Analyzing the Duration and Prolongation of Performance-Based Contracts through Hazard-Based Duration and Zero-Inflated Random Parameters Poisson Models

Abstract

Performance-based contracts (PBCs) for roadway maintenance are emerging as a promising contracting approach that offers highway agencies enhanced project control and greater assurance of accountability and product quality. The duration of a PBC is typically longer than that of a traditional contract. Under a PBC, the contractor bears greater risk and responsibility for the final product and is obliged to undertake any required maintenance after the product is completed. A PBC period is typically considered prolonged if both the road agency and the contractor agree that the contract should be extended beyond the original completion date. This paper examines the relationships between PBC duration and prolongation on one hand, and the factors that affect these outcomes on the other hand, while accounting for unobserved heterogeneity. For the PBC duration model, a number of hazard-based function types are estimated. The Weibull model with gamma heterogeneity is found to provide the best fit. For the PBC prolongation model, a zero-inflated random parameters Poisson model is developed to estimate the probability and extent of PBC prolongation. Random variations in the parameter estimates are duly investigated. The size of the contract and whether the contract scope of work includes certain maintenance activities, among other factors, are found to influence the duration and prolongation of PBCs. This paper also computes and interprets elasticities and marginal effects, to shed more light on the individual effects of the influential variables.