Performance-based Contracting for Roads – Experiences of Australia and Indonesia

Abstract

Many countries over the last decade, have used performance-based contracting (PBC) to manage and maintain roads. The implementation of PBC provides additional benefits for the government/public such as cost savings and improved conditions of contracted road assets. In Australia, PBC is already being implemented on all categories of roads: national, state, urban and rural. Australian PBC arrangement is designed to turn over control and responsibility for roadway system maintenance, rehabilitation, and capital improvement projects to private contractors. Contractors’ responsibilities include determination of treatment types, the design, programming and the undertaking of works needed to maintain road networks at predetermined performance levels. Indonesia initiated two PBC pilot projects in 2011, the Pantura Section Demak-Trengguli (7.68 kilometers) in Central Java Province and Section Ciasem-Pamanukan (18.5 kilometers) in West Java Province. Both sections are categorized as national roads. The contract duration for both of these projects is four years. To facilitate a possible way forward, it is proposed to conduct a study to understand Australia's experiences of advancing from pilot projects to nation-wide programs using PBC. The study focuses on the scope of contracts, bidding processes, risk allocation, and key drivers, using relevant PBC case studies from Australia. Recommendations for future PBC deployment nation-wide should be based on more research associated with risk allocation. This will include investigation of standard conditions of contract. Implications of the contract clauses for the risk management strategy to be adopted by contractors. Based on the nature of risks, some are best managed by the project owner. It is very important that all parties involved to be open to the new rules of contract and to convince themselves about the potential increased benefits of the use of PBC. The most recent states of challenging issues were explored and described.