TCoP Brown Bag Presentation

27 June 2014

Almaz Galiev


Contracting Authority defines :

quality of work to be performed
quantity of work to be performed

Specification:

Procedural / Method / Cook-
book

Employers perspective :

requires close supervision of works
compliance with local procurement
practices and requirements

Contracting authority defines :

result to be achieved


Specification:

Functional / End-product /
Performance

Employers perspective :

does not require close supervision,
instead, regular validation of results
achieved


Basic Concept
Traditional PERFORMANCE-BASED
Payments:

based on measured physical
quantity of works



Contractors perspective :

Maximize quantity, not quality
No basis innovation
Compliance with Employers
requirements




Payments:

based on regular lump sum payment
subject to penalty if minimum
performance is not met


Contractors perspective :

Maximize quality and efficiency
Minimize quantity
Strong incentive for innovation
Freedom in using of its skills,
equipment and materials
Freedom in outsourcing


Traditional PERFORMANCE-BASED
Basic Concept
Give us Bidding
Documents !!!
Performance-based Contracts
Single Activity
Single Asset
Multiple Activities
Corridor
Area-wide
Hybrid
Agency agreement
Warranty-based


Multiphase
Peer Performance Solutions
Design Build Operate (DBO)
Design Build Finance Operate
(DBFO)
Maintenance Concession
Public Private Partnership

Short, Medium, Long term
Feasibility Study
Legal Framework

Institutional Framework

Financial Framework and Arrangements

Market Conditions

Condition of Infrastructure Asset

Contracting Arrangements

Project Organization


What about WB
OPRC!!!?
WB Output and
Performance-based Road Contract (OPRC)
Designed for specific road asset condition e.g. Rehabilitation/
Modernization (Upfront) Works not to exceed 30% of the value of the
contract

Payments are made against four components Maintenance, Rehabilitation,
Modernisation and Emergency Works.

Offers limited choice of contracting and pricing arrangements

Requires complex revisions for incorporating new payment / performance
components

Allows for limited cost control by contracting authority

Lacks consistency with internationally recognized model contract forms
and terminology e.g. use of the term Bill of Quantities

In practice the OPRC has seldom been used in its pure form .*

* Source: Review of Performance Based Contracting in the Road Sector - Phase 1, Ben Gericke, Theuns Henning,
and Ian Greewood, March 2014
World Bank OPRC
Rehabilitation
Modernization
C
o
n
d
i
t
i
o
n

o
f

R
o
a
d

A
s
s
e
t

Maintainable Condition
Poor
KPI
Routine
Maintenance
Periodic
Maintenance
Maintenance
Services
Components
Time
Current Condition
or
World Bank OPRC
Rehabilitation
Modernization
Maintenance
Services
Time
Maintenance Services
I
m
p
r
o
v
e
m
e
n
t

W
o
r
k
s


Payment terms
P
a
y
m
e
n
t
s


$
Limited cost control

Limited breakdown by activity
Limited flexibility

Is there alternative?
Time
A
b
i
l
i
t
y

t
o

i
n
f
l
u
e
n
c
e

p
r
o
j
e
c
t

s
u
c
c
e
s
s


Planning stage
Importance of Planning
What ?
How ?
- is required
project definition, objective, requirements
- will supply the requirements
contractor selection procedures - tender documents
- project organization
owners responsibilities - contract administration
Project Planning
Who ?
- is it to be acquired
contracting and financing arrangements
Which ?
What is required?
C
o
n
d
i
t
i
o
n

o
f

R
o
a
d

A
s
s
e
t

Emergency
Works
Routine
Maintenance
Periodic
Maintenance
Routine
Maintenance
Winter
Maintenance
Modernization
Rehabilitation Rehabilitation
Modernization
Routine
Maintenance
Routine
Maintenance
Routine
Maintenance
Landscaping Structures
Maintenance Services
I
m
p
r
o
v
e
m
e
n
t

W
o
r
k
s


Time
Payment terms
Time
Periodic
Maintenance
Routine
Maintenance
Winter
Maintenance
Rehabilitation
Modernization
Routine
Maintenance
Landscaping Structures
Emergency
Works
Payment terms
Emergency
Works

Mobile
Pothole
Patching



CONVENTIONAL METHOD

Average Unit Cost:
$120 per patch
$900 per lane mile
$5,900 per ton

* Production =
20-30 patches per day

MOBILE PATCHER
Average Unit Cost:
$22 per patch
$38 per lane mile
$880 per ton

*Production =
120 patches per day

Source : PBC Presentation EBRD, 24 May 2011
Gunter Zeitlow
Equipment Capabilities
C
o
n
d
i
t
i
o
n

o
f

R
o
a
d

A
s
s
e
t

Time
Routine
Maintenance
Rehabilitation
Modernization Works
Periodic
Maintenance
Buy?
Lease?
Rent?
Equipment
Equipment Capabilities
Time
Periodic
Maintenance
Winter
Maintenance
Rehabilitation
Modernization
Routine
Maintenance
Landscaping
Structures
PBC Components
Emergency
Works
Equipment
Asset
Management
Tool
Case study
RGP
CoR MOTC
JSC

State Budget
Toll collection
PBC Agency
Agreement
Force account
Kazakhstan: Road Maintenance Sector
DOES NOT HAVE EQUIPMENT
DOES NOT HAVE ASSET MANAGEMENT TOOL
DOES NOT HAVE PBC EXPERIENCE AND SKILLS
IS NOT OPERATING IN COMPETITIVE ENVIRONMENT
DOES NOT HAVE INCENTIVE FOR INNOVATION

EMPLOYER CONTRACTOR RELATIONS



Case study
RGP
CoR MOTC
JSC

State Budget
Toll collection
PBC Agency
Agreement
Kazakhstan: Road Maintenance Sector
PBC Contractor
RGP
Maintenance
Branches
DOES NOT HAVE INCENTIVE FOR:
PBC SKILLS TRANSFER
LOCAL CONTRACTOR CAPACITY BUILDING
ASSET MANAGEMENT TOOL INTERFACE ISSUES



Case study
CoR MOTC
JSC

State Budget
Toll collection
PBC Agency
Agreement
Kazakhstan: Road Maintenance Sector
PBC Contractor
RGP
Maintenance
Branches
RGP
Maintenance
Branches
Subcontract
PBC Management
Contractor
DETERMINES NEED FOR AND ACQUIRES EQUIPMENT
BRINGS ROAD ASSET MANAGEMENT TOOL AND
PROVIDES ON THE JOB TRAINING TO LOCAL
CONTRACTORS
MANAGES ROAD MAINTENANCE
BUILDS LOCAL CAPACITY
FOSTERS TRANSITION
FORM GROUNDS FOR FUTURE
COMPETITIVE ENVIRONMENT



Time
Periodic
Maintenance
Winter
Maintenance
Rehabilitation
Modernization
Routine
Maintenance
Landscaping
Structures
PBC Components
Emergency
Works
Equipment
Asset
Management
Tool
Management
Contractor
Consultancy
Service
What ?
How ?
- is required
project definition, objective, requirements
- will supply the requirements
contractor selection procedures - tender documents
- project organization
owners responsibilities - contract administration
Project Planning
Who ?
- is it to be acquired
contracting and financing arrangements
Which ?
Periodic
Maintenance
Winter
Maintenance
Rehabilitation
Modernization
Routine
Maintenance
Landscaping
Structures
Emergency
Works
Equipment
Asset
Management
Tool
Management
Service
Consultancy
Service
Time
Periodic
Maintenance
Winter
Maintenance
Rehabilitation
Modernization
Routine
Maintenance
Landscaping
Structures
PBC Components
Emergency
Works
Equipment
Asset
Management
Tool
Management
Service
Consultancy
Service
Lump sum
Re-
measurement
Cost
reimbursable
Target Priced
Target Pricing
$ - Employer
Target Price
Actual Cost Sharing
Risk sharing
Savings Sharing
$ - Contractor
Financial risk allocation
Employer Contractor
FINANCIAL RISK
Cost-
reimbursable
Lump
sum
Target

Re-
measurement
PPS Indicative Impact: NYC example
What we did in the
diagnostic phase
Main initiatives being addressed in the
four-year implementation phase
Performed site assessment of
treatment plants, pump stations,
reservoirs, repair yards, etc.
Observed ~800 person-hours of work
Reviewed more than 35 contracts
Conducted negotiation training for DEP
and NYC procurement staff
Conducted interviews and workshops
with management, supervisors, and
field staff
Improve sludge thickness from gravity
thickeners of WWTP
Reduce energy consumption through DO
optimization
Improve procurement, renegotiate main
contracts, optimize central functions
Improve work efficiency (maintenance
optimization, work with mini-excavators,
leverage automation, insourcing, )
Improve revenues by replacing under-
recording old large meters
$5m

$3m

$14m


$18 m


$42m

-

Initiatives cluster
Financial Impact to Date $57.5m / Forecast Impact for the Program $108M
Est. impact
Source : Introduction to Peer Performance Solutions, ADB, Veolia Environment, 5 February 2014
What ?
How ?
Project Planning
- is it to be acquired
contracting and financing arrangements
Periodic
Maintenance
Winter
Maintenance
Rehabilitation
Modernization
Routine
Maintenance
Landscaping
Structures
Emergency
Works
Equipment
Asset
Management
Tool
Management
Service
Consultancy
Service
Lump sum
Re-
measurement
Cost
reimbursable
Target Priced
Engineering and Construction
Contract

A - Lump Sum / Activity Schedule
B - Unit Rate / Bill of Quantities
C - Target Price / Activity Schedule
D - Target Price / Bill of Quantities
E - Cost reimbursable
F - Management
Term Service Contract


A - Lump Sum / Activity Schedule
C - Target Price / Activity Schedule
E - Cost reimbursable
NEC is a comprehensive project management tool

Engineering and Construction Contract & Subcontract
Short Contract & Subcontract
Professional Services Contract
Term Service Contract
Short Contract
Supply Contract
Short Contract
Framework Contract
Adjudicators Contract



NEC System

Source : ADB, Performance Based Design, Build, Operate & Maintain Contracts using NEC, Peter Higgins, NEC Group, 15 October 2013
Key Principles
Clarity

Language and procedures are
straightforward and easily
understood
Present tense defines actions
of parties not liabilities
Minimal subjective judgements
Minimal legal jargon
Procedural logic backed up by
flow charts
Flexibility

Lump sums (activity schedule)
Bill of quantities
Target (with activity schedule/
bill of quantities)
Cost reimbursement
Management
Stimulus to Good Management

Stimulates good management of
the relationship between the
parties
the work in the contract
Examples in contract
programme
early warning
notification of compensation
events

Source : ADB, Performance Based Design, Build, Operate & Maintain Contracts using NEC, Peter Higgins, NEC Group, 15 October 2013
What ?
How ?
- will supply the requirements
contractor selection procedures - tender documents
Project Planning
Who ?
Periodic
Maintenance
Winter
Maintenance
Rehabilitation
Modernization
Routine
Maintenance
Landscaping
Structures
Emergency
Works
Equipment
Asset
Management
Tool
Management
Service
Consultancy
Service
Lump sum
Re-
measurement
Cost
reimbursable
Target Priced
ADB Procurement
Guidelines
PPP Operational Plan
2012-2020
B. PublicPrivate Partnership in the
Context of ADB Operations

9. Within ADB operations, all
contracts such as performance-based
contracts (management and service
contracts), leaseoperate transfer,
buildownoperatetransfer, design
buildfinanceoperate, variants, and
concessions are considered as various
forms of PPP.
Performance-Based Procurement

1.5 The procedures outlined in these
Guidelines apply to all contracts for goods
and works financed in whole or in part by
ADB

3.14 Performance based procurement,
also called output-based procurement,
refers to competitive procurement
processes (ICB or NCB) resulting in a
contractual relationship where payments
are made for measured outputs instead
of the traditional way where inputs are
measured.



to be continued
Questions?