Performance-Based Contracts (PBC)

  • Ashish Gajurel


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.


Private Sector Damage Characteristic Road Maintenance Road Project Risk Allocation 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


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Copyright information

© Springer India 2014

Authors and Affiliations

  • Ashish Gajurel
    • 1
  1. 1.Institution of Engineering Civil Engineering/TransportaionTribhuvan UniversityKathmanduNepal

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