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Performance- or Output-Based Procurement (PBP): Basics and Applications in Bank Projects. Patricia Baquero [email protected] The National Conference Center Lansdowne, Virginia March 25, 2008. What is PBP?. Addressed in para. 3.14 of Procurement Guidelines

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performance or output based procurement pbp basics and applications in bank projects

Performance- or Output-Based Procurement (PBP): Basics and Applications in Bank Projects

Patricia Baquero [email protected]

The National Conference Center

Lansdowne, Virginia

March 25, 2008

what is pbp
What is PBP?
  • Addressed in para. 3.14 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
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

Full payment upon commissioning/ acceptance (Turn-key approach)

Alt. 1

Scenario 1– O&M by Employer

Selection

Award based on lowest lump sum price for facility

Alt. 2

Prequalification of interested bidders

Advance/milestones payments against substantial security*

Two-Stage Bidding based on functional requirements (one-stage for simpler projects)

Final payment upon commissioning/ acceptance

PBP processes for Bank-financed installations

Payment

Award

Scenario 2– O&M by Contractor

Award based on lowest total life cycle cost (NPV of facility + O&M costs)

Final facility payment upon commissioning/ acceptance

* 30% Service Performance Security suggested

Advance/milestones payments against substantial security*

Performance-based O&M payments

application of pbp basic concepts
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
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
Differences between OBA and OBD
  • 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
  • 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

Use of Bank-financed funds

Target countries

All countries

MICs 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

  • 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

Bank–approved government procedures

* See OPCS OM of Nov. 7, 2005

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