Introduction to Performance Based Contracting
A performance-based contract (PBC) differs significantly from a method-based contract that has been traditionally used to maintain roads. PBC 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.
In traditional method-based (unit rate) contracts, the road agency as a client normally specifies techniques, technologies, materials and quantities of materials to be used, together with the time period during which the maintenance works should be executed. The payment to the contractor is based on the amount of inputs (e.g., cubic meters of asphalt concrete, number of working hours).
In PBC the client does not specify any method or material requirements (provided the country’s standards are met). Instead he specifies performance indicators that the contractor is required to meet when delivering maintenance services. For example, the contractor is not paid for the number of potholes he has patched, but for the output of his work: no pothole remaining open (or 100% patched). Failure to comply with the performance indicators or to promptly rectify revealed deficiencies adversely affects the contractor's payment through a series of clearly defined penalties. In case of compliance the payment is regularly made, usually in equal monthly installments.
PBC within the road sector can be "pure" or "hybrid". The latter combines features of both method- and performance-based contracts. Some services are paid on a unit rate basis, while others are linked to meeting performance indicators.
Learn more about PBC: