A New "Availability-Payment" Model for Pricing Performance-Based Logistics Contracts

Abstract

This report describes the adoption and extension of “availability payment” concepts currently in use for civil infrastructure Public-Private Partnerships (PPPs) to contract design and pricing for Performance-Based Logistics (PBL) contracts. Availability payment models for civil infrastructure PPPs require the private sector to take responsibility for designing, building, financing, operating and maintaining an asset (most commonly highways). Under the “availability payment” concept, once the asset is available for use, the private sector begins receiving an annual payment for a contracted number of years based on meeting performance requirements. The challenge in PPPs is to determine a payment plan (amount and length of time) that protects the public interest, i.e., does not overpay the private sector, but also minimizes that risk that the asset will become unsupported. In this report we focus on availability as the key required outcome and introduce a stochastic availability requirement into PBL contract structures. The model developed in this report uses an affine controller to drive a discrete event simulator (Petri net) that produces availability and cost measures. The model is used to explore the optimum availability assessment window (length of time over which availability should be assessed) for a PBL contract.