Embracing complexity in performance-based contracts for road maintenance

Abstract

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.

Risk perception in performance based contracts and the influence of experience

“…It can be expected that the greater the extent of experience, the better risks can be evaluated (Zsidisin et al , 2004), as the risk management (RM) literature widely acknowledges that prior experience is essential to assessing risks (Flynn et al , 2016). The PBC literature generally agrees with this and states that experience also plays an important role in successful PBC (Hypko et al , 2010a; Schoenmaker and de Bruijn, 2016). The high importance of experience in a PBC buying situation is also supported by theory.…”

Missing performance management and measurement aspects in performance-based contracting

“…This target is connected with financial incentives in a PBC and is often a topic of negotiations and discussions between the PBC provider and the contractor, particularly when the performance targets have been set too high (Selviaridis and Norrman, 2015). However, setting the performance targets too low is also risky because both sides are satisfied by good reported performance, but no one challenges the indicators in terms of whether an even better performance is possible (Alyami et al , 2015; Schoenmaker and de Bruijn, 2016). As Holmbom et al (2014) stated, “Performance target values must represent the customer’s needs and form a realistic challenge for the supplier.” In addition to the described performance targets, defining and setting minimum performance levels below which the customer is allowed to drastically penalize the contractor or even terminate the contract is also recommended (Sols et al , 2008).…”

“…First, academic interest in PBC has recently increased (Hypko et al , 2010; Sultana et al , 2013; Selviaridis and Wynstra, 2015; Nullmeier et al , 2016) because PBC addresses specific, contemporary challenges in buyer-supplier relationships and provides a solution mechanism for these challenges by aligning the goals of the supplier and the buyer by defining, measuring and rewarding outcomes (Selviaridis and Wynstra, 2015). However, the PBC literature remains heterogonous due to specific applications of the approach in various industries, for example, manufacturing (Hypko et al , 2010), defense (Glas et al , 2013), infrastructure (Schoenmaker and de Bruijn, 2016), energy (Hufen and de Bruijn, 2016) and transportation (Stanley and Hensher, 2008).…”

Integration, Application and Importance of Collaboration in Sustainable Project Management

“…Moreover, previous construction and infrastructure management studies have mostly focused on investment projects, e.g., [13,17], while the long and expensive maintenance phase has largely been neglected. This phase is at least as complex as the investment phase, since it often involves activities in busy roads or other infrastructure, which disrupts the everyday lives of many people and stakeholders throughout the products' extensive life cycles [18]. Thus, collaboration between multiple stakeholders is highly important to minimize the disruptions and reduce both the required maintenance work and consumption of resources.…”