INTERNATIONAL TRENDS IN PROCUREMENT MODELS FOR HIGHWAY MAINTENANCE. Tony Porter BE (Civil) (Hons), FIPENZ, Opus International Consultants
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1 INTERNATIONAL TRENDS IN PROCUREMENT MODELS FOR HIGHWAY MAINTENANCE Ty Prter BE (Civil) (Hs), FIPENZ, Opus Iteratial Csultats ABSTRACT The authr is curretly ivlved with Opus Iteratial Csultat s term maiteace ctracts i New Zealad, Australia, Malaysia ad Eglad. He has als spet time i Nrth America lkig at the utsurcig f maiteace ctracts i Caada ad the Uited States. The paper draws the authr s experiece gaied i the maagemet f highway etwrks i these cutries t discuss the varius prcuremet mdels beig emplyed ad the treds i the way the wrk is specified. The tred twards utcme based ctracts is examied i particular. 1 INTRODUCTION There is a strg tred twards utsurcig f Highway Maiteace activites arud the wrld. The authr has recetly had the pprtuity t bserve this tred i New Zealad, Australia, Malaysia, Britai, ad Nrth America. It is evidet that as the Rad Ctrllig Authrities (RCAs) gai cfidece i the success f utsurced maiteace, the scpe f the wrk beig utsurced teds t be exteded. This has evlved t the pit where we are w seeig ctracts that ecmpass all aspects f etwrk maagemet beig let i a umber f cutries. These maiteace ctracts typically iclude witer maiteace, maagemet f emergecies (such as fldig), ad public relatis, i additi t fece t fece rutie maiteace f highway asset. The extet t which the develpmet ad implemetati f the Capital Wrks prgramme is icluded varies sigificatly. I additi t the pavemet, the assets maitaied withi these ctracts may iclude: Embakmets Tuels Slpes Retaiig structures Rest area facilities Sigs, icludig variable message sigs Emergecy telephes Waterways Culverts Bridges Lightig Guard-rails Feces Page 1
2 Iteratially there is still a wide variati i bth the way the wrk is specified ad the prcuremet mdels that are emplyed. RCAs i a umber f jurisdicti areas are mvig twards Australasia practices f drawig the varius cmpets tgether it a sigle ctract ad mvig frm specificati f the required iputs t specificati f the desired utcmes. This paper lks at this evluti prcess ad discusses sme f the treds that are emergig. This paper is based a paper give by the authr t the TRB Meetig i Washigt DC, Jauary THE EVOLUTION OF CONTRACT SPECIFICATIONS Dcumetati fr ctract maiteace is udergig ctiual develpmet. As RCAs have gaied cfidece i the lcal idustry, dcumets have bee evlvig frm iput-based t utput-based ad w icreasigly mvig t a fcus utcmes. Whe studyig the evluti f highway maiteace ctracts, the authr has fud it helpful t cvert the asset maagemet pyramid prpsed by McCaw 1 ad shw i Figure 1 it a value chai as shw i Figure 2. Whe varius ctract frms are pltted the value chai it becmes apparet that the chai itself frms a ctiuum that ca be used t illustrate the develpmet f maiteace specificatis. It is iterestig t te that a similar ctiuum exists fr capital wrks. Netwrk Level Key Success Factrs Lik Level Key Success Factrs Service Levels Iterveti Levels Wrk Istructis Physical wrk Figure 1 1 Persal Cmmuicati T Prter: A McCaw Radig Maager, Wester Bay f Plety Page 2
3 WHAT WHEN DESIRED OUTCOME Physical Wrk Activities Wrk Istructis Iterveti Criteria Levels f Service Lik Key Success Factrs Netwrk Key Success Factrs Figure 2 RCA Value Chai It is clear that Rad Ctrllig Authrities maiteace ctracts fall it three brad categries: (A) INPUT-DRIVEN CONTRACTS The first stage f utsurcig is usually based iput-based dcumets, which are fcussed prescribig exactly what is t be de by the Ctractr. The RCA prvides a detailed methd-based specificati (i.e.: Wrk Istructi) ad paymet is fr each idividual iput, i.e.: Labur is paid fr by the hur Plat is paid fr by the hur Materials are paid fr the quatity delivered t site These ctracts are kw variably arud the wrld as Direct Labur, Plat Hire r Day Wrks ctracts. Typically, separate ctracts are let fr each maiteace activity. At this stage f develpmet f the prcuremet mdel the Csultat iputs are usually prvided i-huse by the RCA. (B) OUTPUT-DRIVEN CONTRACTS As the agecies recgise the beefits f mvig their activities it a cmpetitive evirmet their dcumets ted t evlve ad begi t seek t defie the s they require the ctractr/csultat t prvide. The fcus f the dcumet becmes whe the wrk is t be de rather tha hw it is t be de. The prcuremet mdel chages t the Cvetial mdel ad the fcus f the dcumets is specifyig iterveti criteria ad defiig perfrmace stadards. The best f these dcumets allw the ctractr flexibility i the selecti f his methdlgy, but i a umber f areas a elemet f the RCAs methd-based philsphy remais. Paymet is based the tedered schedule f rates. Bth the New Zealad ad Eglish cvetial prcuremet mdels iclude a separate ctract fr all csultacy activities the etwrk ad require the csultat t fcus lg-term maagemet f the asset. The creati f a cmpetitive market fr etwrk csultacy activities, that ccurred i bth these cutries, has ehaced the level f egieerig beig applied t all aspects f highway maiteace ad has accelerated the itrducti f ew techlgy. The maagemet f Highway Maiteace has mved frm beig csidered a blue Page 3
4 cllar prfessi, t beig at the leadig edge i a select umber f csultig firms. This mve t iclude the asset maagemet (r prfessial services cmpet) has t emerged t ay extet i Nrth America. Uder this mdel a rage f separate activity-based ctracts fr the physical wrk is fte fud. I the majrity f cutries, the cvetial prcuremet mdel sees a wide rage f ctracts beig let ad maaged by the etwrk csultat behalf f the RCA. (C) OUTCOME-DRIVEN CONTRACTS I recet years a umber f RCAs (e.g.: Mai Rads Wester Australia, Tasmaia, Trasit New Zealad,) have develped specificatis that mve further acrss the value chai twards ly specifyig the desired utcmes ( Key Success Factrs ) ad required Levels f Service. The mst advaced f these ctracts d t iclude ay methd-based specificatis ad allw the Ctractr cmplete freedm i the methdlgy he chses. Uder this mdel paymet is by lump sum. I the Suther Hemisphere this is kw as the Perfrmace Specified Maiteace Ctracts mdel. The maer i which the utcmes are specified varies, but as a miimum mst RCAs defie target: Rughess prfiles, Texture prfiles, Surface skid resistace prfiles ad Ruttig prfiles, alg with Measures t access the residual surfacig life, Measures t access the residual pavemet life, Respse times i emergecies/adverse weather, Miimum levels f reflectivity fr sigs ad delieati markig, ad Miimum cditi prfiles fr strm water chaels ad structures, street furiture ad lightig. I rder t allw the ctractr full ctrl ver these utcmes, the scpe mst advaced prcuremet mdels is exteded t iclude pavemet rehabilitati, resurfacig ad mir safety wrk i additi t the traditial maiteace activities. A sigle ctract is let fr all ctractr ad asset maagemet iputs, prvidig the RCA with a sigle pit f ctact with its etwrk maager. Befre mvig t Outcme-based ctracts, it is essetial that the fllwig elemets be i place: Page 4
5 1. A rbust ivetry f the asset. This is essetial ad it is amazig hw may discrepacies are discvered whe the ivetry cmes uder the clse scrutiy f tederers! (Hwever, prvided the teder perid is sufficietly lg, ay discrepacies ca usually be reslved befre teders clse). 2. A gd uderstadig f the perfrmace f the asset ad the utcmes it is seekig, bth i terms f the day-t-day serviceability ad ay verall csumpti f the asset s value. Esurig that the verall cditi f the asset is preserved durig the term f the ctract is a sigificat issue, as these ctracts ted t be f a lger durati (7 14 years). 3. A uderstadig f the etwrk s risk prfile, s that equitable, sesible risk sharig ca be dcumeted. 4. Cfidece i the maiteace ctractig idustry. Typically these ctracts are fuded a strg parterig philsphy, s it is essetial that the parties start with cfidece i each ther s ability ad the will t c-perate. The ability t satisfy all these criteria fte limits a RCAs ability t mve as far acrss the value chai as they may wish. 3 DISCUSSION As ctract dcumets evlve acrss the value chai, the eed fr detailed methdlgy statemets ad wrk istructis is t remved. Rather they are mved frm the realm f the RCAs specificati t that f the Ctractr s Quality Assurace system. This allws the ctractr t mdify ad chage his methdlgy i respse t ew prducts ad techlgy, ad avids ay ihibitig bureaucracy that may exist i the RCA evirmet. It is apparet that as the ctract mves frm left t right acrss the ctiuum fr Iput t based ctracts, the ctractr takes icreasig respsibility fr the efficiecy f the maiteace activites. As the ctracts mve frm utput t utcme the ctractr assumes icreasig respsibility fr the effectiveess f his wrk. Figure 3 belw cmpares sme f the characteristics f the trasiti. Asset wer specifies State f develpmet Risk Sharig Reliace Asset Database Iput Labur Materials Schedule f rates Decrepit Ne Lw Mature Sme Medium Outcme Rughess Texture Skid resistace Yug Sigificat High Figure 3 Page 5
6 I the authrs experiece, the majrity f RCAs have a visi f evlvig twards utcme fcussed ctracts i the fulless f time. There is csiderable iterest i the te PSMC ctracts that have bee let i Australasia t date ad the lesss beig leared with this type f ctract. While there are a umber f plitical factrs that are ihibitig wider adpti f the full PSMC mdel viz: Ptetial Impact the existig Idustry (Ma ad Pa Ctractrs) Impact rural ecmies Fear abut the lss f ctrl f the asset Pressure frm uis Ccer that their idustry is ready, there is a clear wrld wide tred that sees ctract dcumetati evlvig acrss the ctiuum, albeit at a sigificatly differet rate. Figure 4 belw depicts where the authr perceives the ctracts he has studied lie the value chai. Malaysia Nrth Suth Expressway Bay Rads PBC Trasit New Zealad PSMC 002 Mai Rads Wester Australia UK Highway Agecy MAC Trasit N Z Hybrid Virgiia D O T Sctish Natial Rads Trasit NZ Cvetial 2001 Trasit NZ Cvetial 1995 Typical Caadia maiteace ctract UK Highway Agecy Area 7 Iput Outcme 4 TRENDS Figure 4 As ctracts evlve acrss the spectrum frm iput, t utput ad the t utcme, a umber f treds ca be bserved. Page 6
7 4.1 INNOVATION All agecies spke t reprt the itrducti f ivative measures as their ctracts has evlved acrss the value chai. The ivatis are restricted t ly t ew materials ad techlgy, but als iclude sigificat chages i maagemet methds emplyed the ctracts. The cmpetitive market alg with the quality-based selecti criteria that are used i may parts f the wrld drives a strg culture f ctiuus imprvemet it the Iput tederig rgaisatis which i tur drive the itrducti f ivative practices. 4.2 TERM OF CONTRACT I v a t i Ivati Separate Csultig & Physical Wrks Ctracts Ow Frces PSMC Cvetial }ctracts Outcme Fiacig It is usual t exted the term f the ctract as the fcus f the specificati mves acrss the value chai. Term f ctract Fiacig Iput-based ctracts are typically seasal ad are seldm lger tha a year i durati. The New Zealad ad British cvetial utput-based ctracts are f three t five years durati while the utcme-based PSMC ctracts i New Zealad ad Australia are fr a fixed term f 10 years. I the British Desig Build Fud Operate mdel the Iput Outcme ccessis are fr 30 years, as was the iitial ccessi fr the Malaysia Nrth Suth Expressway. The 100 year ccessi grated fr Trt s 407 is the lgest durati the authr is aware f. There is a tred twards quality-based extesis. I these mdels the ctract prvides fr a extesi f the ctract if the Ctractr achieves the pre-defied quality hurdles. I the authr s view this practice is t be cmmeded as it prvides very psitive icetives fr quality withi the ctract. T e r m Separate Csultig & Physical Wrks Ctracts Ow Frces PSMC } Cvetial ctracts 4.3 RISK ASSIGNED TO THE CONTRACTOR RCAs assig icreasig levels f risk t the ctractr as their dcumets evlve acrss the value chai. The cvetial New Zealad utput-based mdel requires the ctractr t warrat each idividual repair fr the term f the ctract i.e.: the first repair must last say 5 years, the last 1 day, s that the subsequet ctract is t cfuded by liability issues. The PSMC prcuremet C tr a c t r R i s k Risk carried by Ctractr Separate Csultig & Physical Wrks Ctracts Iput Ow Frces PSMC } Cvetial ctracts Outcme Fiacig Page 7
8 mdels assig a sigificat prprti f the risk assciated with parameters such as weather, traffic grwth ad lad istability t the ctractr. The bjective is t assig the risk t the party best suited t maage it. 4.4 COST SAVINGS It is difficult t quatify the extet f the cst savigs achieved thrugh utsurcig t the varius prcuremet mdels, as the specified level f service fte varies frm that prvided uder the previus regime. Hwever, all agecies reprt savigs ad fte express surprise at the savigs achieved i subsequet teder ruds. I New Zealad almst all agecies reprted savigs i each f the first three teder ruds, which exteded ver a perid f six years. Mai Rads Wester Australia has recetly mved frm a i-huse mdel t PSMC ctacts fr its etire etwrk. Early idicatis are that they will achieve savigs i the rder f 25%. This tred, which idicates that RCAs reduce their csts as they mve risk t the ctractr, may seem smewhat cuter-ituitive. Hwever the advatage gaied frm the simultaeus treds twards larger sized etwrks, lger term ctracts ad the chaged drivers that are embedded withi the ctract dcumet are ffsettig the added cst f risk. C s t S a v i g s RCA s Cst Savigs Separate Csultig & Physical Wrks Ctracts Iput Ow Frces PSMC Cvetial }ctracts Outcme Fiacig 5 CONCLUSIONS Wrldwide there is a bservable tred twards utsurced highway maagemet services. A umber f prcuremet mdels are emplyed. As RCAs gai experiece i utsurcig they are seekig t maximise the beefits by mvig t the utcmebased prcuremet mdels. These mdels: Give the RCA mre certai fiacial utcmes, Allw the RCA t trasfer apprpriate risk t the Ctractr, Ecurage ivati, ad Offer sigificat savigs ver traditial i-huse service delivery mdels. The authr is cviced that the beefits f utsurcig are maximised by mvig t a fully cmpetitive market usig a quality-based selecti prcess. Where legislati requires acceptace f the lwest bid, specifyig quality-based extesis ca prvide the apprpriate fcus quality Page 8
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