Performance Based Contracting

An Overview

10 September 2015

Chin Chi Haw

Opus International (M) Berhad

Contents

1. Asset Management Overview

2. Performance Based Contract Principles

3. Performance Measures Précis

4. Motivation & Benefits for Performance

Based Contracts

5. Summary

1. Asset Management Overview

And What Is The Other Thing Called

Performance Based Contract

What is this thing we call Asset Management?

Asset Management – Performance Based Contract

Relationship

4

Note:

Long term perspective / strategic approach

Balancing Level of Service of Asset with Cost of Asset Maintenance and Operations

AM is not about cost savings but maximising cost/benefit over Whole Life Cycle

(WLC).

Asset management as the "coordinated activity

of an organization to realize value from assets”

ISO55000:2014 – Asset Management

“The combination of management, financial,

engineering, economic and other practices

applied to physical assets with the objective of

providing the required level of service in the

most cost effective manner”

International Infrastructure Management Manual

Asset Management - Definitions

5

Total Asset Management Manual

Government of Malaysia – Definition (March 2009)

6

Corporate

Objectives

Current

Practice

Maintenance &

Repair

Maintenance

Management

Facility

Management

Total Asset

ManagementBest

Practice

Reactive Maintenance Proactive Maintenance Customer Focus Investment Returns

Systemic Processes

(Skills, Resources, Tools)

Strategies & Tactics

(Action Plans)

Key Performance

Measures (KPIs)

Tyre Blowout

Gear Failure

Tyre Change

Engine Refurbishment

Speed

Reliability

Race Wins

Sponsorship

Government of Malaysia

Maintenance ~ Asset Management Value Chain

7

Asset Management is about Whole Life Cycle Cost of

Ownership of an Asset to provide functionality at a specific

Performance Level and Period

RepairOr

ReplaceOr

WHEN ?

HOW ?

WHY ?

WHERE ?

Holding Action

UpgradeOr

Level of Service - 70laps @ 350kmh

Level of Service - 200,00km @ 80kmh

Sustainability - Long Term Planning

8

Asset Management

Optimization of Level of Service vs Cost of Service

Cost of ServiceLevels of Service

9

Co

mp

lex

ity-U

se

Contract duration in years

2 4 6 12108 14 30

Source: Ben Gericke

MMRC

Long Term Rehabilitation,

Routine and

Periodic Maintenance

Asset

Management

Asset Management - Performance Based Contracts

Typical Contract Durations

10

2. Performance Based Contract

Principles

“Performance Based Contracting is defined as

a type of contract in which payment for the

deliverable is explicitly linked to the contractor

successfully meeting or exceeding certain

clearly defined performance indicators”

World Bank Transport Note

What is Performance Based Contracting?

12

Input Based Output Based Performance Based

Day-works Conventional Hybrid Full PSMC

Schedule of Rates

ManPower Equipment

Specifications

Bills of Work Quantities

Method – Workmanship

Specifications

Lump Sum

Performance Outcomes

Specifications

Contract Models – An Overview

13

Dashboard

Output Outcome

Common Name Conventional Performance Based

Payment $/ InputLump sum if performance

delivered

Contractor’s

Level of AM

Capabilities

Low / Medium High

Contractors’

Motivation

Focus on doing more

work efficiently

Limited drivers for

interventions.

Focus on doing the least

work for the specified

outcome.

Incentive to be efficient

effective and innovative

Comparison Output and Outcome Contracts

14

Implementation Management Governance

“PBC Contracting Entity Client / Agency

Asset

Outcomes

Community

OutcomesValu

e

Ch

ain

AM

Ro

leP

BC

En

titi

es

Client / AgencyContractor with AM Capability

PBC / Monitoring Consultant

Roles and Capabilities in Delivery of Performance

Based Contract along Value Chain

15

Performance Based Contract – Issues to Address

Culture - Need of shift in culture of all parties

– Agency staff to focus on Governance (as compared to

“hands on supervision”)

– Contracting Entity Outlook to Focus on Effectiveness,

Efficiency & Innovation (optimizing amount of work to drive

outcome without additional expenditure)

Risks Sharing – Equitable Allocation for Best

Outcomes

– Clear Risk Definition and Transfer (e.g. Traffic, Inflation,

Emergency Works)

– Project Guarantees for Performance Incentive

Contract Form – Balanced For Relationship

Building

– Rationalized Performance Measures to Mitigate Complexity

– Clear Performance Specifications to Avoid Creep in Scope

of Contract

– Well-defined Payment Mechanism for Assurance of

Disbursement 16

Effective approach to Road Asset Management

Performance Based Contract

Value for Money

Risks Sharing and

Mitigation

Success

of

PBC

Contract Structure

Performance Based Contract – Success Factors

17

3. Performance Measures Précis

Management Performance Measures

Measures the contracting entity’s

performance in delivery of services.

Durability Performance Measures

Measures the long term sustainability of

assets in delivering specified level of

service.

Operations Performance Measures

Measures the performance of delivery of

services.

Defining Performance Measures - “What get measured, get done!”

DPM

MPM

OPM

Performance Based Measures Categories

19

Typical Key Performance Measures

Performance MeasuresPerformance

Measures (No.)

Management Performance Measures

(MPM)11

Durability Performance Measures

(DPM)9

Operational Performance Measures

(OPM)34

20

Measurement CriteriaDesign Level

of Service

Intervention

LevelAvailability 99.9997% 99.9997%

MTBF (hrs) 350,000 350,000

MTTR (hrs) 1 1

Mtce ($/kW/Yr)

Energy ($/kW/Yr)

Redundancy N+1 N+1

Time to reduce temperature of equipment

space from 35°C to 21°C, in ambient

conditions 60% Rh & 30°C (hrs)

2 3

Maximum Room Temperature 22°C 24°C

Minimum Room Temperature 22°C 24°C

Air Conditioning Control ±1°C ±2°C

Maintain a minimium positive pressure

within equipment rooms ofkPa kPa

Good Room Air Distribution.

Number of "hotspots" (10%> room

average) but within maximum

temperature range

0 2

Filter Grade EU6 EU4

Minimum Performance Grade 2 3

Meets Telecom Seismic Standard % %Meets NZ Seismic Standards % %Does not constitute a hazard when

operating % %

Does not constitute a hazard during

testing or maintenance % %

Meets TLA Noise Restrictions % %Meets Telecom environmental ploicy % %

Does not leak refrigerant to atmosphere % %

No unmanageable oil leaks % %Minimum Condition Grade 2 3

Quantity (Performance

Capacity)

Quality (standards &

compliance)

Air Conditoning Systems (five 9's site)Level of Service & Intervention Levels

Availability

Affordability

Customer Level of Service

Technical Level of ServicePerformance

Measure

Customer Level of Service

Technical Level of ServicePerformance

Measure

Adequate Space Space per occupant in m2 x/m2

Fully Serviced

Waste Removal Frequency Days

Convenient to Local Amenities

Proximity to Public Transport km IT Help Desk Yes/No

Proximity to Car Park km Access Control Security Yes/No

Proximity to Food Vendors km Security Reception Yes/No

Good Environmental

Conditions

Close Climate Control +/- C On-Call Security Assistance Yes/No

Individual/Zone air conditioning controls Yes/No On-Call Cleaning Assistance Yes/No

Communal Controls Yes/No On-Call IT Assistance Yes/No

Good Task LightingLighting level Lux

On-site Reactive Maintenance Personnel Yes/No

Good Quality Accommodation

Standard of Finish Grade Star or A-C Grade Conference Room Boooking Facility Yes/No

Average floor to ceiling height m

Responsiveness

Help Desk operating hours 00:00 to 00:00

Lifts per 1,000 occupants # Security Reception operating hours 00:00 to 00:00

Toilets per 100m2 #Response time for Unplanned Maintenance Event % in # Hours

Communal Area per 100m2 office space m2

Future Proof

Powerpoints per 10m2 #

Dining/Restaurant Facilities Yes/No Wireless Networking Yes/No

Food Preparation & Consumption Facilities Yes/No Ethernet Cabling Yes/No

Reliable Services

Availability Percentage % Fibre Distribution Yes/No

Prevenatitve Maintenance Procedures Yes/No VoIP Communication Yes/No

Infrastructure Renewal Process Yes/No

Sustainable

Energy Efficient Equipment Policy Operating Yes/No

Disaster RecoveryContingency Plans Yes/No Green Star Rating of Buiding # star

UPS System Yes/No Water minimisation Process Operating Yes/No

Essential Power Generator Yes/No Rain Water Harvesting Operating Yes/No

Clean & Healthy Spaces

Internal Cleaning Frequency Days Use of Sustainable consumables Yes/No

Toilet Cleaning Frequency Hours

Accessibility

Hours of Operation 00:00 to 00:00

Hand Washing & Drying Facilities Hours Number of Entrances available #

External & Window Cleaning Frequency Days Basement to lifts access Yes/No

Vermin & Insect Control Programme Yes/No Special Access Facilities for Deliveries Yes/No

Availability of Lift Access to each floor Yes/No

Bicycle Racks Yes/No

Car Parking #/100m2

Typical Key Performance Measures

21

4. Motivation and Benefits of

Performance Based Contracts

Robust Stewardship – Authorities have

been able to demonstrate appropriate

stewardship of the assets and its

management.

Better Accountability – Authorities have

been able to represent accountability of

investment and management of assets’

decisions.

Optimization (Balance) of Levels of

Service vs Life Cycle Costs.

Robust Risk Management – mitigation

and management of asset risks over the

life time of the assets.

Performance Based Contract – Value Proposition

23

Motivations for Moving to Performance Based Contracts

Introduction of innovation into construction and maintenance regime

Institutional Strengthening

Provision of Consistent Level of Service

Improved and Preservation of Life of Assets

More Cost Effective

Better Value for Money24

5. Summary

PBC model – Key Features

Managing the Life Cycle under Performance Based

Contracts

Client is focused on Outcomes

Contracting Entity is responsible for Interventions

– No one else to blame

Contracting Entity’s income is at Risk if they do not deliver the Specified Outcomes

(Performance, Level of Service)

26

1. More Consistent Outcomes

2. Contractors carry the consequences of their workmanship

3. Focus is on Intervention at the appropriate time and preventative maintenance

4. Budget Certainty

5. Cost Savings

6. Improved Safety Outcomes

7. Transparent Governance

The Right DriversTailor the Contract to meet local needs

Ensure Equitable Sharing of Risk

Develop Robust Performance Metrics

Appropriate Size and extent of the network

Include consequences to Ensure Conformance

Benefits of Performance Based Contracts

27

Established PBC Programs

In early stages of PBC Program Implementation

Preparing to launch PBC’s

Countries which do not use PBC’s or Countries for which No Related Data Was Located

Madagascar

South Africa

Namibia

Zambia Mozambique

Tanzania

Uganda

KenyaDem. Rep.of Congo

Chad

Nigeria

BurkinaFaso

Egypt

Yemen

India

NepalChina

Thailand

Laos

Pakistan

VietnamCambodia

Philippines

Malaysia

Indonesia

Australia

New Zealand

Lebanon

Cape Verde

LithuaniaEstonia

FinlandSweden

Denmark

Netherlands

United KingdomCanada

UnitedStates

Guatemala Honduras

Colombia

BrazilPeru

Bolivia

ChileParaguay

Uruguay

Argentina

Poland

Romania

AlbaniaSerbia &

Montenegro

Note: This does not imply that every province/region/state has PBC’s: the data pertains to the national level only, not sub-national ones.

Transformation to Performance-Based Contracting

Worldwide – Road Sector

28

Manual & Framework Issued

Benefits Established

$0$200$400$600$800

$1,000$1,200$1,400$1,600$1,800$2,000

1992

/93

1993

/94

1994

/95

1995

/96

1996

/97

1997

/98

1998

/99

1999

/00

2000

/01

2001

/02

2002

/03

Thousands

WALK THE TALK IS NOW

Concluding Remarks

29

THANK YOU

“There’s a Way to Do It Better – Find It” Thomas Edison

30