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24 Table 7 ADDITIONAL OBSERVATIONS REGARDING PBMC Topic Observation Use of PBMC PBMC is rapidly becoming more prevalent in the U.S. and abroad, but currently it is a practice of a small minority of maintenance organizations. Type of performance-based contract Areawide and fence-to-fence contracts along a highway corridor are the most com- mon. PBMC for rest areas is becoming more common. The most frequently cited reason is agencies have not done PBMC and have the Reason for not doing PBMC internal resources to perform the maintenance. Two important drivers for performing PBMC are the following: transportation agencies do not have enough labor to do all the maintenance required (frequently Reasons for doing PBMC owing to downsizing, caps on the number of employees, and growing maintenance demands) and PBMC is a logical extension of past contracting practices. Fewer than half of transportation agencies set out maintenance performance mea- Top-down formulation of performance measures sures in their plans or programs. The vast majority of agencies that have pursued PBMC try to identify qualified bidders Identifying and engaging qualified contractors early in the process, conduct pre-bid meetings to allow for questions and answers, and permit contractors to perform their own inventory and condition assessment. More agencies use a MQA process to monitor contractor performance than to mon- Maintenance quality assurance (MQA) itor the performance of in-house staff. More than half of those agencies with performance-based contracts include both Hybrid contracts method and performance specifications. There is a strong conviction among the vast majority of agencies doing PBMC that Creativity and innovation this approach fosters creativity and innovation. Approximately three-quarters of agencies doing PBMC try to shift much or all of Risk selected risks onto the contractor. These risks include motor vehicle accidents, material quantity fluctuations, and high prices for high-priced items. Legal authority Only one-third of those agencies that are doing PBMC required special legal authority. Innovation will be the most significant under long- Even though an executive or legislative mandate to term, performance-based, lump-sum agreements with downsize does not motivate the decision to use PBMC selection based predominantly on best qualifications. in the first place, pressures to downsize may build as The client will experience a perceived loss of control more maintenance work is outsourced. and flexibility. Three ways to monitor contractor performance have been observed and each has different implications. EVOLUTION TOWARD CONTRACTING BASED ON First, the contractor can monitor itself. This approach CUSTOMER-DRIVEN OUTCOMES requires a strong bond of trust with the contracting agency and is generally the least expensive. Second, the contracting agency can monitor the contractor's perfor- PBMC is the most recent stage in the evolution of main- mance. Agencies using this approach believe they can tenance contracting. The focus of PBMC on end results is observe contractor performance effectively and have a not unique to highway maintenance. For example, major good deal of control. Third, an independent third party efforts are occurring to explore and promote performance- can monitor the contractor. This method provides the based construction contracting (Robinson 2007). The fed- most objectivity but is the most expensive. eral government, as discussed in the next chapter, has used A program plan that lists upcoming performance-based performance-based service contracting for decades and is procurements is valuable for alerting qualified contrac- aggressively encouraging its wider use by federal agen- tors to bidding opportunities. This could be part of a cies. In the private sector, performance-based contracting is long-term procurement strategy that sends a message accomplished through service-level agreements, which have to industry. also been used for a long time. Develop criteria for prequalification of contractors and use the criteria to identify a suitable number of competitors. In highway maintenance, the progression has been to Share risks in an equitable manner; shift risks appro- first move from performing work with just in-house staff priately--the contractor should not bear all the risks. and tracking resource costs (labor, equipment, and materi-

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25 als) to outsourcing part of the maintenance program through Figure 4 summarizes this evolution. contracts based on unit prices (dollar per unit of accomplish- ment of an activity). The most recent evolution of mainte- nance is to focus on value per dollar, in which case value is represented by customer-oriented performance indicators. Put differently, maintenance has changed as follows: From being internally focused to externally focused From contracting based on unit prices to contracting that provides incentives to achieve performance standards From inputs to outputs to outcomes important to road users. FIGURE 4 Evolution of maintenance contracting toward PBMC.