A road less traveled
As the nation’s infrastructure deteriorates, demand for road maintenance and repair is overtaxing public works departments, forcing them to come up with new ways to complete the projects. Some agencies are beginning to use performance contracts for road maintenance because they require less oversight.
Performance contracting is a significant shift from conventional methods because it reallocates responsibility among the parties. The contracts identify desired results and give contractors flexibility in choosing the methods and materials to meet their goals. Contractors are rewarded for exceeding expectations and penalized for falling short. “With this type of contracting method, more emphasis is placed on the contractor’s management and oversight of the project, and especially its quality control of construction,” says Christopher Schneider, a construction and system preservation engineer with the Federal Highway Administration’s (FHA) Office of Asset Management.
In traditional maintenance contracts, the owner agency specifies what work will be done and how, giving it complete power in directing the work, but also leaving it with all the risk to achieve the desired system condition. In performance contracting, the owner agency sets standards to specify what it wants to achieve, and the contractor selects the methods, materials and techniques that will best meet those standards. The contractor manages and directs the work, and the owner agency monitors progress to ensure the conditions are met. Risks and rewards are shared between the contractor and government agency, and performance goals and measurements are set along with incentives and disincentives.
“Heretofore, the only thing the contractor cared about was his employees coming home safely at night and completing the project as soon as possible to increase profitability,” says James Sorenson, chief of construction and maintenance for FHA’s Office of Asset Management. “Performance contracting gives a contractor better control of his process and guarantees to the owner agency that he will provide the desired product at the desired performance level. They will build on the incentives for innovation, and they will manage their own quality control to ensure they don’t default or receive disincentives.”
Paving the way
In 2000, the District of Columbia Department of Transportation (DCDOT) and the FHA tested a performance contract with Richmond, Va.-based VMS for all maintenance and preservation activities on the national highway system in the district that were previously the responsibility of the DCDOT. The $70 million, five-year contract covered 344 lane miles, 2,950 catch basins, seven miles of drainage ditches, 450,000 feet of curb and gutter, 109 bridges, four major tunnels, and snow and ice control.
“It was a learning experience both for VMS and the government,” Sorenson says. “We set up a system to establish a baseline of where we were at and targeted some benchmarks, telling the contractor that they must meet or exceed these benchmarks. The project was highly successful, and the district has been very satisfied with the results.”
“The contractor brought in innovative ideas, and that is another savings because innovation saves time and money. The contractor is more capable of making that happen than a public agency,” Sorenson says, adding that a contractor, if left alone, can use new methods and materials for the job without wrangling with the public agency to adopt them. For example, the contractor introduced velocity-fed pothole patching, a system by which a machine uses air pressure to blow water and debris from a pothole, sprays a tack coat of binder on the insides and bottom of the hole, then blows asphalt and aggregate into the hole at 50 to 90 mph. Then, the hole is covered with a layer of aggregate. Roads can be opened to traffic immediately afterward, and patches last a long time.
The DCDOT plans to continue using performance-based asset preservation contracts and is expanding the concept to other assets, such as lighting and tunnels. DC Streets II, a follow-on contract that will include several D.C. National Highway System assets, also is being developed.
Getting what you ask for
Performance contracts for transportation projects have been used with success throughout the world; however, some U.S. agencies and contractors are reluctant to fully embrace the concept because of the variability of conditions affecting roadways, such as traffic volume, the environment and pre-existing problems. “Contractors are hesitant to guarantee what they have no control over,” Sorenson says. “The trick is determining what performance goals and what target values or measures to put into the contract. These must be both acceptable to the agency and achievable by the contractor.”
This year, Aspen, Colo.’s 15-year street maintenance warranty contract with Wichita, Kan.-based Koch Performance Roads expired after just seven and a half years. The contract specified that the warranty would last 15 years or until the heavy truck traffic count reached 4.6 million. “Based on traffic counts, the warranty expired this year, so we lost out on about seven and a half years because of traffic accumulation,” says Jerry Nye, Aspen streets superintendent.
The traffic counting system, which was meant to track only heavy trucks over 18 feet in length, actually registered some heavier extended and crew-cab style pickup trucks as Class 2 vehicles, artificially raising the heavy traffic count on the streets and nullifying the warranty sooner than city officials expected, Nye says. The city has resumed street maintenance, but it would consider a similar warranty or performance contract if it needs to outsource maintenance work in the future. “The work we received was great. The streets are still scoring in the 85 to 90 pavement condition index,” Nye says. “We would have to look at a different way to make sure we could extend the warranty out further.”
Missing the target
The Michigan Department of Transportation has had mixed experiences with performance-based contracting. “We did a contract 10 to 12 years ago for performance-based maintenance that didn’t go all that well, and we haven’t done one of those since,” says Kirk Steudle, agency director. “What we have done is use performance specifications in aspects of what we do, whether in construction or maintenance, where we can prescribe what outcome we want in the end.”
The Michigan DOT is beginning to consider including performance specifications in all construction and maintenance contracts. “All of the specifications are written to give the contractor a lot of flexibility in the design and material choices, but they ultimately have performance targets they have to meet in a year or two or three years,” Steudle says. “We have another group of warranties we use on asphalt and concrete paving geared toward materials and workmanship. We control the design, but we have a warranty on it to make sure the contractors use the best materials and handle it properly, so we hold them to some performance targets.”
While some contractors are willing to meet the targets, others are not. “What we’ve heard from contractors is that they are willing to stand behind their work, but they don’t want to take responsibility for decisions that are made for them,” Steudle says.
Payment on delivery
In a traditional contract, the contractor is paid when work is completed. However, performance contracts can set long-range goals, and owner-agencies can choose to hold a portion of payment over the life of the contracted performance measures. If a contract specifies that a roadway must perform at a certain level at one, five and 10 years after work is completed, a portion of the payment can be held in bonds to be paid in those increments, as long as the roadway is still performing at the specified levels.
Some contractors may balk at the long-range terms, so owner-agencies can find alternate means to ensure long-term performance. “Some owners have addressed these concerns by requiring shorter-term, renewable warranty bonds,” Sorenson says. “Also, if the owner-agency is comfortable with the contractor, the owner-agency can waive the bond after one to three years.”
Typically, performance contracting drives superior workmanship on the part of the contractor, says James Bryant, program manager for the Virginia Department of Transportation’s performance improvement department. “The contractors do tend to step up to meet the terms of the contract because there is financial incentive for them to perform as efficiently as possible,” Bryant says. “That incentive is the cost of doing business. If they can do something in one hour versus two or three hours, they can then turn that revenue to other assets or continue to help operations run more efficiently.”
Making the partnership work
The Virginia Department of Transportation is in the final year of a performance-based contract with VMS for the maintenance of 251 miles of interstate, including all fences and guardrails, mowing, snow removal, pothole and crack repair, and the rehabilitation of roadways and bridges. The contract originally ran from 1996 until 2001 and was renewed for an additional five-year term in 2002. “In general, we’ve found that they do very well in routine maintenance functions — mowing, litter removal, debris removal, incident response,” Bryant says. “But, there have been concerns because of the way the performance measures were written for pavements and bridges that the state could do a better job managing the long-term performance for those particular assets.”
Recently, the Virginia legislature mandated that the Virginia DOT outsource 100 percent of the maintenance on the approximately 1,117 miles of interstate roadways in the state by July 1, 2009. “We are evaluating the available options to make the best business decision, and performance-based contracts are among the tools in our toolbox,” Bryant says.
Sorenson says performance contracting has the potential to help address a number of issues facing the transportation industry. “Performance contracting is a working partnership,” he says. “Properly administered, performance contracting can be a win-win for all involved. This is especially important at a time of increasing roadway needs, staff attrition for both owners and industry, and limited public dollars.”
Maria Lameiras is an Atlanta-based freelance writer.
The Federal Highway Administration (FHA) is working with industry and transportation agency representatives to create a performance-contracting roadmap. It also has created a new initiative, Highways for LIFE, to “accelerate the adoption of innovations and new technologies to improve highway safety and quality.” FHA recommends performance contracts as one of the best ways for agencies to achieve the results they desire. “States will be encouraged to consider this contract approach as one of the innovations when applying for Highways for LIFE funding,” says James Sorenson, chief of construction and maintenance for the FHA Office of Asset Management. “If they consider using this method, we will offer technical support to work with the agency and the contractors to establish reasonable criteria and measures for the contract that fits your type of work.”
The FHA also has created a Web page, www.specs.fhwa.dot.gov, to help agencies create specifications for performance contracts. “We have taken in all aspects of maintenance and construction contracting to help define the common terminology and measures and criteria for roadway elements,” Sorenson says, adding that the Washington-based American Association of State Highway and Transportation Officials plans to hold a workshop on the topic later this year.
— Maria Lameiras