Determining duration of performance-based contracts based on fair payoff for the government and contractors

Conventional contracts are one of the road maintenance contracts based on the number of jobs measured and paid at an agreed level for different work items or referred to as unit price contracts. Meanwhile, performance-based road maintenance determines the minimum conditions of roads, bridges, and traffic assets that must be fulfilled by contractors. National road maintenance in several developed countries has successfully used integrated contracts, performance-based contracts. This is followed by the developing countries that previously had problems with the quality of national roads in which they were unable to provide the desired level of service. This performance contract prioritizes products and it is up to the contractor how to achieve this. Therefore, the choice of design, application of technology, innovation, process, and management are all determined by the contractors. This allocates higher risks to contractors compared to traditional contracts. But at the same time, it opens opportunities to increase margins where increasing the efficiency and effectiveness of design, process, technology, and management can reduce costs to achieve established standard performance. This study uses simulations to obtain the duration of fair and optimal contracts for the government and contractor. Duration 5-7 years is determined a duration that can provide benefits for both parties.