Performance-based Contracts for Road Rehabilitation and Maintenance in the State of Bahia

Overview & Synopsis

Over the past few decades, various studies have compared performance-based contracts (PBCs) to traditional road management approaches, though data limitations have often constrained robust conclusions. Brazil's experience offers a valuable opportunity for in-depth analysis, with earlier World Bank work having assessed the costs and outcomes of Brazil's first generation of PBCs against conventional contracts. The present study extends this line of inquiry using data from the State of Bahia, systematically comparing two generations of PBCs from 2009 to 2023 with contemporaneous conventional road contracts, following the analytical framework established by Lancelot (2010). While the comparability of samples requires certain assumptions, experience from Bahia corroborates limited endogeneity, as PBCs were implemented as direct substitutes for traditional contracts regardless of initial road conditions. The findings reveal that after a single five-year PBC cycle, rehabilitation and maintenance costs were reduced by 40–41 percent with equal or better road conditions, rising to nearly 60 percent cost reduction over two consecutive cycles driven largely by contractors' greater flexibility in customizing rehabilitation solutions and adopting more proactive maintenance approaches.