Pekka Pakkala TRB Executive Workshop - April 27 2005 – Edited Version
PERFORMANCE-BASED CONTRACTS -INTERNATIONAL EXPERIENCES
FINNISH ROAD ADMINISTRATION
PEKKA PAKKALA
TRB Executive Workshop - April 27 2005
Pekka Pakkala TRB Executive Workshop - April 27 2005 – Edited Version
PRESENTATION OVERVIEW
DRIVERS & GOALSBRIEF HISTORY & DEVELOPMENTBASIC MAINTENANCE MODELSCONTRACT ISSUESINTERNATIONAL DIFFERENCESPERFORMANCE MEASURESRESULTS & TRENDSKEY ISSUES & SUMMARY CONCLUSIONS
Pekka Pakkala TRB Executive Workshop - April 27 2005 – Edited Version
DRIVERS & GOALS
Reduction in Prices 10-40%Usually Decided at High Gov't LevelsStaying In Core Business - Road ManagementCommit to Maintenance & Pavement PreservationCrisis - Governmental Costs & Taxes Demonstrate Efficiency & PerformanceBetter Service Levels in Most ScenariosEfficiency & Customer Based Focus
Pekka Pakkala TRB Executive Workshop - April 27 2005 – Edited Version
Development Steps of Finnra
Present Client/Producer Model
OWN WORK
BALANCINGWORK LOAD
COSTEFFICIENCY
COMPETITION STUDIES
TO OPEN COMPETITION
Authority Org.DesignConstructionMaintenanceInternal Services
RWA CLIENT-AUTHORITYORGANIZATION
STATE OWNEDPRODUCTIONENTERPRISE
OTHER PRODUCERS
RWAMinor worksby privatecontractors,Balancing own workload by private contractorsMinor purchaseson open market
RWAComparing own prices tocontractorprices, search for effectiveoperations
Increasing purchases on open market
RWASubmitting own work to competition in minor scale Tendering own work to external market.Increasing purchases on open market
RWAInternal Separation of Client & Production.
Negotiated Contracts & Selective Open competition
1960-decade1950-decade 1970-decade 1980-decade 1990-decade Jan. 2001(4 Year Phased In Period to Jan. 2005)
Pekka Pakkala TRB Executive Workshop - April 27 2005 – Edited Version
HISTORY & DEVELOPMENT
1960s - 80s - Some attributes ordered via contractsScandinavia - Mainly Winter MaintenanceEarly 1990s - Increased purchases via contracts1990s - 3 Year Routine Maintenance ContractsLater 1990s - Long-Term Performance BasedTerminology
Performance Specified Maintenance ContractsAsset Management ContractsLong-Term Maintenance ContractsArea Maintenance ContractsPerformance-Based ContractsTerm Network Contracts (Down Under)
Pekka Pakkala TRB Executive Workshop - April 27 2005 – Edited Version
DIFFERING MODELS
Routine Maintenance
Routine, Periodic & Rehabilitation
Routine Maintenance-PLUSWinter MaintenanceSummer MaintenanceDrainageCracks, PotholesCleaningRoutine Gravel Road UpkeepVegetation & TrashShoulder RepairBridge Cleaning
Resurfacing & Line MarkingIncluding Small Capital ProjectsSigns & Traffic SignalsPavement RehabilitationEmergency ResponseAsset/corridor management Guard Rail Repair/ReplaceLighting
Pekka Pakkala TRB Executive Workshop - April 27 2005 – Edited Version
CONTRACT ISSUES
Contract Types:Lump SumUnit PricesHybrid or CombinationBeginning to look at risk sharing
Selection Criteria Not Low Bid (Sweden & Norway - maybe Ontario 90%?)Best Value - England, Australia, New Zealand, Finland, USA, British Columbia, Holland & EstoniaIssues;
Competency & Quality Control Plans (Contractor Led)Measuring Resources & Ability to Perform
Pekka Pakkala TRB Executive Workshop - April 27 2005 – Edited Version
INTERNATIONAL DIFFERENCES
Budget Priority
Scandinavia & Some EU Countries & Down UnderWinter Maintenance First (Safety Issue)Routine MaintenancePreventative MaintenanceLeft Over - Capital Projects
Cultural DifferencesAll Services or Routine MaintenanceUsing a Consultant Adviser to Direct Contractor?
Pekka Pakkala TRB Executive Workshop - April 27 2005 – Edited Version
Comparison of Maintenance Contracts
Mostly all except Resurfacing & Rehabilitation
98% Price2% Other
New Winter Maintenance
Payment
3-6 YearsOutput & Performance
Based
Sweden
Mostly all except Resurfacing & Rehabilitation
100% PriceLump Sum(Some Unit
Prices)
4-6 YearsOutput & Performance
Based
Norway
Mostly all except Resurfacing & Rehabilitation
75% Price25% Other
Lump Sum(Some Unit
Prices)
3, 5 & 7Years
Output & Performance
Based
Finland
Mostly all exceptResurfacing & Rehabilitation
70-80% Price20-30% Other
Lump Sum(Some Unit
Prices)
5Years
Output & Performance
Based
Estonia
Mostly all exceptResurfacing & Rehabilitation
90% Price10% Other
Lump Sum9 Years(New – 7+2)
Output & Performance
Based
Ontario, Canada
Mostly all exceptResurfacing & Rehabilitation
40% Price60% Other
Lump Sum8 YearsOutput & Performance
Based
British Columbia, Canada
Mostly all exceptResurfacing & Rehabilitation
78% Price22% Other
Unit Price5 YearsOutputBased
Alberta, Canada
ActivitiesIncluded
Contractor Selection Criteria
Contract Method
Contract Duration
Type of Contract
Source: Pekka Pakkala - Finnra
Pekka Pakkala TRB Executive Workshop - April 27 2005 – Edited Version
Comparison of Maintenance Contracts
ALL exceptResurfacing & Rehabilitation
50% Price50% Other &(Negotiated)
Lump Sum7 Years(7+7)
Performance Based
USA(FL)
ALL exceptRehabilitation
50% Price50% Other &(Negotiated)
Lump Sum5 Years(5+5)
Performance Based
USA(VA)
ALLQuality Price Trade Off (QPTO)
Lump Sum10 YearsPerformance Based
New Zealand
ALL30-40% Price60-70% Other
Lump Sum7 YearsPerformance Based
(eMAC)
England
ALL50% Price50% Other (Varies with
Territory)
Lump Sum10 YearsPerformance Based
AustraliaSydney, WA & Tasmania
ActivitiesIncluded
Contractor Selection Criteria
Contract Method
Contract Duration
Type of Contract
Source: Pekka Pakkala - Finnra
Pekka Pakkala TRB Executive Workshop - April 27 2005 – Edited Version
PERFORMANCE - BASED MEASURES
PAVEMENTSRoughness (IRI)Skid Resistance (Never a Problem In Summer - Due to Studded tires)Rutting (Biggest problems in Finland on paved roads)Deflection (Structural Condition/Residual Pavement Life)Texture & Cracking
OTHERSLevel of Service (Via Pictures) ==> Guard Rail, Trash, Drainage, & etc. Some Illumination criteria developing for Signs & Road Markings
WINTER MAINTENANCEActive plowing 2 hours after snow fall (Max 4 cm of snow) Less than 1 cm after snow stops and # of hours (1st Class Roads)Skid resistance greater than 0.3
Usually Time & Response Criteria at Output Level
Pekka Pakkala TRB Executive Workshop - April 27 2005 – Edited Version
WINTER ROAD PERFORMANCE - BASED MEASURES
II
Ib
IIs
III
Pekka Pakkala TRB Executive Workshop - April 27 2005 – Edited Version
PERFORMANCE - BASED MEASURES
GOOD VERY GOOD
SATISFACTORY
PASSABLEPOOR
Pekka Pakkala TRB Executive Workshop - April 27 2005 – Edited Version
PERFORMANCE - BASED MEASURES
GOOD VERY GOOD
SATISFACTORY
PASSABLEPOOR
Pekka Pakkala TRB Executive Workshop - April 27 2005 – Edited Version
MEASURING PERFORMANCE
(Visual)
Pavements
(PMS) (Visual)
Winter MaintenanceGuard Rail
Line Marking
Lighting, Signs & Signals
Bridges(BMS) (Visual) (Visual)
Tunnels(TMS) (Visual) (Visual)(TMS) (Visual)
CleaningTunnels Drainage
Gravel Road
(Visual)
Vegetation & Trash (Visual)
Cracks & Potholes(Visual)
Pekka Pakkala TRB Executive Workshop - April 27 2005 – Edited Version
International Lessons Learned
InputDriven
OutputDriven
OutcomeDriven
Own Forces
PSMC Alliancing
Financing
Separate Consulting &Physical WorksContracts“Conventionalcontracts”
Hybrid
• Innovation• Contract Duration• Flexibility• Contractor Risks• Productivity• Cost Savings
Source: Opus Int.
Pekka Pakkala TRB Executive Workshop - April 27 2005 – Edited Version
TRENDS
More Outsourcing By Countries - Recently Norway (Baltic Countries; Switzerland, & Other European Countries Interested)Beginning With 3 Year Contracts Rumors that British Columbia - 10 Years Contracts?Pavement Preservation Technology & Modeling (Finland is using more "Road Doctor" Technology)Contracts are moving to 7 year duration & Performance-BasedHolding - No new 10 year, Fully Integrated Contracts (eMACshave been the closest - England)
Pekka Pakkala TRB Executive Workshop - April 27 2005 – Edited Version
KEY ISSUES - 5Cs
COMPETENCECOMPETITIONCOST SAVINGSCOMMUNICATION & TRUSTCORRECT BALANCE of RISKS
Pekka Pakkala TRB Executive Workshop - April 27 2005 – Edited Version
KEY REQUIREMENTS
Robust & good data of existing road network assets and what are the present costs at existing levels of serviceGood funding stream for maintenance - if funding continues to decline then the costs for repair tend to escalate Requires expertise, good tendering practices, and clear & concise contract language. It is difficult to write all conditions in the contract Having common standards & performance measures Champions among the client and service providersPartnering or partnering board Head to head competition among service providersGood communications & sharing knowledge with all parties
Pekka Pakkala TRB Executive Workshop - April 27 2005 – Edited Version
CONCLUSIONS
Performance-based maintenance contracts is a good road management practice & is aligned with good Pavement Preservation practicesMaintenance contracting provides savingsCannot fix a major capital investment via maintenance contractingIt may be wise to have a deliberate process and progression to long-term performance based contracts - is there an appetite for maintenance in the private sector.May start with routine maintenance contracts - it is not that complicated
Pekka Pakkala TRB Executive Workshop - April 27 2005 – Edited Version
FINLAND MODEL & STRATEGY
Pekka Pakkala TRB Executive Workshop - April 27 2005 – Edited Version
PRESENT SITUATION - 2006
DESIGN &PLANNING
100% OUTSOURCED
CONSTRUCTION AND REHABILITATION IN 2001-2002
100% OUTSOURCED
MAINTENANCE(3,5 & 7 YEAR DURATION -75% Price - 25% Technical)
100% OUTSOURCED
Pekka Pakkala TRB Executive Workshop - April 27 2005 – Edited Version
FINNISH MODEL
Separate Contracts(Periodic Maintenance)
Routine Maintenance3, 5 & 7 Years
Winter MaintenanceSummer MaintenanceDrainageCracks, PotholesCleaningGravel Road CareVegetation & TrashShoulder RepairBridge CleaningGraffiti CleaningGuard Rail Repair/ReplaceEmergency ResponseNew - Including Small Capital Projects
Resurfacing & OverlaysMajor Bridge RehabilitationLine MarkingsLighting
Pekka Pakkala TRB Executive Workshop - April 27 2005 – Edited Version
FINLAND COMPETITION RESULTS
Rakennusliike Karjaluoto Oy
Skanska Asphalt Oy
YIT Construction Oy
NCC InterAsphalt Oy
Tractor Construction Määttä Brothers Oy
Savon Kuljutus Oy
Finnish Road Enterprise
Pekka Pakkala TRB Executive Workshop - April 27 2005 – Edited Version
FINNISH RESULTS
Cost Savings ~ over 30% (40-50% based on Cost/km)78% Of Contracts Won By Finnish Road EnterpriseQuite Close Competition3-6 Proposals Per Contract AreaTransition from to Client - Producer Model was SuccessfulMarket is beginning to Mature Stipends to the Non-WinnersWhat's NEW!
Gravel Road Performance Specifications Being TestedCombinations of 3-5-7 Year AgreementsBonus - Reduced Salt Usage & Better Customer Service Pilot Stages - Separate Long-term Contracts for Line Markings, Bridges, & Pavement Resurfacing/Overlays
Pekka Pakkala TRB Executive Workshop - April 27 2005 – Edited Version
PRESENT CONTRACT DURATION
0
5
10
15
20
25
30
35
3 Years 5 Years 7 Years
Contract Duration
Quantity
Pekka Pakkala TRB Executive Workshop - April 27 2005 – Edited Version
MAINTENANCE CONTRACT DEVELOPMENT
Small Investments
Area RoutineMaintenance
Contracts
Increase Contract Length Integrated Performance Contracts
ving to Integrated Contracts
MoOther Periodic Maintenance & Improvements
Separate Maintenance Contracts
Pekka Pakkala TRB Executive Workshop - April 27 2005 – Edited Version
MAINTENANCE CONTRACT DEVELOPMENT
Area Contracts Integrated Performance Contracts
• 7-8 Years• (500) 1000-2000 km• Fully Integrated Client Services• Lump Sum • Outcome Based Criteria
• 3 Years• 500-1500 km• Broad Range of tasks• Hybrid - Lump Sum &
Unit Prices• Technical Criteria
Pekka Pakkala TRB Executive Workshop - April 27 2005 – Edited Version
Frost damage(Pilot tests)
3-5-7 yearswith 2 year optionsFrost damagerepairsRoad marking(Pilot tests)
3-5-7 years
Consolidating into larger areas
Include Road Markings?
3-5-7 yearsUnited largerareas ContentexpansionRoad markings ?
7-year contractsContend expands& includes small capital investment tasks
CURRENTAREA CONTRACTS
LONG-TERM PERFORMANCEMAINTENANCE CONTRACTS
DEVELOPMENTAL STAGES FOR AREA MAINTENANCE CONTRACTS
2002 2003 2004 2005 2006
