Good Regular Bad 1996 0% 60% 40% 0% 1998 25% 60% 15% 0% 1996 23% 13% 64% 0% 1998 37% 46% 17% 0% A B 53

PMMR - Uruguay 54

PMMR - Uruguay 55

PMMR - Uruguay 56

Pilot Project Montevideo 57

Pilot Project Montevideo 58

Pilot Project Montevideo 59

Pilot Project Montevideo 60

Uruguay PMMR Ø Actually 46% of the national road network is being managed and maintained by PMMR Ø Contracts are of fourth generation Ø Contracts receive priority for financing 61

Argentina 62

Argentina 63

National Road Network Paved (km) Unpaved (km) Total (km) Tolled concessions 9508 Untolled concessions 1879 14399 1503 14399 6723 CREMA Under contract by provinces Contracted on km/month 3623 DNV forceaccount 64 Total 5220 3623 2612 30912 2612 7832 38744

Australia 65

AUSTRALIA PMMR Ø Actually, more than 20000 kilometers of road are being managed and maintained under PMMR in several provinces of Australia Ø Some of the contracts are hybrid contracts (some works are being paid on a unit price basis) Ø Reported savings are between 15% and 35% 66

New Zealand 67

New Zealand PMMR Ø First PMMR covers 406 kilometers, has a duration of 10 years and was let in 1998 Ø Two years later a similar contract was concluded Ø In 2002 a PMMR covering 1040 km of local roads and 122 km of state highways Ø While the first contract resulted in 10% savings the latest one came in 22% below the cost estimate for comparable conventional contracts 68

USA 69

First Performance Based Road Management and Maintenance Contract in the State of Virginia (Comprehensive Agreement for Interstate Highway Asset Management Services) 70 Ø Maintain and refurbish 1250 lane-miles on three Interstate Highways, 62 rest areas, and 7 visitor centers Ø 5+ year contract since early 1997 Ø 131 million US$ for 5 years with approximately 16% savings over VDOT cost Ø Contractor is VMS Ø 15% of work is done by VMS staff

Washington D. C. Performance-Based Asset Preservation o o o o 71 Source: FHWA pavement (344 lane-miles) drainage (2950 catch basins, 7 miles of ditches) roadside and landscape (450, 000’ of curb and gutter) bridges (109 structures) tunnels (4 major) snow and ice control traffic control and safety (108, 270’ guardrail, 51 crash attenuators) contact “james. sorenson@fhwa. dot. gov”

Overloading 72

Weigh Station Caminos del Río Uruguay 73

Cost savings 74

Contracting out can reduce road maintenance cost 75

Cost of Road Maintenance in Sydney Performance Specified Contract 76

Mobile Pothole Patching CONVENTIONAL METHOD Average Unit Cost: $120 per patch $900 per lane mile $5, 900 per ton * Production = 20 -30 patches per day MOBILE PATCHER Average Unit Cost: $22 per patch $38 per lane mile $880 per ton 77 Courtesy VMS *Production = 120 patches per day

Innovative Road. Flex™ Pothole Patching Material § Multiple Benefits: § Permanent patch material § No failures in 3 years § No rework required § Reduced labor and lane closures § Less disruption to motorists 78 Courtesy VMS

Cost savings summary Performance Contract: Incentives / competition / long-term management 79 Ø Modern management and work procedures Ø Increased productivity Ø Total life cycle costing Ø Just-in-time maintenance Ø Work package optimization Ø Use of latest technologies Helps to reduce road user costs and road rehabilitation costs

Implementation strategy 80

“Ideal” conditions for PMMR Ø Well developed contracting environment with local contractors experienced in road maintenance Ø Road agency with good contract management experience, committed to the PMMR concept Ø Good knowledge and data of network, maintenance needs and cost Ø Network does not need mayor rehabilitation Ø Financing secured for contract duration 81

Performance-Based Management and Maintenance of Roads - Implementation Strategy - Ø Phased introduction of service level criteria. Ø Routine maintenance Ø Roughness and friction Ø Deflection Ø Increase time span of contracts. Ø 1 to 2 years Ø 4 to 5 years Ø < 12 years 82 Ø Monitor implementation process.

Pilot Projects for PMMR (1) Ø Legal feasibility Ø Financial feasibility Ø Technical feasibility 83

Pilot Projects for PMMR (2) Ø Constitution of a working group and definition of responsibilities. Ø Definition of the road network and scope to be contracted. Ø Selection and definition of performance indicators. Ø Definition of how to measure the performance indicators. 84

Pilot Projects for PMMR (3) Ø Preparation of the inventory of the road network selected and determination of its present condition. Ø Determination of the traffic volume by type of vehicle. Ø Definition of maintenance works required and estimation of their cost. 85

Pilot Projects for PMMR (4) Ø Preparation of Tender Documents. Ø Selection of contractors and award of contract. Ø Monitoring and evaluation. 86

Pilot Projects for PMMR (5) - Criteria for Selecting the Road Network - ØModerate climate and topography ØLength: 300 to 500 km ØConcentrated area ØClose to a major city ØInclude different types of road surfaces, road conditions, and traffic levels 87

Overview of Presentation 88 Ø Introduction Ø Brief history of Performance Contracts Ø Main reasons for implementing Performance Contracts Ø Service level criteria and response times Ø Performance monitoring and payments Ø Bidding and award of contract Ø Implementation experiences and strategy Ø Lessons learned

Lessons learned (1) 89 Ø Financing needs to be secured for the entire contract period. Ø Performance Contracts have to be tailored to each specific situation Ø Pilot schemes should be carefully planned and implemented Ø Risks shall be assigned to the party that can best manage the risk Ø Performance Contracts should be longer than 5 years and should include periodic maintenance as well

Lessons learned (2) 90 Ø Qualification of contractors and inspectors is key to success Ø All contractors should use proper Quality Management Systems (QMS) Ø Performance Contracts need strict performance monitoring and application of penalties for noncompliance Ø Performance Contracts might not produce cost saving immediately.

VISION Business Opportunities 91 No potholes Transport Cost

http: //www. zietlow. com 92

Thank you for your attention 93