Skip to content

Use of Performance Requirements for Design and Construction in Public-Private Partnership Concessions

December 2016
Table of Contents

« PreviousNext »

4 Design and Construction with Performance Requirements

Once performance requirements are locked into the P3 agreement, the agency has the responsibility to oversee the monitoring and reporting of performance by the private partner and enforce the agency's contractual remedies if performance does not meet the requirements. This section discusses the roles and responsibilities of the agency during the design and construction phase of the project.

The P3 private partner has the final responsibility to ensure that the construction joint venture that enters into a D-B contract with the P3 SPV delivers all design and construction products in conformance with the contract. From the quality management perspective, the P3 private partner is responsible for ensuring that the quality management activities are followed during design and construction in accordance with an agency-approved quality management plan (QMP). The QMP places the responsibility on the P3 private partner to assure a specific level of quality for work items to be completed under the contract. The P3 private partner may either be required to follow a QMP mandated by the agency or allowed to propose a project-specific plan for agency approval. As observed in many P3 projects, the P3 SPV may utilize the services of a third-party independent certifier to provide an independent assessment of the quality of the constructed asset and/or the reliability of the contractor's quality control (QC) test results. The P3 SPV conducts this independent assessment to fulfil fiduciary responsibilities to its lenders. Nevertheless, the P3 private partner must retain and maintain all records until handback for any future use by the agency.

On the other hand, the ultimate quality assurance (QA) functions of the agency remain unchanged in that the agency is responsible for verifying contract compliance and performing final acceptance of work products for progress payments. The agency or the agency's designated agent exercises due diligence to audit the P3 private partner's adherence to the QMP. The agency's audit is typically compliance-focused to monitor, discover and correct the gaps between the QMP requirements and what is presently followed; the agency may elect to re-evaluate the effectiveness of the QMP based on process conformance and quality outcomes, if needed. For acceptance, the agency may elect to undertake verification sampling and testing at lower frequency, relying mostly on the P3 private partner's quality control effort and QMP-required remedial work for nonconformance. As a minimum, for verification sampling and testing, most agencies follow risk-based auditing under which the monitoring and measurement requirements of audits may change with the frequency and severity of quality exceptions and QMP violations.

The primary intent of the agency audits is to reduce the financial, socio-economic and political risks of asset and operational failure that may arise from defective quality of the constructed facility. The auditing process used today has been developed primarily to ensure process conformance with design specifications and "means and methods" of construction. The auditing process relies heavily on design specifications and construction quality assurance specifications to make inferences about future performance outcomes. With performance requirements, there is a need to move toward a performance based audit regime, which may involve performance modeling and performance specifications, to evaluate future risks.

4.1 Roles and Responsibilities during Design

Prior to the procurement, the agency will carry out some initial design for planning and environmental approvals. That design will be used to define the project limits/"envelope" at the start of procurement. This becomes the starting point for the P3 private partner's design; however, to avoid being prescriptive and potentially conflicting with any performance requirements, the design is included on a purely indicative or in legal terms a "Reference Document" basis - often called an indicative preliminary design (or IPD).

The indicative preliminary design is locked in before the commencement of the RFP process and is incorporated into the P3 agreement as a Reference Document only. Using the indicative preliminary design as a reference, the facility is designed by the P3 private partner to achieve the performance requirements within the bounds of P3 agreement technical requirements including operational performance requirements, project limits, environmental constraints, and schedule deadlines. The P3 private partner assumes liability for all design flaws under the P3 agreement, unless the agency assumes the liability through its prescriptive design criteria or unintentional overstep into design decisions. The P3 private partner will internally still try to "pass down" as much of this risk as possible to the designer of record, which has the "stamp and seal" responsibility to ensure that the design packages are in accordance with the P3 private partner's D-B contract requirements with no unapproved design exceptions.

The agency's role is limited to exercising due diligence for compliance during the design process by:

  • Checking whether the design products are in compliance with agency-approved design standards and performance requirements;
  • Flagging any deviations or variances not approved in the P3 agreement;
  • Providing design sign off informally and formally;
  • Checking whether the P3 private partner is in compliance with the P3 private partner's approved design QMP;
  • Performing design audits at hold points; and
  • Providing "acceptance" to 100 percent designs to release for construction.

4.2 Roles and Responsibilities during Construction

4.2.1 Construction Specifications

Figure 9 presents the continuum of highway construction specifications: at the left end of the continuum are method specifications, where the agency specifies means and methods of construction, but takes responsibility for the quality and performance of the constructed asset (Scott et al, 2014). Method specifications consist of an agency's prescriptive instructions to the contractor on how a product should be produced and placed using specified methods, materials, equipment and techniques. Since the agency directs each step of the contractor's operations, the agency takes responsibility for the quality outcomes, while the contractor has to meet the materials and methods requirements of the agency.

Figure 9. Continuum of Highway Specifications

figure 9

View a larger version of Figure 9

Text of Figure 9

Prescriptive Performance
Method Specifications End-Result Specifications PRS PBS Postconstruction Performance
  • QA
  • Incentive-Based
    • Time
    • Traffic
    • Quality
  • Warranties
  • Maintenance Agreements

Source: Scott et al, 2014. (PRS is Performance-Related Specifications; PBS is Performance-Based Specifications)

As the continuum shifts to the right end, the private partner assumes more risk and responsibility to ensure the performance of the constructed asset over the concession period. This may include construction period performance specifications that indicate future performance to some extent, or operational performance-based provisions. With performance specifications, the agency relinquishes the control on means and methods to focus on desired outcomes and results. The performance specifications include: (i) performance-related specifications (PRS) that correlate measured quality characteristics with anticipated product performance and evaluate life-cycle cost impacts; and (ii) performance-based specifications (PBS) that utilize measured fundamental engineering properties to predict performance using performance prediction models.

In the middle are the End-Result and Quality Assurance (QA) specifications that place the responsibility for construction process and production on the contractor, and acceptance on the agency. The QA specifications clearly delineate the functions and responsibilities of the contractor (including subcontractors and material producers hired by the contractor) and the agency: the contractor is responsible for quality control and inspection to control process and product variance, as set by the specification limits, through monitoring and capturing of measurable quality characteristics; whereas the agency evaluates the contractor's conformance to specifications using its QA program-approved sampling and testing of select quality characteristics to make acceptance decisions. The agency may use some of the P3 private partner's QC information for their acceptance determination as long as the agency validates the QC data prior to using it (FHWA, 2012).

With its foundations in industrial production-based statistical process control, the QA specifications place the emphasis on the statistical evaluation of the contractor's degree of conformance to the agency's specification criteria. The construction quality is determined based on how well the quality characteristics are controlled within the specification limits. In other words, the agency makes a decision to fully accept the product, reject, or accept with pay adjustments, based on the tendency of the measurements of those quality characteristics to stay within specification limits and their spread. The pay adjustments are made based on the level of quality achieved on the finished product: typically, an incentive is paid to the contractor if the desired level of quality is exceeded, while a disincentive is devised to penalize the contractor for any performance loss due to poor quality.

Agencies typically select quality characteristics and specification limits that are deemed to have direct bearing on good performance; for example, strength and air voids for concrete, retroreflectivity for signs, in-place densities and binder content for hot mix asphalt. However, the methodical relationships between the quality characteristics and performance are not explicitly considered to provide any indication of future performance impacts when making acceptance or pay adjustment decisions.

4.2.2 Construction Quality Assurance

The agency's role during construction is one of auditing the P3 private partner's process by conducting construction inspection on a sampling basis, cross checking the P3 private partner's testing, validating the P3 private partner's QC data, performing its own verification testing, and in general checking whether the P3 private partner is complying with the approved QMP. Note that the agency's acceptance does not imply any kind of fit for purpose or guarantee that the constructed facility will meet the performance requirements in operations.

The P3 private partner's QMP sets the quality standards, in terms of measureable quality characteristics, acceptance limits and quality-based pay adjustments for the constructed asset, as the P3 private partner's SPV has the overall responsibility to ensure desired level of performance over the concession period in accordance with the P3 agreement. Note that the D-B subcontractor works directly for the SPV and may execute a limited warranty agreement for specific asset types.

Adopting "means and methods" specifications from the traditional D-B-B environment is not compatible with performance requirements; rather, the use of "performance specifications" will provide the continuity between the quality characteristics measured during construction and anticipated future performance. The QA specifications, which are in common practice today, have served reasonably well, particularly given that the responsibilities of the O&M phase were traditionally held by the agency. However, when implementing performance requirements, the agency will have to be careful not transfer back from the private partner to itself any performance related risks. It is particularly important to ensure that the quality characteristics adequately, collectively and reliably capture future performance risks, and that the quality-related pay adjustments are commensurate with any performance gains or loss in the future. Performance specifications provide continuity between design and construction, while allowing the agency to readily evaluate the future performance risks of the constructed product.

Ideally, the QMP should identify performance criteria (or quality characteristics derived from agency-specified performance criteria) to measure construction quality and directly relate them to required future performance thresholds. For example, the agency may specify a desired level of lumen outputs of roadway lighting or a smoothness criterion for pavements; in both cases, acceptance limits can be derived directly from agency-specified criteria, such as an initial smoothness threshold of newly constructed pavement and minimum initial lumen output of roadway lighting. This will provide some indication of anticipated future performance. The acceptance limits can be derived by corresponding technical disciplines of an agency using historic construction quality and performance data as well as scientific or empirical forecasting models.

However, there may be many scenarios where performance criteria are not available or cannot be derived directly to measure construction quality. For example, the agency may use a performance criterion that limits pavement rutting to 0.50 inches at all times over the concession period; however, rutting measured on a newly constructed pavement will typically be zero, thus providing, no indication of anticipated future performance. While the designer may have demonstrated designs meeting this criterion, there are many construction-related outcomes, such as the content of the bitumen, or air voids in the bituminous pavement layer, which can "eventually" affect the future rutting performance of pavements [as well as the on-going operational and maintenance performance of the P3 private partner].

Figure 10 illustrates two examples of performance requirements for acceptance of pavement construction quality with pavement smoothness and rutting. In the pavement smoothness example, a maximum allowable limit of IRI was set by the agency at 160 inches/mile, while a rejection limit of 65 inches/mile provides a reasonable indication of the quality of construction as well as the future anticipated performance. However, in the example of pavement rutting, a maximum allowable limit of rutting was set at 0.4 inches, while the quality of construction and its impact on future anticipated rutting performance can only be inferred with other quality characteristics not derived directly, but related to a performance criterion.

Figure 10. Illustration of Quality Characteristics for Two Examples of Performance Requirements

figure 10

View larger version of Figure 10

Text of Figure 10

Essential Function Performance Requirement for Pavement Surface Performance Criteria for Pavement Smoothness Design Decisions Criterion for Construction Acceptance
  • Pavement Surface for Vehicular Traffic
  • Safe, Smooth and Durable Riding Surface
  • Maintain an IRI to less than 160 inches/mile
  • Limit initial IRI to less than 65 inches/mile and control the rate of smoothness loss
  • IRI less than 65 inches/miles
Essential Function Performance Requirement for Pavement Surface Performance Criteria for Pavement Smoothness Design Decisions Criterion for Construction Acceptance
  • Pavement Surface for Vehicular Traffic
  • Safe, Smooth and Durable Riding Surface
  • Maintain rutting to less than 0.40 inches
  • Select a bitumen grade of PG 70-22
  • Limit air voids to 7 percent and bitumen content to 5 percent
  • Bitumen grade PG 70-22 or better
  • Air voids within 7 ± 0.50 percent
  • Bitumen content within 5 ± 0.25 percent

Source: WSP | Parsons Brinckerhoff

Hence, there is a need to incorporate quality characteristics in the QMP that can be readily used to measure construction quality and still provide some indication of anticipated future performance. In such instances, both the agency and the P3 private partner may use performance specifications that include performance-related or performance-based specifications with statistical process control and acceptance elements of QA specifications. Performance specifications are better suited to evaluate whether the intent of the performance requirements has been met at the construction stage. The P3 private partner can utilize performance specifications to relate the basic quality characteristics (e.g., density of concrete) or fundamental engineering properties (e.g., elastic modulus of concrete) to required performance (e.g., structural cracking of concrete) and corresponding life-cycle cost impacts through engineering and/or empirical relationships. On the other hand, the traditional QA specifications rely on the statistical variability of measured quality characteristics and leave the risk of the QA process achieving the final asset performance with the public sector.

Some asset types have more mature performance-related or performance-based specifications than other asset types. The following is the snapshot summary of the readiness of performance-related or performance-based specifications for various asset types and construction impacts:

  • Bituminous Materials (includes hot mix asphalt, warm mix asphalt, and other variants): The state-of-the-practice is to follow traditional QA specifications based on statistical analyses of key quality characteristics (e.g., asphalt binder content, in-place air voids, gradation). Both performance-related specifications and some aspects of performance-based testing are ready for piloting and eventual implementation. Various studies, including NCHRP Project 9-22, have developed a framework with supporting tools for implementing performance-related specifications. Similarly, a feasible technical framework is available for performance-based specifications with proven testing capabilities and performance prediction models.
  • Cement Concrete for Pavements: Traditional QA specifications use key quality characteristics of fresh and hardened concrete, such as strength at different ages, unit weight, slump, and air content. Though the FHWA-developed "PaveSpec 4.0" tool is implementation ready, the performance-related specifications for concrete pavements have been implemented only on pilot basis. In recent decades, there has been significant progress towards the implementation of performance-based specifications for concrete pavements.
  • High Performance Concrete for Bridges: Similar to concrete pavements, QA specifications for bridges use key quality characteristics of fresh and hardened concrete. Historically there has been a greater emphasis on strength properties of concrete; and more recently, considering the longer service lives of bridge structures, there has been an increased emphasis on the measurement of quality attributes relating to bridge durability, such as chloride ion penetration and freeze-thaw durability of in-place concrete. Research advancements have made durability performance modeling possible for bridge structures.
  • Earthwork: Due to the inherent geographic and temporal variability in soil properties and differing site conditions, agencies have traditionally used "prescriptive" criteria for geotechnical work. For shallower earthwork, such as pavement subgrade construction, agencies have adopted QA specifications with key quality characteristics, such as moisture content and in-place densities to evaluate the quality of compaction achieved. There is a possibility to progress towards a more performance-related approach with technological advancements in construction equipment (e.g., intelligent compaction machines embedded with sensors that measure compaction quality in real-time) and geophysical methods. However, with deeper foundations and large-scale earthwork, agencies have retained or shared the geotechnical risks with the private partner. Some agencies have adopted a strong risk and asset management approach for geotechnical assets. In the last few years, highway agencies have been using alternative technical concepts to mitigate geotechnical risks (Gransberg and Pereira, 2016).
  • Work Zone Operations: Performance specifications are more mature for evaluating the quality of work zone operations during construction. Robust performance measures are available to evaluate the effectiveness of transportation management plans in terms of lane availability, mobility of work zone traffic, safety impacts, and incident detection and clearance. In many highway construction projects, agencies have utilized performance specifications in some form to manage work zone performance. They have served as the basis for schedule-focused alternative contracting strategies, such as lane rental and cost plus time bidding with incentives/disincentives (I/Ds).

In summary, it is not always possible to use performance-related or performance-based specifications, given their varying maturity levels with different asset types. Traditional QA specifications can be substituted for construction acceptance where necessary. Regardless of the type of specifications, it is paramount that the agency and the P3 private partner have clarity on the type of construction specifications, quality characteristics to be measured, acceptance criteria for QC and acceptance, sampling frequencies and testing protocols, and statistical criteria for verification. These must be identified clearly in the P3 agreement or QMP.

« PreviousNext »

back to top