Quantifying Effects of Incentives in a Rail Maintenance Performance-Based Contract

Abstract

Methods to quantify and evaluate quality become important when lump sum and performance contracts replace traditional unit-price or cost-plus contracts. Here, a combined graphical and mathematical method is described along with its results when applied on a Swedish rail maintenance contract with incentives. The regression analysis tools in the Excel software were used. The result of the incentives was that train delay decreased about 10% and the number of technical errors decreased about 20%. The improved quality took place without cost increase. The good relation between the owner and the contractor did not suffer from the rise of efficiency. On the contrary, it was improved. With minor modifications and clarifications the owner now intends to use it for in-house contracting, as the case studied, as well as when outsourcing to private companies. With other performance indicators, the elaborated method and lessons learned should be applicable also for other sectors, where a contractor assuring a specified service level during a period of time is paid a bonus depending on degree of fulfillment.