Purpose – An important feature in managing road infrastructures is the growing use of performance-based contracts (PBCs) in the delivery of maintenance. The expectations are high. But there are also risks connected to PBC. The main question for road agencies is: how to achieve as much as possible of the expected advantages while limiting the possible disadvantages? The purpose of this paper is to answer that question and explore how PBC of maintenance can be improved. Design/methodology/approach – Based on theoretical constructs this paper investigates the strategies of the English Highways Agency and the Dutch Rijkswaterstaat, when outsourcing the maintenance of their existing road infrastructures and the effects of their strategies. Findings – The paper finds that road agencies should focus on the process of interaction of the main actors involved, rather than the performance measurement systems (PMS) itself. The agencies should adjust their governance to the degree of uncertainty. PBC requires an informed and knowledgeable principal. Research limitations/implications – The in-depth study is limited to two road agencies. More systematic research is needed in linking theoretical constructs with empirical evidence from more road agencies. The method applied in this paper can be used for further research. Practical implications – The lessons drawn from the case studies offer potential benefits to other road authorities that use or consider PBC as their method of delivery of maintenance. Originality/value – Where only few empirical studies have investigated in detail the actual achievements of PBC in road maintenance, this empirical research aims to fill that gap.

civil engineering and geosciences, delft university of technology, delft, the netherlands ABSTRACT Civil infrastructure assets, such as roads, locks, bridges, treatment plants and storm surge barriers, are often characterised by long service lives and corresponding technical life cycles. When life cycles are long, the time value of money plays a role in asset management decision-making on capital investments and operation and maintenance expenditures. In this paper, a new life cycle costing (LCC) approach for discounting in two classes of maintenance optimisation models is developed. These models are the age replacement model and the interval replacement model. Three well-known LCC techniques, which are the present worth, the capital recovery and the capitalised equivalent worth, are combined and used to develop a stepwise methodology. This methodology is validated with the few case-specific mathematical equations that exist in the literature. The advantage of using this alternative LCC approach is its applicability and flexibility for reliability and maintenance engineers. The resulting LCC method builds on well-known LCC formula and enhances the understanding of the inclusion of discounting principles in reliability models. Understanding these principles makes the method flexible. Practitioners can extend or adapt the method to changing circumstances, such as additional cash flows and altering reliability modelling.

Managerial flexibility in infrastructure investment and replacement decisions adds value. Real options analysis (ROA) captures this value under uncertain market prices. The concept of ROA is that future unfavourable payoffs can be deferred as soon as more information about market prices becomes available. The popularity of ROA is seen in a growing number of case studies on real assets. Despite its increasing popularity, ROA has not gained a foothold in public infrastructure decision making. One of the difficulties in the application of ROA is the required estimation of market variables. To avoid this, a simplified but not correct version of ROA is easily applied, referred to as a Decision Tree Approach (DTA) to ROA. Another difficulty is that infrastructure assets are subject to other types of uncertainties, defined here as asset uncertainties. This study investigates the value of managerial flexibility in a public infrastructure replacement decision. The uncertainty drivers are the strength of a bridge, political decisions regarding traffic flow and the price development of construction costs. Three valuation approaches are compared: DTA, ROA and the DT approach to ROA. Although it is complex, ROA certainly adds value in public infrastructure decision making when market price uncertainty is prevalent. However, in the absence of reasonable estimates of market variables, the DT approach to ROA is the best alternative. In the absence of market price uncertainties, ROA should be avoided DTA is to be preferred.

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