Performance based contracting is a type of contract in which payments for the management and maintenance of road assets are explicitly linked to the contractor successfully meeting or exceeding certain clearly defined minimum performance indicators. It is very different from traditional contracting, as only performance indicators are specified, not materials and method for delivery. The government agency must fully define the project objectives, rather than the methods by which they are achieved. Based on the objective, the contractor is asked to determine his delivery methods, equipment, materials, staffing and cost.
Performance-based contracts (1) describe the work in terms of what is to be the required output rather than how the work is to be accomplished; (2) place the responsibility for quality performance on the contractor; and (3) stipulate formal and measurable performance standards, including surveillance plans. Incentives should be included for cost-savings, improved financial accountability, and effective use of sub-contractors where quality and cost-savings can be enhanced.
- World Bank, Performance Based Contracting for Preservation and Improvement of Road Assets, April 2006. This report reviews where the performance-based contracting approach has been used, and gives advice for developing countries in adopting this approach.