Roads are a significant asset to any country—both in terms of the physical investment and the social and economic benefits. Starting in the 1980s, the World Bank’s Transport Sector supported several major road reforms, including the introduction and expansion of contracting methodologies, initially on an output basis and increasingly on an outcome or performance basis, to execute rehabilitation and improvement activities. These innovations continue to evolve, based on lessons learned. Efficiency in the provision of road infrastructure continues to improve.
Sustainability remains a major obstacle in the proper management of road networks because most road agencies lack capacity and systems to collect road condition data that would help develop prioritized maintenance, budgets, and work plans. In response to clients’ needs, the World Bank in the 1980s developed and supported the first performance-based contracts, notably Argentina’s widely known CREMA (Performance-based Road Rehabilitation and Maintenance) contracts. These contracts were longer term than traditional works contracts and included both rehabilitation and improvement, along with several years of maintenance.
Following the successes achieved with the first performance-based contacts, the World Bank developed its first sample bid document for Performance-Based Management and Maintenance of Roads in 2002. These contracts focused mostly on routine and periodic maintenance tasks. In 2006, the performance-based contract evolved further with the Output- and Performance-Based Road Contract sample bid document. This document allowed for the inclusion of rehabilitation and improvement tasks as performance-based activities. The sample bid document can be used for a wide range of performance-based contract applications, from where the initial rehabilitation or improvement is paid fully per a standard bill of quantities to where tasks are paid on the basis of performance, usually in combination with the performance-based maintenance services. This bid document became the standard document used in World Bank projects with performance-based contract activities.
These innovations in contracting methodology resulted in a reallocation of construction risks—and with it, major changes in road asset management. While there were several performance-based contract initiatives that were not carried through to contract award, many resulted in major efficiency improvements, both in terms of road condition and contract cost.
Based on these lessons learned, the World Bank developed the performance-based contracting methodology further. In this iteration, it closely follows the Design-Build-Operate-Maintain-Transfer methodology, where the contractor designs and completes the required rehabilitation and/or improvements to deliver a certain level of service and thereafter operates and maintains the road for several years (as with the $166 million contract on a 180 km section of the paved road between Monrovia and Ganta). The performance-based methodology can be applied to paved and unpaved roads, as well as to single road links and road networks.
Findings and lessons
A World Bank-commissioned report noted that the innovations in contracting methodology moved the institution’s support closer to comprehensive asset management, where the focus is on the desired benefits over the life of the project. The process of preparing and implementing performance-based contracts forces those responsible for the funding, governance, and management of the road asset to answer critical questions such as:
- What road assets do I own and which of these do I wish to be managed under this contract?
- What is the level of service that we want to provide to the road user?
- What condition are my road assets in?
- What is the forward works program required to deliver the least whole-of-life-cost solution?
- What risks exist in the delivery of the levels of service, and how are those risks best managed?
Overall, the study confirmed that performance-based contracts tend to:
- Provide a better focus by the road agency on governance as a result of the separation from the day-to-day operational activities;
- Deliver a more consistent (and/or better) service level across the network;
- Reduce costs and/or set costs at a fixed level to enable for long term fiscal planning by the road agency;
- Better allocate risk;
- Improve workmanship; and
- Address internal labor shortages where the authority may not have the internal resources/capacity to manage a network according to the traditional model.
While many of these desired outcomes might be achieved via alternative contracting means, the performance-based contract specifically requires that all of these concerns be addressed together. Indeed, this is often perceived as the key benefit of the contract model: it forces a paradigm shift and consideration of all the principles of good asset management.
Successful implementation of performance-based projects requires strong commitment from government officials. This commitment should translate into a proper contracting environment—specifically, multi-year financing commitments and a well-informed contracting community, with good internal understanding of the contracting methodology. This results in a better procurement process and eventual contract management. Governments should undertake a comprehensive study of the affected road asset and its current condition, the required future levels of service, and an identification and eventual allocation of all project-related risks. Recommendations from this study should then be used to define the performance-based requirements included in the bidding document.
For governments implementing a pilot program, it is essential to understand the value of their road assets and then to plan how this value could be preserved or increased over time. This asset management plan should recommend the amount of works and resulting funding required to provide and maintain the road network at a certain service standard. Such plans would then be used as a basis to decide to what extent and where performance-based contracting could be introduced and expanded. The desired result of a well-constructed contract—sustainability of the road infrastructure—can bring social and economic benefits for generations to come.