Experiences of periodic maintenance service agreements in …...Experiences of periodic maintenance service agreements in 2008. Helsinki 2008.Finnish Road Administration. Finnra internal

Experiences of periodicmaintenance service agreementsin 2008

Finnish Road Administration internal publications ggFinnra internal reports 75/2008

Experiences of periodicmaintenance service agreementsin 2008

Finnra internal reports 75/2008

Finnish RoadAdministration

Helsinki 2008

RAPORTTI

Cover picture. Eero Kenttälä, Finnish Road Administration Lappi Road Region

ISSNTIEH

Web publication pdf (www.tiehallinto.fi/publications)ISSN 1459-1561TIEH 4000630E-v

Helsinki 2008

FINNISH ROAD ADMINISTRATIONCentral AdministrationOpastinsilta 12 APO Box 3300521 HELSINKITelephone 0204 2211

Experiences of periodic maintenance service agreements in 2008. Helsinki 2008. FinnishRoad Administration. Finnra internal reports 75/2008, 44 pages. + Appendix 1 page. , ISSN1459-1561, TIEH 4000630E-v.

Key words: roads, maintenance, services, contracts, agreements, evaluationSubject class: 70

SUMMARY

In 2007 the management of the Finnish Road Administration made decisionsconcerning the further development and piloting of periodic maintenanceservice agreements to start in 2008. In addition, it was decided that theexperience gained from existing and new pilots and feedback from thesector would be taken into consideration in the further development ofservice agreements and in putting the results of development work intopractice. The experience and feedback from the development work andpilots are reported annually to the Board of the Finnish Road Administrationwho, on the basis of the report, decide on the direction of furtherdevelopment work.

Working groups that have been set up have collected experiences from thedevelopment work and pilots, analysed them and have presented theconclusions drawn from them in this report. The main conclusions anddevelopment areas are presented briefly in this summary and in more detailin chapter 5.

From the point of view of steering and planning, the index-linked serviceagreements used in the pilots will significantly reduce the proportion offunding available for other road maintenance, if maintenance fundingremains at its present level. In addition, not all the service agreement modelsenable the use of the present steering model.

From the point of view of the condition and quality of the road network, thequality demands of current service agreements do not cover all the servicelevel factors that maintenance quality management would require. Forexample there are no quality indicators for the structural condition of roadswhich makes long term management of durability difficult. In addition there isuncertainty about the quality purchased under service agreements ormanaging regional equality of road networks.

Service agreements require the availability of better source data thanpresently available and particularly the quality of information and itsmanagement. According to the experience of pilots, lack of information givesrise to such things as technical risks with agreements and difficult start-upsituations in service agreements. The real condition of the roads or bridgesin the area covered by an agreement is a central factor in the start-up phaseof a maintenance service agreement. However, it has been seen that thecondition at the start of the agreement period does not necessarilycorrespond to the expectations and quality criteria of the service agreementprovider.

In order to ensure the continuing functioning and development of markets formaintenance, it must be possible to utilise the totality of contractors’resources. This requires that different sized contracts and agreements arepreserved in the selection of procurement methods, as well as coordinatedprocurement planning.

The development areas mentioned above are all on the critical path andmust be resolved sufficiently before broadening pilots and taking thedecision to implement wide ranging service agreements. On the other hand,most of these development areas are decided by, and thus resolved by, theFinnish Road Administration.

FOREWORD

This report contains the experiences and views of the Finnish RoadAdministration and service providers on periodic maintenance serviceagreements, their analysis and conclusions and a recommendation formoving ahead. On 18.6.2007, the Board of the Finnish Road Administrationdecided to put maintenance service agreements to competitive tender for theyears 2008 – 2009. In addition, in its decision the Board required that theexperience and feedback from the development work and pilots should bereported annually to the Board of the Finnish Road Administration who, onthe basis of the report, will decide on the direction of further developmentwork. This report is one starting point for the further development workdecided by the Board of the Finnish Road Administration on 16.6.2008.

The preparatory work for the report was begun in the autumn of 2007 andthe following spring the subject was widely discussed in seminars, workinggroups, networks and in questionnaires. The aim of this exceptionally broaddiscussion internally within the Finnish Road Administration and with theservice providers was to ensure a sufficiently broad base and to bring outviewpoints in the form of experience and development proposals to supportthe report.

The Board of the Finnish Road Administration gave the responsibility forfurther planning, analysis and reporting of pilots to the periodic maintenanceprocurement expert network in cooperation with the Road Regions andperiodic maintenance product network. The procurement expert’s networkformed a development group for maintenance service agreements for pavedroads (PÄÄLPA) and a development group for bridge maintenance serviceagreements (SILTOPA) to do the preparatory work. Pöyry Infra Oy andPlaana Oy acted as consultants to these groups. The maintenance productgroup participated in preparing seminars and reporting on experience. TheRoad Regions responded to questionnaires about their experiences andviews on maintenance service agreements and indicated their readiness tofurther develop and pilot service agreements.

Helsinki, June 2008

Finnish Road Administration

Experiences of periodic maintenance service agreements in 2008 7

Contents

SUMMARY 3

FOREWORD 5

1 BACKGROUND AND STARTING POINTS 9

2 SUMMARY OF THE CONTENTS OF A SERVICE AGREEMENT 102.1 Difference between a service agreement and a traditionalcontract 102.2 Contents and responsibilities of service agreements 12

2.2.1 Service agreement models for maintenance of pavedroads 122.2.2 Service agreement models for maintenance of bridges 13

2.3 Service agreement pilots’ proportion of maintenance funding 152.4 Service agreement pilots for maintenance of paved roads 152.5 Service agreement pilots for maintenance of bridges 182.6 The use of indices in service agreements 20

3 EVALUATIONS OF SERVICE AGREEMENTS 223.1 The Finnish Road Administration’s views 223.2 Service providers’ views 30

4 ANALYSIS OF THE PILOTS 36

5 CONCLUSIONS AND RECOMMENDATIONS 445.1 Conclusions 445.2 Recommendations 47

6 APPENDICES 49

Experiences of periodic maintenance service agreements in 2008 9BACKGROUND AND STARTING POINTS

1 BACKGROUND AND STARTING POINTS

The objective of the Finnish Road Administration’s procurement strategy isto create the circumstances to improve the productivity of the sector’sservice providers and the Finnish Road Administration’s own procurementoperations, and to ensure targeted service levels and quality are achieved.In order to achieve these objectives, agreement models are used whichsupport the service providers in providing a good service to their road usercustomers in traffic and give a degree of freedom for the service providers todevelop and use new technical solutions and products.

In accordance with the procurement strategy, service agreements are beingdeveloped for procurement of maintenance. The service agreements are fora duration of several years during which the service provider provides theservices specified under the agreement. The service agreementdevelopment work tries to increase, in a controlled fashion, the serviceprovider’s responsibilities for managing the life cycle by extending the periodof the agreement and giving the service providers better opportunities forplanning activities and developing and using new technical approaches. Thecentral objective in adopting maintenance service agreements is to createthe circumstances for improving the productivity of the sector’s serviceproviders and the Finnish Road Administration’s own procurementoperations. Improving the productivity of the Finnish Road Administration’sown operations requires development of structures and operating models sothat fewer staff will be needed to run them. The objective is also to ensurethe capital value of the road network. The aim is to try to develop anetworked mode of operations in the sector as well as operating models thatpromote development and are based on trust.

The development work on maintenance service agreements was started inthe autumn of 2004 with a preliminary investigation into maintenance serviceagreements for bridges. The outlines for service agreements were set out inthe Finnish Road Administration’s procurement strategy which was drawn upin 2003. The competitive tender in the spring of 2007, using the documentsdeveloped, resulted in the signing of the first service agreement for bridgemaintenance. As far as service agreements for paved roads are concerned,the development work can be said to have begun at the turn of the year2005 and 2006 when the “Paved roads maintenance service model” studywas started. The first maintenance service agreement for paved roadsstarted in 2006.

Development of service agreements proceeds in steps based on theexperience of pilots. On 18.6.2007, the Board of the Finnish RoadAdministration decided which maintenance service agreements to be put tocompetitive tender for the years 2008 – 2009. In addition, in its decision theBoard required that the experience and feedback from the developmentwork and pilots should be reported annually to the Board of the Finnish RoadAdministration who, on the basis of the report, will decide on the direction offurther development work. The maintenance procurement expert networkwas authorized with analysing and making further plans for pilots, and in theautumn of 2007 it started the preliminary work with the aim of reporting tothe Board of the Finnish Road Administration in June 2008.

10 Experiences of periodic maintenance service agreements in 2008SUMMARY OF THE CONTENTS OF A SERVICE AGREEMENT

Experience of service agreement development work and pilots was drawnon as widely as possible in setting the direction for further developmentwork. During the spring of 2008 there were wide ranging discussions bothwithin the Finnish Road Administration and with service providers. This wasto ensure there was a sufficiently broad base and to bring out points of viewto support experience and development proposals. The views of serviceproviders were obtained through questionnaires and in seminars. PANK ry’sworking group “New procurement methods” has also discussed the subjectin its meetings. A seminar was also arranged for the Finnish RoadAdministration’s own experts and the Board discussed the subject in itsstrategy seminar. The Road Regions dealt with the matter in theirmanagement groups during the spring and also announced their readinessfor further development and piloting of service agreements. In addition, thesubject has been dealt with in the procurement and planning managers’networks as well as in the maintenance product network. A representativefrom Road Administration Steering Unit also participated in the planningmanagers’ meeting.

2 SUMMARY OF THE CONTENTS OF A SERVICEAGREEMENT

2.1 Difference between a service agreement and a traditionalcontract

The contents of service agreements are broader than those of traditionalmaintenance contracts. In the traditional 1-3 year maintenance contractsused by the Finnish Road Administration, the contractor carries out themaintenance work listed in the order according to a set timetable includingall the preparatory and finishing work on the principle of being responsiblefor quality. In traditional maintenance contracts, the contractor carries out thework on the basis of plans given in the order (e.g. the work method andmaterial type for paving a road) to the quality level demanded by the productand reports back on the quality achieved. In some bridge maintenancecontracts the client draws up an outline plan or list of jobs at the tender stageand the selected contractor uses that as the basis for finalising theimplementation plans. The contracts are mainly for an overall price, but theycan also include unit priced parts. The warranty period for the work is usuallytwo years, but for structural parts of bridges for example it is 3-5 years.

In a service agreement the client transfers parts of its current role to theservice provider. Pilot agreements are used to test what tasks can naturallybe transferred to the responsibility of the service provider by agreements.

Experiences of periodic maintenance service agreements in 2008 11SUMMARY OF THE CONTENTS OF A SERVICE AGREEMENT

Traditional contract

Contents of service agreements

Picture 1. Contents of service agreements compared to traditional contracts

As picture 1 shows the agreement transfers responsibility to the serviceprovider for performance monitoring and management as well asprogramming the maintenance in addition to implementation of the work.The service provider is responsible for ensuring the performance of thepaving of the road network or the bridges in the area covered by theagreement is in accordance with the agreement, which requiresmanagement of objective measurements of performance requirements andmeasurement techniques.

At present it is only possible to use agreements to manage the requirementsfor the performance of main roads within the network, but the minor roadnetwork cannot yet be managed well enough with them. This limits the useof performance requirements in service agreements. That is why using apartnership model for a road network that carries little traffic is beingexamined in the 2008 competitive pilots.

The condition of bridges is managed relatively well using information fromthe Bridge Register and from the general and special inspections that arecarried out on bridges. It should however be noticed that there can beinvisible damage to bridges which may possibly come to light only in specialinspections and in underwater inspections for bridges across watercourses.Since special and underwater inspections are not made routinely, but ratheras needed, the condition of bridges is not always known exactly. This alsolimits the use of service agreements based purely on performancerequirements for bridge maintenance.

From the point of view of road markings maintenance, service agreementtype contracts of several years’ duration have been used since 2001. Since2006 these have been referred to as service agreements and they havebecome the Finnish Road Administration’s main procurement model formaintenance of road markings. The duration of the agreements nowadays isfrom 3-5 years and includes the renewal of road markings as well asmanaging and implementing other maintenance operations according to theproduct requirements given. The service provider is also responsible for themaintenance of the registers relating to road markings. The maintenance ofroad markings is also included in the service agreements for maintenance ofsome paved roads. It is also implemented to some extent within dailymaintenance service agreements and as a traditional annual contract. Anational plan to put road markings service agreements to competitive tenderin future has been drawn up.

TOImenpiteidenohjelmointi

Sopimuskohteenkunnon hallinta

Toimenpiteidentoteutus

Toimenpiteidenohjelmointi






Condition managementof the object of the

agreementSteering of measures Implementation of

measuresTOImenpiteiden

ohjelmointiSopimuskohteenkunnon hallinta


Toimenpiteidenohjelmointi






Condition managementof the object of the

agreementSteering of measures Implementation of

measures


2.2 Contents and responsibilities of service agreements

2.2.1 Service agreement models for maintenance of pavedroads

The initial service agreements for maintenance of paved roads were drawnup in 2006 and they were based on the wideness of the area of the regioncovered as well as the road network covered by the agreement. The startingpoint was a regional model. As a result of the development work carried outfrom 2006 – 2008 the following models are now used.

Regional model

In the regional model for maintenance of paved roads the service providercommits to maintaining the paved roads in the area covered by theagreement (including pedestrian and cyclist routes) according to thestipulated performance for the whole of the period of the agreement. Thestipulated performance, which vary according to the maintenance class ofthe road network, cover the condition of the surface and structural condition.A total number of structural improvement operations are defined in advanceand these are carried out during the period of the agreement. The othersignificant tasks included in the regional model are maintenance of roadmarkings, inspection of the road network condition and service levelmeasurements, planning of maintenance activities as well as reporting. Theregional model also includes repair of gravel roads and repair of holes inpaved roads. The price in the agreement is made up of a fixed price andprices for functional parts as well as fees for possible development work.

Performance based requirement model

In the performance based requirement model for maintenance of pavedroads, the service provider commits to maintain the surface condition of theroad network in the area covered by the agreement at least in theperformance stipulated for the duration of the service agreement. Themaintenance service for the surface condition of the road network involvescorrecting faults to paved roads (paving and patching), road markings andgravel roads that are the result of damage or wear. The service agreementincludes annual measures to be carried out and reporting on measurestaken as well as measuring and reporting on the condition after the work. Afixed annual service charge is paid to the service provider each year of theduration of the agreement. In the performance based requirement model theservice provider is not responsible for the structural condition of the road,which is why the model is best suited to the main road network.

Partnership model

In the partnership model for maintenance of paved roads, the client and theservice provider work in close cooperation in the selection of areas to bepaved, planning of actions and timing. The service provider can present hisown solutions and methods which he believes will be satisfactory, better andgive a more economic final result with regard to lifetime costs for bothparties. The service provider is paid for the maintenance work according tothe number of work units executed. The funding available for the area


covered by the agreement is flexible and varies each year during theagreement. The partnership model is best suited for the minor road networkwhere it is not possible to establish comprehensive performance stipulations.

Hybrid model

The hybrid model for maintenance of paved roads is a combination of thetwo previous agreement models. In the hybrid model performancestipulations are set for the main road network and the minor road network ismaintained according to the principles presented in the partnership model.The advantage of the model is that defined flexibility mechanisms can alsobe added to a road network maintained under the performance basedrequirement model. The service provider is paid a service charge that ispartly fixed and partly based on the work done during the agreement.

2.2.2 Service agreement models for maintenance of bridges

In the autumn of 2004, a preliminary investigation was started in the FinnishRoad Administration in accordance with procurement strategy objectives todevelop a procurement model for the maintenance of bridges. Thepreliminary investigation phase defined the initial objectives to be set for theservice agreement model, the contents of the model and the timetable forimplementing it.

Development of the actual service agreement model was started in May2005. The objective was to develop a agreement model which could be usedto open up the markets in a controlled manner so that the preparedness ofthe supplier network would develop with the model and the markets wouldbe open to a new procurement model for bridge maintenance. At the start ofthe development work different kinds of agreement models were compared.On the basis of this comparison two potential agreement models wereselected, the manager model and contractor model, they were furtherdeveloped and presented to service providers at several events during 2005.Of these models, the manager model was the one in accordance with theprocurement strategy of the Finnish Road Administration as it could be usedto manage wide ranging procurement involving overall responsibility. Thepositive and unprejudiced attitude of the service providers, particularly toadopting the manager model, encouraged the Finnish Road Administrationto take the development forward on that basis. On the basis of the feedbackreceived from the service providers there was a belief that sufficient sizedmarkets would emerge. Six service providers indicated an interested in thevery first competitive tender.

On the basis of previous development work and on the feedback receivedduring the work, the Finnish Road Administration took decisions regardingthe contents of the service agreement model and its piloting in September2005. Following on from this decision, preparation of the service agreementpilot for bridge maintenance was continued on the basis of the managermodel by drawing up the agreement and request for proposals documents.The result of this preparation was a competitive tender based on the regionalmodel for the first wide ranging bridge maintenance service agreement(maintenance of bridges 2006 – 2011, Oulu southern region) during the


winter of 2005 – 2006. As a result of the development work carried out from2006 – 2008 the following models are now used.

Regional model

In the regional model for bridge maintenance, the service provider isresponsible for the maintenance of bridges in the area covered by theagreement in the performance stipulated in the product requirements for theduration of the agreement within the agreed funding framework. The modelgenerally covers all the work associated with bridge maintenance such asbridge condition monitoring, inspection of bridges, drawing up the annualprogramme of operations needed, drawing up repair plans, making repairsas well as reporting and maintaining the Bridge Register. In addition the rolemay also include bridge management work and assisting the client in itsofficial tasks. The service provider monitors the condition of bridges throughannual and general inspections and draws up a draft annual programme ofwork based on the condition of the bridges for the client’s funding frameworkwhich is based on the prices for structures and structural components givenin the tender. The service provider asks the client to approve the finalprogramme of work. The client informs the service provider about thefunding framework for each year of the agreement about six months inadvance. The annual funding framework may vary within agreed limits. Theservice provider’s responsibility is to draw up and implement a programme ofwork which will ensure the performance objectives for the bridges are met. Ifthe funding framework varies outside the agreed limits then the performanceobjectives in the agreement will also be examined. Implementation of theagreement and attainment of the performance objectives is monitoredannually.

Partnership model

In the partnership model for bridge maintenance, the service provider isresponsible for the agreed tasks related to the maintenance of a specificgroup of bridges such as monitoring the condition of bridges, programmingrepairs, planning and carrying out repairs as well as reporting. The serviceprovider and client work in close interaction with each other. Generally theservice provider makes the draft proposals as to where repairs are neededand the repair work required and on the basis of this, in cooperation with theclient, the final programme of work is shaped. The client makes the decisionon the contents of the final programme of work. The agreement model statesonly the fixed minimum amount of money to which the client is committedannually. The fee paid to the service provider for the maintenance work doneis a function of the number of work units carried out and the unit prices givenin the service provider’s tender. Ultimately the service provider is responsibleonly for the quality of the repair work he has carried out in accordance withthe principles of quality responsibility. The agreement model is very flexibleand it enables changes in objectives for results and in the funding frameworkto be taken into account.


2.3 Service agreement pilots’ proportion of maintenancefunding

In order to clarify the maintenance funding requirement predicted for 2008,the Road Regions were asked for information about the paving, roadstructure and bridge product groups. The total predicted funding requirementfor these product groups for this year is about EUR 167 million. Thepredicted funding requirement for the service agreement pilots is EUR 21million i.e. about 12% of the total funding for the product groups. Thepredicted funding requirement for service agreement pilots for themaintenance of paved roads is about EUR 17 million i.e. about 14% of thefunding requirement for paving and road structures. The predicted fundingrequirement for the service agreement pilots for maintenance of bridges is alittle below EUR 4 million i.e. about 8% of the total funding for the productgroup. The service agreements for paved road maintenance include work onroad markings which has not been separated out in this report. Thepredicted funding requirement for the road sign product group is about EUR11 million and this is made up of the funding for separate road markingcontracts, mainly service agreements covering several years.

2.4 Service agreement pilots for maintenance of paved roads

Table 1 shows how the development of service agreements for themaintenance of paved roads has advanced through pilots. The table showsthe agreement model, timings and costs of the agreement. After the table,the contents of the service agreements for maintenance of paved roads areshown in brief for each agreement. Material relating to maintenance serviceagreements and their development can also be found at the addresswww.yllapitoklusteri.fi.

The functioning of the service agreements for the maintenance of pavedroads is monitored closely, but experience is accumulated fairly slowly. Theeffects of the competitive agreements awarded in the winter of 2006/2007 onthe paving activities of the service providers during their first year ofoperation will only be seen in the spring of 2008. Even then the realexperience acquired will be limited since a large part of the activity will stillbe based on the programmes of work issued by the client.


Table 1. Service agreements for maintenance of paved roads in 2008.

Duration CostsAgreementmodel Agreement name

(years) (€ millions) (€ millions/year)

Performancebased

requirement

Maintenance agreement ofconcrete roads

(Lemminkäinen Infra Oy)10 5 0.5

Performancebased

requirement

HTU PPS(Lemminkäinen Infra Oy) 12 39 3.3

Region OULU PÄÄLPA1(Skanska Asfaltti Oy) 10 28 2.8

Region OULU PÄÄLPA2(Destia Oy) 15 45 3.0

Hybrid KaS PS(Destia Oy) 10 29 2.9

Partnership SK GNA(Destia Oy) 3 14 4.7

Partnership LYTA PS(in progress) 6 (estimate

14)(estimate

2.3)

Maintenance agreement of concrete roads

The joint project between the Häme and Uusimaa Road Regions"Maintenance of Concrete Roads 15.5.2006 - 30.10.2015" includesmaintaining the surface of main road number 3 at Karhunkorvi and theeastern by-pass at Tampere on main road 9. Two service providers took partin the competitive tender and Lemminkäinen Infra Oy was the winner. A totalof 43 kilometres of road network is covered by the agreement of which thereare two kilometres of slip roads. Maintenance of concrete roads coversmaintenance of the paving according to the performance requirementsincluding all the planning, preparatory and finishing work. The contractor willreceive annual road condition measurements commissioned by the FinnishRoad Administration in order to monitor programming and road condition.

HTU PPS

The service agreement of HTU main roads 1.5.2007 - 31.10.2018 includesmaintenance of the road network between main road number 3 Helsinki –Tampere, main road 9 Aura – Toijala and main road 10 Lieto – Tuulos. Fourservice providers took part in the competitive tender and Lemminkäinen InfraOy was the winner. The road network covered by the agreement is a total of1,169 lane kilometres of road as well as 102 kilometres of slip roads. Theagreement covers maintenance of the carriageway, additional lanes, sliproads, gravelled shoulders and road markings as well as patching andrepairing cracks. The service provider maintains the area covered by theagreement in the performance required and monitors the condition bymeasurement and inspection and also plans the operations needed on thebasis of the condition.


OULU / PÄÄLPA 1

The service agreement for maintenance of the paved roads in the Ouluregion includes the maintenance of all the paved roads and pedestrian andcyclist routes in the road network from 8.6.2007 - 31.12.2016. Four serviceproviders took part in the competitive tender of service agreement which waswon by Skanska Asfaltti Oy. The road network covered by the agreement isa total of 1,150 kilometres of which 146 kilometres are pedestrian and cyclistroutes. The agreement covers maintenance of the road network pavingsurface, structural improvement, road condition measurement as well asmaintenance of road markings. The agreement also includes a developmentsection which will investigate development of drainage, patching andmanaging information.

OULU / PÄÄLPA 2 (KOILLISMAA)

Maintenance of the paved roads in the Koillismaa area of the Oulu RoadRegion covers the road network in the Pudasjärvi, Taivalkoski and Kuusamocommunities. Five service providers took part in the competitive tender andDestia Oy was the winner. The service agreement starts on 19.6.2008 andruns until the end of 2022. The length of the area’s road network is about1,312 kilometres and in addition there are 30 kilometres of pedestrian andcyclist routes in the area covered by the agreement. Almost half of thenetwork is connecting roads. The main tasks included in the serviceagreement are the maintenance of the paving of the roads and pedestrianand cyclist routes, road markings and gravelled shoulders in the roadnetwork in the area covered by the agreement. The objects of thedevelopment section in the agreement include the client’s and provider’sroles in implementing the service agreement as well as developing the useof bonuses in the service agreement.

KAS PS

The service agreement 2008 – 2017 for the maintenance of the paved roadsin the South-eastern Finland Road Region is a two-part, hybrid agreement. Itincludes a fixed annual price for the part based on performancerequirements (577 kilometres) and a flexible annual budget (0.5 – 1.5 millionEuros/yr) for the part based on the partnership model (655 kilometres). Thepart based on performance requirements includes the maintenance class Y1road network and the part based on the partnership model includes themaintenance class Y2 road network. For the network subject to performancerequirements in the service agreement, the paving of carriageways and roadmarkings, road shoulders, patching and repairing cracks is included. Thenetwork covered by the partnership model will be implemented in a“partnership group” with jointly decided operations at the competitive pricesgiven in the request for proposals. Six service providers took part in thecompetitive tender and Destia Oy was the winner. The period of theagreement is 1.6.2008 - 30.11.2017.

LYTA PS

The objective of the paved roads maintenance service agreement coveringthe western cooperative area is to develop a partnership based agreementmodel that will be suitable as a service agreement for the maintenance of


the minor road network. The service agreement will go to competitive tenderin spring 2008. The agreement will start in the autumn of 2008 and will lastfor 6 years. The length of the road network is about 1,465 kilometres in ageographically cohesive area (Turku 605 kilometres, Häme 230 kilometres,Vaasa 630 kilometres) and it includes lightly paved roads. The objective ofthe partnership model for the minor road network is to bring the client andthe provider together in active cooperation in the selection of places,planning operations and driving forward new, more efficient solutions.Management of the condition of the road network is the responsibility of theclient and there is no need to keep to an exact annual level of fundingthroughout the duration of the agreement. The target spend is 2.3 millionEuros/yr. The minimum level (which the client is committed to) is 1.5 millionEuros/year and the maximum level (to which the contractor is committedthrough the competitive tender pricing agreement) is 3 million Euros/year.

SK GNA

The 3-year agreement (2008-2010) for the Savo-Karjala Road Region whichis based on a cooperative model, is part of the Nordic Countries cooperationGNA (Gemensam Nordisk Anläggningsmarknad) task to develop a pilotprocurement approach which develops forms of cooperation between theclient and the contractor with different agreement models and products. Theobjective is to develop a more traditional procurement model formaintenance of paved roads and apply it better, particularly in procurementof structural improvements to roads that carry little traffic and maintenance ofpaved roads.

The agreement aims to produce an operating model in which the clientkeeps sufficient opportunities to manage, but the contractor still has thepossibility to influence the timing of work and benefit from his skills inplanning repair work. Close cooperation between the client and thecontractor during the agreement is central to the agreement which, amongother things, emphasises the planning of work. The agreement coverssections preselected by the client with a total length of about 315 kilometres.The agreement may also cover other sections belonging to the roadnetwork’s maintenance classes 2 or 3. Four service providers took part in thecompetitive tender and Destia Oy was the winner. The period of theagreement is 6.5.2008 - 15.11.2010.

2.5 Service agreement pilots for maintenance of bridges

At the moment there are three bridge maintenance service agreements usednationally. In the Oulu Road Region there are two agreements which arebased on the regional model and have the same contents, and oneagreement based on the partnership model in the Turku Road Region. Inaddition the South-eastern Finland Road Region is preparing to put a serviceagreement based on the regional model to competitive tender. A summary ofthese service agreements is presented in table 2. Brief descriptions of theagreements are presented after the table.


Table 2. Progression in developing service agreements for bridgemaintenance to 2009.

Duration CostsAgreementmodel Name

(years) (€ MILLIONS) (€ millions/year)

Region SILTOPA 1 / Oulu south(Skanska Infra Oy) 5 7.6 1.5

Region SILTOPA 2 / Oulu north(Skanska Infra Oy) 7 12.6 1.8

Partnership SILTOPA / Turku(YIT Oyj) 2 +2 1.0 0.5

RegionSILTOPA / KaS

(in progress) 8 8.0(estimate)

1.0(estimate)

OULU / SILTOPA 1

The bridge maintenance service agreement for the Oulu south area covers674 bridges of which there are 134 tube bridges. The service provider isresponsible for the maintenance of bridges in the area covered by theagreement in the performance stipulated in the product requirements for theduration of the agreement and within the agreed funding framework. Theservice agreement includes monitoring the condition of bridges, managingand planning corrective operations, carrying out repairs and replacements aswell as documentation and maintenance of the Bridge Register. Threeservice providers took part in the competitive tender, and their tenders wereevaluated on the basis of quality and price. The competitive tender was wonby Skanska Infra Oy. The agreement came into force on 1.6.2007. Theagreed price is 7.6 million Euros which is an average of 1.5 million Eurosannual funding.

OULU / SILTOPA 2

The service agreement for bridge maintenance in the Oulu north area hasthe same contents in the main as the service agreement for the southernarea. The service agreement covers about 660 bridges and the area is madeup of 12 communities in the northern area of Oulu. The service provider isresponsible for the maintenance of bridges in the area covered by theagreement in the performance given in the product requirements for theduration of the agreement and within the agreed funding framework. Themain tasks in the agreement are monitoring the condition of the bridges,managing and planning repair work, carrying out repairs and replacementsas well as documentation and maintenance of the Bridge Register. Fiveservice providers took part in the competitive tender. The tenders wereevaluated in the basis of quality and price. The competitive tender was wonby Skanska Infra Oy. The service agreement was signed on 14.3.2008. Theagreed price is 12.6 million Euros which is an average of 1.8 million Eurosannual funding.


TURKU / SILTOPA 1

The service agreement for the maintenance of bridges in the Turku RoadRegion covers 100 client-specified bridges. The period of the agreement isfrom 2007 – 2008 and, in addition, includes an option for two more years.The client and the service provider have provisionally agreed to use the twoyears of the option. The agreement includes maintenance inspections,programming of bridge maintenance works, drawing up of repair plans,maintenance repairs, renovations and emergency repairs as well asupdating the Bridge Register with regard to each of these tasks. The client iscommitted to a minimum annual cost of 300,000 Euros and a controlledyear-on-year increase. The service provider is YIT Oyj.

KaS / SILTOPA 1

The service agreement for maintenance of bridges in the South-easternFinland Road Region is provisionally for 8 years (2009 – 2016). The mainterms of the agreement are the same as the service agreements for themaintenance of bridges in the Oulu Road Region. The service agreementcovers about 1/3 of the bridges in the Road Region i.e. about 350 bridgesand the area consists of two maintenance agreement areas (Imatra andLappeenranta maintenance areas). The body of the agreement consists ofbridge condition inventory data based on bridge maintenance programming,planning, repairs and re-builds and documentation. In addition the serviceagreement includes periodic bridge maintenance related operations andauxiliary tasks regarding the acquisition of official permits and statements forcontracting purposes. General inspection of the bridges is not included in theagreement. The procurement announcement will be made in June 2008 andrequests for proposals will be sent out in August 2008. The objective is tohave the service agreement start on 1.1.2009.

2.6 The use of indices in service agreements

The law limiting the use of index clauses and the regulation based on itconcerning the use of index clauses in construction contracts, limits andregulates the use of indices in contracts. It should be noticed that an indexclause that is contrary to the law or the regulation based on it has no force.

However the law does allow prices for goods and raw materials which theparties have no significant opportunity to influence to be fixed to a priceindex. Similarly, for types of agreements specified in the law, for example a10 year agreement for total management services for a road, the legalrestrictions do not apply and so index linking can be more freely selected.The Council of State’s decree based on the Act on the use of index clausesin construction contracts allows, under precisely stipulated performance, theuse of the MAKU part indices M, S or K on construction contracts that last atleast 12 months.

Table 3 shows how the service agreements for maintenance of bridges andpaved roads that have been concluded up to now, or are being prepared,are index linked.


Table 3. Indices used in service agreements for maintenance of paved roadsand bridges.

Service agreements for maintenance of paved roads

Agreement Duration(years) Index linked

Maintenanceagreement of

concrete roads10

Bitumen in its entirety according to use andthe remaining part of the agreement price, reduced by

25% of the MAKU part index M1) as salary cost, and 2/3of changes to it will be taken into account

HTU PPS 1212% of the agreement price linked to the bitumen index

and88% of the agreement price to the whole MAKU index

OULU PÄÄLPA1 1010% of the agreement price linked to the bitumen index


OULU PÄÄLPA2 1510% of the agreement price linked to the bitumen index


KAS PS(performance based

requirement part)

15% of the agreement price linked to the bitumen indexand

85% of the agreement price to the whole MAKU index

KAS PS(partnership part)

10 Bitumen in its entirety according to use andthe remaining part of the agreement price, reduced by


SK GNA 3

Bitumen in its entirety according to use andthe remaining part of the agreement price, reduced by


LYTA PS 6

Bitumen and the liquid-gas/fuel oil to heat the vessel inits entirety and the remaining part of the agreement

price, reduced by 25% of the MAKU part index M1) assalary cost, and 2/3 of changes to it will be taken into

account

Service agreements for maintenance of bridges

Agreement Duration(years) Index linked

SILTOPA 1 / Oulusouth

(Skanska Infra Oy)

5 From the second year of the agreement (2008) theagreement price will be linked to the MAKU bridge

construction work part index S2).

SILTOPA 2 / Oulunorth

(Skanska Infra Oy)

7

From the second year of the agreement (2008) theagreement price, reduced by 35% as the salary cost

element, will be linked to the MAKU bridge constructionwork part index S2) and 2/3 of changes to it will be taken

into account.

SILTOPA / Turku(YIT Oyj) 2+2 No index linking

SILTOPA / KaS 7 In progress

1) part index M= the whole index without the bridge construction work, employees’ andmanagers’ salaries and indirect salaries.2) part index S= the bridge construction work index without the employees’ and managers’salaries and indirect salaries.

22 Experiences of periodic maintenance service agreements in 2008EVALUATIONS OF SERVICE AGREEMENTS

The PANK ry working group on procurement, with experts from the FinnishRoad Administration, examined problems arising from changes to the costlevel of maintenance service agreements in January 2008. The joint decisionof the meeting was that Infra ry will clarify the possibility to develop MAKU’snew maintenance part index. It later became clear that it was not sensible todevelop the Y index because the contents of the different service agreementmodels differed from each other too much. It was considered that a bettersolution was to update the ratios between the different elements of theMAKU index regarding paving work.

3 EVALUATIONS OF SERVICE AGREEMENTS

In the spring of 2008, under the direction of the Road Regions and theservice providers, questionnaires were sent to selected respondents toclarify the sector’s views on the use of maintenance service agreements. Inaddition, two seminars were held, one for the service providers and the otherfor the staff of the Finnish Road Administration. Development of serviceagreements has also been widely discussed by experts in the Finnish RoadAdministration in various cooperative networks.

The sector’s evaluation and views presented in the following are based onthe activities mentioned and also on the experiences with maintenanceservice agreement pilots. The views have been grouped according to thethemes that were seen as important.

3.1 The Finnish Road Administration’s views

General points about service agreements

The view has been put that at the moment there is not enough experience todraw conclusions about the functioning of service agreements and theirinfluence on road maintenance and/or the sector. Therefore it is not yetpossible to decide if it is worth switching to service agreements for theprocurement of maintenance for paved roads or bridges. For example it iscompletely impossible to take a view on the price quality ratio produced byservice agreements or the overall benefit to the maintainer and user of roadson the basis of today’s experience. On the other hand, the opinion wasexpressed that no major factor has arisen which would indicate that we wereon the wrong track in developing maintenance service agreements.

Experience has shown that maintenance of paved roads and bridges can beprocured using service agreements and that some of the Road Regionshave reacted positively to the development of this procurement model. Thereare also differences in how the agreement models are regarded. However, itis not worth moving ahead with service agreements too quickly.

Before service agreements can be adopted widely, more experience of thecurrent pilots is needed over a sufficiently long period of time and theproblems that have arisen in the pilots need to be resolved. It is noticeablethat many of the problems that have come to light in the pilots are not relatedto the service agreements as such, but have only come to light through the

Experiences of periodic maintenance service agreements in 2008 23EVALUATIONS OF SERVICE AGREEMENTS

pilots. Examples are lack of source data and information systems as well asinsufficient conditions for management and maintenance of the road networkand bridges. It should be noticed that the problems stemming from theseinsufficiencies are smaller in the traditional operating models that in theservice agreements.

The link from the service agreement to the overall situation must be plannedand not just be individual agreements. Maintenance is one of the FinnishRoad Administration’s core areas and should have a status that reflects thatand for which a strategy should be drawn up which is based on the cheapestsolutions for the whole network. In addition to strategy, maintenance in theRoad Regions should be managed more analytically with management andmaintenance plans. In addition, parallel ways of working should bedeveloped as for example the use of a consultant in management andprocurement by using such things as framework agreements.

Agreement model and agreement contents

In preparing a service agreement, selecting the model and contents onemust ensure a good service level for the user of the road and value formoney of the agreement when thinking of the lifetime cost of the roadassets.

For maintenance of paved roads, the choice of agreement model in aservice agreement is a critical factor in the functioning of the serviceagreement and the risks involved. In future it is worth concentrating on usinga performance requirement-based agreement model for main roads and apartnership based agreement model for the minor road network, or ondeveloping a combination of these two models, but in these too, there mustbe enough flexibility for both managing changes in the operatingenvironment and taking the needs of customers into account. Too manyrisks were seen in the regional model for it to be worth using.

For bridges, it is not worth using purely performance requirement basedservice agreements for the time being, because there is no unambiguousmeasurable condition parameter in use for bridges. In service agreementsbased on regional models for bridges, elements of the partnership modelshould be used as well as performance requirements, as these give flexibilityto the agreement and enable changes to funding and result objectives madeduring the period of the agreement to be taken into account in the serviceagreement.

The requirements stipulated in the performance requirement model have tobe clear and unambiguously measurable condition parameters which are notbased on subjective evaluation. It is also particularly important that theagreements are clear and they contain clear flexibility mechanisms and rulesfor managing changes. In addition the cost impact of changes must beestimated in advance in order for the level to be defined correctly.

The contents of maintenance service agreements for bridges must also beevaluated more exactly. For example including general inspections in theservice provider’s tasks must be carefully evaluated because the results ofthe general inspection are used to define the condition of bridges and theperformance level objectives are tied to this. The size of individual basic


repairs included in agreements and their impact must also be evaluatedcarefully.

It does not seem sensible to enter into road maintenance serviceagreements or other service agreements for road maintenance and otherproducts until there is sufficient experience of product specific serviceagreements. The advantage of service agreements covering severalproducts though is that problems caused by the interfaces between differentproducts are removed.

Steering road maintenance

For the steering of road maintenance it is of primary importance tounderstand what is being bought with a service agreement, on what basis,with what distribution of responsibility and how the service agreementcommits funding in years to come. In addition it must be possible to identifyhow the area’s road maintenance is managed through the actions of theclient and correspondingly through the service provider’s actions.

Road maintenance does not revolve around service agreements, rather theagreements have to recognise the realistic constraints set by roadmaintenance. They definitely have to be flexible to changes in the operatingenvironment, and take the needs of customers, steering, TTS andmaintenance planning. Governments change every four years and themaintenance lines of action are updated at about five yearly intervals and sothe weighting between different products and the different parts of the roadnetwork may change then. Widening the use of service agreements with thepresent models, where there is no mechanism for managing changes to theline of road maintenance, threatens the implementation of the lines of actionas well as weakening the consistency of the road network and the equalfooting of the different regions.

Developing service agreements that are sufficiently flexible also bringsfinancial risks. If one tries to develop change mechanisms for all the possiblechanges then the operation cannot be economic overall nor efficient. Onewill end up negotiating and one must be prepared for additional costs in theagreement if the road maintenance strategy is changed, new indicators arelinked to management of results, or there are significant traffic changes inthe network where there are performance based requirements.

If the use of service agreements becomes common, the old steering modelfor road maintenance will no longer be useful, but will need to be developedat least as far as setting of long term objectives is concerned. In any casethe first thing is to select a good steering model for road maintenance andthen suitable procurement models. Irrespective of the steering model, theremust be flexibility in the service agreements because of their long duration.Wider ranging discussions between steering, planning and procurement arealso needed in development work of the steering model.

Road maintenance planning

For road maintenance planning the central question is how to ensure theoverall management of the road network and bridges with serviceagreements. It must be possible to include objectives set by planning, and


any changes to them, in service agreements when the agreement is alreadyrunning.

The objective of planning is to get the condition of the road network andbridges to the level desired. Excess or insufficient quality is alwaysexpensive for society. The quality level aimed for is adjusted all the time asthe relationship, for example, between the cost of the road network andtraffic changes. The basic philosophy behind maintenance management hasto be kept in mind in the service agreements. Service agreements must alsonot lead to a situation where regional equality in the maintenance of the roadnetwork suffers.

A second important question for planning is the management of structuralcondition. At the moment, and it could hardly be otherwise in the future,there are no reliable structural condition measurement approaches whichcan be used in performance steering. Therefore one should not use serviceagreements to try to manage structurally problematic parts of the roadnetwork using fixed performance requirements. Agreements of thepartnership type though do make flexible performance managementpossible.

Funding of road maintenance

One central question is how much of the maintenance funding can becommitted to service agreements. If too large a proportion of the funding iscommitted it will lead to major problems in managing road maintenance, andfulfilling road maintenance objectives will be difficult for the Road Regionsand the whole of the Finnish Road Administration. If result objectives changewhile a agreement is running (which is very probable) then management ofthe result with the new performance objectives will not succeed with thepresent performance requirement -type service agreements.

The costs of road maintenance are easier to keep in check with thepartnership based model in which only the lower limit of the order volumechanges with the index. A change in the contractual conditions in theagreement of performance based requirement, even if the performancerequirements are made less strict, will probably not be advantageous for theclient. However the partnership model does require more work from theclient, at least at the beginning, than the performance based requirementmodel.

If the service agreement proportion of maintenance is too large it will bedifficult to keep the desired weighting between service agreements and othermaintenance, and implement it along the planned lines to get the desiredeffects, and neither will it be possible to maintain regional equality in theperformance level any longer. Maintaining equality could be easier if theservice agreements based on performance requirements were concentratedon road networks carrying a lot of traffic, where maintenance is in any case apriority, and possible financial problems would not then focus on them sosignificantly.

Index linking of long service agreements are unavoidable otherwise theservice providers’ pricing will reflect significant risk. However, index linkingcauses significant problems for financial management both at the Finnish


Road Administration and Road Region level, because the presentgovernment's budget frame does not recognise indexed adjustments. Ifindex linking is not accepted at the level of specification of the whole of basicroad maintenance, maintenance service agreements will choke off otherroad maintenance funding irrespective of how successful competitivetendering has been.

Source data and information systems

The piloting of service agreements has brought the importance of theamount and quality of information to the fore. The quality of measurementinformation for example is not sufficient for predicting condition at the level ofagreements. Sufficient and up to date information about the road networkand bridges is extremely important irrespective of the procurement model.For this development work, wide ranging cooperation is needed within theFinnish Road Administration. If information systems are not in goodcondition then extra work and risks are generated for both the client and theservice providers.

Source data that is partly or wholly defective is a problem in itself. Forexample, an automatic inventory of damage to the road network still needs afew years of development work before we know whether its information canbe used as a performance requirement for service agreements.

For service agreements for bridges, invisible damage which is not identifiedin annual and general inspections of bridges is a problem. At the momentthere are no technologies in sight which could identify this kind of damageand its extent reliably without damaging the material. It will only be possibleto evaluate the effects of this damage in service agreements and theinformation usability of current condition in service agreements with somedegree of accuracy on the basis of several years of pilots.

Changes to the operating environment

The long duration of service agreements will inevitably bring risks stemmingfrom changes in the operating environment which neither party will be ableto reliably predict. For example a small increase in the volume of traffic willnot result in the need to adjust the agreement, but problems may arise if thevolumes of traffic increase considerably in part of the network covered by theagreement. This will result in a round of negotiations with the serviceprovider which always costs the client money.

The objective of maintenance is “the optimum performance level”. It is notfixed, but changes all the time with changes in the operating environment(material prices, fuel prices, price of bitumen, climate change, control energyconsumption, customers with special needs, etc) which is why there is acontinual need for change in steering.

Functioning of the markets

Ensuring functioning markets and preserving a sufficient level of competitionis seen as a considerable concern. There is a great risk that only largecompanies will be successful and consolidation will continue in the sectorwith the result that the small and medium sized companies will exit the


market. In order to reduce this risk an “entry agreement model” is alsoneeded which could bring in new suppliers. The three year partnershipmodel that has been implemented in Savo-Karjala for example could beused for this. In addition, there could be a threat of local concentration ofsuppliers.

The functioning of the markets is an extremely serious question for bridgemaintenance. In order for the condition of bridges to be better managed thanat present, it must be possible to use current contractor resources as awhole. This requires the preservation of different sized and different kinds ofcontracts in the selection of procurement approaches and coordinatedprocurement planning. In parts of the country repair contracts that areattractive to small contractors are needed, elsewhere contracts that aresuitable for large national suppliers.

Service agreements demand wide ranging skills and they will not all befound in just one company, but must be acquired by networking with othercompanies in the sector. What could be a problem and a barrier to thefunctioning of markets would be that not all contractors wishing to participatewould be able to find skilled partners. This will be seen particularly if thenumber of service agreements grows rapidly.

The effect of service agreements on operating culture

Change of operating culture towards working together is regarded as a goodthing because change always results in positive development needs. Skilldevelops with demand and companies always adapt to demand. Change inthe operating environment means major culture change and a need to adaptfor the client too, who are very concerned about the sufficiency of skills.Change is seen as a major challenge for both parties.

Maintenance service agreements of paved roads have brought somedeficiencies to light including curbs and cracks. They are not always at thespecified performance level. Clear deficiencies have also been seen in areaswith current service agreements for bridge maintenance. If serviceagreements are based on the assumption that the initial condition of the roadnetwork is always in accordance with the performance demanded, thisrequires more detailed monitoring of daily and periodic maintenance serviceagreements. Things that have gone unnoticed and removing things leftbehind will probably end up as the client’s responsibility and will require asignificant financial input.

Information flow from the service provider to the client and on to thecustomer is extremely important. The service agreements specify acomprehensive and functioning flow of information, but there are stilldeficiencies there. For example information about the sections to be pavedin the summer is passed on to the client and road users quite late.

Developing the sector

All kinds of development concerning maintenance are extremely importantand should support the operation of the whole sector. Development activityshould be driven by companies, but development also needs demand fromthe client’s side and they must coordinate it between the different service


agreements. A win-win-win approach must be developed in the thinkingabout service agreements i.e. the road user customer must also gain somebenefit. Basic research must also not be completely forgotten.

The role of the Finnish Road Administration is not to fund companies’internal product development, rather the whole sector should benefit fromthe new knowledge that arises from the service agreements’ developmentsections. Development should arise in other ways too and not just from thedevelopment sections of service agreements, since the service agreementsalso provide companies with good opportunities for their own productdevelopment.

It is not yet possible to show the benefits obtained through serviceagreements even though expectations about the increase in developmentwork in the sector and skills has been recognised. It is not however clearthat a service agreement will lead to the development activity desired by theclient, rather product development may be directed only towards efficiencyand satisfying the client’s demands by taking the fewest possible operations.

Issues of particular concern in service agreements

There are also major problems seen as a barrier to the success of serviceagreements because the Finnish Road Administration does not have thenecessary quality requirements for the early maintenance of the roadnetwork and its structural durability. There are only usable conditionmeasuring approaches for some surface conditions and for example whenchoosing actions for the minor road network there are no usable indicators ofdamage to the road surface at all at the moment. There are no objectivelymeasurable structural performance requirements in any other countrieseither.

The service level is affected by other factors too that cannot be measuredwhich is why it is impossible to take them into account in serviceagreements. The possibilities to take the needs of road users better intoaccount in developing condition measuring approaches will not be utilised ifservice agreements are promoted widely now.

The effects of maintenance actions are much longer term than the length ofagreements which may result in strengthening measures being left undone.The inclusion of other new condition variables in agreements (discharges,rotation drag, puddling, crossfall, etc.) also causes problems.

To manage bridges over their lifecycle, it is extremely important thatmaintenance operations happen at the right time, to the right quality inaccordance with the lines of action, instructions and the stipulated qualityrequirements in force. Concerns have been raised as to how serviceagreements will be able to ensure that the repairs will be made inaccordance with the criteria above and that they will last a sufficiently longtime. Ensuring that quality is implemented will probably require that the clientparticipates in and has sufficient influence on the programme and itssteering, and that it focuses sufficient resources on monitoring theagreement.


From a planning perspective, the benefits that may possibly be gained frommaintenance service agreements will not cover the losses resulting frommaintenance management. Maintenance is one of the core areas ofresponsibility for the Finnish Road Administration. It must be managed,planned and steered. It must meet the needs of customers and aim to beamong the most economic overall solutions.

One problem is also the possible benefits of service agreements. On thebasis of today’s experience it is not possible to draw the conclusion that theagreements will be economic for the client when considering maintenanceoverall. If costs increase it will reduce the funding for the road network notcovered by service agreements in the event that overall funding available forroad maintenance remains at the same level.

Risk management

The development work related to service agreements needs to placeparticular emphasis on risk management and the risks inherent in serviceagreements, and more in-depth analysis of how risks are divided than isdone at the moment is needed for the benefit of all parties. It must be bornein mind for all solutions that the Finnish Road Administration is responsiblefor road maintenance and road users in all circumstances. The risks to theclient must be evaluated on a broader front than just procurement.

The distribution of risks and the forms of agreement associated with theirmanagement have to be developed rapidly.

New pilots

Before service agreements are used more widely than at present it must bepossible to show their starting points and their benefits in detail.

Service agreements should be promoted in pilots with daily maintenanceand utilising experience gained. Pilots already running and the effects ofthem must be thoroughly analysed more widely and from other perspectivesthan just procurement. A year or two is too short a time to evaluate aagreement that will run for ten years or more.

The development of service agreements should be centrally planned andmore time should be allowed for it so that the experience of earlier pilots canbe utilised. New pilots should be well planned and sufficiently different fromprevious schemes. The region where pilots are run is secondary since inspite of pilots, there must always be regional equality in road maintenance.

Benefits and problems with service agreements from the perspective of theFinnish Road Administration

The views of the Finnish Road Administration presented in this chaptercontain a lot of opinions and evaluations about what benefits and problemsfrom service agreements will most probably be experienced by the client andthus by road users.

+ Service agreements are a new possible way to procure maintenance.


+ Service agreements bring the possibility to transfer operations as well asresponsibility for development to other actors in the sector.

+ Service agreements change operating culture, i.e. they improve andincrease cooperation between different actors.

+ If the contents of a service agreement are good then it is possible to useit to achieve the service level aimed for.

- If the agreement model is poorly chosen, it significantly weakens theoverall management of road maintenance.

- Index linked costs will reduce the funding share of other maintenance inthe future and it may lead to inequalities in regional maintenance unlessthe funding for road maintenance is correspondingly increased.

- The use of service agreements requires the development of broadinformation systems and source data especially for the needs of serviceagreements.

- Factors which cannot be measured reliably at present cannot becomprehensively included in service agreements.

- There is not sufficiently detailed knowledge of the effects of regionaladministration development on the possibilities to use serviceagreements.

3.2 Service providers’ views

General points about service agreements

The general view of the service providers is that there is still so littleexperience that it is far too early to draw conclusions about how well serviceagreements work. It is important that the pilots are monitored systematicallyand that annual feedback sessions are arranged. In about 4-5 years’ time itwould be a good idea to carry out an examination of the functionality,benefits and problems related to service agreements once the real effectscan be seen.

As far as bridge maintenance is concerned, there is a clear split among theservice providers between the small and large companies. The largecompanies mainly support service agreements and see them as the futureprocurement model. On the other hand, the small companies are verycautious with regard to service agreements. Some see service agreementsas just a factor to restrict competition because there are only a fewcompanies that have the ability to support the risks contained in serviceagreements. This results in a low number of companies participating in thecompetitive tenders for service agreements for bridge maintenance (3-5tenders).

Agreement model and agreement contents

The service providers’ view with regard to service agreements for themaintenance of paved roads is that the performance requirement modelwould be used for the main road network, and for the minor road network apartnership model or a combination of the two (hybrid model) would be used.Of the current pilots, the South-eastern Finland service agreement for pavedroads is this type. The regional model for maintenance of paved roads isseen as being too much of a mixture and that is why it also contains greateruncertainty factors and thus higher risks. 10 – 15 years is regarded as a


good length for performance requirement agreements, but the partnershipagreements for minor road networks can be considerably shorter.

The service providers regard limiting the amount of different technicalrestrictions, for example rut filling, throughout the period of the agreement asan extremely expensive requirement. It would often be enough to impose thelimitation at the end of the agreement and the service provider could work asfreely as possible until then.

The agreement interfaces need refining and resolving because, for example,deficiencies in maintenance of the shoulder of the carriageway cause majordifficulties for the maintainer of the paving. Removing road markings fromthe agreements should be considered.

Development and management of quality is important and should besupported and controlled in all agreements. The use of bonuses inagreements should be developed. However, this requires reliable means ofmeasurement and evaluation.

Among the large service providers the contents of the Oulu regional modelagreements (Siltopa 1 and 2) were considered as suitable for bridgemaintenance service agreements. The contents could be expanded bybringing bridge maintenance activities within the scope of the agreement.Maintenance of the paving on bridges was not wanted to be included in theagreements, as they should be included in service agreements formaintenance of paved roads.

One detail to point out is that the service providers want general inspectionsof bridges to be part of the service agreements. If the service providers carryout the general inspections themselves, this increases their knowledge ofthe condition of the bridges and makes planning and managing work easier.

It was generally considered that a suitable duration for bridge maintenanceservice agreements was from 5 - 8 years. A 5 year agreement alreadymakes sensible investments and development possible, but an agreement ofover 8 years was seen as involving too many variables which could not besensibly managed.

The number of bridges considered as suitable for inclusion in an agreementis from 500 – 700 bridges, though a more significant factor than the numberof bridges is the area of the region to be covered and the work included.

The small service providers hoped for what are termed “sector entryagreements” which would be narrower in scope, would cover fewer bridgesand would have a shorter duration. The risks in these kinds of agreementswould thus be less and could be managed better.

Source data and information systems for paved roads

From the service providers’ perspective the source data and the informationsystems that process it are extremely critical. The general view is that theFinnish Road Administration’s current systems have been created only forinternal use and so use of the systems from outside the Finnish RoadAdministration is difficult and in some cases almost impossible. There are


also far too many deficiencies and inaccuracies in the source data to use itas the basis for making a tender without major risks. In addition, theinformation may include source data that is useless for a service provider.

The source data needed is different in different kinds of agreement models.The service providers have presented a comprehensive list of informationwhich is essential when writing a tender. These are

o PTM measurements (from as many years as possible, alsothe initial rut measurements from places 1 – 2 years old),

o general and historical information about a roado earlier work and materialso Information about the material aggregate in previous paving

slab/aggregateo the possible use of recycled aggregateo traffic volumes (timing of the count and predictions),o unstable road markings and the maintenance needed

(methods)o technical locations (LAM, road meteorology stations, speed

cameras…),o information about bridges and historical information about

paving work,o restrictions on activities for bridges ando soil measurement informationo source data about road markings (information about amount

and material, information about condition and reflectivity aswell as historical information about the amount of markingsrepaired in previous years)

Practices regarding availability and level of all source data should beconsistent throughout the country. Information should be availableimmediately at the start of the stage of request for proposals and so theservice providers consider it sensible for the client to get its source data intogood condition before it launches an invitation to tender. Information has tobe reliable and should almost without exception be binding.

Over the long term a development group should be set up to define the leveland quality of source data and participants should include representatives ofservice providers and consultants as well as the client.

Source data and information systems for bridges

As far as maintenance of bridges is concerned, the most critical informationis about condition, place and general information about bridges in the BridgeRegister. Damage reports and pictures of damage in the Bridge Register arealso necessary source material. Bridge construction designs and otherdocuments about bridges (for example statements about gaps) are alsoimportant source data. Pictures of the road network in the bridge area havealso proved to be useful source data.

For calculating the tender it is extremely important that the information usedis correct, up to date and it must be presented graphically in electronic formso that it is easy to use. For example, searching for data about a bridgedirectly from the Bridge Register already requires specialist skills that not allintending tenders will have. It is also important that as much of the source


data as possible is given by the client as binding so the client bears the riskfor any mistakes in the data.

There has been positive feedback from the service providers whoparticipated in the competitive tender for the Oulu pilot service agreementregarding the information service used during the tender period in which thesource data was presented as dynamic links (data linked to a map). Theclient has done some work for the information service and refined theinformation in the Bridge Register and added information from the RoadRegister (traffic volumes, maintenance class, road widths). In addition theinformation service has used pictures taken of roads in the region. Furtherdevelopment of the information service model used during the tender periodwould give sufficiently clear and appropriate information for the request forproposals period for service agreements of bridge maintenance.

Functioning of the markets

It is considered that there is a risk that service agreements will reduce thenumber of actors because only the large companies will be able to take risksbig enough and cope with competitions. Networking is seen as the onlysolution to this problem. An effective network will be the result of combiningdifferent skills (contractors, consultants, information services). Howeverthere are not yet sufficient supplies of all the skills that are needed. Forexample there are few skilled programmers and similarly there are far toofew people who can carry out road condition measurements. There is alsostarting to be a shortage of competent bridge inspectors.

All in all, the prevailing view in the sector (particularly among the small andmedium sized bridge companies) is that if the number of companiesparticipating in the competitive tenders decreases significantly, prices willrise.

The markets might partly close regionally, if a service agreement gives aservice provider an advantage in obtaining other contracts in the region. Theother contracts could be either Finnish Road Administration's contracts orcontracts from other clients in the region.

The functioning of markets could be ensured by creating different sized anddifferent types of contracts and putting them out to competitive tenderaccording to a coordinated timetable.

Risk management

The risks in service agreements differ significantly from basic agreements,which is why significant efforts should immediately be put into thedevelopment of risk management. This is the key issue for the success ofservice agreements and it should be done in close cooperation between theclient and the service providers.

For the bidder, the largest risk is definitely their ability to calculate becausethe whole service agreement contains such a large number of issues thatare total guesswork.


The sector must work as a united front to try to influence legislation so thatappropriate index linking can be used in agreements which will enable therisks resulting from predictable cost increases to be divided in the rightproportions.

Gas used for work involving heat should certainly be index linked in theagreements otherwise too much will be added to the tender prices for risk.As regards bridge maintenance, index linked material costs, particularly forproduction (steel, cement, etc), are also regarded as essential for riskmanagement.

The lack of indexing of costs and the handling mechanisms for warrantyclaims (generated at reception and at hand-over) are not yet resolved.

The client must also develop mechanisms for managing their own risks suchas changes in steering and funding as well as changes relating to the neworganisational structure in the client (regional management, infrastructureagencies).

It is unreasonable for a service provider to bear the risks related to thegrowth in traffic volumes and climate change alone so a mechanism isneeded to change the contents of the agreement in these areas.Mechanisms are also needed to manage possible changes to conditionvariables resulting from changes in lines of action and to integrate them intoagreements.

Timetabling of measurements and sufficiency of resources may also becomea problem in the future.

One risk as far as bridges are concerned is invisible damage as generalinspections may not necessarily reveal the amount or extent. This may againlead to risk pricing unless a management mechanism to deal withunexpected damage is included in the agreements. Invisible damage can beseen as one form of deficiency in the source data.

The effect of service agreements on operating culture

The service providers consider it possible that service agreements willpromote product development and productivity, but at the momenteverything is still at the level of hope. There is a risk however that the pricewill be so tight that only the cheapest possible acceptable operations will betaken. This too, will only become clear after a few years. The requirementsof service agreements will however move operations in the direction ofinvesting more than previously in quality.

There is a general view that the length of service agreements will make itpossible to improve productivity through the development of skills andresources.

The increase in cooperation between the different actors in the sector in allcircumstances is seen as positive which is why partnership models are alsoregarded as positive.


New pilots

The sector believes that at most 50% of the maintenance of paved roadsshould be tied to service agreements and for some contractors less than thiswould be enough. The move to service agreements should be at the rate ofabout two agreements per year.

According to the large national service providers, as far as bridgemaintenance is concerned about 50% of the total maintenance volume of theFinnish Road Administration’s bridges should be tied to service agreementsand a good rate of transfer to service agreements would be 2 – 5agreements per year. The small service providers think that the amount ofmaintenance tied to service agreements should be considerably less, about10 – 20 % and the rate of transfer should be a maximum of 1 – 2agreements/year.

Requests for proposals for service agreements should be at different timesto basic contracts so that calculating the tender offers does not all fall in thesame months.

Benefits and problems with service agreements from the perspective of theservice providers

Asking for experience of the benefits and problems with service agreementsafter the first year is far too early. The initial views of the service providershave been to evaluate where the possible benefits and problems will mostprobably arise. These are listed below.

+ For service providers, a long term order book ensures continuity andmakes better development possible as well as promoting networkingbetween producers.

+ Long term work also makes sensible investment possible as well asincreasing the number of employees and developing their skills

+ The use of service agreements will raise the level of the condition of thesurface of the road network because the level required is fixed (andsubject to sanctions). Nowadays there is flexibility with the levelaccording to need.

+ The need for knowledge of paving technologies will come to the foreagain, and the real condition of the road network, as well as deficienciesin daily maintenance agreements, will be known more widely and in moredetail.

+ Service agreements will compel the Finnish Road Administration toimprove the quality of information as well as to develop registers andsystems to form a common, up to date portal.

+ Actors in the sector have learned a lot from each other in developingservice agreements and the interaction during the process has for themain part been positive.

- Making changes to fixed agreements is difficult and service providersfind it difficult to live with the Finnish Road Administration’s (continuallychanging) world of objectives.

- Costs increase if there are surprises as a result of deficient source data.These increased costs can also arise in normal overall contracts and arenot a result of service agreements.

36 Experiences of periodic maintenance service agreements in 2008ANALYSIS OF THE PILOTS

- Problems arise if the service provider has underestimated the workneeded in his program forecast and then has to take measures that are“wrong” for lifetime costs. Correspondingly, if the client does not havesufficient funding to meet the objectives, problems with responsibility andsanctions arise (e.g. in the regional model).

- The restrictions set by the client (e.g. filling ruts) reduce the serviceprovider’s freedom too much and increase costs unnecessarily.

- Implementing service agreements also requires a significant effort fromthe Finnish Road Administration which is partly in contradiction with theirhuman resource objectives.

- The lack of actors sometimes results in incapacity problems. Forexample the problem in special skills is whose side does the firm take:the service provider’s or the client’s without leaving itself without furtherwork.

- There will not be enough skilled resources (partners) for all thecompanies that want them as the number of service agreementsincreases.

- If the basis of payment is completed work then there is a risk that thepayments will be back loaded (service agreement of concrete roads)

- The division of responsibility between the client and the service provideris to some extent a matter of interpretation.

- Major changes in individual production inputs which the index does notrecognise sufficiently.

- The danger is that major repairs to bridges (over 300,000 Euros) will notbe made if the client does not receive separate funding for them.

4 ANALYSIS OF THE PILOTS

This chapter analyses the pilot service agreements on the basis of theexperience and views presented in the previous chapters.

Service agreements as part of maintenance procurement

Service agreements are seen as one procurement model among others forroad maintenance. If the service agreement model, the contents of theagreement and the scope are selected appropriately, and the requirementsare stipulated in accordance with the lines of action, then nothing significantshould happen with the end result of road maintenance, at least in the shortterm. If, in addition, economically sensible change mechanisms can beincorporated in the agreements the risks in using service agreements toprocure maintenance will be better controlled.

A few things have already been learned from the service agreement pilots,but most of the future benefits or damage from service agreements are notknown. The preparation of pilots and competitive tendering has beensuccessful except for the first wide ranging maintenance service agreementSILTOPA I (Bridge maintenance, Oulu south area 2006 – 2011) where alltenders were rejected as being too expensive. On the basis of the individualfeedback meetings held with the service providers after the competitivetender it was clear that the new agreement model and the breadth of itscontent surprised the contractors and thus they had not been able to preparesufficiently to make their tenders in spite of the information given to them inadvance. This again led to risk pricing. The same service agreement (Bridge

Experiences of periodic maintenance service agreements in 2008 37ANALYSIS OF THE PILOTS

maintenance Oulu south area 2007-2012) was put to competitive tender ayear later with the same contents and almost the same documentation asthe first time. This time it could be seen from the tenders that the matter hadbeen given some thought and that the bidders had understood the contentsand requirements of the service agreement. Tenders were received fromthree service providers. The quality of the tenders was good and the pricestoo were close to the client’s estimates, so the competitive tender can beregarded as successful.

The request for proposals documentation has been developed significantlyin cooperation with the service providers. The predicted number of tendershas been submitted for each of the service agreement competitive tendersand the tender prices have overwhelmingly been in accordance withpredictions. Agreements have been made without any major problems. Onthe basis of the tenders received the markets can be said to be functioningjust as well as with traditional contracts and the service providers haveresponded to the challenges set.

So far there have been no negative surprises, when implementing theagreements, that would have arisen just from the service agreement concept– the issues that have arisen have a detrimental effect on planning andprocurement of maintenance in traditional procurement models too (e.g. thequality of source data, the level of daily maintenance, invisible damage tobridges and its extent as well as unmeasurable requirements for the roadmaintenance).

Real experience from the pilots however emerges slowly. An understandingof the way pilots operate with different actors in different pilots will developover about five years. The financial experience of pilots develops even moreslowly, it is estimated over about ten years. Negative experience, inparticular regarding the profitability of pilots for service providers, is likely toarise over the last couple of years of the scheme when it can be seen inpractice what operations still have to be taken to bring the network to thehandover condition specified in the documentation.

Problems found in the pilots

A large number of different problems have come to the fore in the pilots,some of which it has been possible to resolve or to minimise their effects.However, there are still some significant problem areas left which have to beresolved before development of service agreements can be continued.

Sensible linking of costs to an index is regarded as extremely important andin this respect almost all legal possibilities have been used. When handingover the road network to the service provider, the assumption was made inthe first pilots that the network was in exactly the condition that themaintenance documents said, but in some pilots a change was made andthe network was handed over in the condition it was at the time of signingthe agreement.

The warranty responsibilities relating to the network subject to the serviceagreement at the time of its handing over cause problems for the client if it isnecessary to carry out work on the network or bridges under warranty from aprevious contractor's work during the service agreement. According to


current rules on warranty, the contractor responsible may take operations tocorrect his mistakes, but from the service provider’s perspective this is notthe best solution. It has not been possible to resolve this in the presentpilots. The warranty responsibility of a contractor who operated in the areacovered by the service agreement before the agreement came intooperation, should be tied to a price for different operations listed in theagreement, and the documentation should specify that the client has theright to commission the service provider in the service agreement (in theevent that there is a service agreement for the area) to undertake anywarranty work that may be required during the warranty period and to chargethe costs of repairs to the contractor responsible for the warranty. Thisapproach would have to be communicated in advance (traditional contract)at the stage of request for proposals and corresponding alterations wouldhave to be made to the agreement so that it would override the generalterms and conditions. A problem might be getting agreement for a “price list”for this kind of warranty work that would be approved by everyone.

The quantity of source data, its quality and the systems used to manageinformation have caused problems in every pilot scheme. The problemshave occurred on both the client’s and the service provider’s side. Theseproblems, and the extra work and costs they produce, as well as thewarranty questions will not be resolved without development work across awide front.

In the current service agreements there is not really any mechanism formanaging change in the operating environment. For example if the fundingfor road maintenance is reduced or if the performance objectives for the roadnetwork are changed, their effects can only be taken into consideration inthose agreements where there is some kind of partnership section.Developing a change mechanism is an extremely complicated task and it isin any event one of the key tasks in further development work.

Price level and overall costs of an agreement compared to traditionalprocurement models.

One benefit of service agreements is seen as the possibility to procure thecurrent level of maintenance for the road network at a lower overall cost.

The prices in the service agreements running at the moment are reasonablyclose to the rough price estimates that were made in the preparatory phase.However, it has not been possible to make a price estimate for a singleservice agreement in sufficient breadth or analytically so that one could besure how good these estimates are. The steering systems currently used inroad maintenance were not constructed so that they could be used toforecast maintenance needs or costs for a time period above 10 years. Thecontents of the agreements also differ from current practice of roadmaintenance steering which has also affected estimates. It is not possibleeither to draw any wide ranging conclusions from the number of operationstaken during the service providers’ first years as to what the volume of workwill be during the service agreement.

In the partnership model, the service provider commits to the unit pricesgiven in his tender for the whole of the agreement period. From these pricesthough, it is not possible to know whether they will be economic overall in


the long term, though this problem can be reduced by making the duration ofagreements sufficiently short.

The number of service agreements and their contents also influence theoverall economics of road maintenance. In the event that serviceagreements cover a significant proportion of the minor road network throughperformance requirements, it is possible that more funding will be used onthese roads than with the traditional steering model if funding for roadmaintenance is tight. “Overall optimisation” of road maintenance will not beimplemented either, if the road network is divided into a lot of parts and eachpart is managed from its own perspective.

New development activity achieved with service agreements

Service agreements are seen as providing the possibility to increasedevelopment activity in the sector significantly and it is hoped that this willgive the sector new products and cheaper road maintenance.

On the basis of current experience it is difficult to draw conclusions aboutnew development activities. During the first year of operation, the serviceproviders used traditional maintenance methods so new technical solutionsare still awaited.

Up until now, service agreement development work has concentrated onmanaging information about the road network and bridges, informationservices and programme development. These are all significantdevelopment directions even if the benefit from them will probably be felt bythe service provider rather than the whole sector. However the serviceproviders have indicated that long agreements will make developments inmethods possible, but the development work will probably take a few years.

The influence of service agreements on the condition of the road networkand bridges

If the performance requirements for service agreements are defined inaccordance with road maintenance lines of action and result objectives, theperformance level achieved using them will be at least at the same level asthe performance of the rest of the road network. The performance shown bymeasurable condition variables is probably better than the rest of thenetwork because deficiencies in performance attract such strong sanctionsthat in practice the service provider has no option to leave the work neededundone, whereas there is such a possibility in the Road Regions withoutdirect financial sanctions.

In the event that the service provider experiences technical or financialdifficulties in implementing the service agreement, the effect on the conditionof the road network may also be negative. Since the degradation of the roadnetwork however is a slow process, these negative influences will probablynot have time to take effect.

The effects of service agreements for bridge maintenance on the level ofcondition of bridges still depends on annual funding frame provided by theclient for each of the areas covered by a agreement, which the serviceprovider uses as a base for planning each year’s programme of work as well


as selecting repair operations and their durability. The performance levelrequirements will also have to be reviewed if the amount of money availablechanges from what was agreed.

Service agreements would seem to have a significant improving influence onthe achieved level of daily maintenance with regard to activities which aretransferred from regional daily maintenance agreements to periodicmaintenance service agreements (curb work, and repairing cracks andpatching), or when the implementation is monitored at the initiative of themaintenance service provider (implementation of bridge maintenance work).Once again, sufficiently high sanctions demonstrate the client’sdetermination to the service providers.

The influence of service agreements on the experienced condition (notmeasured) of the road network could be almost anything at all. If theperformance requirements do not include some kind of performance factors(for example damage information about paving), the service provider is notobliged to take any action in this respect and so the service provided to roadusers and the capital value of the highways may suffer. The service providermay for example maintain the road network by patching or generally byusing short term operations if they can achieve the stipulated performancerequirements sufficiently cheaply for the service provider (and the number ofinterventions is not limited in the service agreement).

One risk is that there may not be a consistent level of service on differentconnecting roads if they are spread out across different service agreements.This is the same kind of situation that could happen at the borders of a RoadRegion if the Road Regions do not agree between themselves aboutcommon timing for operations on roads crossing the regions’ borders.

Recognised risks for service agreements

The introduction of service agreements brings with it significant risks. Asignificant challenge for the whole of the sector is maintaining markets forroad maintenance. The significant questions in managing road maintenanceare pricing risk for work, securing funding for road maintenance,implementing regional equality in road maintenance, managing theobjectives of road maintenance and changes to them, and particularlymanaging the performance requirements for the minor road network. Movingto service agreements also demands sufficient skills across the wholesector.

Service agreements are so long term, large and broad in terms of theinformation they require that tendering for them is particularly risky for smalloperators. This risk cannot be entirely eliminated even through networking ofoperators. The risk is that the service agreements will fall under the controlof the large operators which may result in a significant competitiveadvantage for them regarding other work in the area covered by the serviceagreement, and the small operators’ opportunities will be reduced evenfurther.

The most significant future risk for the client is the reduction in thepurchasing power of the funding directed to the Finnish Road Administrationfor maintenance, and money being committed in advance to service


agreements. When, in addition, a significant proportion of the costs inservice agreements have to be linked to various indices, the amount ofmoney committed to service agreements can change very significantlyduring the period of the agreement and this is particularly the case towardsthe end of the agreement. If the amount of money for road maintenancedoes not grow at the same rate then we will be forced into the situationwhere service agreements, in the worst case, take up all of the maintenancefunding.

In diagrams 1 and 2 below this mechanism is shown on the assumption thatthe level of funding for maintenance stays constant and the average annualincrease in costs is at 3.6 per cent. From diagram 1 one can see that ifinitially the proportion of maintenance funding accounted for by serviceagreements is 50 %, the funding requirement for service agreements willgrow so large in just under ten years that the proportion of the rest of theroad network reduces by 40 per cent i.e. it falls below 30 per cent of thetotal. For purchasing power in ten years’ time this means only about 20 % (cfthe arrows in diagram 1). This change would take place over a period whichis shorter than the average length of current service agreements formaintenance of paved roads. The effect would be even more dramatic if theincrease in costs (for example because of oil based products) was higherthan assumed.

This shows that if the proportion of funding accounted for by serviceagreements is initially 50% of maintenance funding it would lead in a veryshort time to a completely unbearable situation as far as maintenance of theroad network is concerned.

Diagram 1. Division of maintenance funding between service agreementsand other maintenance when 50% is allocated to service agreements initiallyand funding for maintenance remains constant.

An initial position of the level of maintenance funding remainingconstant and the index linked service agreement proportion at 50 %(assuming a 3.6 % annual rise in costs)

0

10

20

30

40

50

60

70

80

90

100

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30Years from the initial position

Service agreements Other road networks Purchasing power for other road networks

Prop

ortio

ns o

f fun

ding

(%)


On the other hand, if the corresponding assumption is that serviceagreements account for 25 % of maintenance initially, the proportionaccounted for by service agreements would only grow to about 35% over thesame period (Diagram 2). This situation would not result in unbearableproblems for steering maintenance since it would give the possibility ofcontrolling the balance of funding by, for example, limiting theimplementation of new service agreements.

Diagram 2. Division of maintenance funding between service agreementsand other maintenance when 25% is allocated to service agreements initiallyand funding for maintenance remains constant.

Overall management of road maintenance requires that the lines for roadmaintenance objectives can be redefined even annually. In the currentservice agreements there are really no mechanisms which could managethe making of any necessary changes to performance requirement basedservice agreements. This leads to significant financial risks for the client.

Another risk to the implementation of road maintenance objectives is thefactors which cannot be sufficiently measured. A special risk is found in theperformance requirements for the minor road network if they do not take intoaccount paving damage, since without doubt a clearly important factor formaintenance steering for the minor road network will not be considered. Inlong agreements this could lead to surface damage in the road network andit would probably be very expensive to return it to the present performancelevel.

In the general sections of the service agreements it is clear that the serviceproviders have to carry out sensible, customer focussed and safe roadmaintenance and that the client also assumes this is happening. The role ofthe service provider is however to act according to the required demands

An initial position of the level of maintenance funding remainingconstant and the index linked service agreement proportion at 25 %(assuming a 3.6 % annual rise in costs)

0

10

20

30

40

50

60

70

80

90

100

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30Years from the initial position

Service agreements Other road networks Purchasing power for other road networks

Prop

ortio

ns o

f fun

ding

(%)


and it is not realistic to assume that demands “read between the lines” willbe implemented.

The preparation and management of service agreements has proved to be amore difficult task than was expected. In the preparation of almost all theagreements new, complicated challenges have arisen. The client needs tohave sufficient expertise to respond to these challenges so that theimplementation of service agreements stays in the client’s control. At themoment there are insufficient resources able to manage service agreementsand the natural reduction in staff over the next few years will have to becompensated for by appointing new experts.

Interfaces between service agreements

A separate investigation was carried out in the spring of 2008 to clarify theinterfaces between service agreements. The work included analysing thecontents of the service agreements operating in the Oulu Road Region andinterviewing the main people in the client who had responsibility for theseservice agreements. An analysis was made of service agreements coveringmaintenance, lighting and pumping stations, paved roads, road markings aswell as bridges.

The investigation showed that links across the interfaces between differentservice agreements had not been defined clearly or unambiguously enough.The central roles of the different parties to the service agreement need to beprecise in new service agreements and so a separate document has beenpresented as an appendix to agreements that will define the limits betweenthe different service providers and the client. The document is for both theclient and the service provider and it covers management of the serviceagreement and joint actions as well as the rules governing the interfacesbetween the different service providers and the work carried out.

The document, which was drawn up during the investigation, will be tried outin any possible new service agreements. The contents of the document canthen be further developed on the basis of the practical experience gained.

Recommended service agreement models

Service agreements are one possible way of procuring maintenance if theagreement model and its contents are selected correctly. The followingdescribes the current view of usable service agreement models and theirdetails.

Appropriate agreement models for paved road maintenance are theperformance based requirement model for road networks carrying heavytraffic and partnership models for the minor road network as well as acombination of these two models (hybrid model). On the basis of currentexperience, it is not yet worth entering into combined service agreements,for example bridges and paving. The regional model also includes too manyrisks as does the road maintenance service agreement (daily and periodicmaintenance together). There is no need for other new service agreementmodels. With regard to partnership models, it has to be pointed out thatthere has been no experience yet so that their benefits are entirely a matterof assumption.

44 Experiences of periodic maintenance service agreements in 2008CONCLUSIONS AND RECOMMENDATIONS

The duration of service agreements has to be long enough for the serviceprovider to take, or have to take, responsibility for the operations they havetaken. Agreements based on performance requirements should be in theorder of 10 – 15 years and partnership models about 5 years. The averageannual volume for an individual service agreement may vary according tothe agreement model from a little less than two million Euros right up to fivemillion Euros.

Both the regional model and the partnership model are suitable agreementmodels for maintenance of bridges. Suitable contents for the regionalmodel are the contents of the regional model pilots (Oulu Siltopa 1 andSiltopa 2) and service agreements that are in accordance with the size of theregion and also include performance based requirements. In the futuredifferent content variations will be tried out with this agreement model. Thesevariations could include such things as leaving the general inspection ofbridges out of the agreement and including daily maintenance procedures inthe model. The partnership model with suitably broad contents is especiallysuitable as a sector entry agreement as well as locally where there are a lotof small companies for whom sufficient markets need to be preserved.

The duration of service agreements would have to be sufficiently long. For aregional model where there were performance based requirements included,the agreement should run from 5-10 years. For a partnership model asuitable length is 3-5 years. The annual cost of an individual agreementwould be from 0.5 million to 2.0 million Euros.

The timing of requests for proposals for service agreements should be suchthat they do not come at the same time as other maintenance requests forproposals i.e. August/September in practice. From the perspective of settingthe limits of responsibility for different agreements it would be good if thecompetitive tender process for different service agreements in the sameregion were held at the same time if this were possible.

5 CONCLUSIONS AND RECOMMENDATIONS

5.1 Conclusions

For the main part, service agreements function technically as a procurementapproach, but some problems relating to management of road maintenance,particularly financial, quality and information management, as well as leftover material after daily maintenance activities, have been seen and theymust be taken into consideration when deciding on the use of serviceagreements. Development work and possibly further piloting will be used totry to clarify and resolve these problems before there is any significantincrease in maintenance service agreements.

Among other things, different flexibility mechanisms for change and afunctional approach to the use of indices in long term agreements to fix thefunding for the length of the service agreement have to be developed beforeexpanding pilots and use of maintenance service agreements.

Experiences of periodic maintenance service agreements in 2008 45CONCLUSIONS AND RECOMMENDATIONS

It is not possible to say anything about the overall economics of serviceagreements at the moment. This will require monitoring of agreements overseveral years.

In more detail, these development areas and challenges are:

1) Steering and planning

- Management of financing of basic road maintenance – continualincrease in price levels and continual fall in the real value ofappropriations. The index-linked service agreements used in the pilotswill significantly reduce the proportion of funding available for other roadmaintenance if maintenance funding remains at its present level.

- Managing maintenance service level - Finnish RoadAdministration’s internal steering model, management mechanismsused by the Ministry. Current steering models cannot be used to steerroad maintenance implemented through service agreements in all theservice agreement models. Steering models that would be suitable foradopting new service agreements, particularly models that take intoaccount the long term nature of road maintenance and the rigidities ofservice agreements, have not yet been developed.

- Management of the claims of maintenance planning and particularlyof changes in the operating environment and policy lines. Themodels used in the pilots and/or the generally understood new ways toresolve changes in service agreements do not give a sufficient range ofpossibilities to manage change in all the different service agreementmodels. This prevents effective management of maintenance as a whole.The service agreement spirit and culture are not yet sufficientlydeveloped and the methods associated with them are not yetestablished.

2) Performance and quality management

- Development requirement for the quality requirements andmeasurement approaches needed by service agreements. Not all ofthe current quality requirements and measurement approaches areapplicable to service agreements and there is not yet enough experienceof the models used in the pilots to draw final conclusions. For some ofthe important performance factors there are not even good measurementapproaches. This affects both paved roads and bridges. Furthermonitoring of the current pilots may give additional information aboutdevelopment needs.

- Development need for quality requirements for long termperformance management. The structural condition of the road networkand bridges, and consequently maintenance of the capital value, hasalso to be ensured with regard to service agreements. The models usedin the pilots could work as far as bridges are concerned (the current VPSbased quality management, even with its faults, was shown to work inservice agreements too), but for paved roads it has not yet been shown


that the models work because, among other things, of a lack ofinformation about damage.

- The challenge of developing equality between the road networks indifferent regions. In the pilots strong doubts have emerged as towhether service agreements led to weaker or a higher quality levelcompared with other road networks or bridges. On the other hand theuse of service agreements across the sector means even quality in themanagement of the network = the same criteria in all agreements and forthe whole road network, but this would require a strong fundingcommitment to maintain the chosen level.

- Ensuring the availability of quality in maintenance serviceagreements. In the pilots for maintenance service agreements itbecame clear that service agreements for daily maintenance activitieswere not implemented in accordance with the quality requirements, butmaterial was left over after daily maintenance activities in many places.Thought needs to be given as to how periodic maintenance serviceagreements can be used to manage quality better than with dailymaintenance agreements.

3) Amount and quality of source data as well as functionality of expertsystems (information management)

- Service agreements require the availability of source data that isbetter than at present and particularly the quality of information andits management. According to the experience of pilots, lack ofinformation gives rise to such things as technical risks with agreementsand difficult start-up situations in service agreements. It is not possible tostart maintenance service agreements from a “clean slate” if/when thereare significant deficiencies in information.

- The Finnish Road Administration’s information managementdevelopment lines and objectives are timed over the very long term.The current development of the Finnish Road Administration’sinformation management regarding maintenance (YLVA = Finnish initialsfor “specification for the information services requirement formaintenance agreements for the road network”) will probably notproduce solutions until 2015-2015, though some uncertainty factors havealready appeared in that timetable such as those associated with theresource possibilities to develop information management and quality.

- The service providers have named information management themost important of the development areas which the Finnish RoadAdministration is responsible for if they wish to move to wideranging use of maintenance service agreements. The serviceproviders find the current deficiencies in information management one ofthe most important areas of financial risk when making tenders. It shouldbe possible to say enough about the starting condition of the roadnetwork or bridges so that the producers can price the investmentscorrectly over a required long term agreement.

Experiences of periodic maintenance service agreements in 2008 47CONCLUSIONS AND RECOMMENDATIONS

4) Deficiencies in condition associated with the starting condition for serviceagreements

- The real condition of the roads or bridges in the area covered by aagreement is a central factor in the start-up phase of a maintenanceservice agreement. On the basis of the pilots the condition at the startof the agreement period does not necessarily correspond to the serviceagreement producer’s expectations and quality criteria. The earlierparticipants in pilots had not produced the quality specified in theagreement, on the other hand it had also become clear in the pilots thatthe client had “turned a blind eye” to some of these deficiencies.

- Deficiencies have particularly identified in daily maintenanceactivities that affect service agreements. On the basis of the pilotsthe calculated value of work left behind is as much as 30-50 millionEuros. With current funding it would not be possible to eliminate work leftbehind from daily maintenance activities for about 10-15 years byensuring, little by little, that daily maintenance activities were carried outin accordance with service agreements. Significant special arrangementshave had to be made in the pilots in order to correct these deficiencies ininitial performance.

- Problems have appeared in handing over of the object of themaintenance service agreement to the service provider. On thebasis of the pilots, the maintenance service providers will not accept thearea covered by the agreement if there is work left behind not inaccordance with quality requirements for daily maintenance activities.The client has had to clarify in the pilots how work left behind can beremoved – in practice the question has been linked to the fundingrequired for it. The reasons for work from daily maintenance activitiesbeing left behind depend on whether the agreement was for unit pricesor an overall price.

5) Management of the maintenance market situation

- Preservation and development of maintenance markets. In order toensure the continuing functioning and development of the markets formaintenance, it must be possible to utilise the totality of contractors’resources. This requires the preservation of different sized and kinds ofcontracts and agreements in a selection of procurement procedures andcoordinated procurement planning.

5.2 Recommendations

The development areas mentioned in the conclusions are on the critical pathand thus have to be resolved before the decision to adopt serviceagreements in a wide ranging manner can be taken. On the other hand,most of these development areas must be decided by, and thus resolved by,the Finnish Road Administration. Funding and the increase in cost levels areissues that the Finnish Road Administration has only very limitedopportunities to influence.


In order to resolve these central development areas it is recommended thatthe following operations be taken in the development of maintenance serviceagreements:

- An ongoing measure is the continual monitoring, analysis anddrawing of conclusions from the pilots now running. It is proposedthat specific working groups (PÄÄLPA, SILTOPA) will be establishedwhere planning, steering and procurement from the Finnish RoadAdministration would be represented. It is additionally proposed thatrepresentatives of the service providers will be included in furtherdevelopment work. Monitoring will require from 3-5 years which willvalidate the initial experience gathered and transfer this experience tothe preparation of future service agreements.

- The five central issues presented in the conclusions should beexamined in more depth through separate investigations andprojects. Each of the issues that require development is so broad that toexamine them requires individual development projects. Only after theresults have been gathered can it be decided how the development ofmaintenance service agreements will be continued. There should be norush to make final decisions about the wide ranging implementation ofservice agreements before the central issues that are now open havebeen resolved.

- Abstaining from further pilots in 2009. Once enough of the maindevelopment issues have been resolved, the need for further pilots willbe clarified. The pilots that are currently running and those that will belaunched in the autumn of 2008 are sufficient to get the message to theservice providers that the Finnish Road Administration is sticking to itsobjective “we are moving to maintenance service agreements, but thereis no hurry”.

- Continuation of development to be decided each year. During thesummer and autumn of 2008 and the spring of 2009 after the analysis ofwork done and conclusions, a recommendation concerning continuationwill be discussed by the management of the Finnish Road Administrationin the spring of 2009.

- The proportion of the total volume of maintenance accounted for byservice agreements should be kept sufficiently low. In this way, anypossible changes to road maintenance funding and/or changes in costlevels will not lead to problems for the overall management of steeringroad maintenance. A suitable maximum proportion is about 25 per centof the long term maintenance funding. In the event that objectivescontinue to be set at the Road Region level, then this maximumproportion must be observed at the Road Region level too.

Experiences of periodic maintenance service agreements in 2008 49APPENDICES

6 APPENDICES

Road Regions announcement of their readiness for furtherdevelopment and piloting of service agreements

Questionnaire premises

A questionnaire was sent to the managers of the product teams in thecooperation areas, in which they were asked as to whether the cooperationarea’s Road Region was willing to implement the new maintenance serviceagreements for paved roads and bridges during 2009-2010. Thequestionnaires generated well thought out replies from all of the cooperationareas.

Readiness to pilot service agreements for paved roads

In the western cooperation area the Turku Road Region was and continuesto be firmly involved in developing agreement models for maintenanceprocurement. The Road Region indicated its readiness to implement thepreparatory work for one of the new service agreements in 2009. Theagreement model will be the hybrid model; main roads using theperformance requirement model and the local network using the partnershipmodel. The agreement could begin in 2010 or 2011. The area will be locatedin the HTUV region.

The eastern cooperation area was not ready to propose implementation of apilot proposal in the years 2009 – 2010. In the planning phase presented,the concentration will be on monitoring and collecting experience from thepilots currently running in the area and other cooperation areas. On thebasis of the experience from service agreements and the conclusions drawnit may be possible to implement the preparations for a new competitivetender in the cooperation area so that the agreement would start at theearliest in 2011.

In the northern cooperation area, the Lappi Road Region proposedimplementing one maintenance pilot service agreement for paved roads.The agreement would follow the principles of the partnership agreementpresented earlier. The objectives of the pilots are to develop the partnershipand management model between the client and the serviceprovider/contractor, optimise the interfaces between the daily and periodicmaintenance agreements, include small investment areas in the agreement,provide a less risky model for service providers/contractors as well asflexibility regarding the amount of work, the implementation timing and theselection of working methods in agreements. There was no other willingnessin connection with pilots in the northern cooperation area.

Readiness for pilots for bridge service agreements

As far as bridges are concerned, all the Road Regions, with the exception ofthe Vaasa Road Region, indicated that they do not wish to enter into newservice agreements during 2009 - 2010. The Vaasa Road Regionannounced its readiness to start preparations for a partnership basedservice agreement for bridge maintenance in order that it would be able toensure that annual bridge repairs were done.

50 Experiences of periodic maintenance service agreements in 2008APPENDICES

Other Road Regions wanted to wait until there were some years ofexperience from the Oulu pilot scheme which is underway and from theSouth-eastern Finland Siltopa pilot scheme which will start at the beginningof 2009. Decisions will be taken on possible new service agreements only onthe basis of experience gained.

gg

ISSN 1459-1561TIEH 4000630E-v

Documents

Experiences of periodic maintenance service agreements in …...Experiences of periodic maintenance service agreements in 2008. Helsinki 2008.Finnish Road Administration. Finnra internal