EAP - The Pacific Infrastructure Challenge - World Bank (2006).pdf

Other Pacific countries (Vanuatu and Marshall Islands) have undergone a similar policy shift.
In Vanuatu, several road construction projects have been under-taken in the past five years
without adequate economic justification. The result is that many of these roads are unlikely
to result in the expected economic or social return on investment, while much needed
upgrades for major urban roads in Port Vila and Luganville have been slow 66 .
In countries like Papua New Guinea where the road network is still fragmented and sparse,
operation and maintenance is still critical, but road construction remains equally important.
Contracting
Road maintenance contracts are traditionally designed on a per unit basis for a short term
assignment, rather than on the quality of output 67 . For example, contractors are paid per
pothole fixed in a road, per kilometer of litter removal or lane striping or per hour worked
on a particular stretch of road. When paid on this basis, it is in the best interests of the
contractor if there are more potholes to fix, for example. They therefore have less incentive
to do quality work and contract supervision processes are often not adequate to ensure
quality.
Internationally, performance based contracts have become more common. Under
performance based contracts, success is defined by the achievement of certain minimum
performance standards. Payment is based on achievement at different milestones with bonus
rewards for good performance and penalties for poor performance. In this scenario, the risk
is transferred to the contractor.
Long term performance based contracts have been used with some success in New Zealand
where almost all roadwork has been outsourced in the past ten years. The New Zealand
government has developed a 10-year maintenance contract called a “performance specified
management contract”. Under this contract, the contractor takes total responsibility for
delivering pre-agreed service levels. Regular audits are carried out to determine compliance.
These contracts have amounted to savings of around 20% and have substantially improved
services 68 .
Outsourcing may not work for all road sectors in Pacific countries. The experience in
Vanuatu has been that private contractors are reluctant to maintain remote roads 69 . This
could suggest that private sector involvement may not be possible in some of the smaller,
more dispersed Pacific Islands and in remote areas of bigger countries. However, the
Ministry of Works in Fiji noted that private contractors are just as interested in tendering for
the maintenance of remote roads, as they have been for primary highways. If there is a lack
of interest in remote and rural roads, the solution may be to increase the value and
profitability of these contracts and impose penalties for not doing this work to a certain
standard. This may be more attractive to private operators, while safeguarding a certain
standard of work.
66 Vanuatu Infrastructure Master Plan Development Framework, Republic of Vanuatu, February 2002
67 “Contracting for Road and Highway Maintenance” Reason Public Policy Institute, March 2003. Interviews
with Ministries of Works in Fiji and Samoa confirmed that this is the basis on which outsourcing occurs
68 “In the last 11 years the actual maintenance cost has remained nearly the same in real dollars, yet traffic volumes
have increased by 52% and accident rates have decreased by 45%” Robin Dunlap of Transit New Zealand quoted
in Contracting for Road and Highway Maintenance” Reason Public Policy Institute, March 2003
69 Vanuatu Infrastructure Master Plan Development Framework, Republic of Vanuatu, February 2002
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