sou · H0B339d4 · 2012-06-14 00:00:00 — Using modern, interchangeable and intelligent equipment Use of GPS and ICT systems (for quality and efficiency) Fewer restrictions (client added administration and practices) Identification of non-planned work (and additional work) Flexible payment plans versus monthly payments (expedite work) Encouraging innovation (difficult in practice without a reward scheme) Developing a past performance rating system Stipulation of in-house work performed by the main contractor (e.g. ~25%.) Healthy/Functional Market It is very important to have a healthy/functional market of maintenance service providers, because a monopoly is not desired as was done in the past when performed in-house by the client organizations. There must be open head-to-head competition among the service providers and it should be a healthy or functional market. The road maintenance market in many countries is considered an oligopoly and in Lodenius et al. (2010) there are typically on average about 3–5 bidders for maintenance contracts. Since maintenance services are required on a cyclic basis, it is important to maintain a healthy market and in the future. This should be studied on an ongoing basis and there is a need to re-evaluate the market of maintenance contractors. The main factors influencing productivity in the PBSA are the performance based approach, long-term agreements, bundling of activities, larger area contracts, providing flexibility for long lead items (preservation systems), including incentives and disincentives, measuring the contractors performance, balancing the risks, and newer high-tech equipment. These factors all have the greatest influence, but again it is not known how much each factor influences the overall productivity. asset management is another important challenging issue. This assumes that you have automated tools and systems for decision making. Collecting the asset condition data is important as well as the ability to use the data to make good and pro-active decisions. One of the challenges is to predict or estimate time to failure of the assets. The purpose of maintenance is extending the service life to its functional limits, which can be very difficult to determine in advance. This in essence requires good asset management practices and having systems that measures the asset conditions, so that the maintenance services are efficiently and effectively delivered. It would be beneficial to have a Life Cycle Costing (LCC) system utilized. Asset management systems are important and may be take time, resources, and re-engineering. The benefits and return on investment often take time to be rewarded. Other factors that were discussed in the interviews include the use of modern and ICT systems, fewer restrictions, standardization broadly applied, good project management, partnering, identification of non-planned work (additional work and long-led items), flexible payment plans versus monthly payments (expedite work), encouraging innovation (difficult in practice without a reward scheme), developing a past performance rating system, and stipulation of in-house work performed by the main contractor. Also, the use of incentives and disincentives often led to productivity gains, but very few have used these concepts. It is difficult to use a reward scheme in maintenance contracts, possibly due to the lack of objective measuring schemes. It is also more difficult to implement incentives and disincentives mainly due to the budget restrictions, difficulty to measure, and what rewards drive the correct behavior in productivity gains. Since there is no systematic evaluation, it is difficult to determine which aspects have the greatest influence toward productivity. Most contracts were implemented using many of these factors, so it is virtually impossible to determine a quantitative value from each variable. Factors in Procurement that Potentially Influence Productivity The factors influencing productivity in general were described in the previous section and many of these can be used in procurement practices. Some countries are experiencing more cost savings (some form of productivity gains) than others which can be partially explained by the differences in the implementation practices. For those countries that have been outsourcing via PBSA for many years, the savings may eventually diminish and prices will probably increase at some point. Since the costs are lower, there has been some form of productivity increases. However, it is difficult to quantitatively measure the causes of productivity gains. Obviously, competition has resulted in productivity gains and using per- formance-based contracting. Many of the productivity increases were due to less staffing resources needed to meet the desired quality standards. That means the limited resources have positively affected productivity. It also does matter how the implementation of PBSA is developed in each country and what practices are utilized. It is important to establish and maintain a healthy/functional maintenance industry for these services, because they will also be needed in the future. Box 13 shows those factors that can be used in the procurement process for potentially influencing the productivity. Factors in PBSA that Potentially Influence Productivity Head to head competition (healthy market) Longer term contracts (greater than five years) Increasing the length of areas (economies of scale) Bundling of activities (economies of scope) integrated services helps increase productivity (like resurfacing) Risks clearly defined in contract (consider a sliding scale) Incentives and disincentives (if possible/practical) Measuring the performance of the service providers Flexible payment plans versus monthly payments (expedite work) Encouraging innovation (difficult in practice without a reward measurement scheme) Stipulation of in-house work performed by main contractor (e.g. ~25% minimum) These were already discussed in the previous section and the most important aspects are the performance based approach, long-term agreements, larger area contracts, bundling of activities, providing flexibility for long lead items (preservation systems), measuring the contractors performance, balancing the risks, and newer hightech equipment. These factors have the greatest impact. There are also factors that contributed to a productivity decrease, which could be due to additional requirements in administration or management. These factors that potentially decrease productivity are shown in Box 12. General that Potentially Decrease Productivity Cultural change required in the client agencies; internal resistance Prices are being squeezed and less additional work included for compensation Restrictive requirements on the use of certain equipment and materials Inability to accept proposed innovations (possibly proprietary) Additional requirements placed upon the contractor (e.g. requiring several project managers) Lack of skilled workforce Not maximizing the usage of labor and equipment Extra work required to add data into (), and the need for better integration of these web based systems A stove-piped or traditional culture exists in many client organizations and sometimes within the construction industry. There is a long standing history of doing things a certain way and often requires change management principles to overcome. This also applies to contractors, but is more noticeable in client organizations. Many countries still resist the notion of outsourcing maintenance services to the private sector and rely on in-workers to perform the services. This traditional approach is challenging to breakup and requires a paradigm shift. Outsourcing on the other hand requires a functional market and a shift of being the service provider to being a of the maintenance services. There is significant pressure to reduce the prices for maintenance services, and governmental authorities typically apply budget cuts to maintenance as a first choice. This is not a wise decision as it is important to keep the existing assets in good condition. potentially have a negative effect if maintenance is withheld and there is a continuing backlog of assets to be repaired. Many countries are in their second or third generation of contracts and it is difficult to find further reductions to prices. in has now gone forward to 10-13 year contracts that include resurfacing in an attempt to reduce yearly budgets. It remains to be seen where future price reductions can be achieved and how this influences productivity. There are some restrictions with the use of wider snow plows and other material substitutions that contractors would like to use. Some clients are restricting their use and not allowing innovations in a general sense. This could potentially stifle productivity and innovations. Other factors that potentially reduce productivity include more administration in the sense of additional project managers required in the contracts, a shortage of skilled workers in some instances, not maximizing the use of equipment and labor, and the potential of additional work by adding data into two maintenance management systems owned by the contractors and clients. Placing maintenance in open competition is the main productivity impact, but it needs to be done properly and opening the market is a key challenge. In todays world, there is typically a market available for maintenance services. PBSA seem to be the most appropriate contract type and using a hybrid type model that contains mostly performance measures, with the remaining being method-based requirements. The contract duration can be five years or longer, using as many services and being on a large scale as possible. Risks need to be described and allocated properly to improve transparency. Perhaps a sliding scale risk scheme might be a logical consideration, when there are not enough robust performance measures. Risks need to balanced or equitable, or they might influence the contract prices. uses a customer service and lower salt usage incentive in the contract. These can be considered quite innovative as there are not many countries using incentives and disincentives. Many countries have the capability to measure the performance of the maintenance contractors through the performance measuring regimes provided in the MSS or asset management systems. So if the performance is good, the productivity should increase to some degree; and if the performance is lower, then the reverse occurs. The asset management system or MSS is a tool to measure the response times, input asset conditions, and other miscellaneous information. Some functions are automated as the data is captured in real time and though automated systems, but much of the data is done by observations and human inspections. Asset management systems are important and may be take time, resources, and reengineering. The benefits and return on investment often take time to be rewarded. Encouraging innovation is important and rewarding seems to be a second thought. Contractors will typically use innovation to their advantage if it produces lower costs or better efficiency. Maintenance budgets typically do not have any additional funds to reward innovations and may be a mute issue. However, rewarding innovation can be beneficial, but may not necessarily increase productivity, unless there are significant output gains. Finding the best PBSA contract usually takes time and needs determination of what works best in your own culture. It requires a cultural change from all participants and a savvy client organization to create a new market for maintenance. Reengineering the practices and continued benchmarking can provide a successful journey. The productivity in maintenance contracts is difficult to influence, but providing the correct framework in PBSA, may increase the successful outcomes. Table 3 shows a summary of PBSA contracts used in each country. The common trends appear that the contract duration is increasing, the contract awards are moving toward lowest conforming price, includes a certain amount of fixed work (for possibly summertime), and seems that a hybrid type model is preferred. The interviews did not reveal any quantitative productivity measurements applicable to the maintenance contractors. However, there may be some indicators that resemble some indicators that resemble some productivity achievements or factors related to productivity, efficiency or performance. It is possible to have qualitative indicators or (KPIs). A possible consideration of an overall indicator of maintenance might be cost per kilometer (/km). This may not be a balanced measure, but can serve as a general guideline. If costs have decreased, then some aspect of productivity occurred, even if it cannot be traced to an exact source. Road agencies have collected maintenance costs that are often reported as cost per kilometer; but there are too many variables to conclude that unit prices are a proper way to compare, even if the assets are homogenous. For example, replacing a 20-inch drainage pipe that is imbedded in concrete versus the same size pipe running along the roadway can have drastically different maintenance prices. This is similar to other assets and highlights the difficulty when comparing unit prices. Also, most contractors are able to transfer costs across various maintenance categories, which further complicates the calculations. Some of these potential KPIs are included in Box 14. Some are very difficult to measure, if at all, and are quite subjective. Potential KPIs in Maintenance Customer satisfaction (difficult to measure and very subjecttive) Safety (amount of accidents attributed to maintenance) Traffic performance during maintenance activities or mobility Quality (subjectively and difficult to measure) Asset group condition ratings (, asphalt and roadside for the entire network) Some countries are able to measure the performance of maintenance contractors through a performance measurement system. Project interviewees were asked if there are any indicators that might represent some relationship to productivity, but the closest productivity indicator is to measure the performance of the contractors. It is very difficult to objectively correlate any indicators of productivity, but overall cost may be the best measure. Other potential KPIs suggested include safety, quality, a customer complaint system, asset condition group ratings, and customer satisfaction. Most countries in this study have benefited from PBSA and have experienced other general issues when outsourcing to the private market. There may be some hidden factors that are not known by all, but come with experience and moving forward. There were other findings not specifically related to procurement or productivity measures. Some are general in nature while others are indirect and may not have an effect on or correlation with productivity. These other issues are presented in Box 15. Most contracts are Hybrid type contracts Most performance requirements are time and response Most performance measures are pass/fail systems with disincentives applied Many countries have now progressed to Lowest Price Conforming Tender (LPCT) General tendency to reduce contractors risks (byproduct is more bidders) Most countries use some form of price for inflation and price increases Most contracts include small improvements at a fixed cost A few countries are including more periodic activities in the contracts (assists balancing summer and workloads) Innovations were not as expected and mainly ICT, GPS and equipment innovations A few countries are using a sliding scale risk, for example: salt usage due to shortages Labor rates and market prices may affect productivity and costs Cost certainty is lacking (mainly known by the contractors) Other issues noted is the trend towards a hybrid model where they are not performance based. There are a majority of performance requirements, but some are method or technically based mainly because of risks, market reaction, or simply not knowing the consequences. Time and Response Measures Most countries are using time and response in their performance measurement regime and typically use a pass or fail system. Some other countries not in the study are using a performance scorecard that measures the actual performance rating of a contractor in various asset groups. This requires more resources to measure the performance and provides more information on how good or bad the performance has actually been. Lowest Price Conforming Tender (LPCT) In most PBSA the prices also trend toward the Lowest Price Conforming Tender (LPCT), which means that there is a certain threshold that must be achieved and then the lowest price offer wins the competition. Since most contracts are about five years or longer, there is a cost or price index used in the contracts. Risks are a significant part of the PBSA and it is wise to know what causes risks to increase or decrease, as contractors will bid them in the contract. In order to achieve lower prices, there is a tendency to reduce the risks for the contractors. One clever idea is to develop a sliding scale risk for those difficult and challenging performance measures. A byproduct of lowering risks also attracts more bidders and market entry. Most contracts include some form of price indexing to take into account inflation or increased prices. These indexes vary from country to country as the cultures are different. The main intent is to use an index or system that represents true increases beyond the control of contractors. One example is fuel prices, which fluctuate from year to year. Most maintenance contracts also include a provision for small improvements included in the PBSA. This means that some small projects can be added into the scope of the maintenance contract. These are typically included as an upset price in the main PBSA contract as potential extra work, up to a certain monetary threshold. Also, road resurfacing is included in some PBSA and others have some periodic maintenance activities into the contract. These are usually in the form of unit or fixed prices. Most PBSA were expecting significant innovations. However, they have not been quite as expected. Most innovations have been in the form of equipment and ICT innovations. Also, the project management has seen improvements and the ability to manage resources effectively. There have been resent harsh that have resulted in shortages of salt for de-icing of the road surfaces. Prices were on the order of three to five times more expensive than normally. By including a sliding scale risk, it results in a more equitable sharing of risks that may not have been envisioned. This goes hand-in-hand with having equitable risk sharing. Since most PBSA are outsourced, it is important to follow the market prices and verify that VfM is achieved. Most countries are having between three to six bidders on average, with the exception of in , which is receiving more bidders compared to other countries. A healthy/functional market is vital to the success, and market prices should be studied on a systematic basis. Most PBSA are lump sum or fixed price contracts. Some clients are under pressure to know the cost of different services or activities and have certainty of costs. It is difficult to obtain cost certainty from each individual maintenance activity under preset conditions. Even though there are unit prices stipulated in the contract, the client is unable to determine cost certainty of the services provided. This may or may not be a significant issue as costs per kilometer provides an overall indicator. It may be an issue if cost certainty of individual items or activities are desired, which may require further changes to the reporting requirements. When developing maintenance contracting practices or PBSA it is important to consider the lessons learned from other agencies and especially internationally, since the developments have been global and progressed further in certain countries. It is wise to study the practices and challenges from others, because PBSA are not a traditional contracting method. A collection of lessons learned from maintenance contracting is presented in Box 16. This is not an exhaustive list, but provides a broad perspective. Lessons Learned in PBSA Productivity is not measured in maintenance Competition is the main factor to increase productivity Sustaining a healthy/functional private sector market is very important Changing the internal culture and practices is difficult – PBSA is a different approach How to open the market for services is important - it takes time to change the culture Using a performance-based approach, as much as possible Hybrid PBSA are perfectly acceptable Risks and a sliding scale risk, should be balanced Longer term contracts are better (greater than 5 years) Consider bundling of activities (economies of scope) Larger area contracts are better (economies of scale) flexibility and less restrictions, and include small improvements at a fixed cost Many countries have now progressed to Lowest Price Conforming Tender (LPCT) Measuring the performance of the service providers (cost and contract management) Use factors that drive the correct behavior – disincentives and incentives (if possible) Good project management is needed from both the client and contractor Formal or informal partnering is essential Most performance measures are pass/fail system with disincentives applied Most performance measures are time & response Contractor should collect the condition assessment data on a regular basis interactive and interoperable MMS and ICT system as they have great potential for focusing resources and tracking performance (relates to pro-active asset management) Using modern, interchangeable and intelligent equipment Cost certainty at the micro-level is being lost in PBSA New innovations are desired, but clients at times, have difficulty accepting Standardization broadly applied (in contracts and practices) Cooperation with the private market via forums, meetings & other cooperative efforts Requires good leadership in client organization Simultaneously using several models for differing circumstances (rural versus urban) Consider alternative payment schemes to match pro-active asset management practices Consider contractor past performance rating system or approved contractor listing Possibly considering some corridor based contracts (this needs to be tested by VfM) Not maximizing the usage of labor and equipment Lack of skilled workforce Stipulation of in-house work performed by main contractor (e.g. ~25% minimum) 5.T-Rex Case Study Example One highly successful and visible Design-Build project is called the T-Rex project that was built in , in the . This project was procured by () in 2001. This project is a multimodal project consisting of completing 17 miles of interstate highways and 19 miles of a new light rail system. T-REX was also part of the FHWAs Highways for LIFE program designed to achieve safer and better highways as well as faster and more cost effective project delivery. The existing highway was a heavily congested, rapidly growing business corridor with a daily average traffic volume of over 160 000. T-Rexs is actually a mega-project originally slated to be fully operational by 2008, using the tradition project delivery method. The use of Design-Build model with value provided the contractor to complete the project approximately 22 months ahead of schedule in the fall of 2006. Managers and engineers used a traffic management system with sensors and a comprehensive web site () to keep the public informed about the progress of the project. The project incorporates several systems that are according to the state- of-the-art: traffic monitoring, control, and information systems.