This document has been prepared for the purposes of the PPP IN INFRASTRUCTURE RESOURCE CENTERFOR CONTRACTS, LAWS AND REGULATIONS(PPPIRC) website. It is a sample document FOR REFERENCE PURPOSES ONLY and SHOULD NOT BE used as a "model". The inclusion of any legal materials on the PPPIRC website does not mean that they are in any way approved, endorsed or recommended by the World Bank Group or its affiliates. Legal advice should be sought to determine whether a particular legal document is appropriate for any given project, and how the specific terms of the document should be adapted to fit the circumstances of that project.
1. This bidding document for Performance-Based Leakage Reduction and Management has a general structure based on the World Bank’sStandard Bidding Document (SBD) for Works (March 2003) in general and the World Bank's sample bidding document for Performance-Based Contract for the Management and Maintenance of Roads (February 2002) . Given the specific characteristics of performance-based leakage reduction services, significant modifications have however been made in most sections of the document including several aspects found in the World Bank’s Standard Bidding Documents for Supply and Installation (March 2003). In particular, the General Conditions of Contract have been rewritten in order to take into account the specific nature of the services to be provided by the Contractor, which go much beyond the mere execution of pre-defined physical works and to include the “output” basis in the contract. The contract covers an array of activities needed to reduce and maintain leakage levels, including many activities related to the management and periodic evaluation of DMA (District Metered Area) data. It further includes carrying out DMA Establishment Works that form the basis for performance based leakage reduction, System Expansion Works that might become necessary because of new customers applying for connections as well as a provision for Emergency Works and Unforeseen Works.
2. This preface summarizes the concept of Performance-Based Leakage Reduction and Management. For legal purposes the text of the main body of this document is binding and takes precedence over this preface.
3. Performance-based contracting for Leakage Reduction and Management is a new concept designed to increase the efficiency and effectiveness of water distribution networks and related operations. It should ensure that the leakage will be significantly reduced and the reduced leakage levels will be maintained over the entire period of the contract which is normally several years. This type of contract significantly expands the role of the private sector, from the simple execution of works to the management and conservation of water distribution networks.
4. In traditional leakage reduction contracts, the Contractor is responsible to carry out leak detection surveys and is paid for example per length of pipeline surveyed or (even worse) per staff day. While this modality often brings improvement over the "do nothing" scenario, the results are in many cases still less-than-optimal. The problem is that the Contractor has the wrong (or no) incentive and no obligation whatsoever to achieve maximum savings. And since repairs are traditionally carried out by a third party, the leakage reduction Contractor is not accountable for anything and the results are sometimes not satisfactory.
5. The Performance-Based Leakage Reduction and Management Contract tries to address the issue of inadequate incentives. During the bidding process, Contractors compete among each other by proposing a (relatively small) fixed quarterly lump-sum fee and a (substantial) performance fee per volume of water saved. It is important to understand that Contractors are not paid directly for “inputs” or physical works (which they will undoubtedly have to carry out), but for the “output,”: volume of leakage reduced. The quarterly lump-sum remuneration and the performance fee paid to the Contractor will cover all physical and non-physical works and services and all materials provided by the Contractor, except for system expansion works and unforeseen emergency works which would be remunerated separately. The DMA Establishment Works which have been explicitly specified by the Employer in the contract would be quoted on the basis of measurable output quantities and paid as performed. One fundamental feature of the performance-based contract is that the Contractor is responsible for designing and carrying out the actions he believes are necessary in order to comply with the contract. Under the performance-based contract, the Contractor has a strong financial incentive to be efficient. In order to maximize profits, he must reduce his activities to the smallest possible volume of intelligently designed interventions, which nevertheless ensure that pre-defined outputs are achieved and maintained over time. This type of contract makes it necessary for the Contactor to have a good management capacity. Here, “management” means the capability to define, optimize and carry out in a timely basis the physical interventions which are needed in the short, medium and long term, in order to guarantee that the leakage reduction will be done as efficiently as possible. In other words, within the contract limitations and those required to comply with local legislation, technical and performance specifications and environmental and social regulations, the Contractor is entitled to independently define: (i) what to do, (ii) where to do it, (iii) how to do it, and (iv) when to do it. The role of the Employer is to enforce the contract by verifying achieved leakage reduction, as well as all other legislation and regulations the Contractor must comply with.
6. Reducing and managing leakage includes routine and periodic tasks. It is expected that the use of private specialized firms under performance-based contracts will unleash significant efficiency gains, and stimulate innovation in comparison with traditional water utility practices.
7. Under the terms of the contract, the Contractor will also be responsible for the continuous monitoring and control of leakage levels of all DMAs included in the contract. This will not only be necessary to fulfill the contract requirements, but it is an activity which will provide him with the information needed in order to be able (i) to know the degree of his own compliance with the contract and the achieved savings, and (ii) to define and plan, in a timely fashion, all physical interventions required to assure that leakage levels never increase over the contractual limits. Under the performance-based contract modality, the Contractor will not receive instructions from the Employer concerning the type and volume of works to be carried out. Instead, all initiative is given to the Contractor who should do whatever is necessary and efficient to achieve the leakage reduction levels required. This concept is expected to lead not only to significant efficiency gains, as mentioned earlier, but also to technological innovation.
8. The beneficiaries of the new concept are expected to be the customers, the water supply company, and the Contractors or other private sector enterprises. In a wider sense, future generations will be able to benefit from a better preservation of past investments in the water distribution network. Customers will be able to know the service level they will get for their water tariff. The Water Utility should benefit from the cost-efficient water loss reduction and will be able to sell the saved volume of water to existing or new customers. For Contractors and other private sector enterprises, the new type of contracts should open up new business opportunities, in which longer contract periods provide a more stable business environment. But it may be the future generations who will perhaps benefit most, since they will not have to pay for excessive capacity of new water production facilities which would be required to pump more and more water in the leaky distribution system.
9. Although design of the works to be carried out is under the responsibility of the Contractor, this type of procurement requires good preparation engineering work. It is necessary to prepare a good set of information on the actual conditions of the distribution network and the expected leakage levels.
10. Bidders will present their financial offer for: (i) the DMA Establishment Works (if so required in the bidding data), using a BoQ in the form of a "priced activity schedule"; (ii) the core element of the contract, the leakage reduction and management services in the form of a quarterly fixed-fee and a volumetric performance fee; (iii) unit prices for system expansion works; as well as (iv) unit prices and a daywork schedule for emergency and unforeseen works ordered by the Project Manager. Overall Table of Contents