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Performance-Based Contracts (PBC)

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Performance-Based Contracts for Road Projects

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Abstract

Performance-based contract is a project delivery method based on the principle “what” is required, not “how” to achieve. It is an output-based contract which sets the performance expected from the final output. Service-level agreement (SLA) and key performance indicator (KPI) are established to measure the performance standard of the output. The SLA and KPI should be clear and measurable because the payment is based on the output. The full payment is made only if the output meets the agreed standard. SLA and KPI measure the standard of the output.

Most frequently used PBCs are public-private partnerships (PPP), performance-based road management and maintenance contract (PMMR), and Funktionsbauvertrag (FBV, function-based construction contract). They are advanced forms of traditional project delivery methods like design-bid-build (DBB) and design-build (DB).

PPP is popular worldwide, PMMR is popular in South America, while FBV is developed and is in implementation in Germany. PPP is a cooperation between public and private sectors and is widely used in infrastructure development including road, railway, hospital, prison, sanitation, and water supply. It is a long-term contract which can go up to 20–30 years and even go up to 45 years. PPP has been developed mainly to use the private finance in the development of public infrastructure.

PMMR is developed for the delivery of road projects. It is mainly used for the road management and maintenance but has the potential to develop as the road construction contract. It is an output-based contract which specifies the objectives to be achieved and SLA and KPI to measure the standard of the output. It is a long-term contract which ranges from 3–10 years and can go up to 30 years. PMMR projects are fully funded by the public sector. In PMMR, the processes and procedures to achieve the objectives are not defined.

FBV is used for the delivery of road projects. It is an output-based project which specifies the function from the prospective of road uses and objectives to be achieved, not the processes and procedures to achieve the required output. The contractor of FBV has the freedom to select the process, procedures, technologies, and material required to achieve the required standard of the output. It has been exclusively used in Germany in the construction and renovation of road superstructure. It has the potential to construct new road projects.

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Notes

  1. 1.

    An example of innovative approach in road project: Reduction of construction time by encouraging the sub-contractor by rewarding them on early completion, employing the staffs to simultaneously run the multiple tasks, using high qualified staffs and equipments with high efficiency etc. Reduction of construction time eventually cuts the cost.

  2. 2.

    Performance work statement/Statement of objectives include the specifications that define the performance requirement of the contract, function specification, performance specification and design specification.

  3. 3.

    See Sect. 3.2.8 for the example of standard specifications for road projects, which are presented as Key Performance Indicators (KPI).

  4. 4.

    Based on the Sect. 3.1; the respective references are presented at the end of this chapter.

  5. 5.

    http://www.gtkp.com/theme.php?themepgid=118, Accessed on 10.03.2010.

  6. 6.

    www.performance-based-road-contracts.com, Accessed on 23.03.2010.

  7. 7.

    Based on Zietlow, Gunter (see p. 4 in [27]).

  8. 8.

    Section 3.3.2 is based on: Stankevich et al. (see p. 2 in [21]).

  9. 9.

    Based on Zietlow, Gunter (see p. 3 in [27]).

  10. 10.

    (Section 3.2.6 is based on) Stankevich et al. (see p. 3 and 4 in [21]).

  11. 11.

    The chapter is based on: Stankevich et al. (see p. 4 in [21])

  12. 12.

    Based on Sect. 3.3; the respective references are presented at the end of this chapter.

  13. 13.

    See Sect. 3.3.5 for the detail on functional indicators.

  14. 14.

    www.service-bw.de/zfinder-bw-web/generatepdf?type=VB&id…0: Accessed on 11.05.2010.

  15. 15.

    Based on (see p. 16 in [59]).

  16. 16.

    According to Werner Bednorz (BMVBW, Referat S 17: Straßenbautechnik und Straßenbeanspruchung) - Beckers, Thorsten (see p. 191 in [40]).

  17. 17.

    According to Herrn Lutz Irmer (Thüringer Landesministerium für Bau und Verkehr, Abteilung Verkehr, Leiter) – Die Realisierung von Projekten nach dem PPP-Ansatz bei Bundesfernstraßen, Dissertion, TU Berlin, Fakultät Wurtschaft & management, Berlin, 2005, p. 191.

  18. 18.

    According to Ulrich Habermann (Hauptverband der deutschen Bauindustrie e.V., Abteilung Verkehrswegebau) – Die Realisierung von Projekten nach dem PPP-Ansatz bei Bundesfernstraßen, Dissertion, TU Berlin, Fakultät Wurtschaft & management, Berlin, 2005, p. 191.

  19. 19.

    Bayerische Staatregierung: www.bavaria.de/Pressemitteilungen-.1255.10242857/index.htm, Accessed on 31.05.2010.

  20. 20.

    Strassen NRW Press information: www.strassen.nrw.de/service/presse/meldungen/2008/080703-01.html, Accessed on 04.04.2010.

  21. 21.

    Based on Sect. 3.4; the respective references are presented at the end of this chapter.

  22. 22.

    (Hrab 2003a, b), Shah, Anwar (see p. 139 in [67]).

  23. 23.

    Contract information Bulletin: www.usaid.gov/business/business_opportunities/cib/pdf/cib91_18.pdf, Accessed on: 06.04.2010.

  24. 24.

    VOB/A §9 (2): The contractor is not allowed to be imposed with any abnormal risk of circumstances and incidents on which he has no influence and where he cannot estimate their effect on price and terms (Source: Zimmermann, Josef (see p. 13 in [83]).

  25. 25.

    OBB: PPP zur Realisierung öffentlicher Baumassnahmen in Bayern, Teil 3, München 2006 (see p. 13 in [78]).

  26. 26.

    Based on Kohl, Bernhard (see p. 27 in [89]).

  27. 27.

    Based on (see p. 27 in [90]).

  28. 28.

    Based on Construction and Plant directive 2004718/EC, Article 30(1) (b): Zimmermann, Josef: Script for lecture “Project Delivery Systems”, Lehrstuhl für Bauprozessmanagement der TU München, Ausgabe 01/2009, p. 27.

  29. 29.

    Based on Konkurrencestyrelsen: Bilag 9 – reglerne for anvendelse af udbud efter forhandling, www.ks.dk, Accessed on 09.12.2007: Zimmermann, Josef (see p. 28 in [83]).

  30. 30.

    Based on Sect. 3.5, the respective references are presented at the end of this chapter.

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  1. Institution of Engineering Civil Engineering/Transportaion, Tribhuvan University, Kathmandu, Nepal

    Ashish Gajurel

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Gajurel, A. (2014). Performance-Based Contracts (PBC). In: Performance-Based Contracts for Road Projects. Springer, New Delhi. https://doi.org/10.1007/978-81-322-1302-4_3

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