2014 - World Bank - Delivering Good Asset Management in the Road Sector Through Performance Based Contracting

World Bank Transportaton Research Note 46.

The road sector represents a significant asset to any country – both in terms of the physical cost to build it, and the social and economic benefits that it facilitates. Good asset management in the road sector is about obtaining the desired benefits at the least whole-of-life cost, and it is therefore natural to seek to implement a robust asset management approach on what is typically a nation’s largest asset.

Performance based contracting (PBC) necessitates the identification of many of the cornerstones to asset management, such as knowing your asset, managing risks and determining the sustainable level of service for the funds available. Performance based contracting is therefore a proven method to deliver a paradigm shift in all parties responsible for the management and preservation of the road infrastructure, including addressing construction quality issues, delivering consistent levels of service and reducing the opportunities for corruption.
The document is intended to provide World Bank transport sector staff, Ministries of Transport and road agencies of developing and transition countries with a summary understanding of the benefits, and risks, of applying the PBC approach. The aim of this note is to help the reader understand:
• What asset management is and why it is important;
• How performance based contracting delivers good asset management; and
• What the issues and challenges are to successfully implementing a performance based contract.

This note is supported by the Review of Experience (Opus 2012a) and a Technical Guide (Opus 2012b) documents. The focus of the work is on PBCs with a significant contract term and not performance based Design-Build contracts. It is not intended to cover performance based design-build only contracts. Similarly the work does not seek to address in any detail the funding options (road taxes, general taxes, external borrowing, tolls etc.) that may be used to fund the works and for this reason it does not address public-private-partnerships specifically, noting however, that a robust PBC underpins all successful PPP projects.