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 


  1. 1.
    Molenaar KR, Yakowenko G. Alternative project delivery, procurement, and contracting methods for highways. Reston: ASCE; 2007.Google Scholar
  2. 2.
    National Research Council (US), Committee for Oversight and Assessment of U.S. Department (2004) Process in improving project management at the department of energy. 2003 assessment. National Academy Press, Washington, DCGoogle Scholar
  3. 3.
    White B, Newcomer KE. Getting result: a guide for Federal leaders and managers. Vienna: Management Concepts; 2005.Google Scholar
  4. 4.
    Testa MF, Poertner J. Fostering accountability using evidence to guide and improve child welfare policy. New York: Oxford University Press; 2010.Google Scholar
  5. 5.
    Federal Facility Council, Standing Committee on Organization and Administration. Federal facilities beyond the 1990s: ensuring quality in an era of limited resources – summary of symposium. Washington, DC: National Academy Press; 1997.Google Scholar
  6. 6.
    Sidney S III, Konrath L. Performance based contracting: a viable contract option?, Summary of conference, U.S. and international approaches to performance measurement for transportation systems, conference proceedings 44, Washington, DC.Google Scholar
  7. 7.
    Cibinic, John. Performance-based contracting, guide. Washington, DC: US Department of Energy; 2000.Google Scholar
  8. 8.
    NCHRP Synthesis 389: performance-based contracting for maintenance. Washington, DC: Transportation Research Board Publication; 2009.Google Scholar
  9. 9.
    Parmenter D. Key performance indicators, developing, implementing, and using winning KPIs. Hoboken: Wiley; 2007.Google Scholar
  10. 10.
    Performance indicators for road sectors: summary of the field test. Paris: OECD; 2001.Google Scholar
  11. 11.
    Zietlow G. Cutting costs and improving quality through performance-based road management and maintenance contracts –Latin America and OECD experiences, Birmingham, April 2004.Google Scholar
  12. 12.
    Blokdijk G. Agreement 100 success secrets, SLA, service level agreements, service level management and much more. Australia: Emereo Pty Ltd; 2008.Google Scholar
  13. 13.
    Bangemann TO. Shared services in finance and accounting. Aldershot: Gower Publisher Ltd; 2005.Google Scholar
  14. 14.
    Atkin B, Brooke A. Total facilities management. Oxford: Blackwell; 2000.Google Scholar
  15. 15.
    Camarinha-Matos L, Paraskakis I. Leveraging knowledge for innovation in collaborative networks, Greece, October 2009.Google Scholar
  16. 16.
    Click RL, Duening TN. Business process outsourcing, the competitive advantage. Hoboken/Canada: Wiley; 2005.Google Scholar
  17. 17.
    Brown PC. Implementing SOA – total architecture in practice. Boston: Addison-Wesley; 2008.Google Scholar
  18. 18.
    Glavinich TE. Contractor’s guide to green building construction. Hoboken: Wiley; 2008.Google Scholar
  19. 19.
    NCHRP Report 428: Guidebook to highway contracting for innovation: the role of procurement and contracting approaches in facilitating the implementation of research findings, Washington, DC, 1999.Google Scholar
  20. 20.
    Cushman, RF, Cushman KM, Cook SB. Construction litigation: presenting the owner. USA: Asphen Publishers; 1990.Google Scholar
  21. 21.
    Stankevich N, Qureshi N, Queiroz C. Performance-based contracting for preservation and improvement of road assets. Washington, DC: The World Bank; September 2005 (updated August 2009).Google Scholar
  22. 22.
    Zimmermann J. Project delivery systems, lecture note in Lehrstuhl für Bauprozessmanagement und Immobilienentwicklung an der Technischen Universität Müncen, issue January 2009.Google Scholar
  23. 23.
    Performance based contracts: global transport knowledge partnership. Accessed 21 Mar 2010.
  24. 24.
    Stankevich N, Qureshi N, Queiroz C. Performance-based contracting for preservation and improvement of road assets. Washington, DC: The World Bank; September 2005 (updated August 2009).Google Scholar
  25. 25.
    Burningham S, Stankevich N. Why road maintenance is important and how to get it done, The World Bank Document, TRN-4, June 2005.Google Scholar
  26. 26.
    The Glossary of Federal Technology. Accessed 31 May 2010.
  27. 27.
    Zietlow G. Implementing performance-based road management and maintenance contracts in developing countries – an instrument of German technical cooperation, Eschborn, November 2004.Google Scholar
  28. 28.
    Pakkala P. Performance-based contracts – international experiences, Finnish Road Administration, Presentation at the TRB workshop on performance-based contracting, Washington, DC, April 2005.Google Scholar
  29. 29.
    ADB: Performance – based maintenance by contracts, Supplementary Appendix A, P.1. Accessed 24 Apr 2010.
  30. 30.
    Uthus L. The perfect performance based contract – how should it be?. Accessed 31 May 2010.
  31. 31.
    Shrestha HR. Sustainable approach to road transport maintenance practice for effective service delivery. Policy paper 24, Kathmandu. September 2006.Google Scholar
  32. 32.
    Procurement of performance-based management and maintenance of roads (Output-based service contract). The World Bank report, Revised March 2003.Google Scholar
  33. 33.
    Brian C, Fekpe E, Gopalakrishna D. An evaluation of the use of innovative performance specification in highway construction: final report, Washington, DC, February 2003.Google Scholar
  34. 34.
    Forsthoffer W. Reliability optimization through component condition monitoring and root cause analysis. Oxford: Elsevier; 2005.Google Scholar
  35. 35.
    Zietsman J. Performance measure for performance based maintenance contracts, research of Texas Department of Transportation. edition/cases-and-pdfs/ZietsmanTexas.pdf.pdf. Accessed 10 Apr 2010.Google Scholar
  36. 36.
    Procurement of performance-based management and maintenance of roads. Washington, DC: The World Bank. February 2002.Google Scholar
  37. 37.
    Schmerbeck R. Pilotprojekte mit Funktionsbauvertragen – Vertragliche Sicherung der Oberflächeneigenschaften, München. Accessed 26 Mar 2010.
  38. 38.
    Pauli C. Schriftenreihe Bauwirtschaft – Tagungen und Berichte, IBW-Symposium, Innovative Abwicklungsformen für Bauprojekte: Partnering with PPP. Kassel, 2006.Google Scholar
  39. 39.
    Alfen HW, Leupold A. Offering new and integrating opportunities for the private sector, Public Private Partnerships (PPP) in the German Public Real Estate Sector. = 2242&articleid = 9378. Accessed 26 Mar 2010.
  40. 40.
    Beckers T. Die Realisierung von Projekten nach dem PPP-Ansatz bei Bundesfernstraßen, Dissertion, TU Berlin, Fakultät Wurtschaft & Management, Berlin, 2005.Google Scholar
  41. 41.
    Nösler I. Oberbaubemessung im Rahmen neuer Bauvertragsformen (Funktionsbauvertrag), Brüssel. Accessed 26 Mar 2010.
  42. 42.
    Güngerisch A. Neue Bau- und Beschaffungsverträge, USIC seminar, Bern, 15 October 2008.Google Scholar
  43. 43.
    Verdi: PPP in Strassenbereich, April 2007.Google Scholar
  44. 44.
    Racky P. Der Funktionsbauvertrag aus betriebswirtschaftlicher Sicht, VSVI – Seminar “Funktionsbauverträge”, Friedelberg, April 2010.Google Scholar
  45. 45.
    Eifert, H. Funktionsbauverträge – ein Modell der Zukunft? Köln, April 2004.Google Scholar
  46. 46.
    Racky P. PPP in Hessen – auch im Kommunalen Strassenbau?, Summary of the presentation, Hessen, March 2003.Google Scholar
  47. 47.
    Alfen Consult GmbH Weimer. PPP- Businessmodelle im Überblick, Weimar, March 2008.Google Scholar
  48. 48.
    Altmüller P. Schriftenreihe Bauwirtschaft – Tagungen und Berichte 6, Kassel, April 2009.Google Scholar
  49. 49.
    Schmerbeck, Löcherer. Vermerk Bundesautobahn A 93 Süd Rosenheim – Kiefersfelden AS Brannenburg – AS Kiefersfelden, Vermerk über die Erfahrungen bei der Vergabe und Bau, Autobahndirektion Südbayern, München, June 2008.Google Scholar
  50. 50.
    Nösler I. Pavement design in Rahmen neuer Bauvertragsformen, Brüssel, tis 10/2003.Google Scholar
  51. 51.
    Gerdes E. PPP-Ansätze für Fernstrasse, Dissertation an Universität Hamburg, Hamburg, Germany, December 2007.Google Scholar
  52. 52.
    Presentation of the Münchner Massivbau-Kolloquium Sommersemester 2009, München.Google Scholar
  53. 53.
    Wiederspahn M. Brückenbau: 10. Symposium Brückenbau in Leipzig, February 2010.Google Scholar
  54. 54.
    Beckers T, Hirschhausen CV, Klatt JP. Reformbedarf bei den Bundesstrassen und das potential des PPP-Ansatzes, Berlin, May 2009.Google Scholar
  55. 55.
    Ressel W. Universitaet Stuttgart, Kolloquium- Technische Absicherung des Regelwerks, Privatfinanzierter Strassenbau – Chancen und Risiken, Stuttgart, 2005.Google Scholar
  56. 56.
    Beckers T, Klatt JP. Zeitliche Homogenisierung und Berücksichtigung von Risiko im Rahmen von Wirtschaftlichkeitsuntersuchungen, Berlin, November 2009.Google Scholar
  57. 57.
    Heer N. Diplomarbeit Summary. Accessed 2 Apr 2010.
  58. 58.
    Schaefer S. Der Funktionsbauvertrag, Presentation11, Lehrstuhl Bauproyessmanagement und Immobilenentwicklung Technische Universitaet Muenchen, Munich, Germany, Ausgabe 02/2010.Google Scholar
  59. 59.
    Forschungsgesellschaft für Strassen – und Verkehrswesen, Arbeitsgruppe Fahrzeug und Fahrbahn: ZTV Funktion-StB 01, Koeln, 2001.Google Scholar
  60. 60.
    Dreher A. Pilotprojkte mit Funktionsbauvertraege – Erwartung der Strassenbauverwaltung, Koblenz, Mai 2003 (Strasse + Autobhan, 54 Jahrsgang).Google Scholar
  61. 61.
    Beckers T., Hirschhausen, CV., Klatt JP. Reformbedarf bei den Bundesstrassen und das potential des PPP-Ansatzes, Berlin, June 2006.Google Scholar
  62. 62.
    Ballati D. Privatizing governmental functions. New York: Law Journal Press; 2004.Google Scholar
  63. 63.
    Hodge G, Greve C. Public – private partnership, learning from international experience. Cheltenham: Edward Elgar; 2005.Google Scholar
  64. 64.
    Geddes M. Making public private partnerships works, building partnerships and understanding cultures. Aldershot/Burlington: Gower Publishing; 2005.Google Scholar
  65. 65.
    Alexander. Investor – Hochschule – Bauindustrie, Kolloquium 2006, Muenchen, under the topic PPP.Google Scholar
  66. 66.
    Yescombe ER. Public private partnerships, principles of policy and finance. Oxford: Butterworth-Heinemann; 2007.Google Scholar
  67. 67.
    Shah A. Public service delivery. Washington, DC: The World Bank Publication; 2005.Google Scholar
  68. 68.
    Asian Development Bank. Facilitating Public-Private Partnership for accelerated infrastructure development in India, Workshop report, India, December 2006.Google Scholar
  69. 69.
    Asian Development Bank. Public-Private Partnership handbook. Manila: Phillippines, 2008.Google Scholar
  70. 70.
    Robinson H, Carrilo P, Anumba C, Patel M. Governance and knowledge-management for public-private partnership. USA: John Wiley and Sons Publication; 2010.Google Scholar
  71. 71.
    Construction cost management; learning from case studies. Oxon/USA/Canada: Taylor & Francis; 2008.Google Scholar
  72. 72.
    Akintoye A, Beck M, Hardcastle C. Public-Private Partnership: managing risks and opportunities. New York: Wiley Publication; 2003.Google Scholar
  73. 73.
    Public Private Partnership (PPP) guideline: Public-Private Partnership Unit, Prime Minister Department, Putrajaya, Malaysia, 2009.Google Scholar
  74. 74.
    Blaiklock TM. Public – Private Partnership (“PPP”) – the advantages and limitations, Berne, January 2005.Google Scholar
  75. 75.
    Grimsey D, Lewis MK. Public Private Partnership, the worldwide revolution in infrastructure provision and project finance. Northampton: Edward Elgar; 2004.Google Scholar
  76. 76.
    IMF. Public Private Partnerships, government guarantees, and financial risks. Washington, DC: IMF; 2006.Google Scholar
  77. 77.
    Public Private Partnerships: an introduction, research paper no. 1 2002–2003, Department of the Parliamentary Library, Commonwealth of Australia, 2002.Google Scholar
  78. 78.
    Eggers WD, Startup T. Closing the infrastructure gap: the role of Public-Private Partnerships. New York: Deloitte Research; 2006.Google Scholar
  79. 79.
    Kerzner H. Project management – a system approach to planning, scheduling and controlling. USA: John Wiley and Sons Publication; 2009.Google Scholar
  80. 80.
    Grimsey D, Lewis MK. Evaluating the risks of Public Private Partnerships for infrastructure projects. Int J Project Manag. 2002. 20, 107–118.Google Scholar
  81. 81.
    Jordan A. Presentation of managing risks in PPP projects through legal documentation, Jordan, September 2007.Google Scholar
  82. 82.
    Ewers K. Assessing risk for health care IT organizations – a practical overview approach, February 2007.Google Scholar
  83. 83.
    Zimmermann J. Script for lecture “Schlüsselfertiges Bauen”, Lehrstuhl für Bauprozessmanagement der TU München, Ausgabe 10/2007Google Scholar
  84. 84.
    Seibert, Timlan. Presentation PPP – The European investment bank experience, Kyiv, March 2006.Google Scholar
  85. 85.
    OECD. Public-Private Partnerships: in pursuit of risks sharing and value of money. Paris: OECD; 2008.Google Scholar
  86. 86.
    HM Treasury. The green book. London: HM Treasury Publication; 2003.Google Scholar
  87. 87.
    OECD. Transport infrastructure investment: options for efficiency. Paris: OECD Publication; 2008.Google Scholar
  88. 88.
    Zimmermann J. Script for lecture “Project Delivery Systems”, Lehrstuhl für Bauprozessmanagement der TU München, Ausgabe 01/2009.Google Scholar
  89. 89.
    Kohl B. Interview, München 19.12.2007: Zimmermann J. Script for lecture “Project Delivery Systems”, Lehrstuhl für Bauprozessmanagement der TU München, Ausgabe 01/2009.Google Scholar
  90. 90.
    Reichle, M. Interview, München 19.12.2007: Zimmermann J. Script for lecture “Project Delivery Systems”, Lehrstuhl für Bauprozessmanagement der TU München, Ausgabe 01/2009.Google Scholar
  91. 91.
    Competitive dialogue procedures: Office of Government Commerce: guidance, London, January 2006.Google Scholar
  92. 92.
    Competitive dialogue: the EU’s new Procurement Procedures, Freshfields Bruckhaus Deringer, November 2005.Google Scholar

Copyright information

© Springer India 2014

Authors and Affiliations

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

Personalised recommendations