Company LOGO Performance- or Output-Based Procurement (PBP): Basics and Applications in Bank Projects Patricia Baquero The National Conference Center Lansdowne, Virginia March 25, 2008

What is PBP?  Addressed in para of Procurement Guidelines  Procurement process resulting in contractual relationship with private service provider where  Technical specifications Describe requirements in terms of functionality, quality & standards Define desired results (i.e., CuM of water, KWh, reliability results, etc.), outputs to be measured, and way to measure Do not prescribe inputs nor work methods  Bidders free to propose innovative solutions through cost- effective ways to improve outputs  Payments tied to measurable outputs meeting pre-set performance standards  Payment reductions made or premiums paid, respectively, for achievement of lower or higher quality levels  Contractor bears commercial and performance risk

Use of PBP in Bank-financed projects  Non-consultant services paid on the basis of outputs (i.e., primary health care)  Facilities where contractor is responsible for design, supply, construction (or rehab), & commissioning, & where  Employer takes O&M after commissioning, or  Contractor takes O&M for some years after commissioning  Borrowers’ use of PBP decided after analysis of available options and agreed in advance with the Bank

PBP processes for Bank-financed installations Award based on lowest lump sum price for facility Scenario 1 – O&M by Employer Prequalification of interested bidders Two-Stage Bidding based on functional requirements (one- stage for simpler projects) Selection Full payment upon commissioning/ acceptance (Turn-key approach) Alt. 1 Advance/milestones payments against substantial security * Final payment upon commissioning/ acceptance Alt. 2 Award based on lowest total life cycle cost (NPV of facility + O&M costs) Performance-based O&M payments Final facility payment upon commissioning/ acceptance Advance/milestones payments against substantial security* Scenario 2 – O&M by Contractor Award Payment * 30% Service Performance Security suggested

Application of PBP basic concepts  Although PBP firstly referenced in May 2004, Guidelines historically encouraged borrower’s use of performance requirements and allowed results- linked payments  Other Bank approaches using PBP concepts:  Management contracts  Roads rehabilitation, maintenance & management contracts (OPRC)  Design-Build-Operate (DBO) contracts  Concessions with Output-Based Aid (OBA) schemes  Investment lending projects with Output-Based Disbursement (OBD) mechanisms

Similarities between OBA and OBD  Aimed to make more efficient use of resources in providing infrastructure and other basic services  Bank-financed funds are disbursed/paid against delivered outputs  Disbursement/payment associated with the promised outputs based in efficient & reliable unit price/costs  Procurement methods for procuring the services or inputs needed to generate the outputs must be fully acceptable to the Bank

Differences between OBA and OBD Aspect OBAOBD Payments: Made by a government entity to a third party service provider (SP) upon delivery of outputs promised under a service provision contract Consist of pre-agreed subsidy amounts to cover gap in investment or recurrent cost incurred by SP that user fees cannot recoup due to beneficiary constraints All countriesMICs and select IDA countries with reliable implementation capacity Unit price/cost associated with outputs on which basis payment or disbursement is made If SP selected under Bank-acceptable procurement procedures, unit price associated with the output deemed reasonable, economic & efficient If SP not selected competitively, efficient & reliable unit costs to be determined Efficient & reliable unit costs to be determined for disbursements Procurement of inputs required to produce outputs Bank–approved government procedures Disbursements: Go to the government upon delivery of pre-agreed outputs May involve more than one underlying supply contract or direct government- supplied services; and Need not be linked to a government subsidy element under a contract executed by a third party Target countries Use of Bank-financed funds SP’s own procedures if SP selected under a Bank-acceptable procedure SP not selected competitively required to use Bank ICB but if certain conditions are met *, Bank may approve SP’s own procedures * See OPCS OM of Nov. 7, 2005

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