Infrastructure Asset Management in a Large Scale European PPP Project. AgileAssets Article

Infrastructure Asset Management in a Large Scale European PPP Project AgileAssets Article

Infrastructure Asset Management in a Large Scale European PPP Project How European PPP (Public-Private Partnership) Consortia are Utilizing Advanced Infrastructure Asset Management Software Systems to Facilitate Decisions, Minimize Risk and Enhance Profits Abstract AgileAssets has joined a significant European Public-Private Partnership (PPP) project as the supplier of infrastructure asset management software solutions for the next 30 years. The project concerns one of the world s most traveled highway systems, serving a major European capital. The project partners are responsible for all levels of design, building, financing and operation of the infrastructure, including all assets such as road, bridges, tunnels, signs and guardrails to name a few. This PPP is a current example of the European development in PPP, where consortia are gradually taking over the responsibility of road and rail infrastructure from the road agencies. This paper provides an example of how a large-scale consortium utilizes an integrated and comprehensive asset management software system to monitor, analyze and plan operations. Maintenance operations are planned, scheduled and recorded in the system, along with inspections on the various structures and condition assessments of the assets. This important data is in turn used in the decision support component of the process to evaluate individual asset performance, along with the performance of the network, over the life of the contract and beyond. (Specific examples are presented in this paper.) Finally, the added value of using state-of-the-art road asset management software tools in PPPs, especially in highly populated areas (urban highways), is discussed. This includes calculations on financial as well as social impacts (congestion, road closure, etc.) and focuses on hand-back criteria, making sure that the risks from a consortia standpoint are minimized through what-if scenarios as well as through various mitigation strategies. The article also discusses how decision support tools can be used for pre-contract bids, as well as post-contract awards to minimize liability and risk and to enhance profits. Monitoring Minimization of Risk Infrastructure Asset Management Software System Analysis Decision Support Enhanced Profits Operation Planning Figure 1: Infrastructure Asset Management Software System Utilization in a PPP Environment Page 3

Introduction AgileAssets, Inc. is a thought-leading global software company based in Austin, Texas with a wholly owned subsidiary, AgileAssets Ltd., based in London, UK. The AgileAssets suite of products includes highly advanced solutions for managing infrastructure assets, like roads and bridges as well as sub-assets like signs, signals, vehicle fleets, equipment, facilities and safety programs. The company s key to success has been its comprehensive approach towards infrastructure asset management that recognizes not only the need for constructing and maintaining the best possible infrastructure, but which also considers the requirements of administrations, suppliers and the public to maximize service quality, mobility, co-modality and safety at the lowest cost possible. The complexity of modern infrastructure calls for the most advanced, comprehensive and adaptable software, which makes AgileAssets solutions ideal for Public-Private Partnership contracts that require concurrent support for many parameters. While fully consolidated in the U.S. and abroad, AgileAssets has recently expanded operations to the European market, which itself is seeing increased use of the PPP model. European infrastructure PPP contracts have been around for quite some time, gaining popularity as practical and political reasons have spurned major investments in the TEN-T (Trans-European Transport Network). The network is a collection of infrastructure assets, representing all four transport modes; air, water, rail and roads and is backed politically by the European Commission (EC) and financially by the European Investment Bank with the goal of providing the safe and speedy transport of goods and people across Europe. In 2013, the TEN-T network was assigned a new set of guidelines from the EC that specifically asked for more public-private partnering, and the EC is backing these guidelines with promises of co-funding 26 billion EUR from 2014-2020 or just about one tenth of the overall estimated budget for realizing the TEN-T network s goal. This means that more than 328 Billion USD will be bound in Europe s transport infrastructure until 2020, mostly paid for by the national states and mostly used on road transport infrastructure. Adding to this total are the national transport investments at the state, regional, municipal and city levels. TRANS-EUROPEAN TRANSPORT NETWORK TEN-T CORE NETWORK CORRIDORS BASED ON THE OUTCOME OF THE INFORMAL TRILOGUE OF 27th JUNE 2013 Page 4

The value bound in infrastructure assets is immense, and the need for re-building and expanding the postwar infrastructure in Europe is great. Huge investments are needed to achieve the best possible results. It can be argued that the public entities involved neither have the necessary funds, nor the work force or specialization to perform all aspects of the infrastructure operations themselves. These points form the central argument in favor of infrastructure PPPs, where the private partner undertakes design, planning, financing, building and maintenance of a given asset over a period of time, typically 25-30 years. The private partner assumes most of the risks, while having the freedom to make decisions for the asset, as long as the performance standards set by the public agency with oversight responsibility are complied with. To cope with the challenge of managing very large infrastructure projects, tenders are often answered by large consortia, which consist of sizable construction companies, advisors and investors (banks). Depending on the tendered assignment, a PPP can range from a toll-paid solution (typically bridges, tunnels and private highways), where the private company actually owns the infrastructure, to a tax-financed construction (Design, Build, Operate), where the private company is paid to manage, but does not own, the infrastructure in question. As a matter of reference, several PPP models exist (Public Private Partnership (PPP) Review, Finnish Road Administration, 2013), such as: The Irish model: The client funds approximately half of the project s capital costs directly during the construction phase and private financing is used for the other half. As a result, more affordable public sector financing and PPP risk allocation are both being used. The French model: The client guarantees a proportion of the availability payment thus leaving approximately 70 percent of it protected. This allows the protected part of the payment to be financed at a cost close to public sector borrowing. The Danish model: The client refinances the project using public sector funds post construction. This brings more affordable financing to the project at the time when most of the project risks have passed. A typical contract approach is the Design, Build, Finance and Operate (DBFO), which is undertaken by a consortium and which works with a set of hand-back criteria in terms of service levels as well as condition levels. With a DBFO contract, the public entity involves the contractor in the planning and design phase, and also allocates the building, financing and operation of the road to the contractor. Conditions of an Infrastructure PPP Contract Criteria Types Not surprisingly, PPP contracts differ from country to country in Europe, depending on needs, experiences, tradition, size and political climate. The East European countries, some of them new to the European Union, are seeing a big increase in investor-funding from banks and from the European Commission, enabling large tenders for projects and attracting big consultancies, construction companies and other players in the field of infrastructure. Some countries are pleased with their current procurement methods and some countries have practically transferred overall management of roads and bridges to the private sector. In the UK, the Private Finance Initiative (PFI) was established in 1992 and has since signed more than 600 projects, including 43 transport projects and over 300 other operational projects in sectors such as defense, leisure, culture, housing and waste. Basically a PPP contract entails that the infrastructure assets should be handed back in a condition, following a set of criteria, agreed upon by the partners. These criteria can vary from a simple set of performance conditions which can be measured fairly easily in terms of the life expectancy of assets in relation to different kinds of structures, paired with collected data on parameters such as bearing capacity, cracks, and wear and tear. This data can be collected more or less automatically or by visual inspection and be more or less objective. Using sound judgment, common experiences and standards (key performance indicators, equipment, models), the parties agree upon the hand-back condition of the assets in question. An independent mediator might be chosen to evaluate the criteria at the end of the contract period. Page 5

On top of this comes a set of criteria for the contract period, which includes the level of service (LoS) of the infrastructure. LoS relates to the service quality that users of the infrastructure might expect when using the road, bridge, tunnel, rail, etc. A big part of this service relates to the mobility and safety of the users, i.e., travel time and congestion, some of which is measurable (traffic speeds, statistics) and some of which is more subjective, and may be more in the realm of preventing bad publicity/retaining happy clients on the specific asset. Environmental aspects such as noise and air pollution from the asset might also be an issue to consider. This includes the materials used for building, methods for maintenance and preventive actions (noise barriers, etc.). Additionally, there is a very large financial aspect to PPP contracts. The more complex a project (for instance a sizeable, highly used highway), the more money used for managing the assets and the more money bound in the project, both in the assets themselves and in the contribution to society keeping wheels turning, so to speak. There is a direct correlation between the effectiveness of our infrastructure and the benefit of movement of goods and people. So each unnecessary lane closure is very costly and will be subject to a penalty (from the road owner, in this case). Equally, all assets, which require interruption of traffic for maintenance, should be monitored and managed wisely. Finally there is the cross asset management aspect, not only in terms of building and maintaining the assets, but also to support the financial side of the house by accumulating all relevant data on assets, sub-assets, conditions, service levels and budgets to produce an overview of all elements of the project and to plan and act with due diligence. shareholders. After the contract award, the contracting agency and the consortium realized a review of all the assets and defined a performance baseline. This baseline defined the level at which the assets have to be returned to the contracting agency in 30 years at the end of the contracting period. The following asset classes are present in the contract: Linear Assets Types: Condition scores were applied based on machine and visual data and a set of criteria. Each asset was assigned a score of A (as new), B, C, D or E (life expired). At the end of the contract, the percentage of each linear type asset with condition score A must be between 80% and 120% of the percentage of assets with condition score A at the start of the contract. The same rule applies for assets of condition B and C. The number of assets with condition score D cannot exceed 120%. In the case of condition E, in 2039 there cannot be more than the percentage of E assets at the start of the contract. Structures: At the start of the contract, for each structure on the network, a condition score was given (0-100, with 0 being good and 100 being poor). The score for each structure is generated from element condition scores (with different weightings for element importance). Each structure falls into one of the 5 categories (retaining walls, signed gantries, high masts, small span structures, bridges and large culverts). At the end of the contract, the consortium has to hand each sub-classification group of structures back with an overall condition score and element grouping score that is equal to or better than the condition score that was calculated at the start of the contract (including the scores applied to element groupings). This exercise requires not only precise measurement data, but also highly advanced and reliable software systems that can handle complex data and support strategic and practical decisions during the full lifetime of a PPP project. Integrated Asset Management In the present example, the European PPP consortium has fairly complex hand-back criteria for each asset type it is responsible for. In order to minimize the risks to the consortium, it had developed, during the prebid process, several models in order to predict the expenditures and to limit the financial exposure of the Tunnels: For condition scoring, each tunnel is made up of two components (civil and M&E). These two components are combined using a weighting to generate a score for each tunnel (0-100). Condition scores were calculated using this methodology for each tunnel and the start of the contract. At the end of the contract, the consortium should hand back each of the tunnels with an equal or better overall condition score and element grouping score than was calculated at the start of the contract. Page 6

There are a few more very demanding conditions on the contracted consortium such as: Expenditure Profiles: The expenditures in the 15 years post contract (during year 30-45) have to be between 80% and 120% of the expenditures during the years 15-30 of the contract. This in effect is an obligation to the consortium to maintain the assets at a certain level including necessary preventative maintenance. This is true for all asset types combined. Lane Closures: Lane closures occur when interventions need to be conducted during the day time (generally between 5AM and 10PM) and anything from a part lane to a full carriageway is closed to traffic. This results in a financial penalty dependent on the number of lanes closed, duration, road, location, closure type and time of the year. Figure 2 below shows the overall simplified timeline of the contract. The Maintenance and Operations window spans from 2009 to 2039. However, it is important to note that the expenditure profile penalties could still be imposed to the consortium 15 years after the contract ends. Figure 3 below represents the traditional asset management life-cycle. In this DBFO contract and this paper specifically, the Operations stage is the focus. In our particular example, the Operations and Management stage represents a 30 year budget of more than 3 billion EUR or more than 100 million EUR per year. For approximately 440 km of roads and 1800 structures (considering equal allocation 50% pavement and 50% structures), this represents 120,000 GBP per year per km and 29,000 GBP per year per structure. Contract Award Construction Asset Condition Baseline Widening Maintenance Operations Contract End Potential Penalties 2009 2009 2012 2009 2039 2039 2039 2054 Figure 2: PPP Contract Timeline Establish Needs Finance Design Disposal Procure Operations Build Figure 3: Infrastructure Asset Management Life Cycle Page 7

9:41 AM 100% 9:41 AM 100% In order to facilitate the Maintenance and Operations phase of the contract, the consortium decided to adopt AgileAssets infrastructure asset management system, a state-of-the-art solution that enables greater visibility into and efficiencies in managing day-to-day operations (inspections, defects, maintenance work, asset condition recording, reporting, etc.) as well as in the development of short, medium, and long-term work plans that ensure that the various criteria are met during and at the end of the contracting period (and beyond). Figure 4 represents the AgileAssets system as implemented. It consists of a comprehensive, integrated modular system that supports all facets of asset management, from operational to strategic. The web-based system enables multiple users to perform their functions in a Commercial Off-The- Shelf (COTS) environment that is configured to the consortium s specific requirements. The following AgileAssets modules were implemented: The Foundation TM module enables management of the business rules and users, as well as configuration of the system. It also supports the creation of data models for each asset type and includes a comprehensive Extract Transform and Load (ETL) tool. For the consortium, it is used to tailor the data model of each asset to its specific requirements. The Bridge Inspector TM module enables advanced inspection and condition data capture for structure inventory including bridges, culverts, small span structures, masts, sign gantries, retaining walls, tunnels, mechanical and equipment. The consortium performs approximately 800 inspections annually and has several inspectors and contractors carrying out the scheduled and ad-hoc inspections. Inspections Defects Central Desk Foundation (Core Set of System Capabilities) Inspection Management KPIs Bridge Inspector AgileAssets Integrated Infrastructure Asset Management System Maintenance Manager Warehouse Management Key Performance Indicators Bridge Analyst Pavement Analyst Field Maintenance Operators What-If Scenarios Forward Plans What-If Scenarios Forward Plans Survey Equipment Figure 4: Example of Integrated Asset Management in a PPP Consortium Page 8

The Maintenance Manager TM module enables management of day-to-day maintenance operations including planning, scheduling, work recording and reporting on network assets. The module helps optimize available resources, eliminate redundant work and provide reliable information that enables better decisions. The Pavement Analyst TM module is a decision support tool for comprehensive pavement management. It produces short, medium and long-term work plans. The work plans are the output of what-if scenarios analyses based on specific objectives and constraints. The solution supports multiple analysis types that range from simple methods like worst first and prioritization to complex multi-year, multiobjective, multi-constraint optimizations. It supports the definition of engineering rules such as decision trees and treatments, deterioration models, objectives and constraints. The consortium is able to run level of service scenarios and determine the budget levels required to meet specific level of service goals. The Bridge Analyst TM module is a decision support tool for comprehensive bridge management. It produces short, medium and long-term work plans detailed at the element level. The work plans are output of whatif scenarios analyses based on specific objectives and constraints. The solution supports multiple analysis types that range from simple methods like worst first and prioritization to complex multi-year, multi-objective, multi-constraint optimizations. It supports the definition of engineering rules such as decision trees and treatments, deterioration models, objectives and constraints at the element level. The consortium is able to run level of service scenarios and determine the budget levels required to meet specific level of service goals. In addition to performing specific, crucial functions, the integrated design of the AgileAssets system provides additional benefits. Table 1 below summarizes these benefits. It is interesting to note that each benefit can correspond to significant financial benefits for the consortium. Each benefit can be summed up and used to help justify the acquisition of such a system, without even considering the actual improvements in terms of efficiency, accuracy, quality or software maintenance. To Module Maintenance Manager TM Bridge Inspector TM Bridge Analyst TM Pavement Analyst TM Maintenance Manager TM Work realized to address identified defects Maintenance history on structures Maintenance impact and costs on structures and elements Maintenance history on pavement sections and linear assets Maintenance impact and costs on pavement sections and linear assets From Module Bridge Inspector TM Bridge Analyst TM Defects identified during inspections Structure Work Plans (actionable down to structure element level) Structure Work Plans (actionable down to structure element level) Accurate and up-to-date structure data inventory Accurate and up-todate condition data Structures inventory and condition data on pavement section (Can be rolled up to have trend indicators) Projected structures conditions and expenditures Pavement Work Plans (actionable) Roadway and right-of-way Roadway and right-of-way conditions Pavement Analyst TM Traffic volumes Roadway and right-of-way inventory Traffic volumes and projections Roadway and right-of-way inventory Projected roadway conditions and budgets Table 1: Benefits of an Integrated Asset Management System Page 9

Analytical Decision Support Tools During the Operations Phase of a PPP Contract In the example presented above, the contract duration is 30 years with potential penalties after the life of the contract. It is important to keep in mind that the Design and Build phases are not the focus of this paper. This paper focuses on the Operations phase. During the 30 years of the contract, the assets will need to be at least partially maintained so as to meet the contractual hand-back requirements. In order to achieve the most efficient management, it is important to have some robust asset management capabilities and to apply a systematic approach. The Consortium has decided that having an integrated system would present a significant potential for mid to long-term return on investment. It is indeed conceivable that potential budget reductions between 5% and 20% can be achieved, which could potentially result in valuable returns to the Consortium s shareholders. In Figure 5, the anticipated workflow for most of the asset types is presented. It is important to note that the feedback cycles are built into the process in order to refine the engineering rules during the life of the contract. It is also important to note that every major process is fed by another process and that no process works in isolation. A PPP consortium should therefore function in a very similar manner and adopt a solution that allows for all components and teams to work seamlessly in a single system. At any point in time, the engineering or asset management teams should have feedback loops from the commercial teams and inspection teams in order to run effective scenarios and produce meaningful proposed work plans. All the engineering rules inputted in what-if scenarios should allow rapid modifications in order to evaluate different maintenance strategies. Inventory and Conditions Condition Updates Treatment Library Deterioration Models Engineering Rules Decision Trees Level-of Service Constraints Budget Constraints What-If Scenarios Penalties Constraints Inspections (Manual and Automated) Existing Maintenance Projects Executed Maintenance Updated Treatment Costs Approved Projects Commercial Team and Maintenance Team Proposed Projects Short Medium Strategic Proposed Work Plans Figure 5: Life-Cycle of an Integrated Asset Management System Page 10

The solution adopted by the consortium contains all the built-in loops and allows for rapidly modifying any engineering rule in order to evaluate new maintenance strategies. The decision support components (Bridge Analyst TM and Pavement Analyst TM ) contain one of the most advanced analytical frameworks in the industry and therefore supports extremely complex what-if scenarios that can model contract objectives and constraints as closely as possible. Galenko and Garvey (2014) as well as Laumet and Galenko (2014) discussed the different analytical frameworks and their advantages. It is important to note that using a solution that utilizes advanced analytical methods can offer a potential gain between 20% and 25% on maintenance budgets to achieve identical network level of service goals. Figure 6 summarizes the application of two analytical methods available in the adopted solution and demonstrate the potential for savings using the pavement network of four different clients both large and small. Before the Contract: Asset Management Reduces the Risks Decision Support Tools and Risk Mitigation A decision support tool is not only a tool that can be used during the life of the contract, it can also be used before any contract bids. It should be used by the potential bidder to evaluate the financial profiles required during the life of the contract to maintain the appropriate level of service. Asset conditions can be obtained from the contracting agency, or they can be simulated. Decision support tools can evaluate the budget required to maintain several levels of service. Example of Pre-Bid Scenarios on a Small Pavement Network In Table 2, a small pavement network of 200 km is simulated. The network is simplistically divided in 1 km sections (200 sections of 1 lane) and a single performance indicator (PI) is used (scale of 100-0; 100 is perfect). The condition of each section of the network at the beginning of the contract is randomly generated in order to obtain an overall network condition (see column Starting Network Condition in table 2). Table 2 contains the various starting network conditions, and the various constraints and objectives considered during the simulation runs. The following decision criteria is used to recommend treatments on the network: If PI < 40: Aggressive treatment is a candidate ($213/m) If 40 < PI < 75: Medium treatment is a candidate ($126/m) If 75 < PI < 85: Light treatment is a candidate ($40/m) If PI > 85: Do nothing Reasonably aggressive deterioration models are applied (26 years for the Performance Index to reach 50 and 16 years for the Performance Index to reach 50). $3.00 30% Budget Requirements, Billions $2.50 $2.00 $1.50 $1.00 $0.50 Multi-Year Analysis Single-Year Analysis Difference % Difference 25% 20% 15% 10% 5% $0.00 26380 Sections Client 1 1973 Sections Client 2 5135 Sections Client 3 3441 Sections Client 4 0% Figure 6: Budget Comparison Between Analytical Approaches (Galenko 2014)) Page 11

Starting Network Condition Constraint(s) Deterioration Number of Years Inflation Total Optimized Budget (Million $) Scenario #1 70 Maintain 80% of 26 Years to Reach 20 0% 41.454 Scenario #2 70 Maintain 80% of 26 Years to Reach 20 3% 55.166 Scenario #3 70 Maintain 90% of 26 Years to Reach 20 0% 47.655 Scenario #4 70 Maintain 90% of 26 Years to Reach 20 3% 62.924 Scenario #5 78 Maintain 80% of 26 Years to Reach 20 0% 38.808 Scenario #6 78 Maintain 80% of 26 Years to Reach 20 3% 51.938 Scenario #7 78 Maintain 80% of 16 Years to Reach 20 0% 50.904 Scenario #8 78 Maintain 80% of 16 Years to Reach 20 3% 70.094 Table 2: Pre-Bid Scenarios on Simple Pavement Network As expected, Table 2 shows that the condition of the network at the beginning of the contract is important when it comes to developing long-term maintenance budgets. However, inflation appears to be even more important when estimating the financial envelopes and should not be overlooked. Finally, the rate of deterioration of the network is an important factor in terms of sensitivity analysis when considering a bid for a PPP contract. and strategic issues into one systematic approach, asset managers are better able to meet the many challenges that come with long-term infrastructure asset management contracts. References Paper authors include: Dr. Pascal Laumet and Mikkel Bruun. Conclusion Public-Private Partnerships are not new to Europe. Focusing on the win-win situation of having schools, hospitals and other infrastructure built to the mutual benefit of investors, stakeholders, private companies and end users, the methodical use of PPP has become increasingly popular. In the UK and France, PPP has proven valuable to accomplish projects that require significant investment and which feature complex infrastructures, including highways and bridges. With some contracts, spanning 30-40 years, high standards in quality management and asset management are expected. In the end, the condition and usability of the assets are crucial values to modern society and there is an expectation for private operators to perform their tasks in the least disruptive and most efficient manner. Cross-asset management is a means to reach that end. By centralizing financial, practical Public Private Partnership (PPP) Review, Finnish Road Administration, 2013 Galenko Alexander and Joe Garvey (2014). Pavement Analyst TM : Theoretical Models and Practical Applications. In Proceedings of OPT-I An International Conference on Engineering and Applied Sciences Optimization. Laumet Pascal and Alexander Galenko (2014). Bridge Management: Optimization Model Reduced Formulations and Practical Applications. In Proceedings of OPT-I An International Conference on Engineering and Applied Sciences Optimization. Page 12