Establishing Preconditions for Life Cycle Costing in Dutch DBFM Road Projects

Abstract

Historically, the Dutch public road authority (Rijkswaterstaat) had the responsibility for initiation, design, built, finance, operation and maintenance of road infrastructure projects. Fairly recently, integral DBFM) contracts have been introduced to road infrastructure. In a DBFM contract, a private party is responsible for Designing, Building, Financing and Maintaining a certain infrastructure section, usually for a period of 25 years. The road authority stays the owner and operator of the infrastructure and pays the private party for the availability of the road. Before the introduction of DBFM, private parties were only responsible for one of the components (design/construct/maintain). Rijkswaterstaat had the overall responsibility and was responsible for integrating the components. The aim of Rijkswaterstaat was to create the lowest possible cost over the life cycle of a section of road infrastructure; this is referred to as Life Cycle Costing (LCC). With the introduction of DBFM this role switched to the private parties (or consortia). Life Cycle Costing is one of the ‘core values’ of DBFM and is the process of maximizing return on investment by combining capital investment decision making and operation & maintenance decision making for the total life cycle of a project. Pursuing LCC benefits the private party as wells as the public party. However there is doubt if the current approach of consortia in DFBM road projects optimal facilitates Life Cycle Costing in DBFM projects. Earlier research shows that there is considerable room for improvement, when it comes to applying Life Cycle Costing within DBFM consortia. This research examines how consortia can improve the application of Life Cycle Costing during the realization phase (Design and Build) of DBFM projects. The goal of this research is to develop a framework to support consortia in DBFM road projects in the Netherlands. The framework should improve Life Cycle Costing in Dutch DBFM road projects by establishing the right preconditions. From two cases and expert interviews elements are identified which positively influence (enablers) or negatively influence (disablers) the application of LCC during realization. Based on the interviews and cases the identified elements are ranked. The ranking establishes the undisputed elements. The line of reasoning is that if a disabler or enabler is undisputed, it should be included in the framework. The optimal framework should solve all the undisputed disablers and include all the undisputed enablers. Using the ranking, 16 of the 29 identified disablers should be included in the framework. However, none of the enablers are considered undisputed, this could be explained by the fact that multiple solutions (enablers) are available for one problem (disablers).The enablers are therefore considered as suggestions for possible solutions. From an actor analysis appears that the considered most important actors (lenders, shareholders, Rijkswaterstaat and subcontractors) have an interest in, and have the power to influence the private consortia; a Dutch DBFM road project is a multi-actor environment. The consortia should consider this multi-actor environment, the multi-actor environment should thus be included in the framework. Using the disablers, 10 problem statements are derived. For each problem statement one or multiple preconditions are formulated to deal with this problem. With the established preconditions a framework is composed. This framework is called the single-actor framework, since the framework does not include the multi-actor environment. When the single-actor framework is combined with the multi-actor perspective, it appears that the interests and influences of the different actors limit the solutions in the single-actor framework. Therefore the preconditions of the single actor framework are adapted to the multi-actor environment. This research shows that there is still considerable room for improvement, in terms of Life Cycle Costing (LCC), in the realization phase of Dutch DBFM road projects. The fundamental goal for shareholders of DBFM consortia, maximization of shareholder value, equals optimization in terms of LCC. However, current organizational forms, contracts, and methods used prevent these from reaching this overall goal. If the frameworks are compared: preconditions in the single-actor framework will eventually lead to more improvement regarding LCC, and therefore describes a more perfect situation. However, considering the mult-actor environment, the single-actor framework is unrealistic and thus not implementable. The multi-actor framework is realistic and implementable, but therefore also time-bound. The single-actor framework is less time-bound and can be combined with a changed multi-actor environment to create again a realistic and implementable framework. Because of the focus of this research (strategic and tactical level) the framework covers a broad spectrum of solutions. The framework is thereby complete but does not deliver turnkey solutions. Therefore it is recommended that additional research is done to create more specific solutions. The frameworks established in this research should be used for the further improvement of the application of LCC in the realization of Dutch DBFM road projects. Current and future DBFM consortia are recommended to use the frameworks. This research improves Life Cycle Costing in DBFM projects. Both private and public party will, in de long run, benefit from an improved application of Life Cycle Costing.