The study in this report aims to review international experiences of contracting of routine road maintenance. The study describes the contracting models used in Norway, Scotland and Ontario (Canada), as well as the results from the relevant research literature. Focus has been to map differences in efficiency between traditional and performance-based contracting, as well as the effects of incentives, risk sharing, competition and quality dimensions in contracting.
Summarized observations are as follows:
There are some key differences between practices recommended by many researchers and the views held within road administrations. The research field is since ten years oriented towards performance based contracting, and the more complex output-oriented contracts are often, by definition, seen as more efficient. In the interviews, both Norway and Scotland are more ambiguous. Ontario officials are more positive towards their output-oriented model, but the recent criticism on the performance of winter maintenance has led to a recognition of some weaknesses. A common feature is that the road administrations are planning to move or are already moving to take more direct control of the road network, for example by being more prescriptive in the contracts or by moving the responsibility of design in-house. This can be seen as a move away from purer forms of performance-based contracting.
Even though a lot of studies on contracting of road maintenance have been found, there are no readily available recipes that give clear implications for how a contracting model should be designed. The most apparent observations can be summarized in the following way:
- There are possibilities to measure and follow up efficiency within a country in a more rational and reliable way than has been previously done. Because of the possibility to relate many different inputs and outputs of an area to other areas, there are excellent possibilities to collect different types of data from these areas and undertake comparative efficiency studies. The method can also be used to follow overall efficiency over time, or to compare different regions or contractors to each other’s. This could be a valuable tool for country-wide follow-ups.
- The clearest results from measurements of efficiency suggests that the best chances to save on costs could be by using longer and more complex contracts that combines several types of maintenance work.
- The methods and the technology required to validate the functionality and the delivered performance play a large role for the possibility to manage. In procurement the "devil is in the details".
- A larger contract is often associated with lower costs per unit. But that still means that those contracts need to be implemented in a smart way, because it is not automatically advantageous to combine any small assignment into one large contract. A possible efficient solution is to let the market find the economies of scale by permitting combined bids on several smaller contracts.
- The effectiveness of large and complex contracts may contradict the goal of sustaining strong competition. A long contract will eliminate competition for a long time, and a complex contract makes it costly for smaller and more specialized companies to prepare bids. Also here, using many smaller contracts with the possibility for combinatory bids could allow smaller companies take part in the competition. 18 VTI rapport 894
- The design of the tendering process and in particular the basis for picking the winning bid, i.e. the choice between lowest cost and lowest economic bid is important. The study gives insight into several ways of valuing different quality measures within the bids.
- The last observation regards how risk should be shared between the road administration and the operators. Typically, the risk should be placed on the actor who is best positioned to influence or carry the risk. The risk for bad winter weather is exogenous and cannot be reduced by anyone. Therefore, there are motives for a contracting model where there are incentives for proactive work for snow-removal, but also a protection of the contractor from a large financial risk.