2007 - Latin America - Experiences with Micro Enterprise Road Maintenance

Report prepared for the World Bank by Gerardo Flintsch and Alejandra Medina from Virginia Tech. 

The outsourcing of road maintenance to micro- and small enterprises under performance-based contracts has been recognized as an effective approach to rural road maintenance in many developing countries. This sees payments for the management and/or maintenance of pavements linked with the contractor successfully meeting or exceeding certain clearly defined minimum performance standards. If structured correctly, sub-national road maintenance PBC programs can effectively maintain pavements, while at the same time, contributing to improved social welfare and local economic conditions.

This report describes a study aimed at reviewing PBC models for the maintenance of sub-national networks in Latin America. The objective of the report is to disseminate the relevant knowledge to other countries interested in building capacities of small and micro contractors and engage them under small-scale PBCs to maintain sub-national roads. The report focuses on labor-intensive practices (micro-enterprises) but also covers contracts that require the use of more conventional maintenance practices.

The study included (1) a critical literature review of relevant documents and reports, (2) identification of suitable agencies for detailed study, (3) a telephone survey of these agencies, and (4) visits to selected agencies in different countries in Central and South America to identify key lessons from failures and successes to be applied to future applications of performance-based road maintenance contracts. The report compares programs in 10 countries and 12 road agencies and present detailed case studies for a subset of these agencies. In general, the programs implemented include two groups of PBCs, projects with a significant social component in economically depressed areas that use mostly cooperative micro-enterprises, and projects focused almost exclusively on improving the service of the roads that also utilize small, medium, and large contractors. Key differences between the two groups of programs include the technical level of the workers and the type of performance indicators used, which have to be consistent with the technical level of the entrepreneurs.

The report presents key lessons learned, associated challenges, opportunities, and achieved results and provides a summary of key recommendations pertinent to performance-based contracting of micro- and small enterprises for municipalities and local governments. The study found that micro-enterprises are a viable option for providing an effective approach for maintaining roads and creating local contracting capacity, especially in remote areas. This practice: (1) improves road maintenance; (2) generally results in cost of the routine maintenance somewhat lower than that of conducting the work by force account, (3) directly and indirectly generates attractive jobs in the rural areas; (4) help secure maintenance funding; (5) rewards initiative; and (5) creates a sense of ownership of the road in the communities adjacent to the road. Performance-based contracts are a practical mechanism for contracting the maintenance of sub-national rural road networks to micro-enterprises. The type of work performed and the remote location of the road segment under consideration make it difficult to measure and control quantities. Furthermore, performance-based contracts have also been implemented successfully for the maintenance of urban street networks to enterprises of different sizes. Hybrid contracts are more commonly used in the programs where street rehabilitation is also included. These contracts typically involve medium- to large-sized contractors. The rehabilitation items are paid based on unit prices, and the routine maintenance is based on outcomes or performance.