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61 Table 24 AGENCY PERCEPTION OF CONTRACTOR AND FEEDBACK WITH REGARD TO SERVICE AND PRICE KEY QUESTIONS CONCERNING PBMC Questions Yes No Agencies were given the opportunity in the survey to offer Do you include method-based and technical suggestions regarding what they might do to better meet 6 4 specifications along with your desired perfor- contractor needs and in turn achieve better results with mance standards/targets in your PBMC? (60%) (40%) PBMC. Specifically, agencies were asked "Have you found Have you found that PBMC fosters creativity any ways in which, by better serving the contractors' needs, and innovation on the part of the contractor(s) 8 2 your agency has received better LOS or a reduction in the because they are generally free to achieve the cost of providing service?" Only three agencies responded. performance targets or standards in any manner (80%) (20%) they choose? Their answers appear in Table 27. Does your agency try to shift to the contractor most or all the responsibility for repairing dam- 9 2 PRIVATE SECTOR SURVEY age caused by motor vehicle accidents and (82%) (18%) recovering repair costs? A questionnaire tailored to the private sector was sent to Does your agency expect the contractor to 7 3 assume most or all the risks for material quan- 14 firms and four responded. A copy of the questionnaire tity fluctuations (e.g., sand and salt)? (70%) (30%) appears in Appendix A. Confidentiality of the responses was Does your agency expect the contractor to guaranteed. 7 3 assume most or all of the risks associated with price increases for high-priced items? (70%) (30%) To respect the anonymity of the respondents, only a few Have you found the PBMC has allowed you to major points are presented here. more easily internalize different phases of a job 4 5 under one contract (e.g., build, operate, and (44%) (56%) The ultimate value to the owner of a performance-based, maintain)? at-risk, lump-sum contract is the ability of the contractor 5 4 to assume reasonable risk transfer from the owner, which Has PBMC simplified contract administration? (56%) (45%) ensures that owners have a steady budget number on which Has PBMC resulted in documented cost they can rely over time. saving? What is the average percentage cost 3 7 savings per contract? Florida Reported (30%) (70%) One firm said that a project should be large enough to 2%15% and Maryland 10%. sustain the contractor's overhead. At least 500 lane-miles for Do you require your PBMC contractors to have 9 1 a performance-based contract is the minimum necessary to a quality assurance plan? (90%) (10%) attract enough competition so that the bids and proposals the owner receives reflect a competitive value. Did you have to obtain special legal authority 3 7 to do PBMC? (30%) (70%) A contractor emphasized that it is important to have Do you have a legislative provision for public- measurable performance standards with the desired private partnerships that allows a private entity 4 6 LOS defined and the maximum response time to address to propose a performance based maintenance contract on part or the entire state highway (40%) (60%) each issue. network? Note: The responses do not necessarily add to the same amount Other recommendations include the following: (1) that because some agencies decided not to answer certain questions. performance standards be reasonable, (2) that the industry provide input into the ability or required cost to meet owner performance standards, and (3) that performance standards CONTRACTUAL PROVISIONS be in line with actual conditions. If performance standards are not aligned, the contractor must construct and develop a cost to close the gap between actual and desired conditions. States and provinces with experience in PBMC were asked If the gap is too large, the bids or cost proposals that come to provide up to three example contractual provisions or in may exceed the agency's budget. Additionally, agencies suggestions that might be useful to others. Those provisions could avoid requiring a contract to achieve a 100% mainte- appear in Table 26. nance rating score 100% of the time.

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62 Table 25 LESSONS LEARNED FROM AGENCIES WITH EXPERIENCE IN PBMC State/Province Lesson 1 Lesson 2 Lesson 3 A contract cannot cover every conceiv- Regular team meetings help to able issue. Project partners must work Make sure the contract is very clear District of Columbia keep outstanding issues in focus together within the spirit of the contract so that everyone is on the same page. until they are resolved. to make the project work. Crossing districts (work identi- fied in several districts on the Clear, concise procedures/guidelines/ Partnership with contractor is Florida same contract) has caused prob- project identification are necessary. important. lems (tracking, performance failures, funding, etc.). Snow removal. We learned that this We learned a good lesson when was a hard concept for the contractor to we made our contractor respon- understand. They did not fully under- Maryland sible for all maintenance at the stand the performance item, resulting in rest area facilities; the quality of sub-par performance by the contractor service went up considerably. during the first snow event. Substantial incentives and disin- Random, unannounced inspections Clear performance standards must be centives must be established to with no grace periods should control Texas established and communicated to the ensure compliance with mini- incentive and disincentive contractor. mum performance standards. payments. Repairs under $500 are paid after Agency needs to be specific on con- The threat of invoking disincen- they are completed and documenta- Utah tract requirements and performance tives seems to have little effect tion is provided. Repairs are standards wherever possible. on performance outcomes. invoiced monthly. The interstate performance-based main- tenance contract in Virginia was pro- cured under the authority of the Public Private Transportation Act. That con- tract included all maintenance functions (routine and restorative). The contract had no real measure for long-term per- Virginia formance for pavement and bridge assets so there was no incentive for the contractor to maintain those assets with a long-term perspective. The new con- tracts are only for routine maintenance, where the contractor performed very well in the first contract. Contract language needs to be Strong communication with the con- Allow for a period of comfort with Ontario, Canada biddable and achievable with tracting industry. contract language and deliverables. risk mitigated. A contractor said that when a contractual provision calls Strict compliance with the contract is essential, espe- for pre-bid condition assessments by the agency to be mea- cially if the term is long or very long. Otherwise, a devia- sured against the contract performance targets, it contributes tion could set a precedent that could become problematic to the likelihood of success. The agency is able to establish a later on. baseline and a possible prebid adjustment of the performance threshold. Second, the assessment provides a gauge and clear It is difficult to ask the contractor to overperform-- example for the contractor's benefit on how the agency will exceed performance requirements--to obtain a bonus when be measuring achievement of the performance targets. the contractor has guaranteed a price. In response to a recent UDOT request for contractor input, the agency decided to The contractor needs a methodical procedure or manage- set aside a sum of money every year on which deductions ment system to audit its compliance with the contract perfor- of liquidated damages are made, if any. At the end of the mance standards. It is important, however, that the government year, the balance of the set-aside goes to the contractor. agency have its own auditing protocol (perhaps not so exten- This is a nice way to provide incentives, while not requiring sive) to ensure QA and desired contractor performance. overperformance.

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63 Table 26 SUGGESTIONS OF RESPONDENTS WITH EXPERIENCE IN PBMC REGARDING CONTRACTUAL PROVISIONS State/Province Contractual Provisions 1 Contractual Provisions 2 Contractual Provisions 3 Florida Defined RFP Defined scope of service Defined specifications Desired conditions--lists all assets and the condition level in which they Recordkeeping--We track all services per- are to be maintained. Requires con- Maryland formed, which enables us to compare the tractor to maintain the assets at the previous services. level set by SHA. The assets are being maintained at a higher level than before. Contract requires that rest area employees be Paying contractor on a set monthly treated as "regular employees" to achieve rest basis for anticipated repairs gave the Utah area attendant retention. Contractor provides contractor the incentive to not spend benefits, insurance, vacation. money for repair work. Annual lump-sum contract with risk Ontario Comprehensive and clear contract language. sharing formula. Table 27 options requiring mutual acceptance at the end of each con- WAYS TRANSPORTATION AGENCIES CAN BETTER tract period is the best approach. This provides for a large SERVE CONTRACTOR NEEDS nonfinancial incentive for both parties to work at their part- nering skills if they want performance-based contracting to State/Province Response work. If either party is not satisfied, neither will be happy Florida Identification of risk involved with a long-term contract. Maryland Letting the contract provide/replace Another respondent that has contracts ranging from 5 mechanical items with more up to date and energy efficient ones year to 20 years, including all renewal terms, said the period of performance for large-scale performance-based contracts Ontario Risk sharing should be 10 years. At a minimum, the contractor needs at least 5 years to depreciate equipment cost. After the first 5 years, the client is able to benefit from the contractor's famil- One contractor said that it often is asked to assume hun- iarity and efficiencies for the remainder of the contract. dreds of millions of dollars in risk for a $5 million to $10 million contract. Another respondent, echoing this concern, Another contractor provides a somewhat different view said that natural disasters such as tornadoes and hurricanes and stated that the value of the performance-based contract can have such a negative effect on the contractor that it is increases with the term because of the contractor's abil- not economically feasible to work in an area prone to such ity to better manage risk and infrastructure. This contrac- weather events. In the case of hurricanes, the contractor can tor believed that 20 years makes more sense for large-scale suffer financially while waiting for reimbursement from the performance-based contracts. This respondent said that, in Federal Emergency Management Agency. Costs of using general, the term of a performance-based maintenance con- subcontractors also can rise rapidly because of the large tract should be at least 5 years. demand for their services. DOTs must find a more equitable way to share the risks of extreme natural events. Finally, a contractor recommended that the owner or agency separate snow and ice control from the base lump- A contractor indicated it would no longer bid on contracts sum bid. Snow and ice control could be paid separately on with only disincentives. Exclusive reliance on disincentives the basis of a unit price bid. Indeed, snow and ice can domi- undermines the partnering process and, in turn, the perfor- nate a low bid proposal. The entire contract award can be mance-based contract. based on how many events the contractor forecasts will need snow and ice control mobilization. Removing snow and ice The standard term for maintenance contracts is now 1 as a consideration in the lump-sum payment will help ensure year or, in some cases, 2 years. The contractor who pointed that the agency receives the lowest price, not the firm that out this standard believes a 2-year term with multiple 1-year assumed the lowest number of mobilizations.