2008 MdQI Conference January 30, 2008 Performance-Based Maintenance Contracts (PBMC) Pekka Pakkala, Sr. Transportation Eng. SAIC 1
Overview • Introduction to Performance-Based Maintenance Contracting • Risks • Performance Measures • Choosing a Contractor • Partnering • Importance of a Good Contract • Summary 2
Introduction to Performance Based Maintenance Contracting 3
Framework For Change • Future Perspectives • Integration & Bundling of Services • Funding Level Fluctuations & Shortcomings • Staff Reductions/Aging Administration • Preservation on Existing Network • Maintenance Contract Capability • New Market for Contract Maintenance • Changing Roles to Strategic Management & Good Governance • Public Accountability • Improvements in IT Systems • QC/QA By Contractors • Risk Allocation/Management 4
What is Performance-Based Contracting? • A maintenance approach where a private contractor assumes responsibility for managing and maintaining the condition of assets to pre-defined set of conditions or LOS. • Focuses on what to achieve (outcomes) rather than how to achieve it • It is pro-active versus reactive 5
How is Performance-Based Maintenance Contracting is Different Than Traditional Maintenance Contracting? Management • Work Orders • Administration • Accounting • Responding to Customer Complaints • Planning/Staffing • Having a MMS • Project Mgmnt • Decision Making • QA/QC Plans • Yearly Work Plans • Self Inspection • Project deliverables • Traffic Management 6
How is Performance-Based Maintenance Contracting is Different Than Traditional Maintenance Contracting? Maintaining • Must Do The Work • Meet the Performance Standard (LOS) • Find Supply Chain Partners & Supplies • Coordinate the Maintenance Activities • Respond to Defects (Customer • Pro-actively Inspect Assets (QC) and 7
Partnering Issues Design/Eng OWNER AGENCY Partners G N T I C R E E J N O T R R P A P CONTRACTOR PARTNERING PARTNERING G PARTNERING N I R E N T R A P SUB-CONT. SUB-CONT. SUB-CONT. SUB-CONT. SUPPLIERS SUPPLY CHAIN MANAGEMENT 8 Source: Finnra - Pekka Pakkala
9 Emergency Response VEG. & TRASH Traditional Outsourcing G N I H C T A Owner Agency P & S E L CLEANING O H T O P LINE MARKING GUARD RAIL TRAFFIC SIGNS
10 Emergency Response VEG. & TRASH New Management Of Roads G N CONTRACTOR Owner Agency I H S C E T L A O P H & T CLEANING O P LINE MARKING GUARD RAIL TRAFFIC SIGNS
Owner Agency Role Changes • Develop clearly defined Scope (what you want) • Communication & Buy-in of Key Stakeholders • TRUST between Client & Contractors • Developing Outcome/Performance Measures • Changing to Asset Owners/Management • Risk Allocation • Developing Good Contracting Agreements • Owner must be an active participant • Contractors will be Responsible for Work & Processes • HQ & District Offices Have A Common Effort • PBMC involves a culture change – this is a new way of • Develop Project Partnering 11
Owner Decision Matrix Traditional Performance Based (Method Based) (Outcome Based) RISK Sharing NO YES Keep Control YES NO (Decision Making) Innovation NO Potential Savings Minor/Some Potential Less Management NO YES Reliance on Asset NO YES Management 12
How is Performance-Based Maintenance Contracting Different Than Traditional Maintenance Contracting? • Specify desired outcomes instead of • Contractor determines what work will be • Innovation in management and • Puts all contractors on even playing field 13
Brief History of Transportation Performance-Based Maintenance Contracting in the US • Virginia was first • Followed quickly by D.C., Texas, • Projects have been a mix of asset 14
International Examples Type of Contract Contract Contractor Activities Contract Duration Method Selection Criteria Included Alberta, Canada Output 5,6 & 7 Years Unit Price 95% Price Routine Based 5% Other Maintenance British Output & 10 Years Mostly Lump 60% Price Routine Columbia, Performance Sum 40% Other Maintenance Canada Based (Few Unit Prices) Ontario, Canada Traditional & 7-9 Years Lump Sum 95% Price Routine Performance (New – 7+2) 5% Other Maintenance Based (60% Outsourced) New Zealand Output & 3+1+1 Years Unit Price Low Bid Routine Performance 3+1+1 Years Hybrid Weighted Avg. Routine Plus Based 10 Years Lump Sum QPTO ALL Finland Performance 5 & 7 Mostly Lump 70-80% Price Routine Based Years Sum 20-30% Other Maintenance (Few Unit Prices) Norway Performance 4 Years Lump Sum 100% Price Routine Based (Some Unit (Conforming Maintenance Prices) Tenders) Source: Survey of International Contract England Performance 5 + 2 Years Lump Sum 75% Price/ 25% ALL except Maintenance , Pakkala, P., TRB 2007 Based (Actual Prices) Other E-Mac - Rehabilitation 100% Quality (with 15 Target Price)
Advantages of Performance-Based Contracting for Maintenance • Allows State and local agencies to define • Contractors will have the flexibility to • Encourages the introduction of innovation • Potential relative savings • One point of contact - Communication can 16
Advantages of Performance-Based Contracting for Maintenance (Cont’d) • Shares risks and rewards • Can allow a re-focus of in-house staff to do other • Owner agency can learn some new techniques • Contractor may be able to efficiently address 17
Challenges of Performance-Based Contracting for Maintenance • New way of doing business – requires a culture change • Loss of control - Owner agency gives up much of their ability to “direct” work • Can be difficult to handle political priorities if they aren’t covered in the contract • Some agencies are restricted to shorter term contracts – longer term are better 18
19 Risks
Risk & Control Differences • It is important to understand and acknowledge the control and risk factors your agency is willing to undertake. 20
Balancing Risks CLIENT Risk CONTRACTOR COSTS?? 21
Balancing Risks • Escalation Clause (Indexing - CPI) • Incentives & Disincentives • Capping the Risks for Unknowns • Compensation for mobilization or by deferring performance until end of year • Using Hybrid Type Contract • Risks in Traffic, Weather & Acts of God 22
23 Performance Measures
Performance Measures • Form the basis of every performance- based contract • Define the desired outcomes for the contract • Come in many shapes, sizes, and styles • Are usually developed in an iterative style • Can be generally categorized as “Condition” measures or “Timeliness of Response” measures 24
Performance Measures vs. Performance Standards vs. Levels of Performance • Performance Measure • a set of defined outcome-based conditions or response times that project personnel (Owner Agency and contractor) use to evaluate the success of the contractor • Performance Standard • the minimum acceptable level of performance for a given performance measure • Level of Performance • a defined condition or response time 25
Pass/Fail or Multi-Level Performance Measures? • Pass/Fail • Easier to define • Don’t provide as much information on performance • Did the contractor just barely fail, or did they badly fail? • Performance Measure and Performance Standard are the same 26
Example of a Pass/Fail Performance Measure • Grass height 4” or less 27
Performance Measures vs. Performance Standards vs. Levels of Performance Performance Measure Performance Goal –“Pass” Excellent Excellent Good Good Fair Fair Poor Poor Very Poor Very Poor 5 5 4 4 3 3 2 2 1 1 Grass height Grass height Grass height Grass height Grass height 4” or less, 4” or less 8” or less greater than 6” or less 8” neatly trimmed around signs, curbs, etc. Levels of Performance 28
What Makes a Good Performance Standard? • A question to ask for each performance standard is, “am I SMART?” 29
Am I SMART? • I – Is the performance standard something that the contractor can Influence? • S – Is the performance standard Specific? • M – Is the performance standard Measurable? • A – Is the performance standard Achievable? • R – Is the performance standard Results- oriented? • T – Is the performance standard Timely? 30
31 Choosing a Contractor
Common Procurement Types Low Bid Enhanced Low Bid Best Value Qualifications/ Price Qualifications/Price Approach/ Price Bids Proposals Quals Package/Bids Complexity The goal is to get a contractor who will do a good job for a reasonable price. 32
Common Contract Types • Contract Types: • Lump Sum • Unit Prices • Hybrid (Lump Sum & Unit Prices) • May Include Escalation, Incentives & Disincentives • Selection Criteria • Low Bid • Enhanced Low Bid (Lowest Conforming Bidder) • Best Value - FDOT, DDOT & others • 100% Quality @ Target Price (Alliance Model) • Beginning to look at risk sharing • Issues; • Competency of Project Managers & Ability to Perform • Quality Plans (Contractor Led) 33
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