BOOK
Performance-Based Contracts (PBC) for Improving Utilities Efficiency
Jan Janssens | Didier Carron | Philippe Marin | Philip Giantris | Tom Williams
(2018)
Additional Information
Book Details
Abstract
Scientific and Technical Report No. 24 Performance-Based Contracts (PBC) for Improving Utilities Efficiency: Experiences and Perspectives is a compendium of articles written by members of the PBC taskforce. It focuses on new approaches without delegated management to private operator i.e. service contracts, consulting contracts, Alliance approach, public-public partnership. It also mentions new design and generation of more traditional PPPs, (MC, lease, concession), where a larger proportion of performance-based design is being applied. List of Contents: Performance Based Contracts – Setting the scene; PBC and Results Based Financing: the inverse approach; PBC and Energy Efficiency; Internal Performance Contracts: A Case of the National Water and Sewerage Corporation in Uganda; Performance-Based Service Contracts in Navi Mumbai; Financial Comparison of PBCs and Conventional Approach; Tegucigalpa PBC Case Study; Performance Based Contracts – Key Design Issues; NRW Reduction Optimization Framework; How to improve water services performance? Performance Based Contracts (PBC) and Regulatory issues; Peer-to-Peer Partnerships Operational for sustainable water services; Performance Based Contracts in Malawi: Teamwork Works; Performance based affermage contracts; Performance based Contracts, The Aroona Integrated Alliance Experience; Experience from Eastern Europe; NRW Performance Contract – Kingdom of Bahrain; The way forward and perspectives/trends
Table of Contents
| Section Title | Page | Action | Price |
|---|---|---|---|
| Cover | Cover | ||
| Contents | v | ||
| Principal Authors | xiii | ||
| Contributing Authors | xv | ||
| Preface | xvii | ||
| Chapter 1: Performance-based contracts – setting the scene | 1 | ||
| 1.1 INTRODUCTION – PBCs AND PPPs | 1 | ||
| 1.1.1 Specificity of PBCs | 2 | ||
| 1.1.2 Legal framework | 5 | ||
| 1.1.3 Designing a PBC | 5 | ||
| 1.2 REFERENCES | 6 | ||
| Chapter 2: PBC and results-based financing: The inverse approach | 7 | ||
| 2.1 INTRODUCTION | 7 | ||
| 2.2 THE DIRECT PROBLEM | 9 | ||
| 2.3 THE INVERSE PROBLEM | 11 | ||
| 2.4 CASE STUDY | 12 | ||
| 2.5 CONCLUSION | 13 | ||
| 2.6 REFERENCES | 14 | ||
| Chapter 3: PBC and energy efficiency | 15 | ||
| 3.1 INTRODUCTION | 15 | ||
| 3.2 ENERGY SAVINGS FROM PUMPING | 16 | ||
| 3.3 OTHER ENERGY EFFICIENCY (EE) POSSIBILITIES | 17 | ||
| 3.4 PERFORMANCE-BASED CONTRACTS FOR ENERGY EFFICIENCY | 17 | ||
| 3.5 DESIGNING AND IMPLEMENTING AN EE PERFORMANCE-BASED CONTRACT | 19 | ||
| 3.6 CASE STUDIES | 19 | ||
| 3.6.1 Yerevan (Armenia) | 19 | ||
| 3.6.2 Emfuleni (South Africa) | 20 | ||
| 3.6.3 Larger contracts including an EE performance based component | 21 | ||
| 3.6.4 Milwaukee | 21 | ||
| 3.6.5 Lynn | 22 | ||
| 3.7 REFERENCES | 22 | ||
| Chapter 4: Internal performance contracts: A case of the National Water and Sewerage Corporation in Uganda | 23 | ||
| 4.1 INTRODUCTION: WHY THIS CHAPTER? | 23 | ||
| 4.2 IPCs AT NWSC: IDENTITY CARD | 24 | ||
| 4.3 PREREQUISITES FOR IPC SUCCESSFUL IMPLEMENTATION: STRONG FOUNDATIONS AND COMPETITION WITH THE PRIVATE SECTOR | 26 | ||
| 4.4 IPCs: AN INTEGRAL PART OF AN ORGANISATIONAL STRUCTURE, A MANAGEMENT STYLE AND AN ORGANISATIONAL CULTURE | 27 | ||
| 4.4.1 Key 1: Making managers accountable | 27 | ||
| 4.4.2 Key 2: Motivate the staff | 28 | ||
| 4.4.3 Key 3: Monitor and evaluate performance | 28 | ||
| 4.4.4 Key 4: Manage resistance to change | 29 | ||
| 4.5 IPCs: ONLY CONSTANT IS CHANGE | 30 | ||
| 4.5.1 Find the right balance between individual and collective incentive mechanism | 30 | ||
| 4.5.2 Adjust the definition of performance over time | 30 | ||
| 4.5.3 Find the right balance between control and confidence | 30 | ||
| 4.5.4 Keep motivation high | 30 | ||
| 4.6 CONCLUSION | 31 | ||
| 4.7 NOTE | 32 | ||
| 4.8 REFERENCES | 32 | ||
| Chapter 5: Performance-based service contracts in Navi Mumbai | 33 | ||
| 5.1 OVERVIEW | 33 | ||
| 5.1.1 Context | 33 | ||
| 5.1.2 Current service delivery | 34 | ||
| 5.1.3 Water supply management | 35 | ||
| 5.2 THE PERFORMANCE-BASED CONTRACT DESIGN | 37 | ||
| 5.2.1 Overall nature of the PBC | 37 | ||
| 5.2.2 Analysis of the contract structure | 37 | ||
| 5.2.3 The procurement process | 40 | ||
| 5.2.4 Performance monitoring | 40 | ||
| 5.3 IMPLEMENTATION AND RESULTS ACHIEVED | 41 | ||
| 5.3.1 Results achieved | 41 | ||
| 5.3.2 Sustainability | 41 | ||
| 5.4 LESSONS DRAWN | 42 | ||
| 5.5 REFERENCES | 43 | ||
| Chapter 6: Financial comparison of NRW PBCs and conventional NRW projects | 45 | ||
| 6.1 INTRODUCTION | 45 | ||
| 6.2 METHODOLOGY | 45 | ||
| 6.3 RESULTS | 47 | ||
| 6.3.1 Project effectiveness | 47 | ||
| 6.3.2 Project cost efficiency | 48 | ||
| 6.3.3 Financial comparison | 49 | ||
| 6.4 CONCLUSIONS | 51 | ||
| Chapter 7: Tegucigalpa PBC case study | 53 | ||
| 7.1 CONTEXT: HOW THE PBC CAME ABOUT | 53 | ||
| 7.2 THE DESIGN OF THE PBC | 54 | ||
| 7.2.1 Overall nature of the PBC | 54 | ||
| 7.2.2 Analysis of the contract structure | 55 | ||
| 7.2.3 The procurement/tender process | 59 | ||
| 7.3 IMPLEMENTATION AND RESULTS ACHIEVED | 59 | ||
| 7.4 LESSONS DRAWN | 61 | ||
| 7.5 REFERENCES | 62 | ||
| Chapter 8: Performance-based contracts – key design Issues | 63 | ||
| 8.1 INTRODUCTION | 63 | ||
| 8.2 ACTIVITIES WHERE PBCs ARE TYPICALLY USED | 64 | ||
| 8.3 EXTERNAL FACTORS THAT CAN INFLUENCE DESIGN OF THE CONTRACT | 64 | ||
| 8.4 PARTIES TO THE CONTRACT | 65 | ||
| 8.5 SCOPE OF THE CONTRACT AND PBC CONTRACTOR OBLIGATIONS | 66 | ||
| 8.6 OBLIGATIONS OF THE CONTRACTING AUTHORITY | 69 | ||
| 8.6.1 Monitoring and supervision | 70 | ||
| 8.6.2 Duration and sustainability of contract | 70 | ||
| 8.6.3 Fees and incentives | 71 | ||
| 8.6.4 Dispute resolution | 71 | ||
| 8.6.5 Early termination | 72 | ||
| 8.6.6 Procurement | 72 | ||
| 8.7 ACKNOWLEDGEMENTS | 73 | ||
| 8.8 OTHER RESOURCES | 73 | ||
| Chapter 9: NRW reduction optimization framework | 75 | ||
| 9.1 INTRODUCTION | 75 | ||
| 9.2 OPTIMIZING PHYSICAL LOSSES | 76 | ||
| 9.2.1 The point at which physical losses are optimized | 76 | ||
| 9.2.2 Deriving the supply curve for physical loss reduction | 77 | ||
| 9.2.3 The various benefits of physical loss reduction | 78 | ||
| 9.2.4 Estimating the value of deferred capital costs | 79 | ||
| 9.3 OPTIMIZING FOR SERVICE | 81 | ||
| 9.3.1 The interaction between physical losses and hours of supply | 81 | ||
| 9.3.2 Valuing benefits from increased duration of supply and increased access | 83 | ||
| 9.3.2.1 The cost of getting households onto 24/7 supply through physical loss control | 83 | ||
| 9.3.2.2 The benefits of getting households onto 24/7 supply through physical loss control | 84 | ||
| 9.4 OPTIMIZING COMMERCIAL LOSSES | 84 | ||
| 9.5 A GENERAL OPTIMIZATION FRAMEWORK | 86 | ||
| 9.6 CONCLUSIONS | 87 | ||
| 9.7 NOTE | 88 | ||
| 9.8 REFERENCES | 88 | ||
| Chapter 10: How to improve water services performance | 89 | ||
| 10.1 INTRODUCTION | 89 | ||
| 10.2 A STRONG WATER AND SANITATION GOVERNANCE | 90 | ||
| 10.3 A SMART PBC DESIGN | 91 | ||
| 10.3.1 Baselines, targets and incentives | 92 | ||
| 10.3.2 Ensure mitigation of risks and leave room for flexibility | 93 | ||
| 10.3.3 Develop an integrated approach | 95 | ||
| 10.4 A RESILIENT ECONOMIC MODEL | 97 | ||
| 10.4.1 Enhanced financial sustainability | 97 | ||
| 10.4.2 A sustainable territorial anchorage | 98 | ||
| 10.5 CONCLUSION | 100 | ||
| 10.6 REFERENCES | 101 | ||
| Chapter 11: Performance-based contracts (PBC) and regulatory issues | 103 | ||
| 11.1 BACKGROUND | 103 | ||
| 11.2 MONITORING AND EVALUATING UTILITIES | 104 | ||
| 11.2.1 Building information systems with key performance indicators (KPIs) that enable regulators to monitor, and evaluate operators | 104 | ||
| 11.2.2 Setting performance targets and monitoring performance with limited data | 106 | ||
| 11.2.3 Developing incentives for quality improvements, cost containment and network/service expansion | 106 | ||
| Chapter 12: Peer-to-peer partnerships operational for sustainable water services | 109 | ||
| 12.1 INTRODUCTION | 109 | ||
| 12.2 THE WATER OPERATOR PARTNERSHIP | 111 | ||
| 12.3 COMPONENTS OF AN OPERATIONAL PARTNERSHIP | 112 | ||
| 12.3.1 Preparing a WOP | 113 | ||
| 12.3.2 Incentives: yes or no? | 113 | ||
| 12.3.3 Priority setting in performance improvement | 114 | ||
| 12.3.4 Conditional factors for WOP success | 114 | ||
| 12.3.4.1 Enabling environment | 115 | ||
| 12.3.4.2 Organisational level | 115 | ||
| 12.3.4.3 Individual level | 116 | ||
| 12.3.4.4 Alignment of performance indicators | 116 | ||
| 12.3.4.5 Blending with investments | 117 | ||
| 12.3.4.6 Time will tell | 117 | ||
| 12.4 SUMMARY AND RECOMMENDATIONS | 118 | ||
| 12.5 REFERENCES | 119 | ||
| Chapter 13: Performance-based contracts in Malawi: Teamwork works | 121 | ||
| 13.1 THE CONTEXT: HOW THE PBC CAME ABOUT | 121 | ||
| 13.2 THE DESIGN OF THE PBC | 123 | ||
| 13.2.1 Overall nature of the PBC | 123 | ||
| 13.2.2 What is the PBC about? | 123 | ||
| 13.3 PERFORMANCE CONTRACT DESIGN | 124 | ||
| 13.3.1 Services to be provided | 125 | ||
| 13.3.2 The remuneration structure | 125 | ||
| 13.3.3 Performance regime: a “stick and carrot” approach | 125 | ||
| 13.3.3.1 Penalties to incentivise timely and quality services | 126 | ||
| 13.3.3.2 Bonuses to enhance the service contractor’s performance | 126 | ||
| 13.3.3.3 An independent auditor to monitor performance | 127 | ||
| 13.4 THE PROCUREMENT/TENDER PROCESS | 127 | ||
| 13.4.1 The pre-qualification stage | 128 | ||
| 13.4.2 The proposal stage | 128 | ||
| 13.5 IMPLEMENTATION AND RESULTS ACHIEVED | 129 | ||
| 13.5.1 The “office” phase | 129 | ||
| 13.5.2 The “operations” phase | 129 | ||
| 13.5.2.1 NRW reduction | 129 | ||
| 13.5.2.2 Working ratio (WR) | 130 | ||
| 13.5.2.3 Water kiosks | 130 | ||
| 13.5.2.4 Rehabilitation of infrastructure | 130 | ||
| 13.5.2.5 Continuity of supply | 131 | ||
| 13.5.3 The extension phase | 131 | ||
| 13.5.4 Remuneration | 131 | ||
| 13.6 DID THE CONTRACT ACHIEVE AND SUSTAIN RESULTS? | 132 | ||
| 13.6.1 Internalities | 132 | ||
| 13.6.2 Externalities | 132 | ||
| 13.7 REFLECTIONS ON PERFORMANCE-BASED SERVICE CONTRACTING | 133 | ||
| 13.8 ACKNOWLEDGEMENTS | 134 | ||
| 13.9 REFERENCES | 134 | ||
| Chapter 14: Performance-based affermage contracts | 135 | ||
| 14.1 THE BASICS OF THE AFFERMAGE CONTRACT | 135 | ||
| 14.2 DIFFERENCES AND SIMILARITIES BETWEEN THE AFFERMAGE AND OTHER OPERATIONS CONTRACTS | 136 | ||
| 14.3 AFFERMAGE CONTRACTS FROM THE 19TH CENTURY UNTIL TODAY IN FRANCE | 136 | ||
| 14.4 THE WAY TO A SECOND GENERATION OF AFFERMAGE CONTRACTS | 137 | ||
| 14.5 THE PERFORMANCE-BASED AFFERMAGE (PBA) MODEL | 138 | ||
| 14.6 THE EARNING LOGIC | 138 | ||
| 14.7 TECHNICAL PERFORMANCE INDICATORS | 139 | ||
| 14.8 FINANCIAL PERFORMANCE INDICATORS | 140 | ||
| 14.9 CASE STUDY: THE SEDIF | 140 | ||
| 14.10 SEDIF: RETURN OF EXPERIENCE 2011–2013 | 142 | ||
| 14.11 CONCLUSION | 143 | ||
| 14.12 REFERENCES | 144 | ||
| Chapter 15: Performance-based contracts, the Aroona Integrated Alliance experience | 145 | ||
| 15.1 CASE STUDY DETAIL | 145 | ||
| 15.1.1 The Aroona Integrated Alliance to deliver improvements in water and wastewater services | 145 | ||
| 15.1.2 A commercial framework set up to generate the right behaviour | 146 | ||
| 15.1.3 Alliance governance | 147 | ||
| 15.1.4 The “good to great” strategy to deliver a step change | 148 | ||
| 15.1.5 A governance model is in place to ensure business improvements are sustainable | 149 | ||
| 15.1.6 A Business improvement program designed to deliver sustainable cost efficiencies | 149 | ||
| 15.1.7 The cultural and the change management challenge | 152 | ||
| 15.1.8 Main achievements two years after the Good to Great strategy inception | 153 | ||
| 15.2 CONCLUSION | 153 | ||
| Chapter 16: Experience from Eastern Europe | 155 | ||
| Chapter 17: Performance-based contracts (PBCs) for improving utilities efficiency: Experiences and perspectives: The way forward and perspectives/trends | 163 | ||
| 17.1 SUMMARY OF DISCUSSIONS OF 31 OCTOBER 2016 | 163 | ||
| Index | 165 |