Contract management of DBFMO projects
Design, Build, Finance, Maintain and Operate (DBFMO) contracts are a form of public private partnership that the government uses on building and infrastructure projects. In a DBFMO project, the government commissions a private consortium to build and operate a project, with the private party also arranging the project's financing. The government pays the consortium a fee for the project's availability throughout the entire term of the contract. The contract has a long term, often of up to 30 years. At the end of 2012, 13 such contracts were being implemented (for six roads and seven buildings), with an aggregate contract value of more than €6 billion. The government has estimated that these contracts will save it €800 million in total. The Court of Audit has audited the government's management of the contracts and its provision of information to the House of Representatives.
Stricter management of contract agreements necessary
DBFMO contracts contain mechanisms to ensure that the building or infrastructure remains available. An important mechanism is performance-related payment. We found the following problems in the projects we audited:
- the performance of the private parties is not optimally monitored
- the government does not always impose fines and deductions
- the government makes guaranteed or lump sum payments
Variations require particularly strict contract management
Flexibility is an important factor in these long-term contracts. In the projects we audited, we found 157 contract variations worth €61 million in total. Variations require particularly strict contract management. The government must negotiate every variation with the consortium in accordance with the DBFMO principles. It cannot engage a competitive party if agreement cannot be reached on performance or price. It is uncertain what effect the cost of variations will have on the estimated added value of the projects.
House of Representatives receives little information on contract performance
To weigh up the advantages and disadvantages of DBFMO, the House of Representatives needs information on the performance of the contracts. We made critical comments on the presentation of the financial added value of DBFMO. It does not represent an actual saving but is a provisional estimate that must be realised during the performance of the contract. Furthermore, only limited insight is available into the financial consequences of the projects.
We recommend that the Minister of Finance, the Minister for Housing and the Central Government Sector and the Minister of Infrastructure and the Environment strengthen DBFMO contract management and invest in the skills and expertise of the contract implementers. We recommend that the responsible ministers improve the information submitted to the House of Representatives, paying particular attention to changes in the financial added value, the budgetary consequences and the main findings of project evaluations.
The Minister of Finance wrote in response to our audit that he would improve the information submitted to the House of Representatives. The Minister for Housing and the Central Government Sector said the Government Buildings Agency had already taken measures to improve management of the cost of contract variations. The Minister of Infrastructure and the Environment recognised the importance of further professionalisation of contract management. Rijkswaterstaat (the ministry's executive arm) was already studying best practices in contract management on infrastructure projects.
The Court of Audit welcomed the proposed improvements and pointed out the importance of a consistent, business-like approach to DBFMO contracts. Evaluations are important to provide the House of Representatives with the appropriate information.