Procurement and contracting are an essential part of transport infrastructure and service provision. Building major infrastructure is almost universally carried out by private companies who should be contracted through a competitive procurement process. Increasingly maintenance, roadside equipment, back-office operations and public transport services are also being provided by private sector companies under contract to public authorities, rather than by in-house providers. The World Bank explores the reasons for involving the private sector in Public and Private Sector Roles in the Supply of Transport Infrastructure and Services - operational guidance for World Bank staff.
As private companies are almost always involved in building and maintaining transport infrastructure, it is very important for public authorities to ensure that contracting and procurement processes are sound and comply with good governance procedures. A public procurement system can be said to be well functioning if it achieves the objectives of:
- economy and efficiency,
- fairness and accountability
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 these performance indicators are specified, not materials and method for delivery.
Performance based contracts (PBCs) have been used on roads in Canada, the USA, New Zealand, and Australia since the mid-1990s. In the developing world Latin America was the pioneer in developing and adopting its own performance-based contracting model. In 1995, Argentina introduced performance-based contracts, which at present cover 44% of its national network (Liautaud 2004). In the mid nineties Uruguay also piloted PBC, first on a small portion of its national network and then on the main urban roads of Montevideo. Shortly after this, other Latin American countries, such as Brazil, Chile, Colombia, Ecuador, Guatemala, Mexico and Peru, also started adopting a performance-based approach. Gradually, this trend has spread to other developed and developing countries in Europe, Africa and Asia, e.g., UK, Sweden, Finland, Netherlands, Norway, France, Estonia (63% of national roads), South Africa (100% of national roads), Zambia, Chad (17% of all season roads), the Philippines (231 km of national roads).
This approach can be more efficient, as it is 'lighter touch' for the managing authority and it also allows contractors to innovate and make cost savings in delivery. However, it requires a considerable culture change for both the highways authorities and contractors: risks and responsibilities must be appropriately apportioned; the right indicators must be specified, and; the two organisations need to work together in close partnership.
In Performance Based Contracting for Preservation and Improvement of Road Assets the World Bank has reviewed where the performance based contracting approach has been used, and gives advice for developing countries in adopting this approach.
Another key approach to contracting is that of Labour Based Contracting. This approach seeks to ensure that improved competition and value for money can be achieved, by opening up maintenance and construction contracts to labour based providers. A labour based approach has been championed particularly by the ILO, in conjunction with the World Bank and many developing countries, as it can have a positive impact on employment, gender equality, and the development of sustainable livelihoods as well as achieving good value for money.