PPPs can improve maintenance of infrastructure assets by improving incentives for both private contractors and governments to make quality maintenance a priority.
PPPs bundle construction or rehabilitation and on-going maintenance into a single contract. This helps incentivize the private company to build the asset to a high quality upfront, reducing the need for maintenance (resulting in a lower 'whole of life' cost of the asset), as described in a 2009 United Kingdom National Audit Office report on PPP performance [#253, page 8].
The private party then faces a strong incentive to carry out adequate maintenance. In the case where its revenue depends on user-fees, the operator has an incentive to make sure the asset meets performance requirements and attracts users. Under government-pays PPP, the operator's revenue typically depends both on the availability of the asset over time, and the operators ability to meet specific levels of service quality. In this case, PPP contracting also forces governments to commit upfront to making adequate funding available to maintain an asset over time. This can help overcome the tendency to cut maintenance budgets down the line and thereby delay necessary maintenance and rehabilitation.
Some types of PPP or related contracts reward improved maintenance directly. For example, Frauendorfer and Liemberger describe performance-based contracts for non-revenue water reduction [#107, pages 34-37]. Infrastructure provides examples of performance-based maintenance contracts, which share many characteristics of PPP, and which have proved effective at improving maintenance in the road sector.
Box 1.7: Performance Based Road Contracts-Improving Maintenance of Infrastructure Performance-based road contracts have proved successful in improving the quality of road maintenance-a pervasive problem in many countries. For example: • Chad suffers from poor maintenance of its road network because of poor design of maintenance contracts with private contractors, as well as lack of domestic funding. In 2001, Chad awarded a performance-based maintenance contract for 441km of unpaved roads (7 percent of the country's road network), which pays a lump-sum fee per kilometer of road maintained to pre-defined standards. The roads have since met and even exceeded performance standards Argentina also has experience with private-sector performance contracts on their road networks. The performance-based contracts have improved maintenance and reliability of the roads up to a specified standard with the government, and have saved the Government of Argentina almost 30 percent in additional capital expenditures for rehabilitation. Source: Hartwig, T., Y. Mumssen & A. Schliessler (2005) 'Output-based Aid in Chad: Using Performance-based Contracts to Improve Roads', OBApproaches, 6, Global Partnership for Output Based Aid, World Bank; Liautaud, G. (2001) Maintaining Roads: Experience with output-based contracts in Argentina, Washington, DC: World Bank. |