Cost savings of long-term performance-based maintenance partnering

Dutch housing associations are for many reasons considering the application of performance-based maintenance partnership forms. With this they expect to manage maintenance processes efficiently and effectively. If a contract is performance-based, the contractor has contract-related incentives to improve its way of working in terms of performance. That will result in direct and indirect cost-savings. Direct project costs represent the expenditure incurred during the actual performance of (long-term) maintenance activities. The indirect project costs are all costs in connection with the organization and performance of the maintenance activities, but which cannot be expressed as direct project costs. In other words, these are the process costs incurred by both client and contractor. Indirect cost reductions can be realized because the long-term performance-based approach enables maintenance contractors to assume responsibility for certain activities which they are better equipped to perform than their clients. In the traditional approach, many activities are duplicated, i.e. conducted by both client and contractor, because information is lost following the once-only tendering process. In the performance-based approach, clear agreements are made with regard to which party is responsible for which activity during the cooperation period. Ten projects show that the total indirect costs are lower in the performance-based approach than in the traditional working method. The costs of the initial processes in half of the projects are higher in the performance-based approach than in the traditional approach. The `Evaluation and After-care¿ phase is more expensive in every project when using the performance-based approach. The fact that the indirect costs of the performance-based approach are lower overall than those of the traditional approach is entirely due to the reduction achieved in the subsequent phases. The performance-based approach offers the lowest indirect costs to the client. It offers not only a financial advantage in the subsequent processes, but in the initial process too. The indirect costs to the contractor are also lower in the performance-based approach than in the traditional working method, although the savings are somewhat more modest than those enjoyed by the client.