Foreword
Firstly, the general background as regards the maintenance and operation
of road networks in Latin American countries is described below.
Then, the main characteristics
of the Argentinean national road network are focused upon and two major
forms of maintenance contracts used in Argentina are presented: the
kilometer/month contract and the CREMA contract. This allows the specific
features of the CREMA contract to be highlighted.
Maintenance
background in Latin America
To address internal inefficiency and accountability issues as regards
the maintenance and operation of their national road network, a number
of Latin American countries have, over the last decade, moved from force-account
(direct labor) to contract maintenance. Also, there has been considerable
progress in the region to transfer to the private sector, through concessions,
the responsibility of improving, maintaining, and operating high-traffic
volume roads, the cost of which is recovered from tolls.
The concept of performance-based
contracts originated from a consideration of four factors, namely:
 |
the increasing
lack of personnel within the National Road Departments available
for measuring the vast quantities of activities involved in the
more traditional maintenance contracts and for monitoring performance
standards using input indicators such as materials, equipment and
labor; |
|
the frequency
of claims resulting from the necessity to increase the quantities
of activities initially calculated and included in the original
contracts, with the corresponding time-consuming efforts wasted
in justifying such claims, seeking additional budget allocations
and finally drawing up contract amendments; |
|
the need to
focus more on customer satisfaction, to identify the outcomes, products
or services that the road user expects to be delivered, and to monitor
and pay for those services on the basis of customer-based performance
indicators; |
|
the need to
shift greater responsibility to Contractors throughout the entire
contract period as well as to stimulate and profit from their innovative
capacity. |
Among the most advanced
countries as regards the implementation of performance-based contracts
are Argentina, Brazil and Chile.
Recently, some countries, particularly Argentina, have switched from
the traditional quantities and unit price-based short-term maintenance
contracts to long-term performance-type or results-based contracts.
The new approach encompasses either routine maintenance activities alone,
or integrated contracts involving both rehabilitation and routine maintenance
of road networks. The latter form, the so-called CREMA system (Contrato
de Recuperación y Mantenimiento) is now implemented in Argentina and
covered in 1999 approximately 14,400 km., i.e., about 40% of the national
paved road network.
Description
of the Network (1999 data)
The national road network of Argentina is 38,744 km long, of which 30,912
km (or 80%) are paved and 7,832 km (or 20%) are unpaved. It represents
a total asset of about US$7 billion equivalent. Road users annually
spend an amount equivalent to about US$10 billion (i.e. more than its
replacement value) for operating their vehicles on the network.
Of the 31,000 km, about 9,500 km with the highest traffic density (generally
in excess of 2,000 vehicles per day) have been put out to concession
since 1991 to the private sector for a 12-year period. Their upkeep
is financed essentially from tolls.
Current maintenance modalities on the national road network are as follows:
| |
Paved
(km) |
Unpaved
(km) |
Total
(km) |
| Total
concession (incl. access) |
9,508 |
- |
9,508 |
| Untolled
concession (COT) |
1,879 |
- |
1,879 |
| CREMA
1st phase (1997-98) |
11,818 |
- |
11,818 |
| CREMA
2nd phase (1998-99) |
2,581 |
- |
2,581 |
| Transferred
by contract to provinces |
1,503 |
5,220 |
6,723 |
| Contracted
on km/month (routine only) |
3,623 |
- |
3,623 |
| DNV
force-account |
- |
2,612 |
2,612 |
| |
30,912 |
7.832 |
38,744 |
The
kilometer/Month contract
The first
km/month contracts were used on the national road network in Argentina
in August 1995. They currently cover a network of about 3,600 km of
paved roads. All together, 11 contracts are under execution, each one
covering a sub-network ranging in length from 105 to 536 km. The system
applies essentially to a sub-network of paved roads which is in good
to fair condition and is further expected to remain substantially in
that condition over the next few years through routine maintenance activities
alone, without any major strengthening or rehabilitation.
The Contractor is paid on a monthly basis for specified services provided
either to the road users or to the Road Agency, and only when the quality
outputs comply with the technical specifications included in the contract.
If the quality outputs, for any specific activity, do not comply with
the prescribed requirements, penalties are applied on a daily basis
and subtracted from the forthcoming payments until the necessary repairs
are carried out.
The contract comprises three main items or components (3), namely:
| (i) |
Maintenance
Works; |
|
(ii) |
Site Installation; and |
| (iii)
|
Emergency
Works. |
Maintenance Works
are paid on a lump sum basis in terms of US$/month/km of roads maintained.
Site installation is also paid on a fixed-price basis, one-third on
completion of site installation and two-thirds when all the equipment
and personnel necessary for the works have been mobilized on site. Emergency
works, i.e. items or services not included in the first component, are
paid on the basis of unit prices and quantities relating to any additional
transport, equipment, or tons of asphalt concrete which may need to
be supplied and placed for unexpected extensive repairs.
Item
1: Maintenance works
Contracts are valid two years and are renewable. As mentioned
before, they essentially comprise a specific road section or sub-network
which is free from deep rutting and longitudinal or alligator cracking.
Such roads may have been recently resurfaced, rehabilitated or paved
under a separate rehabilitation project. These maintenance contracts
do not normally include any substantial investments for strengthening,
widening or upgrading the infrastructure concerned, for which a residual
life of at least five years is expected.
Penalties, as indicated in Appendix A, are applied in accordance with
the deficiencies noted during inspections carried out three times a
month, the last inspection taking place on the last week of the month.
A period of two to three months following the award of the contract
is waived, during which penalties are not applied in order to enable
the contractor to repair and fix any deficiency existing at the time
of contracting. Each inspection tour is followed by a written "statement
of deficiencies", agreed and signed by the Engineer and the Contractor's
Representative on site.
Inspections are normally carried out on a sample basis, the minimum
length to be inspected weekly representing 5% of the total length of
the contracted network (or 10% if the inspection is for the purpose
of establishing payment certificates). The minimum elementary length
of inspection is 2 km.
In addition to the mandatory inspection tours, the Contractor is required
to make his own inspection on a daily basis, and to report any abnormality
to the Engineer (such as traffic overloading) that may have an impact
on the contract or on the processes by which the maintenance works are
carried out. Likewise, accidents attributable to users are to be reported,
especially when they involve damages to the infrastructure itself.
The Contractor must also comply with national environmental standards
and apply all mitigation measures related to borrow-pits and to the
disposal of all unsuitable materials removed from the pavement or its
surroundings.
The contract documents include:
| (i) |
the
Contract itself; |
|
(ii) |
Particular Technical Specifications; |
| (iii)
|
General
Specifications for Road Works in use in the country; |
| (iv) |
a
detailed report on the actual condition of the road or network to
be maintained, including a set of maps and drawings; |
| (v) |
Environmental
Manual in use in the country; and |
| (vi) |
Standard
Unit Costs applicable to emergency works such as transport of materials,
hours of rent for equipment and specific maintenance crews and tons
or cubic meters of asphalt concrete patching. |
Monetary penalties
applied for non-compliance with the Particular Technical Specifications
are formally expressed in terms of equivalent liters of gasoline to
allow for inflation adjustment. For practical purposes, they have been
converted to current US$ equivalent. To discourage expeditious repairs,
penalties are enforced gradually: 25% applied at the end of the specified
response date (usually 2 to 5 days after the defect is observed); 50%
applied at the end of the second inspection tour, and 100% at the end
of the third inspection.
The contract provides for the highway department, on an exceptional
basis, to carry out by force-account or through a third party any works
or activities of an extraordinary nature, but limited to a maximum 20%
of the total length or duration of the contract. The contractor, duly
advised in advance, may only object to such an intervention by the highway
department (including canceling the contract) if the specified limit
(20%) is exceeded. Likewise, the implementing agency may terminate the
contract if the contractor does not perform in accordance with the General
or Particular Technical Specifications.
Item 2: Site installation
Site installation comprises the supply of all offices, equipment, material
and personnel necessary to carry out the maintenance works, including
the facilities to be provided for the supervision team. It is paid on
a lump sum basis which does not exceed 5% of the total contract amount.
The amount due is paid in two installments: the first installment representing
one-third of the total to be paid on completion of site installation
and after due justification is given of the right quantity and qualifications
of the personnel to be employed for the works. Payment of the remaining
two-thirds occurs after the arrival on site of the equipment and personnel.
Item 3: Emergency works
Emergency works for an amount not exceeding 20% of the total contract
cost are provided for and include:
|
exceptional
transport of materials, equipment or personnel necessary for these
works, to be paid on a US$/ton*km basis; |
|
supplementary
equipment (graders, front-end loader, dump trucks, bulldozer), all
with their respective operators and paid for at a standard hourly
rate of utilization; |
|
crew teams,
each comprising six laborers, one truck and its driver, to be charged
at a standard hourly rate of utilization; |
|
the supply
and placement of asphalt concrete for patching purposes, to be paid
for at a standard rate of US$/ton or cubic meter of material. |
The contractor,
by signing the contract, accepts the unit costs established in the tender
documents by the National Road Directorate.
Experience of maintaining the 3,620 km of national roads under this
type of contract indicates that the system is working well with an average
cost of routine maintenance of about US$175/km/month. Overall, and since
the beginning of these contracts, about 600 non-compliance certificates
have been issued and given rise to penalties amounting to nearly US$300,000
which represent about 1 percent of the total contract amount.
The
CREMA contract
Features of the CREMA contracts implemented
between 1997 and 1999
The CREMA
(Contrato de Recuperación y Mantenimiento) is a combined Rehabilitation
and Maintenance Contract that requires the Contractor to rehabilitate
and subsequently maintain a sub-network of roads under a lump sum contract
for a total period of five years. In contrast with the km/month contract,
the CREMA system applies to a paved sub-network, which needs to be rehabilitated
over part of its length and subsequently maintained over the whole of
its length. Rehabilitation works include either resurfacing with slurry
seals and surface dressing or overlays with asphalt concrete or reconstruction
of the base and wearing course. These works are carried out during the
first year of the contract while maintenance activities (patching potholes,
cleaning drainage systems, renewing horizontal and vertical signs, clearing
roadsides, etc.) are undertaken throughout the 5-year contract period.
The network is defined by the Employer and comprises contiguous or area-specific
sections of roads having a total length generally ranging from 100 km
to 300 km. The contract specifies the sections that need rehabilitation
as well as the minimum solution (i.e. overlay thickness) that is required
in order to ensure a positive Net Present Value for the investment at
a 12% discount rate. The contract is awarded to the lowest evaluated
bidder. After award, the Contractor is required to carry out a detailed
engineering design and is free to propose, on the basis of its own risk
assessment, any rehabilitation solution above the minimum threshold
defined in the Contract.
The payment schedule is designed to ensure that the Contractor maintains
the network throughout the full contract period after the first-year
rehabilitation period. It receives an advance payment of 5 to 10% upon
being notified that it may initiate work, between 15% and 25% at the
end of the first six months once specified activities have been executed
and 25% at the end of the first year when rehabilitation works have
been completed. The remainder is paid in 48 equal monthly amounts spread
over the remaining 4-year contract period. A performance guarantee of
20% is required under the Contract.
Payments are made when a specified level of service has been achieved
and not on the basis of pre-determined bills of quantities and unit
rates. Performance is assessed during monthly inspections jointly carried
out by the Engineer and the Contractor. The rehabilitation works must
comply throughout the contract period (and in particular with the specified
minimum thickness of overlay) to a maximum roughness level (usually
3.3 max. IRI) and maximum values of rut depth, cracking or raveling.
Maintenance activities are broken down into a few essential items that
are regularly inspected to ensure compliance with the specifications,
such as: potholes, cracking, rutting on the pavement, and condition
of shoulders, culverts and drains, roadside, environment, vertical and
horizontal signs, lane marking, and guardrails. For each item, and as
shown in Appendix B, penalties for non-compliance are set and applied
in such a way as to deter the Contractor from failing to comply.
The design of the program requires the Road Agency to provide reliable
network conditions and traffic surveys. The surveys were combined with
an economic evaluation using the World Bank's Highway Design and Maintenance
Standards Model, HDM-III, to define the respective extents of rehabilitation
and maintenance works and to set minimum acceptable standards for rehabilitation
works.
The first generation of CREMA contracts called for minimum (and not
optimum) technical standards to be applied on the sections to be rehabilitated
to yield an acceptable internal economic rate of return (12% min.).
The minimum standards were equivalent to a weighted average asphalt
concrete overlay thickness of about 3.3 cm. The optimum standards were
in the order of 5 to 6 cm equivalent thickness, and would have almost
doubled the cost. However, the HDM economic evaluation indicated that
the minimum solutions would improve the riding quality of the network
by eliminating the maintenance backlog and bringing the network to a
uniformly fair to good condition that could be maintained in the future
through periodic, thin overlays.
The status of the Argentinean CREMA program implemented until 1999 (end
of contracts in 2004) is as follows:
|
the CREMA
network has an aggregate length of about 14,400 km, and represents
65% of the non concession-run national paved road network. It was
generally in good to fair condition with an average roughness of
3.7 IRI (10% are in poor condition, i.e., with IRI>5) and an average
daily traffic of about 750 vehicles. |
|
CREMA contracts
for 11,818 km of the national road network were let in 1997 comprising
61 individual contracts on sub-networks totaling an average length
of about 180 km each. |
|
An additional
2,581-km network divided into 16 contracts was procured in 1998-99. |
|
Of the 14,400
km, about 7,500 km had to be rehabilitated, comprising: 1,700 km
of slurry seals or surface-dressing, 5,300 km of asphalt concrete
overlays ranging in thickness between 3 and 8 cm, and some 360 km
of reconstruction. |
|
The contracts
for the first 11,818 km network were awarded for a total of about
US$650 million, equivalent to US$11,000/km/year. Overall, the lowest
bid proposals exceeded the budget estimate by about 20%, on average. |
|
Rehabilitation
works alone were estimated to account for approximately 74% of the
total bids (i.e., US$66,000/km) while routine maintenance activities
were estimated at about US$3,000/km/year, represent 26% of the total
cost. |
|
Private sector
participation (essentially Argentinean contractors) was high. Each
contract received between 5 and 20 bid proposals. |
|
The average
contract price was about US$10 million. |
Features
of subsequent CREMA contracts
As
concerns recent CREMA contracts, the lessons learnt from experience
have been taken into account and consideration is given to:
|
Staggering
the execution of rehabilitation works over the 5-year contract period,
thus avoiding high peaks in resource allocations; |
|
Extending
the contract period to 7 or 10 years; |
|
Adjusting
the payment schedule to reduce the Contractor's need to borrow on
the commercial markets, thereby further reducing the financial costs
involved; |
|
Adopting technical
standards between the HDM recommended minimum and the optimum solutions; |
|
Selecting,
through an optimization process, the right length of sub-networks
or size of individual contracts; |
|
Fine-tuning
the penalty rating system; |
|
Incorporating
more freedom in contracts to allow contractors to offer and use
their own performance standards and materials specifications; |
|
Involving
users in monitoring and reporting road conditions and contractors'
performance. |
