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Performance-based Contracting for Roads in Australia

Australia is one of the countries where both “pure” and “hybrid” types of performance-based contracts (PBC) have been deployed to manage and maintain roads. ‡ All categories of roads are covered: national, state, urban and rural. Among the states which have implemented PBCs are New South Wales, Victoria, Queensland, Tasmania, Southern Australia, and Western Australia.

Main features
Australian PBCs are designed to turn over total control and responsibility for roadway system maintenance, rehabilitation, and capital improvements to private contractors. Contractors’ responsibilities include determination of all treatment types, as well as the design, programming and undertaking of all works needed to maintain the road network to pre-agreed performance targets. The performance parameters include roughness, texture, rutting, skid resistance, and remaining service life. These are measured and established at the beginning of the contract and monitored during the contract implementation.

Pilot projects in 1990
Prior to letting long-term PBCs, Australia started with two short-term contracts. The experiment was initiated in 1990 by the Roads and Traffic Authority (RTA) of New South Wales, and included two networks of approximately 100 km of roads in western Sydney. The objective was to determine the feasibility of contracting road maintenance and to estimate differences in cost, quality, and responsiveness between a contractor and the RTA’s workforce.

Since the private sector lacked expertise in road maintenance, the RTA opted for an approach permitting both parties to acquire gradually new skills and proper understanding of the issues and risks associated with the PBC approach. The RTA commissioned a thorough inventory of network features and conditions, collected information on historical works and costs, and defined a methodology for performance measurement and reporting. Two separate contracts were used to minimize risk exposure to both the RTA and the private sector, one for maintenance management and the other for maintenance services.

‡ In the Australian practice, performance-based contracts are called term network contracts. A “pure” PBC has no residual features of the traditional procurement method.

The maintenance management contract was let for a two-year term and included two networks of approximately 100 km of roads in western Sydney. The contract included network inspection, defect prioritization, work definition and treatment design, budget development and control, work management, quality assurance of works, and reporting. The contract included a “Code of Practice” with technical specifications for all interventions.

The maintenance services contract was let to deliver maintenance works on one of the above cited networks, under direction of the contracted maintenance manger. Works on the other network were provided by the RTA workforce. Identical documentation and management procedures were applied on both networks. The works contract was based on a comprehensive Schedule of Rates for specified time and quality standards. The document was based on a standard construction contract, modified to fit the road maintenance activity and the focus on quality assurance.

The benefits of this innovative approach in maintaining roads included a 16% cost savings and a 22% increase in productivity during the first year.

Inception of long-term PBCs
Findings of pilot studies in mainland states demonstrated a significant potential for cost savings and other benefits from outsourcing maintenance under long-term performance-based contracts. With these pilot successes in mind, Australia let a first 10-year performance-based contract in 1995. This PBC included all maintenance activities for 450 km of urban roads (1,900 lane-km) in Sydney. The results comprised a 25% lower bid price, 10-year warranty on workmanship, a 13% asset condition improvement, and costs reduction by 20-30%.

Australia’s island state of Tasmania was the first state to introduce a long-term PBC covering both urban and rural road networks. Subsequently, eight 10-year term network contracts were launched in Western Australia to deliver road maintenance and rehabilitation services on the national highway and state road system, and for traffic signs and markings on local roads. Six of these contracts are “pure” PBCs, while two are hybrids. Network lengths for rural road contracts range from 1,560 km to 4,280 km. However, two contracts that cover roads in urban areas are of shorter extent – 375 km and 315 km.

The scope of works of the “pure” PBCs in Western Australia is the following:
Inspection and monitoring of the network;
Routine and periodic maintenance;
Reconstruction and rehabilitation;
Emergency response;
Customer relations;
Collection and maintenance of asset inventory data.

In hybrid contracts, the government road authority, represented by the Superintendent, is responsible for the on-road asset management. The Superintendent identifies defects and issues work orders to the maintenance contractor. The payments for on-road works follow a unit rate approach. Off-road works are performance-based and paid on a lump-sum basis.

Bidding process
In Western Australia the contracts are awarded following a five step procurement process, intended to ensure that the most capable bidder and the best value for money are achieved in awarding the contracts. The steps included:

1. Pre-qualification of suitable companies (following Expression of Interest submissions)
2. Request for proposals
3. Identification of the preferred bidder
4. Due diligence and contract negotiations
5. Contract award and possession of site

Bidder Evaluation and Selection
Australia applies a Quality-Based Selection (QBS) method to select the winning bid. The QBS method takes into consideration quality and price through separate technical and cost submissions. These are evaluated separately and the contract is awarded to the proponent with the highest overall score. The contracting agency determines weighting factors for important bid elements. This method encourages experienced contractors to participate in the bidding process, eliminates less qualified bidders, and allows the road agency to evaluate the bidders’ understanding of the conceptual and practical intricacies of the PBC-based road maintenance operation.

Risk allocation
Risks allocated to the private sector in the Western Australian experience include cost variations due to latent road conditions, salinity and rising water table, traffic volumes, axle loadings, selection of treatments, and the cost of any re-work required to meet agreed standards.

Performance Specifications
In Western Australia, the contract specifies a range of short-term and long-term asset conditions standards that the contractors are required to meet. The short-term drivers are road maintenance intervention parameters, which set the extent of allowable defects in terms of level, extent, and response time. The long-term drivers are asset condition profiles, defined as long-term road attributes in the contract in terms of road user costs (roughness and rutting), safety (surface texture and surface skid resistance), and pavement life (strength).

Evaluation of the program and its results

Results of the PBC let in Sydney, NSW, in 1995:
No lengthy traffic delays;
All road works are done at night.
The savings to the NSW treasury are in the order of 30%.
The contractor was well on track to meeting its 137 key performance indicators during the ninth year of the contract term.

Results of the PBCs in Western Australia:
a stronger focus on to the management of the network
increased accountability for outcomes
more effective resource management
better value for money through competition
insurance of long-term funding and uniform standards for maintenance of the entire state road network.

Lessons learnt from Western Australia:

Surveillance of the contractor’s compliance to be implemented by road authority’s staff (rather than by external consultants) in order to maintain an efficient communication between the contractor and client.

Hybrid contracts are a better option in areas prone to natural disasters, as they are best managed by the government road administration.

Contracts should be of a sufficient size to provide more opportunities for the private sector to gain from economies of scale.

Stronger emphasis on the data collection and data management. The use of the data is critical in the decision-making process and implementation of PBCs. The key success factors in this area include: (a) development of a centralized database; (b) as early as possible commencement of the data collection; and (c) avoidance of duplication of efforts in data collection by the road administration and contractor, and the creation of integrated systems accessible to both entities.

At least 3 years needed for the contractor to develop a management system. Although there was an expectation that the Road Authority in Western Australia had involved large-scale contractors with experience and tools for PBC, there was still a large task in adapting the available tools and developing new ones to suit the new approach.
(For more details on the Western Australian experience, please see the link to the paper by T. Engelke provided below).

Lessons learnt from Tasmania:

The government road authorities in Tasmania acknowledge that the success of any PBCs rests to a large extent on the desire of all parties to make them succeed, including flexibility, the development of trust, cooperation in a partnering environment and a willingness to work through issues.

Trends
In the past few years, outsourcing of maintenance has increased significantly across Australian territories, with road authorities contracting maintenance of road sections for periods varying from 3-10 years. State of Victoria, which now implements several three-year PBCs, is making a cautious progress to longer-term, performance-based contracting.

Sources:

1. Australian Government. Department of Transport and Regional Services web site. http://www.dotars.gov.au/transprog/govt_links/ppp.aspx
   
   
2. Bloxam, M. “Evaluation using The Quality Price Risk Trade Off (QPRTO).” Paper for the Bay Roads Exposed Conference, Rotorua, April 27 to 29, 2003. Bloxam Burnett & Olliver. Courtesy of M. Bloxam, Transit NZ and Western Bay of Plenty District Department of Main Roads, New Zealand.
   Also available at: http://www.wbopdc.govt.nz/NR/rdonlyres/1312D128-CDF1-4E99-8E95-2E9B8F3BE81C/0/MartinBloxam.pdf
   
   
3. Douglas-Crane, M. 1999. “Performance-based Maintenance Contracts in Australia.” Presentation for the World Bank Annual Road Management Seminar: Innovative Road Maintenance Contracting Practices. Available at: http://worldbank.org/transport/rdmgmnt/mdc_2.pdf
   
   
4. Engelke, T. 2003. “An international Perspective – Long-term Performance-based Road Maintenance Contracts in Western Australia.” Paper for the Bay Roads Exposed Conference, Rotorua, April 27 to 29, 2003. Main Roads Western Australia.
   Available at: http://www.wbopdc.govt.nz/NR/rdonlyres/F3490F6E-DF36-470E-9CB1-9417A1CFEF66/0/TomEngelke.pdf
   
   
   
5. Frost, M. and Lithgow, C. 1996. “Improving Quality and Cutting Costs through Performance Contracts: Australian Experience.” Article for the World Bank Road Management Training Seminar.
   Available at: http://www.zietlow.com/docs/frost.htm
   
   
   
6. Hayes, B. “The Integration of Transit and WBOPDC Requirements into a Single Performance-based Contract.” Paper for the Bay Roads Exposed Conference, Rotorua, April 27 to 29, 2003. Bloxam Burnett & Olliver. Courtesy of Bloxam Burnett & Olliver, Transit NZ and Western Bay of Plenty District Department of Main Roads, New Zealand.
   Also available at: http://www.wbopdc.govt.nz/NR/rdonlyres/08CB2D3C-DA26-400C-96B4-48A6E4CF8D01/0/BradHayes.pdf
   
   
   
7. Loveless, R. “Measures for Carriageway Lighting.” Paper for the Bay Roads Exposed Conference, Rotorua, April 27 to 29, 2003. Odyssey Energy Ltd.
   Available at: http://www.wbopdc.govt.nz/NR/rdonlyres/0A767198-02A1-4ECA-8CEE-6C9C79C11632/0/RogerLoveless.pdf
   
   
   
8. Pavement Management Services. “Getting Ready for the First Renewal of the Sydney PSMC.” Road Runner. Issue 4, 2004. Courtesy of Pavement Management Services.
   Also available at: http://www.pavement.com.au/downloads/roadrunner_04.pdf
   
   
   
9. Western Australia Department of Main Roads.
   Available at: http://www.mainroads.wa.gov.au/NR/mrwa/run/start.asp
   
   
10. Zietlow, G. 2004. “Implementing Performance-based Road Management and Maintenance Contracts in Developing Countries – An Instrument of German Technical Cooperation.” November 2004.
    Eschborn, Germany. Courtesy of G. Zietlow.
    Available at: http://www.zietlow.com/docs/PBMMC-GTZ.pdf
    
    
11. Please see Queensland's Contract Documents
    
    

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Appendix. Examples of Road Maintenance Intervention Parameters

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