restructuring road management - trend or necessity?lnweb90.worldbank.org/.../$file/rrmton02.pdf ·...

INTERNATIONAL SEMINAR

BRA / NRA Seminar onRestructuring Road Management – Trend or Necessity?

Experiences of Institutional and Managerial Reformsin Baltic and Nordic Road Administrations

26. - 27. September 2002, in Pärnu, Estonia

TECHNICAL REPORT

Organizers

Baltic Road AssociationNordic Road Association

Estonian National Road Administration

PÄRNU 2002

Seminar on Restructuring Road Management – Trend or Necessity?

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CONTENTSROAD TRANSPORT, ROAD MANAGEMENT AND RESTRUCTURING OF ROADMANAGEMENT IN ESTONIA ......................................................................................................... 5

Märt Järvik, Head of the Road Traffic Department,Ministry of Transportation and Communications, Estonia

ROAD POLICY (FINANCING, ORGANIZATION) Latvia Case..................................................... 9Talis Straume, Director of the Road Traffic Department,Ministry of Transportation, Latvia

REFORM OF STRUCTURES. OWNERSHIP POLICY AND CORPORTE GOVERNANCE.RE-STRUCTURING OF FINNISH ROAD ADMINISTRATION .................................................. 11

Samuli Haapasalo, Director General of the Ownership Policy and Privatisation Department, Ministry of Transport and Communications, Finland

ROAD MANAGEMENT REFORM IN ESTONIA.......................................................................... 17Riho Sõrmus, Director General, Estonian Road Administration

ROAD ADMINISTRATION REFORMS......................................................................................... 20Olafs Kronlaks, Director General, Latvian Road Administration

LITHUANIAN ROADS .................................................................................................................... 25Virgaudas Puodžiukas, Director General, Lithuanian Road Administration

ROAD ADMINISTRATION REFORMS IN DENMARK............................................................... 36Henning Cristiansen, Director General, Danish Road Administration

ROAD ORGANISATIONS’ REFORM IN FINLAND .................................................................... 43Eero Karjaluoto, Director General, Finnish Road Administration

RESTRUCTURING OF THE NORWEGIAN PUBLIC ROADS ADMINISTRATION................. 53Olav Soefteland, Director General, Norwegian Public Roads Administration

ROAD ADMINISTRATION REFORMS IN SWEDEN .................................................................. 58Ingemar Skogö, Director-General, Swedish National Road Administration

TARTU REGIONAL ROAD OFFICE, HOW IT FUNCTIONS...................................................... 65Kuno Männik, Regional Road Director, Estonian Road Administration

ROAD MANAGEMENT REFORM IN LATVIA, ITS RESULTS, RECOMMENDATIONSAND PERSPECTIVES WITHIN THE CONTEXT OF ROAD MAINTENANCE......................... 70

Vilnis Urbanovics, President of State Joint Stock Company (Central Region Roads),Latvia

SURPASSING THE SWEDISH MODEL OF ROAD MANAGEMENTLIBERALISATION?......................................................................................................................... 74

Martin de Jong, Delft University

PRIVATISATION OF ROAD MAINTENANCE IN ESTONIA ..................................................... 92Ants Kikas, Chairman of the Board, TP Consulting, Ltd., EstoniaKostel Gerndorf, Tallinn Technical University, Estonia


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DANISH USER SURVEY .............................................................................................................. 107Jarl Ahlers Mortensen, Head of Secretariat, Operation and Maintenance, Denmark

LEADERSHIP AND VALUES IN ROAD ADMINISTRATIONS ............................................... 120Elisabeth Schjølberg, Regional Director, Norwegian Public Roads Administration

MANAGEMENT OF THE STATE ROAD FUND ........................................................................ 122Vilnis Millers, Head of State Road Fund Department, Latvian Road Administration

NEW MODELS FOR FUNDING TRANSPORT INFRASTRUCTURE SERVICES................... 129Lasse Weckström, Development Director, Finnish Road Administration

PROCUREMENT STRATEGY, NEW INNOVATIVE PROJECT DELIVERY METHODS,PARTNERING & CLIENT PERSPECTIVES................................................................................ 130

Pekka Pakkala, Procurement Development Manager, Finnish Road Administration

PERFORMANCE BASED PROCUREMENT, NORWEGIAN PPP ROAD PROGRAM............ 139Kjersti Billehaug, Chief Engineer, Norwegian Public Roads Administration


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Prefatorily

Dear user!

Hereby you have the collection of the presentations to Pärnu Seminar in the order ofthe official time-schedule for Sept. 26th and 27th.

The presentations have been included in their authentic shape i.e. as they weresubmitted by the authors. In some cases you find only text, in other cases only slidesor both text and slides. The compilers of the collection have not revised the texts andtitles either on their substance or grammar.

Both CD and paper versions are legally equal.

We wish you succesfully pass the next steps of your reforms.

Organizers


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ROAD TRANSPORT, ROAD MANAGEMENT ANDRESTRUCTURING OF ROAD MANAGEMENT IN ESTONIA

Märt JärvikHead of the Road Traffic Department

Ministry of Transportation and Communications, Estonia

A rea: 45 227 sq km

G E N E R A L F A C T S A B O U T E ST O N IA

Population: 1 361 000 (1 Jan. 2002)D ensity of population: 30 per sq kmC apita l: Ta llinn - 398 434 inhabitants (1 Jan. 2002)

R oad netw ork a ltogether 51 412 kmN ational roads a ltogether 16 435 km

basic roads 2 524 kmm ain roads 1 430 kmsecondary roads 12 439 km

O ther (com m unity , private roads) 34 997 km

7 06 6

1 0 9

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R oad transport 2001share from transport sector %


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Road Offices Jan. 01, 2002

Regional Road Offices Jan. 01, 2003


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GENERAL FACTS ABOUT ESTONIA

Motor vehicles (1Jan 2002) 493 349including passsenger cars 407 272lorries 80 535buses 5 542motorcycles 6 837

Road traffic accidents (2001) 1 889Killed 199Injured 2 444

Automobiles per 1000 inhabitants 372 (1 Jan 2002)Passenger cars per 1000 inhabitants 312Killed per 100 000 inhabitants 14,6Killed per 10 000 automobiles 4,0

DEATH RATE IN SEVERAL COUNTRIES

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A ut om ob ile s p e r 10 00 inh ab itan ts

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Fatalities per 100 000 inhabitantsin Nordic countries and in Estonia

Liiklusõnnetuste läbi hukkunute arv Eestis ja Põhjamaades 100 000 elaniku kohta

0

5

10

15

20

25

30

35

1975 1980 1985 1990 1995 2000 Eesti Norra Soome Rootsi Taani

EST DK

N S FIN

Vision 100

321

364

250

227

213

202

189

175

159

130

118

108

103

100

199204232

213

279284

332

287

491

436

343

142

0

100

200

300

400

500

600

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Hukk

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LÕ hukkunud Visioon100

LÕ hukkunud (trend)


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ROAD POLICY(FINANCING, ORGANIZATION)

Latvia CaseTalis Straume

Director of the Road Traffic DepartmentMinistry of Transportation, Latvia

FINANCING

Basic Strategic Concept

ROAD USER IS A ONE WHO PAYS FOR ROAD INFRASTRUCTURE USAGE

Development Scenario

1991 – 1994 road infrastructure financed from the state budget by means of appropriation of thefunds

1994 - establishment of the State Road Fund- introduction of the annual vehicle tax and earmarking it as a direct State Road

Fund revenue

1996 introduction of the excise duty on oil prodects providing that 50% of the amountlevied is assigned to the State Road Fund

2000 60% of the excise duty on oil products assigned to the State Road Fund

2002 decision of the Parliament (Saeima) to assign to the State Road Fund 85% of theexcise duty on oil products setting out for the Government the task to draft all thenecessary legislative amendments for implementation of the decision alongside withthe preparation of the Budget of 2003(according to the statistics available a transport share constitutes 85% of the totalamount of the excise duty levied)

SHORT TERM TASKS:

- to provide legal basis for implementation of the parliamentary decision to assign to the StateRoad Fund 85% of the levied amount of the excise duty;

- to assess the feasibility of replacing the existing system when the assigned excise duty share isexpressed in percentage of the total by that fixing certain amount per separate unit

The option to be explored: to fix that from each fuel liter sold X santims are assigned to the RoadFund.


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ORGANIZATION

Basic Strategic Concept

ROAD INFRASTRUCTURE SHOULD BE MANAGED AS A BUSINESS STRUCTURE

Development Scenario

1991 – 1994 privatization of the so called “heavy road industry”, state owned only the companiesdealing with daily road maintenance

1997 – 1998 - separating of the functions of CUSTOMER-CONSULTANT-ENTREPRENEUR

- establishment of the State Stock Company “Latvian Road Administration”;administration of the road network performed on the basis of the Agreementwith the Ministry of Transport

- commercializing of daily road maintenance works establishment of four regionalstate stock comapanies dealing with daily road maintenance

- concluding of the first five year period daily road maintenance prerformancecontracts

2002 first public tender for performance of daily road maintenance works within the next5-year period

SHORT TERM TASKS:

- setting out of governmentally approved road condition standards

OPTIONS TO BE EXPLORED:

- establishing of a separate Road Fund Agency chaired by the Road Council which representsboth the interests of the owner (the Ministry) and the road users;

- determination of optimal amounts of road maintenence lots to be put under tendering;

- evaluation of the expedience of privatization of road maintenance state stock companies


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REFORM OF STRUCTURES.OWNERSHIP POLICY AND CORPORTE GOVERNANCE.

RE-STRUCTURING OF FINNISH ROAD ADMINISTRATIONSamuli Haapasalo

Director General of the Ownership Policy and Privatisation DepartmentMinistry of Transport and Communications, Finland

I. THE MINISTRY OF TRANSPORT AND COMMUNICATIONSFINLAND

REFORM OF STRUCTURES 1990-2002

1989:Purview of the Ministry of Transport and Communications consisted mostly of agencies:

• 3 AGENCIES- Road Administration- Motor Vehicles Registration Centre- Telecommunications Administration Centre

• 3 ENTERPRISES OPERATING AS AGENCIES- Finnish state railways- Post and Telecommunications of Finland- Finnish Civil Aviation Administration

• 1 RESEARCH INSTITUTE- Finnish Meteorological Institute

• 2 STATE-OWNED LIMITED COMPANIES- Finnair Plc- Finnish Broadcasting Company

2002:• 8 LIMITED COMPANIES

- Finnair Plc (share issue 1995)- Finnish Broadcasting Company Ltd- Finland Post Plc 1- Sonera Plc (Telecom Finland)

Sonera has been partly privatized in 1998, 1999 and 2000;Rights issue 2001; Merger agreement 2002

- VR Group Ltd (1990 - 30.6.1995 state owned enterprise)- Finnish Motor Vehicle Inspection Ltd (1993 - 1995 state owned enterprise)- Raskone Ltd (1994 - 1998 state owned enterprise)- Dedicated Networks Of Finland Ltd

• 2 STATE-OWNED ENTERPRISES- Finnish Civil Aviation Administration (1991 -)- Finnish Road Enterprise (2001 -)

1 1990 - 1993 Post and Telecoms was a state owned enterprise, 1994 - 30.6.1998 PT Finland Ltd, 1.7.1998 PT Finland

Ltd was demerged into two companies(All underlined have a new organisational model)


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• 2 AGENCIES- Road Administration- Maritime Administration (net budgeted agency)

(ongoing restructuring: Maritime Administration, 3 state enterprises?)

• 3 SMALL ADMINISTRATIVE AND REGULATIVE AGENCIES- Finnish Communications Regulatory Authority (including postcommunications)- Vehicle Administration Centre- Rail Administration

• 2 RESEARCH INSTITUTES- Meteorological Institute- Marine Research Institute

REFORM OF STRUCTURES ON THE PURVIEW OF MINISTRY OF TRANSPORT ANDCOMMUNICATIONS FINLAND1990 - 2002(State owned unincorporated enterprises and limited companies)

THE MAIN CHANGES:

• POST AND TELECOMMUNICATIONS OF FINLAND, STATE OWNED ENTERPRISE1990 1993

• FINNISH STATE RAILWAYS, STATE OWNED ENTERPRISE 1990 - 30.6.1995

• FINNISH CIVIL AVIATION ADMINISTRATION, STATE OWNED ENTERPRISE 1991

• MOTOR VEHICLES REGISTRATION CENTRE, STATE OWNED ENTERPRISE 1993 1995

• RASKONE (State Repair Shop), STATE OWNED ENTERPRISE 1.7.1994 - 1998

• PT FINLAND LTD. (Finnish Post Ltd.; Telecom Finland Ltd.), LIMITED COMPANY 1994

• VR GROUP LTD. (Finnish State Railways), LIMITED COMPANY 1.7.1995

• FINNISH MOTOR VEHICLE INSPECTION LTD., LIMITED COMPANY 1996

• NEW STRUCTURE FOR MARITIME ADMINISTRATION (into a net budgeted agency)

• DEMERGER OF PT FINLAND: SONERA-GROUP PLC, FINLAND POST LTD, 1.7.1998

• SONERA’S PARTIAL PRIVATISATION 11/1998 (IPO), 10/1999, 03/2000, RIGHTS ISSUE2001, MERGER AGREEMENT 2002

• RASKONE, LIMITED COMPANY 1999

• ROAD ADMINISTRATION 2001 1) AGENCY, 2) FINNISH ROAD ENTERPRISE

• MARITIME ADMINISTRATION (restructuring in process)

II. OWNERSHIP POLICY AND CORPORATE GOVERNANCE

REORGANISATION AND BUSINESS PRINCIPLES – CONCEPT AND STRUCTURE

• Application of business principles is the only way to promote services

• Through incorporation the owner can acquire and realise financial value


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Sonera: EUR 6.6 billion, relatively the greatest financial value acquired from any company inany European country (although the state still owns 52,8% of the company)

• Clear separation of regulation from ownership monitoring

Legislation Ownership monitoringEU regulation Ownership policyLicences PrivatisationControl Corporate Governance

• Opening competition in each incorporation case

Model of unincorporated state enterprises also used in non-competitive markets

CURRENT BUSINESS STATUS IN THE FIELD OF TRANSPORT ANDCOMMUNICATIONS

LISTED COMPANIES: Ownership % (Authorisation)• SONERA CORPORATION (PLC) 52,8 (0)• FINNAIR GROUP (PLC) 58 (50)

STATE OWNED COMPANIES:• FINLAND POST CORPORATION (PLC) 100• VR GROUP 100• FINNISH MOTOR VEHICLE INSPECTION 100 (0)• RASKONE LTD (state repair shop) 86 (67)• DEDICATED NETWORKS OF FINLAND LTD 100• FINNISH BROADCASTINGCOMPANY, YLE 100

(monitoring by Parliament)

UNINCORPORATED STATE ENTERPRISES:• Finnish Civil Aviation Administration 1991 • Finnish Road Enterprise 2001

REGULATORY DEPARTMENTS• Communications Department• Transport Policy Department

ORGANISATIONS THAT BUY SERVICES• Finnish Communications Regulatory Authority (Ficora)• Finnish Road Administration• Finnish Rail Administration• Finnish Vehicle Administration

PRINCIPLES OF OWNERSHIP MONITORING• Shareholder value• Market-orientation• Corporate Governance

- Board of directors- All board members independent business experts etc. outside of the company- Owners at the AGM (annual general meeting)- Principle: no interference at operational level (Company Act, Stock Market Act, Prospectus)


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THE MAIN PRINCIPLES OF GOVERNMENT’S OWNERSHIP POLICY ESPECIALLYIN TELECOM, MOBILE AND SERVICE SECTOR:• The state is fully market oriented owner, as any professional institutional investor• Fully commercial• Pragmatic• Strong value orientation• The state does not interfere at operational level• Room and flexibility for the company to grow and develop based on the Finnish knowhow and

technological expertise as a part of the whole cluster• Pragmatic approach in privatisation; the government to remain as liberal regulator, not as an

owner

MODEL OF UNINCORPORATED STATE ENTERPRISES• Act on unincorporated state enterprises = ”Companies Act”• Separate acts on unincorporated state enterprises

- Finnish Civil Aviation Administration Act- Finnish Road Enterprise ActThese acts and government’s decisions establish unincorporated state enterprises, decide ontheir property as shown in balance sheet and provide for the special features of each enterprise.

• Permanent model(Finnish Civil Aviation Administration)

• Interim stage before a company is established(Sonera Corporation, Finland Post Corporation, VR Group, Finnish Motor Vehicle Inspection,Raskone; Finnish Road Enterprise?)

• A flexible, effective model to combine business and service production• Business operations the same as in a limited company

- independent decision making- internal financing (not in the state budget)- decisions on investments- decisions on resources- loaning- own board of directors and CEO

• Yet a part of government organisation- Moderate monitoring by Parliament- Moderate framework monitoring by the Government and the Ministry of Transport and

Communications• Also possible in monopolistic sectors

III. THE RE-STRUCTURING OF FINNISH ROAD ADMINISTRATION

”A well functioning infrastructure is perhaps the most crucial basis for all development in themodern society”

- all the transport modes, telecommunications

Traditionally Ministry of Transport and Communications together with several agencies hasbeen responsible for the infrastructure issues. The agencies are usually organised according todifferent modes of transport, Road, Rail and Maritime etc.

(agencies)


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In Finland we used to have all the roles of road policy and production in the same agency –Finnish National Road Administration• budgeting• building, maintenance• purchasing/ordering and competitive tendering/bidding• traffic safety• regional issues

The first implementation step in Finland in 1997 governmental decision in the CabinetCommittee on Economic Policy:• Clear separation of roles

1. Ordering, competitive tendering, administrative affairs, ownership2. All production

• The separation of the roles all through the organisation in the headquarters and in all regionalorganisations

2001CLEAR ORGANISATIONAL RESTRUCTURING

THREE MAIN POINTS:• Road Administration

- Client, invitations for tenders, bidder, authority, developer• Road Enterprise

- separate business organisation almost like a plc (out of the state budget, own income, owninvestment, CEO and board etc.), but some overall framework and monitoring fromParliament, Government and Ministry

- field: building, maintenance, planning• Full competition

- but some steps protecting the existing private sector (max 4 years)

WHAT WAS THE GOAL OF THE MTC?• Cost-efficiency

more and better quality for the same money• Clear structures and separate roles• Development of the whole industry (incl. private sector infrastructure maintenance, planning

and constructing companies)• Opening of competition• Technological development

new structures as a catalyst• Restructuring of the whole industry

- consolidation- networks and alliances- mergers and acquisitionsBetter infrastructure, ideal cost-efficiency

PRECONDITIONS TO BE FOLLOWED• Smooth principles concerning the personnel• No conflicts or turbulence in the existing market• Balanced time period in restructuring

- Competition opened gradually during 4 years in all areas• The very best of the whole industry

Normal market and competition


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WHICH KIND OF GOALS HAVE WE REACHED UNTIL NOW?• The new structure

- transparency- competition- basis for the development- more and better quality with the same money

~ re-allocation of the money• Better instruments for the MTC in transport and road policy

- the goals set for RA- ownership policy and corporate governance concerning RE- clarity and development of the private sector and the whole industry

• The development of Road Administration and clearance of its role• RE’s fine results in the first year 2001

- 16 MEUR extra result and dividend (!) from the Road Enterprise• Cost-efficiency


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ROAD MANAGEMENT REFORM IN ESTONIARiho Sõrmus

Director GeneralEstonian Road Administration

The present report should give you a brief overview of the restructuring/reorganization of the roadmanagement organization in Estonia. The reports of my colleagues will surely supplement andspecify the topic.

The structure and administration of the road management organizations has lately been a topicalissue in many countries. So it is here, in Pärnu, on our present Workshop.

The reason is simple. There is no standard road management structure which would satisfy allcountries. As countries have different names, they have also different economic policies anddifferent level of development. What is possible and acceptable in one country, needn’t be so inanother. But in nearly all countries, the main aim of restructuring has been, and is, decreasing therole of the state and increasing the role of private sector in road management. I mean both statejoint-stock companies and private enterprises. All efforts to reorganize the road managementorganization by optimal strenghening etc. of the role of the state have ended and will end in futurewith the realization that only enterprising spirit will help us more ahead. The state, however, hasalways retained the role of drafting, ordering and checking, although a certain videspread stableforesees privatizing this function as well.

We cannot forget two opposite concepts – monopoly and competition. In my opinion, in manycountries there is imaginary competition which under closer scruting turns out to be a certainapproved monopoly. But that’s enough of speculations, let’s get to the point – Estonia.

Estonia has been a traditional country where road management has been carried out via theMinistry of Transport and Communications in the Road Administration and via the RoadAdministration in the county road offices. Until 1999 our organization had a classical and simplestructure – in every county there was a road office administered by the Road Administration andfinanced from the state budget. We have 15 counties. This was a good and simple system. At thebeginning of 90-ies the road offices did everything – maintenance, repairs, road construction oncounty roads, produced materials, asphaltconcrete and did all that on their own orders or the ordersof the Road Administration. They had necessary equipment and production factories/bases. Theychecked their own work as well. Only the construction of the most important main roads wasordered from private enterpreneurs at the beginning of the 90-ies. Road offices also participated inthe procurement process going on out of state roads, which network was of course wrong. Togetherwith the decreasing finances and the development of economic policy it became clear in mid nintiesthat it was harmful and dangerous to continue in the same way and it would be better toreorganizing oneself rather than reorganized from above.

Due to decreased finances, the production factories and most of the equipment was not used tothis full capacity.

The development of economic policy caused the separation of the roles of the orderer and theperformer of the work. The experiences of many countries in reorganizing their structure wereexamined. As no model used in other countries seemed to be suitable for overtaking, which wasalso proved later, the need for consultants arose.

Thus, the reorganization plan of the road management organization was elaborated and adoptedby the Ministry in 1997. The main emphasis in the plan was laid on the county road office. On thatlevel the plan set forth privatisation of all the production facilities – asphalt concrete plants, theequipments – that is all the production property. Maintenance work was left in the hands of thestate. In addition, the legal basis required development, general and financial management neededimprovement.

As there was great debate concerning maintenance, it was first decided to privatize maintenancein one county and thouroughly analyse the results. The sale of production factories/bases was


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started, but soon on this basis of experiences doubts arose, that in those counties where maintenancecould be privatised, it was not necessary to sell the production bases before starting the process ofprivatising. On the one hand, the sale of the production bases was not a simple or rapid process, onthe other hand, there was political pressure that maintenance should be privatised also in some othercounties.

In the year 2000 a private enterprise started work in Põlva county. It partly bought and partlyrented the assets of the road office and employed an agreed part of the employees – both workersand office staff. The road office itself continued the work with 16 clerks as the drafter, orderer andchecker of the work. The length of the contract is 5 years. In other 14 countries where maintenancewas privatised, the road office was planned to remain the orderer of repairs and construction workand carry out maintenance itself or order if from other enterpreneurs.

There was much discussion about the form of enterprise – whether if should be a state joint-stockcompany or private enterprise. The former would have been a transitional entity on the way ofprivatisation. Later the shares of the state joint-stock company should have been sold anyway. Thiswould have made the process of privatisation longer, more complicated and more expensive.

As I mentioned before, due to great political pressure, it was decided in 2000 (before malingeconomic analysis which would give correct data only in 3-4 years) to proceed with privatisingmaintenance work, first in two counties and after a few month in two more counties – alltogether in4 counties.

At the same time, it was decided to transform one road office intoa state joint-stock company andas soon as possible sell its shares. The formed state joint-stock company had to participate on equalbasis together with other private enterprises in the bidding in order to get the maintenance contract.The result was that the state joint-stock company won the bidding and got the contract for 5 years.

Legal problems made the planned privatising of maintenance work in 4 counties morecomplicated, in 2001 maintenance was privatised in one more county. By the end of 2001maintenance work was performed on private basis in 3 counties in 2 there was a private limitedcompany and in one a state joint-stock company. As you can see, we have been very careful withprivatising maintenance work.

Political pressure continued and we saw that the conditions of the roads had not deteriorated, ifwe leave aside problems of financing maintenance, which occurred all over the country. Financesfrom maintenance from the state budget decreased this year, but the contracts in 3 counties providedfor an increase of maintenance costs by a few per cent. Thus, there was only one possibility ofsolving the problem and that was at the expense of those counties where maintenance work wascarried out by the state or the state road office.

That in turn increased the wish to speed up privatising process in maintenance work. Thatdecision presumes changes in the structure, functioning and organisation of work in the roadmanagement organization.

For establishing a profesional and administratively capable road management organization wherebudgetary resources which mainly cover administrative costs are rationally used, it is practical toform an ordering organization whose management structure is based on regional centres in the formof regional offices.

Research carried out in that line showed that it is practical to form 6 regional road offices inEstonia, whereas they maintain the right to carry out maintenance work themselves in thosecountries where the regional centre is situated. The main reason for that decision was the wish toavoid possible monopolies in the market of maintenance work and to control prices.

In December 2001, the relevant decision was made by the minister – to form 6 regions andprivatise maintenance work only in 9 counties, not in 15.

Concidering the functions of the former road offices and the experiences other countries, it isnecessary that in the mentioned 9 counties where maintenance work will be privatised, thesubordinate unit (subdivision) in the capacity of an ordering body will continue its existance, butnot as the former county road office. The laster will continue as departments of regional road


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offices, continuing to offer public service and ordering and checking of maintenance work in thecounty.

In the opposite case in 9 counties 15-18 people in the road offices as an ordering body wouldcontinue their work, whereas they would have lots of specific duties and the functions of the state asan orderer and drafter of work would not substantially decrease.

However, it is possible to centralise those functions to a great extent by joining 2-3 counties.That would favour specialization of employees and decrease administrative costs.

Thus, we can hope that by the end of the year the performers of maintenance work in 9 countiesin Estonia will be enterpreneurs in the form of 8 private enterprises and 1 State joint-stockcompany. At present 5 of them are already working in 4 counties, the tendering process has startedin order to establish the winner of the contract. Improvements are also being made in contracts andeconomic analysis in being carried out, but it is possible target a sufficient overview of the relationsof the state and private enterprise only in 3-4 years.

At present one more new regional road office (formed on 1.st July) is working. The next twoshould be established on 1.st November and the last 3 by the end of the year.

What would be the advantages of this reform in Estonia. Competition creates preconditions forfaster development of road management, the quality of the offered public service should improve asthe roles of the orderer and performer of the work are separated, the appearance and the passabilityof the roads should improve and become more uninform because there will be less subjectivity inapplying the requirements concerning the condition of the road, it is possible tpo use availableresources in a more optimal way.

What would be the disadvantages of the reform? On the basis of 1,5 year experiences, we cansay that road management is not so flexible and promptly managable where maintenance is carriedout by the private sector. That means we have to organise not planned additional tasks through thestate procurement system which takes 2-3 month. Due to scanty budgetary resources, there ismoney only only for maintenance work for a certain level of passability or roads, and we lackmoney for smaller repair work.

We cannot forget that the primary aim of enterpreneurs is to make profit. The state system, onthe other hand, tends to manage with excessive expenses although the system in certain cases ismore flexible. Enterpreneurs will first take a look at their contract and if certain work is notprovided for by the contract, they will ask that they will get for that.

In order to make the best decision whether to privatise all maintenance work in Estonia, weshould make the decision in 2005 or 2006, despite political pressures.

By way on conclusion I can say that the reorganisation process carried out in Estonia now is notfinal, ideal or 100% suitable for some other country which has not started with the reorganization ofroad management.


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ROAD ADMINISTRATION REFORMSOlafs KronlaksDirector General

Latvian Road Administration

Five years have passed since the reorganisation in 1997, which was the most significant in thewhole lifetime of the Latvian Road Administration. At present it has sustained verification by timeand it has been widely recognised.

Before the first of June 1, 1997, the Latvian Road Administration (LRA) was a state civil serviceinstitution subordinate to the Ministry of Transport (MoT). The Latvian Road Administration had26 directly subordinate routine maintenance companies with approximately 2500 employees intotal. The Latvian Road Administration was directly responsible for road routine maintenancetherefore it directly purchased maintenance machines and materials. State contracts for periodicmaintenance, reconstruction and construction were awarded by the LRA to private contractors.LRA and subordinate road maintenance companies were greatly influenced by differentorganisational and financial regulations and due to this fact the salaries were low, and theemployees had little motivation to work permanently at the road administration.

The reorganisation was implemented in June, 1997, after the government had initiated thedelegating of certain state functions to state owned business companies. In the result the LRA wastransformed into a non-profit state owned company which was owned by the Ministry of Transportbut which could work according to free market principles and decide about its own developmentand structure independently. The LRA became a consultant to the Ministry of Transport and nowhas made an agreement with the MoT about performing some of the functions of the MoT. 26routine maintenance companies became independent from the LRA and were transformed into 4independent state joint stock companies for road routine maintenance, which now execute roadroutine maintenance works on the basis of 5-year contracts with the Latvian Road Administration.

LRA’s activities after the reorganisation are greatly based on business company principles in amarket economy. LRA awards state contracts to private contractors through bidding and tenders,and now LRA is becoming more and more independent in deciding about the use of its ownresources. LRA has become competitive and attractive employer in the road engineering market andbecause of this it acquired a stabile number of employed road engineers.

The present Status of the Latvian Road Administration is a Non-profit organisation state jointstock company “Latvian Road Administration”, The company is registered in the Latvian Registerof Enterprises; its actual owner is the state and its supervisor is the Ministry of Transport. Mainlegal documents regulating the activities of the LRA are the Statutes of the Latvian RoadAdministration, and the 5-year contract with the Ministry of Transport, with additional annualcontract with the Ministry of Transport.

4 state joint stock companies for road routine maintenance execute road routine maintenanceworks on the basis of 5-year contracts with the Latvian Road Administration each in its own region.

The present structure of the Latvian Road Administration includes four large divisions eachimplementing a part of the main functions of the Latvian Road Administration. Technical Divisionis responsible for preparing and following and the general strategy for the whole road sector,Production Division deals with road construction and periodic maintenance, in particular withtenders for road works and awarding of contracts to private companies. Road Maintenance Divisionis responsible for planning and supervising routine maintenance works, and Traffic OrganisationDivision is responsible for supervising road traffic safety both on state main roads and in cities.

The supervision of the Ministry of Transport over the LRA is implemented through the RoadTransport Department of the Ministry.


21

Two state proxies who represent the stock holder’s meeting of the LRA are appointed by theMinistry and they check whether the LRA performs the duties defined in the agreement with theMinistry.

There is a number of benefits gained both by the LRA and its employees after theReorganisation. The LRA’s status allows to implement free market oriented principles and applypractices of private companies, for example be flexible in determining competitive salaries for itsemployees. The LRA now is maintaining a stabile personnel of engineers who are not so eager tochange careers. The stability of the staff ensures the improvement of quality of those works, whichthe LRA performs as the consultant to the ministry of Transport. The LRA finances thedevelopment of its own management systems and Information Technologies, which allow it tobecome more competitive. For example, at present the LRA is willing to certify its QualityManagement System according to ISO 9001.

Benefits to the employees are the following:• Additional payments and allowances, such as:

o additional motivation payments (bonuses for work results),o vacation allowance,o maternity and retirement allowances, etc.

• Education and training benefits, such as:o fully paid professional road engineering educationo full or partial payment of study fees which are not connected with civil engineering,

and,• Health and life insurance.

In conclusion some of the Future perspectives of the LRA have to be mentioned. The current tasksof the LRA still are the improvement of contract relations with the MoT, work with the politiciansin order to promote road sector needs and solution of problems and further development of theLRA’s personnel and competitiveness to be ready for future road sector market.

Important milestone will be the elections of the new Parliament, which will be held on October 5,2002. The new Parliament and the new government may initiate a number of new ideas andpolitical decisions, which may lead even to further reorganisations and changes in the road sectoraffecting also the Latvian Road Administration. At present it is unfortunately too early to make anysubstantial forecasts concerning such new political initiatives.

Status of the Latvian Road Administration (LRA) before June 1, 1997

• LRA – state civil service institution under the Ministry of Transport (MoT);• LRA has 26 directly subordinate routine maintenance companies• LRA directly purchases maintenance machines and materials;• LRA awards state contracts and supervises projects for periodic maintenance, reconstruction

and construction;• LRA is greatly influenced by financial regulations;• Salaries are low, personnel lacks motivation

Reorganisation

• Governmental initiative of delegating the state functions to business companies;• LRA is transformed into a non-profit state owned company;• LRA works basing on the agreement with the MoT and performs the functions of the MoT;


22

• 26 routine maintenance companies are transformed into 4 independent state joint stockcompanies for road routine maintenance;

• State joint stock companies perform road routine maintenance works on the basis of 5-yearcontracts.

LRA’s Activities after Reorganisation

• LRA’s activities are based on business company principles in a market economy.• LRA awards state contracts to private contractors through bidding and tenders• LRA becomes more independent in deciding about the use of its own resources;• LRA becomes competitive in the road engineering market;• Personnel in the LRA becomes stabile.

LRA’s Status

• Full name – Non-profit organisation state joint stock company “Latvian Road Administration”;• Status – company registered in the Latvian Register of Enterprises; owner – the state;

supervisor – the Ministry of Transport• Main legal documents:

- Statutes of the Latvian Road Administration,- 5-year contract with the Ministry of Transport,- additional annual contract with the Ministry of Transport.

Four Road Routine Maintenance Regions

Kurzeme Roads

Vidzeme Roads

Latgale Roads

Central Region Roads


23

LRA’s Structure

Road Maintenance Division

Maintenance Planning Department

Maintenance Supervision Department

26 District Units

Traffic Organisation DivisionTraffic Organisation Planning

DepartmentTraffic Organisation

Supervision Department

Production Division

Tender and Contract Department

Work Supervision DepartmentProject Implementation Unit

Technical DivisionStrategy Department

Road Network DepartmentPavement Preservation

Management DepartmentBridge Department

Director General

Administrative Department

Public Relations andMarketingDepartment

Communications and Computers Department

AccountingState Road Fund Department

Personnel DepartmentLegal Department

Office of Director General

Quality Manager

Road Museum

LRA’s Tasks and Responsibilities

• Administration of the State Road Fund;• Management of the state road network;• Organisation of public procurement;• Management of state road reconstruction and construction programmes / projects;• Supervision of road maintenance, repairs and construction in the state road network.

S u p e rv is io n o f th e M in is t ry o f T ra n s p o r t o v e r th e L R A

S ta te p ro x ie s ( s to c kh o ld e r ’s m e e t in g ) 5 -y e a r c o n t ra c t

M in is t ry o f T ra n s p o r t

L a tv ia n R o a d A d m in is t ra t io n

R o a d T ra n s p o r t D e p a r tm e n t


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Benefits Gained after the Reorganisation in 1997

• LRA’s status allows to implement free market oriented principles and apply practices of privatecompanies;

• Salaries are competitive;• Stabile personnel of engineers;• LRA decides on issues of staff motivation, purchases and development;• Stability of the staff ensures the improvement of quality;• LRA finances the development of its own management systems and IT;• LRA pursues the certification of its Quality Management System according to ISO 9001

Benefits to the employees

• Additional payments and allowances:- additional motivation payments,- vacation allowance,- maternity and retirement allowances, etc.

• Education and training:- paid professional education- full or partial payment of study fees

• Health:- health insurance,- life insurance.

Conclusion: Future Perspectives

• Current tasks:- improvement of contract with the MoT,- work with the politicians,- development of the personnel.

• New Parliament elections on October 5, 2002:- new political decisions concerning the LRA?- new changes in the status and function of the LRA?


25

LITHUANIAN ROADSVirgaudas Puodžiukas

Director GeneralLithuanian Road Administration

LITHUANIAin Europe

Territory65 300 km2

Population

3 491 000


26

General road network information

Main roads1724,3 kmNational roads4864,0 kmRegional roads14724,3 km

State roads

Total state roadslength 21312,6 km

Road Network Density: 6,1 km per 1000 inhabitants 328 km per 1000 km2

TEN corridorsLithuania is crossed by

two Trans EuropeanNetwork (TEN)corridors:

In the North-Southdirection, Corridor I(highway VIABALTICA and railline RAIL BALTICA),linking Tallinn - Riga- Kaunas - Warsaw,and its branchCorridor I A (Tallinn- Riga - Siauliai -Kaliningrad)

In the East-Westdirection, CorridorIX, branches IX B(linking Kiev - Minsk- Vilnius - Klaipeda)and IX D (Kaunas -Kaliningrad)


27

E-category roadsE67 VIA BALTICAHelsinki - Tallin –Riga – Kaunas –Varsaw – Praha;E28 Berlin – Gdansk- Kaliningrad -Vilnius – Minsk;E77 Pskov - Riga -Siauliai - Kaliningrad- Varsaw –Budapest;E85 Klaipeda -Kaunas - Vilnius -Lyda - Bukarest –Aleksandropoli;E262 Kaunas -Daugavpils -Rezekne - Ostrav;E272 Vilnius -Panevezys - Siauliai- Palanga - Klaipeda.

Total length of E-category roads is 1490 km

56,6 % of state roads are paved.Of which: Asphalt – concrete 24 % Light asphalt 75 % Cement – concrete 1 %43,3 of regional roads has gravel pavementThe prevailing width of asphalt pavements is 6-7metresAll main and national roads are cement or asphaltpaved20 % of asphalt pavements are wider than 7 metres521 km of roads have four lanes


28

The number of vehicles per 1000 inhabitants in 1990-2001

217 227 235 246 257236 240

277

312326

348 397

0

50

100

150

200

250

300

350

400

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Dynamic of Traffic Volumes in 1990-2001, %

100

119

8881

104 106121 130 139 139 134 140

0

20

40

60

80

100

120

140

%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001


29

Dynamic in financing of Lithuanian roads, in 1996 – 2002, million LTL

294

445

428

600

451

100

24

423

149

0

334

127

3

404

42

66

495

88

0

100

200

300

400

500

600

1996 1997 1998 1999 2000 2001 2002

Local budget Loans Grants


30

The sources for road financing in Lithuania, 2002, %

88,20%

11,70%

Local budget Grants

Sources for Lithuanian Road Programme revenues in 2002, %

44,40%

4,40% 45,90%

5,00%0,30%Gross income deductions

Vehile owner's tax and road user chargesPart of excise on petrol, diesel fuelExcise on vehicle liquefied gas Other taxes


31

The structure of Road expenditure , %

28%

43%

25%

4%

Road maintenanceRoad con stru ctio n, reco nstructio n, rep air, bridg e repairLo cal ro adsOther exp end itures

STRUCTURE OF THE ROAD MAINTENANCE EXPENDITURES

22%

42%

3%

12%

7%

4%4% 5% 1% S umm er routine

ma inte na nce

W inte r routinema inte na nce

Bridge ma intenance

P avem ent m aintenance

Repairing grave l roads

Repairing roadbed

Roa d ma rking

S igns, cra sh ba rrie rs

Repairing roadside ,buildings


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Structure of Road Sector

The Ministry of Transport (MoT)

Lithuanian Road Administration (LRA)

10 Regional State Enterprises1 Motorway State Enterprise

Central Quality Control Laboratory

Transport and Road Research Institute

Operating Management of the Roads

Lithuanian Road Administration (LRA)

Transport and RoadResearch InstituteCentral Quality

Control LaboratoryPrivate Companies

11 State Enterprises Private Companies

Private Companies

Research anddesign

Roadmaintenance

Road constructionand repair

70 % 30 %TOTAL

100 %50 % 50 % 20 %80 %

Private Companies

State Enterprises


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Structure of road assetmanagementMOT:

Asset’s owner;-Management – general.LRA:

No asset ownership;-Management:

General planning;Contracting;Financing;Control.

State enterprises:Delegated asset ownership.

-Management:Detail planning, Road inventory;Asset accounting.

-Execution of maintenance works

Structure of Financing RoadMaintenance in 2002

Routine main tenanc e in

s ummer 22%

Main tenanc e o f the embankment

and c u lv e r ts 4%

Main tenanc e o f b r idges and

p ipe lines 2%

Main tenanc e o f as pha lt

pav ements12%

Res tora tion o f g rav e l pav ement

w ear7%

Res tora tion o f road s igns and

barr ie rs , e tc .4%

Res tora tion o f road marking

4%

Routine main tenanc e in

w in te r42%

Daily ins pec tion and repa ir o f

minor damages3%

Unit price contracts (according to bill of quantities)

33%

Lump sum contracts (According to standard)

67%


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Management of Fund Allocated onRoad Maintenance

Data baseTraffic volumes

LoadsAccident rates

Road lengthVolumes of construction work

Road condition

Optimal levels (standards) of road maintenance(Minimum combined costs)

Realistic funding

Realistic levels (standards) of road maintenance

Contract awardAssignment of tasks, funds and level of maintenance

Contract implementationSupervision of works Supervision of the road maintenance

level (standard) implementation

Optimal scope of funding Governmental policyWillingness of society to pay

The System of DocumentsRegulating the Road Maintenance

Classification of worksA list of compulsory works

Standard (level) ofmaintenance

Maintenance technologies

Economic rates

Guidelines of technicalsupervision and take over

Methodology ofmaintenance level

assessment

Package of rates on thenumber of working hours,equipment, and materials

Planning

Production

SupervisionAcceptance

3

1

1

2

2 5

2

3

2

5

4

6

4

5

6

7

6

7


35

ConclusionsAdvantages: limited number of capable enterprises reduced amount of state employees contracting out of works lump sum contracts (achieved level of maintenance) independent supervision of works

Shortcomings: incomplet separation of Client and Contractor function lack of legislation regulating lump sum contracts insufficiently developed data bank

Today’s priorities and perspectivesEnsurance of proper routine maintenance level and traffic

safety.Modernisation of European Corridors

VIA BALTICA ( Marijampolė bypass)Implementation year 2000 – 2005.Project cost – 16,5 million EUR,of which 6,5 million EUR by EU PHARE,10,0 million EUR – Lithuanian funds.

Lithuanian Highway ProjectImplementation year 2001 – 2004.Project cost – 115,55 million EUR.Financed by EU ISPA program – 65,55 million EURand Lithuanian funds – 50 million EUR.

Preservation and modernisation of the existing road network


36

ROAD ADMINISTRATION REFORMS IN DENMARKHenning Cristiansen

Director GeneralDanish Road Administration

1. IntroductionAs you know, I am General Director of the Danish Road Directorate and chairman of Nordic RoadAssociation in the term from the middle of 2000 to the middle of 2004.

First of all, I want to thank you for having taken the initiative to this seminar entitled”Restructuring Road Management – Trends or Necessity?”. I imagine this initiative was taken byBRA as a result of the fact that the Baltic road administrations are moving into a process of changeon the organizational level – in particular at the present time. But so are a great number of theNordic road administrations too – as you will experience during this seminar.

The programme of the seminar has been prepared by NRA's Technical Committee 13, RoadSector Organization and Management, and its BRA counterparts in the Administration Committee.

2. State-of-the-ArtAt first, I want to outline the present situation as to road management and performance in Denmark.As you can see from this slide, the Danish road network had a total length of 71,900 kilometres atthe beginning of 2002. According to the Road Act of 1971, the administrative and economicresponsibility for the road network is shared by three levels of road authorities.

At the first level of the organization of the Danish road sector we find the Dansih Parliament (theFolketing) and the Minister of Transport taking the political decisions for the national road network.At the next level we have 14 county councils which are responsible for the regional roads, andfinally we have 275 local councils and municipalities having the responsibility for the local roads.

The administration of each road network is carried out by its own administrative body; therefore,the Danish Road Directorate administrates the national roads, the 14 technical departments in thecounties administrate their respective road networks etc. Consequently, each one of these has theeconomic and technical responsibility for its own road network.

1,660 kilometres of the Dansih roads are national roads for which the Road Directorate isresponsible (excepted from this are the Great Belt and Øresund bridge and tunnel constructions forwhich the Sund and Belt Limited is responsible). 980 km of these roads are motorways – and thisfigure will surpass 1,000 kilometres before the end of 2002 as we are opening two more motorwaysections this autumn. Although the national roads represent only 2 per cent of the total length ofroads in Denmark, we have 27 per cent of the road traffic use on these national roads. In 2002, thebudget for the national roads is 2.1 billion Danish crones, equivalent to 280 million Euro, andcorresponding to one fifth of the total budget.

The 10,000 kilometres of regional roads are administrated by the 14 county councils. The shareof traffic on the regional roads amounts to 32 per cent of the total traffic.

On this slide you see the 71,900 kilometres of public roads all together. The local roads, i.e. [thatis] minor roads and streets, covering 60,240 kilometres, are administrated by the 275 municipalitiesand town councils.

The Danish Ministry of Transport consists of two departments. In addition to this, the Ministryhas an administration department dealing with finance, budgets, accounts, personnel, etc., and aplanning department which is responsible for general transport policies, transverse planning issues,research and development issues, physical planning, statistics and forecasts for the transport sectorand issues pertaining to environment, energy etc.

The Ministry's first department deals mainly with road transport, including legislationconcerning roads, road traffic, road safety and road environmental issues. This department is alsoresponsible for harbours, coast protection and territorial waters. Furthermore, its tasks include


37

matters regarding aviation and airports, as well as the operation of the meteorological services. Inaddition to this, the department is responsible for matters pertaining the large bridge and tunnelconstructions across the Great Belt and Øresund (The Sound) and matters concerning questions oninternational infrastructure (especially as regards the relations to the EU).

The Ministry of Transport also contains a number of public directorates, agencies, companiesetc. These directorates, agencies and companies work within defined areas and are the operationalunits within their respective fields.

As already mentioned, the Danish Road Directorate has the administrative and economicresponsibility for the national roads. In this matter, it functions exclusively as an orderer since allactivities are put up for tender. Therefore, the Road Directorate has no activities in the field, and allactual activities are performed by private companies (consultants, contractors and suppliers). TheRoad Directorate has never had a field organization for construction, operations and maintenanceworks.

From 1972 to 1998, an agreement existed between the state and the counties as well as withsome major municipalities. Under this agreement, the counties – in addition to their own roads –were responsible for the routine operation and maintenance of the national road network consistingin these years of about 4,600 kilometres of national roads. However, the Road Directorate still hadthe responsibility for the major bridges and tunnels. As for operation and maintenance during theseyears, the Road Directorate was responsible for the general technical and economic management.

This arrangement ceased on 1 January 1998 when a new Road Act, passed by the DanishParliament (the Folketing), came into force.

According to this, the total length of the national roads (or State roads) was reduced toapproximately 1,625 kilometres. These national roads are carrying the major part of the heavytraffic and they consist of almost 1,000 kilometres of motorways.

In its capacity as a road manager, the Danish Road Directorate has always to a large extend hadthe function of an ordering organization. Unlike the other Nordic countries, Denmark has never hada national road service carrying out practical activities in the field. Instead, we have had acomparatively small construction and entrepreneur organization ordering and controlling thevarious tasks, which have been carried out under private management.

Today, the Danish Road Directorate has a status as what you may call a '90/10 establishment',meaning that just under 10% of the total budget of the Road Directorate is spent on wages andmanagement, whereas the remaining 90% of the resources are spent on advisers, contractors andsuppliers.

Throughout the years, the Road Directorate has always been a comparatively smallestablishment. The maximum number of employees has amounted to a little more than 700 personsin 1995. But following 1998, when about 3,000 kilometres of roads passed to countyadministration, we also had to reduce the number of employees to about 540 persons. With theRoad Act of 1998 the Road Directorate also had to take upon more raod sector tasks.

This year, the Road Directorate has gone through a process of organizational adaptation and, as aresult of this, the number of employees will be reduced from 540 persons at the beginning of 2001to about 440 persons by the end of 2002 - a reduction of almost 20 per cent. This reduction in theproductive capacity of the Road Directorate has been effected through natural wastage, voluntaryredundancy and dismissals. We only continue a small proportion of the tasks we have performed upto now, and we do this through invitation to submit tenders.

A trend in the public sector is that the Government wants to change the employees from beingcold hands to warm hands: that means that the number of employees in jobs like roadadministration and management, etc. has to be reduced and jobs and employees in the social sector,health services, elderly care, etc are given higher priority. We experience this trend in the WesternEuropean countries especially.

The question was then: how to tackle this severe reduction in employees? First we had to decidewhat our core activities or tasks should be in the future and what could be excluded from the taskswe had up till now.


38

This process which was carried out within only half a year, resulted in the three core activities ofthe Road Directorate. They are as follows:

(1) First of all the responsibility for traffic handling on the 1,625 kilometres of national roads,including the responsibility for maintaining the good condition of the road network with emphasison road safety, road passability, and preservation of the road capital.

(2) The next of the core activities concerns extension as well as improvement of the nationalroad network in accordance with political demands as they appear in investment programmes andlaws concerning planning and construction.

In fact, the vast majority of the tasks managed by the Road Directorate – and consequently thecorresponding economic resources – are placed in these two core activities, and they stay thestarting point of the Road Directorate activities as a whole as well as they precondition and form thebasis of our other tasks aiming at the entire Danish road network whether those relate to the roadtechnical departments in municipalities and counties or to the Ministry of Transport.

(3) The third core activity consists in solving a vast number of tasks for the entire road sector inorder to keep on ensuring an overall coherence in the development of the Danish infrastructure.

The handling of this task is mainly based on data – about roads, about traffic, about accidents,about environment and so on – on regulations and standards of roads, on knowledge of trafficeconomy as well as of material technology. By gathering this knowledge concerning the roadsector, it is possible to apply it on the overall planning and development of traffic in Denmark.

In parallel to the establishment of a digital administration – which has been given first priority bythe former as well as the present government in Denmark – factors like the orientation of the RoadDirectorate towards the internet and the participation in web portals with other actors within theroad and transport sectors get still more important.

On the basis of the strategy for the core activities, the Road Directorate has chosen the followingorganization:

The Road Construction Unit ensures a continued improvement and extension of the nationalroad network. The tasks of this unit begin with the actual planning and end with the opening of thecompleted construction. In this way they include designing, acquisition of area and tasks concerningsurveying as well call for tenders, management of contracting and supervision.

The Road Operations and Maintenance Unit has the overall responsibility for the safe andeffective handling of traffic on the 1,625 kilometres of national roads. This unit has to ensure arational operation of the national road network, among other things by means of call for tenders andmanagement of contracts concerning maintenance, winter services, renovation of road surfaces,bridges and tunnels, equipment and so on. Furthermore, this unit manages services for road users,controlling of traffic, traffic technique and road safety, so that the management of road operationand the handling of traffic are co-ordinated under a joint management responsibility.

The Road and Road Traffic Unit will be charged with the task of supporting the Constructionand Maintenance Unit by means of strategies for road planning as well as a continuous developmentof relevant road regulations. The tasks of this unit will also be aimed at the Ministry of Transportand the Danish Parliament (the Folketing) bearing the responsibility for the overall strategicplanning of the national road network as well as the overall planning activities concerning the entireroad sector with a view to implementing the objectives of transport policies. Furthermore, this unitmust take care of the contact potential as to co-operation with the road committees in municipalitiesand counties, with a view to ensuring the necessary overview of the road network transversely tothe administrative levels.

The Informatics Unit: As the Road and Road Traffic Unit, the Informatics Unit will also haveto contribute to the preservation and the further development of a joint basis for the roadcommittees transversely to administrative levels. This unit has a function as a knowledge and datacentre to all road committees providing information about roads, bridges and traffic. Furthermore,this unit will go on giving technical and system related support to the rest of the Road Directorate asregards information technology.


39

The Danish Road Institute is the road engineering knowledge centre of the Road Directorateand the road committees as a whole.

The Market Unit: The competences of the former Commercial Unit and the Export Unit areunited in a Market Unit which will be responsible for the action plan and the business volume of thecommercial activities as a whole.

3. The future – the new challengesThis is what our organization looks like in September 2002. The question is what the future has instore?

Many people would probably like to know the exact answer to that question, but that is not howreality works: Neither to smaller or larger private enterprises having thousands of employees, nor tostate agencies as our own having four to five hundred employees.

Being subject to this reality changing faster than ever, it is – from my point of view – above allour ability to constantly intercepting changes in signals and adapting to alterations in demandswhich will determine the future of the Road Directorate as an establishment – rather than the abilityand the will to depict some future state about which the most positive thing you can say is that it isprobably never going to be precisely as pictured. Simply because the preconditions of thisconception of the future keep changing.

I shall give you a specific example: The strategic decision of the Road Directorate concerningthe motorway section from Riis to Ølholm to try out the procedure of a turnkey contract [totalentre-prise] which had been in demand from various quarters as an alternative to our traditional call fortenders. A number of preconditions – among other things a wish from the contractor sector to behave the possibility to tender – turned out not to be real. Two of the large contracting firms, forinstance, have recently backed out. Decisions made outside the Road Directorate, maybe evenabroad, have an impact on our strategies for tender and on our possibility to carry through theassignments for which we are responsible.

As a consequence of these factors, the ability to change and a rather flexible organizationalstructure are of far greater importance than being able to depict a future which is after all impossibleto picture. We must be able to change quickly and constantly according to new demands andexpectation from our clients, e.g. [that is] the Ministry of Transport as well as the road users, thecitizens and our business clients. This calls for internal co-operation, preferably supported by a highdegree of project organization. But above all it demands a certain attitude among employees as wellas leaders. In order to emphasize this point, I shall put it in rather direct terms: According to ourmarket experience, both demand and business volume may change considerably in only a shorttime.

Once upon a time an organizational change was comparatively long-life and would maybe lastfor five to ten years. This is no longer the case. Nowadays, we have a fast-moving development –and projects concerning a new organization between municipalities, counties and the state compelthe Danish Road Directorate to be ready to accomplish as well a smaller as a larger number of tasksin the future.

The present structure in the public sector has existed since 1970. At that time, the number ofcounties and municipalities was reduced substantially. And ever since there has been an ongoingdiscussion about this structure, but there has been no agreement as to do something about it. Themain task of the counties is the operation of the hospital services. For many years, the counties havebeen criticized for failing to fulfil this task satisfactorily – among other things there have been longwaiting lists for various kinds of treatment.

In the light of this state of affairs, the Danish Parliament (the Folketing) decided to conduct aninquiry into the public service given by the state, the 14 counties and the 275 municipalities in orderto find out if this service could be more effective if the tasks were divided among the publicadministrations in a different way – or by changing the size and the number of counties andmunicipalities. The result of this inquiry is expected within a couple of years, in order that amodified structure can take effect as from the next county and municipal elections due in 2005.


40

Of course, it is impossible to know exactly how this new structure will be. However, it seemsprobable that the counties will be abolished and three regional hospital services will be establishedinstead. The remainder county tasks will be transferred to the state and the roughly 100municipalities, which will probably be left.

Above, I have pointed out the changes we have seen in the organization and mode of operationwithin the Road Directorate. But there have also been drastic changes in several other agencies anddirectorates within the Ministry of Transport.

The predominant tendency has been a conversion into companies and/or a privatization of theseformer agencies. Furthermore, several of these have been split up into a number of companies orsmaller units operating independently.

For the time being, the Ministry of Transport is sole proprietor of these companies, but some ofthe split-up companies have been sold by the Ministry. Subsequently, these newly foundedcompanies function and act as private companies. Along with this split-up into smaller units, areduction on the economic level as well as in the number of employees is carried out.

As an example, I shall now mention the Danish State Railways, which formerly included allfields from construction, operation and maintenance of the railways and purchase of trains to theactual traffic on the rails. Furthermore, the Danish State Railways managed a number of bus andferry services. As a result of a split-up, the former Danish State Railways was divided into [1] a newDanish State Railways managing the traffic on the rails, [2] the Danish National Railways Agencyresponsible for the operation and maintenance of the railways, [3] Scandlines managing the ferryservices, and [4] Combus managing the bus services. The new Danish State Railways in itself wasfurther divided into a number of partly independent units: Passenger traffic on the national level,Urban railway traffic in Copenhagen and the suburbs, and Goods Traffic. The Goods Traffic unithas later been sold off and is therefore no longer a part of the Danish State Railways. Scandlinesmerged into a German shipping company and Combus was sold to a private bus company. At a laterstage, a part of the Danish National Railways Agency - the consultant department - was sold to aprivate international consultancy company.

In addition to this, the State has started to put up the railway traffic for tender, in order that otherrailway companies than the Danish State Railways may tender. Following this, 15% of the railwaytraffic was put up for tender last year, and the private English company, Arriva, won the contract.

I could mention other agencies and directorates having been converted into limited companies:among others Post Denmark and Copenhagen Airports. For the moment, the state is the soleshareholder, but the possibility of selling half the shares to private persons is considered.

Another example of this conversion into a state company, is the building of the large bridge andtunnel constructions, Great Belt and Øresund.

Here we saw the establishment of a state limited company – as for Øresund together with theSwedish state – functioning as building owner while the construction was going on. Only a rathersmall organization was established inasmuch as it was solely in charge of the overall managementof the projects, while tasks like planning, construction, supervision and control were put up fortender, i.e. bought outside the organization. At present, the Sund & Belt Limited is responsible forthe traffic management of the two bridge and tunnel constructions, whereas the operation andmaintenance as such has been put up for tender.

Within the Ministry of Transport, only the Danish Meteorological Institute and Denmark's RoadSafety and Transport Agency have the same structure and functions as earlier.

These years show us new ways of co-operation between public establishments and privatecompanies. We see this in the changing of public agencies and directorates into companies as I havejust explained. In these cases, public establishments are increasingly operating and functioning asprivate enterprises having among other things the possibility to tender on equal terms. They havebecome companies being able to and having to compete with other companies. They must make aprofit if they want to survive.

We also see a higher degree of Public-Private-Partnership in connection with public tasks, andthese may appear in various forms. This also concerns other ways of financing new road


41

constructions and models like BOT, PPP and the like gain ground. This involves a new division oftasks between public authorities, agencies and private enterprises.

I would like to draw your attention to the PIARC Report ”Restructuring of the Road Sector” -published in 2000. This report gives a very good overview of the present situation as regards roadadministrations in the World and the trends we experience. These trends of development seems tobe very much alike between the different countries - dependent of course from which stage ofdevelopment they have start. I've listed some of the tendencies stated in the report:• Private financing of infrastructure where we experience a greater involvement of the private

sector• Problems of maintenance and how to finance it• Importance of road transport in Europe is growing - road transport's position in relation to the

other modes of transport is still growing• Increasing interest in transport system quality (congestion, environmental impact)• A stronger regional and local influence on decisions concerning the development and use of

transport systems• An increasing and direct dialogue with the road users, with the neighbouring roads and with

other transport modes• A stronger focus on results, i.e. [that is] value for money for taxpayers• New technologies, such as ITS, creating new possibilities for efficient use of the transport

system• An increased internationalization of standards for roads, equipment, vehicles, etc.

We also see a tendency towards a diminishing of the role of pure and simple sector ministries andsector authorities – and in any case their role has somewhat altered compared to previously. TheMinistry of Agriculture for instance has changed into the Ministry of Food, Agriculture andFisheries. The Road Directorate will have to relate to these new roles and structures.

If an organization is to be ready for change, this demands a readiness to change from theemployees. In the light of this, the Road Directorate is aiming specifically at developing thecompetences of the employees – and in this connection project work and sharing of knowledge arethe keywords.

This means that all university-trained employees working in projects are offered a projectmanaging course – in order that the employees use identical 'tools' in their work. Furthermore, wehave worked out a manual for project managers as a guiding principle for project work in generalwithin the Road Directorate.

We experience that co-operation across the country borders is becoming still more significant. Inthis world of specialization it is getting still more difficult to find other persons within theindividual countries sharing your specific problems. More and more often, you find your colleagueswithin the road sector or the road authorities in another country. For us Danish this appliesparticularly to the other Nordic countries, but also to the Baltic countries as well as the othercountries in Europe and the rest of the world. Sharing of knowledge is really becoming aninternational affair. To Danish road and traffic people, this is primarily realized through NordicRoad Association, Baltic Road Association and finally World Road Association (PIARC). It iswithin these organizations we shall find our colleagues in future.

This viewpoint is also entirely in keeping with the vision of NRA concerning its future activities.The vision reads as follows: Nordic Road Association - expertise without frontiers. Through thisvision we state that we want to promote our competences first and foremost by involving personsoutside the existing frontiers of professions, outside the frontiers of the individual countries and soon in our work.

In conclusion, I want to inform you that the next NRA road congress, Via Nordica 2004, will beheld in Copenhagen from 7 to 9 June 2004. This congress has as its main topic Man and mobility.It is going to focus on man and mobility and the challenges facing the road sector in the years tocome.


42

I hope to see you all at the congress: Via Nordica 2004 in Copenhagen.Let me finish by saying that the title of this seminar ends with a question mark: Road

Administrations - Trends or neccessicity? My answer to this is that all road administrationsincluding the Danish have to follow the trends of pure neccesity.


43

ROAD ORGANISATIONS’ REFORM IN FINLANDEero KarjaluotoDirector General

Finnish Road Administration

Ladies and gentlemen,there is a big difference between a public agency and a public or private company in relation tomoney. In a public agency you spend money, in a company you earn money. The driving force todevelop the organisation and operations in a company is much stronger than in a public agency. Acompany does not exist very long time if it does not earn money. So the management and thepersonnel are motivated to work hard in order to ensure there companies success.

1BRA / NRA 26.9.2002 / EIK

Public Agency Company

You spend the money! You earn the money!

Different Driving Forces

Spending money does not motivate the management and personnel in a public company to do thesame. In case the management though would like to develop the organisation, the task is difficult,because the driving force among the personnel is week or totally lacking. A public company mayexist quite a long time regardless of being ineffective and/or inefficient - although not endlessly(some day the “owner” is going to have enough, replacing the management and starting areorganisation).

Also, the Private sector has differing rules and regulations that are less bureaucratic, moreefficient & less administrative.

The private sector are cost & efficiency motivated & can develop new systems and technology tohave a competitive advantage.

Road organization’s progress throughout the world can be shown in this illustration from fullypublic monopoly to Private monopoly. Both public & private monopolies are unsustainable, but aprivate monopoly is worse than a public monopoly.


44

2BRA / NRA 26.9.2002 / EIK

D ecreasing G overnm ent Invo lvem ent

Phase 1 Phase 2 Phase 3 Phase 4 Phase 5 Phase 6

PublicW orksin AgencyO rganisation

IdentifyC lientandProducer

SeparateC lientandProducer

CorporatiseProducer

PrivatiseProducerCorporatiseC lient

PrivatiseC lient

Source: Antti Talvitie, World Bank, Robin Dunlop TNZ

Phases of Road Organizations’ Reform

The main goal of the figure is to demonstrate the privatization process and key roles of the publicorganization versus the private sector.

It can be noticed that the public/government involvement is decreased.In phase 4/5 a Road Fund is Envisioned to account for the collection and usage of funds directly

back into making sustainable road management.

3BRA / NRA 26.9.2002 / EIK

OWNWORK

BALANCINGWORK LOAD

COSTEFFICIENCY

COMPETITIONSTUDIES

TO OPENCOMPETITION

Authority Org. - Design - Construction - Maintenance - Internal Services

RWA RWA RWA RWAFinnishRoadAdministration(FinnRA)

Minor worksby privatecontractorsin order tobalance ownworkload

Minor purchaseson open market

Comparing ownprices/contractorprices, search foreffectiveoperations

Increasingpurchases onopen market

Submitting ownwork tocompetition inminor scaleTendering ownwork to externalmarket

Increasingpurchases onopen market

FinnishRoadEnterprise

1950-decade

1960-decade

1970-decade

1980-decade

2001

Development 1950-2001

(RWA = Roads and Waterways Admininstration)


45

This demonstrates the progress of Finnra from In-house organization to a more pure Clientorganization.

1960s - Outsourced minor works to balance own workload1970s - Compare own work with private sector - more efficient organization1980s - Began tendering into open market - competitive tendering1990s - 2001 - Client Producer concept

Mission:● The Finnish Road Administration (FinnRA) is responsible for the management,

development, construction and maintenance of the public roads in Finland.

● We provide a safe, reliable and viable road network that is in harmony withenvironmentally sustainable practices to meet the transportation needs in Finland. Inaddition, FinnRA cooperates with other agencies and organizations to combine anintegrated transport network.

Essentially, Finnra is responsible for providing and maintaining a safe, reliable, and efficient roadnetwork that is in harmony with the environment.

5BRA / NRA 26.9.2002 / EIK

Key Stakeholders

ASSOCIATES

CLIENTS

FinnRA

PRODUCERS AND SUPPLIERS OF SERVICES

- services are produced to serve

the needs of them

CUSTOMERS

- w e order our products and services from them

- operating prem isses are provided by them

- they have a parallel m ission with us


46

6BRA / NRA 26.9.2002 / EIK

Organisation in 2002

Management

Public Relations

CentralAdminis-tration

Road Regions Uusimaa Turku Kaakkois-Suomi Häme Savo-Karjala Keski-Suomi Vaasa Oulu Lappi

Director-General

Planning

Procurement

Traffic Services

Technical Services

Finance

Human Resources

Information Management

Board

7BRA / NRA 26.9.2002 / EIK Law on the Finnish Road Enterprise

16.06.2000

Finnish Road Enterprise’s area of business

The Finnish Road Enterprise’sarea of business in the field of civilengineering primarily consists ofplanning, construction, upkeepand maintenance of transportroutes and traffic environmentsand related products and services.


47

8BRA / NRA 26.9.2002 / EIK

Finnish RoadEnterpriseOrganization 1 March 2002

BoardBoard

Managing DirectorManaging Director

NationalCivil

Engineer-ingand

SouthFinland

Area

EastFinland

Area

NorthFinland

Area

Pavem-ent and

Environ-mentalServices

Con-sulting

FerryUnit

Service Units

ContractnegotiationContractimplementation

SupervisionFinancialsupervision PersonnelResourceservices

Internal AuditInternal Audit

West Finland

Area

Transition Phase 2001-2004● Two independent organisations under the same Ministry

● Opening the competition in the market

● Developing new procurement methods and procedures

● Streamlining the organisations

● Developing process and team based organisations

● Downsizing the personnel in both organisations


48

10BRA / NRA 26.9.2002 / EIK

OPENING THE COMPETITION 4 Year’s Transition Phase,Beginning 2001

DESIGN

CONSTRUCTION AND REHABILITATION IN 2001-2002

1. quartery. 2001

3. quartery. 2003

2. quartery. 2002

4. quartery. 2004

MAINTENANCE

1. quartery. 2001

3. quartery. 2003

2. quartery. 2002

4. quartery. 2004

Source: Markku Teppo - Finnra

Tools for Development of Organisation’s Effectivity and Efficiency● Management by Objectives (MBO) / by Results (MBR)

● Quality Management System (ISO 9000)

● Environmental Management System (ISO 14000)

● Process Management

● Mission, Vision, Values

● Strategic Planning

● EFQM (=European Foundation for Quality Management) Excellence Model

● Balanced Score Card

● Team Work


49

12BRA / NRA 26.9.2002 / EIK

The EFQM Excellence Model

Copyright 1999 EFQM. The Model is a registered trademark of the EFQM.

10 %

9 %

8 %

9 % 14 %

9 %

6 %

20 %

15 %

Ledarship

People

Policy & Strategy

Partnerships

& Recources

ProcessesPeople Results

Customer

Results

Society Results

Key

Perform

ance

Results

INNOVATION AND LEARNING

ENABLERS RESUTS

EFQM EXcellence Model is the framework for assessing applications for The European QualityAward. It is the most widely used organisational framework in Europe and has become the basis forthe majority of national and regional Quality Awards.

The EFOM Model is a non-prescriptive framework within which there are some FundamentalConcepts which underpin the EFQM Model. These are expressed below.

• Results Orientation• Customer Focus• Leadership & Constancy of Purpose• Management by Processes & Facts• People Development & Involvement• Continuous Learning, Innovation & Improvement• Partnership Development• Public Responsibility

The EFQM Excellence Model is a non-prescriptive framework based on nine criteria. Five of theseare 'Enablers' and four are 'Results'. The 'Enabler' criteria cover what an organisation does. The'Results' criteria cover what an organisation achieves. 'Results' are caused by 'Enablers' andfeedback from 'Results' help to improve 'Enablers'.


50

The Balanced Score Card (BSC)● Is used to balancing the short and longer term objectives of a company or an agency

● Companies adopting the BSC realise that the longer term objectives are not automaticallyreached by hunting the financial short term objectives

● It means that certain investments (that reduce short term profits) are encouraged, becausethey serve the longer term objectives (healthy, profitable growth)

● The BSC consists of four aspects (perspectives):

1. Financial Results

2. Customer Satisfaction

3. Process Performance

4. Competence level

● As regards the public agencies financial results are usyally replaced by effects on thesociety

Results● After inhouse separation of the client and the producer 1996 significant benefits were

caused by streamlining the organisation of the producer (the personnel of the producer wascut nearly to half; consequently the costs of the own organisation were halved)

● After opening of the competition 2001 the contract prices especially in daily maintenancehave been reduced significantly

● Streamlining of the client is under way

● Before the reform it was estimated that the competition and new procurement methods willincrease the productivity by about 50 M€ by the end of 2004; 60% of this increase wasreached 2002


51

15BRA / NRA 26.9.2002 / EIK

CONSTR.FINANCE DESIGN

PRE-PLANN-ING &

ACQUISITION

O & M(Operatons

& Maintenance)

UPKEEP&

IMPROVE-MENTS

FULL DELIVERY or PROGRAM MANAGEMENT

IN-HOUSE D-B-B SEGMENTEDDESIGN-BUILD COMBINED

(DBOM)Design-Build Operate Maintain

Design-Build Finance Operate

(DBFO)

Consultants& PPP LONG-TERM

MAINTENANCEAGREEMENTS

(PSMC)

CAPITALPROJECTS

Index: Traditional: GreenInnovative: Purple

Towards Integrated Services

Traditional Contracts are segmented and not seeking whole life concepts for road management.• Future Seeking integration from preplanning through maintenance• More Integrated Client Services in One contract• Maintenance contracts will be integrated (possibly including resurfacing & Reconstruction into

Are Network Contract)• Bringing the Contractor into the process earlier - significant benefits.


52

16BRA / NRA 26.9.2002 / EIK

InputDriven

OutputDriven

OutcomeDriven

• Own Forces

• PSMC• Alliancing

• Financing

Separate Consulting &Physical Works Contracts

“Conventional contracts” Hybrid

• Innovation• Contract Duration• Flexibility• Contractor Risks• Productivity• Cost Savings

More savings, innovation, risk transfer, productivity, & contract duration by changing to outcomeBased Criteria (Performance Based).It is a process when changing from output type specifications and requires a teaming effort with theentire road industry (not just Client).

Further Develoment● Partnering with different stake holders

● Process based functions

● Networking

● Developing the whole infrastructure sector

● Closer partnering of Infrastructure Administrations


53

RESTRUCTURING OF THE NORWEGIAN PUBLIC ROADSADMINISTRATION (NPRA)

Olav SoeftelandDirector General

Norwegian Public Roads Administration

1. The Norwegian Road NetworkI start by presenting some key figures describing the Norwegian Road Network.

2. Present organisationBefore moving into the comprehensive changes soon to be implemented, I will, as a background,very briefly show our present organisation and employment figures. Outside the central RoadDirectorate there is to day 19 regional administrations (by county) each with a number of districtoffices for the execution of road surveillance, maintenance/operation, road construction, vehiclecontrol, driver licences etc.

3. Our purpose and vision

4. The restructuring processIt has been a trend in most countries over the last decade to put increased focus on the improvementof efficiency in public administration and public works. NPRA is now in the process towards amajor shift and restructuring being operative from 1 January 2003. It goes along two maindimensions, which will be executed in parallel:

a. Separation of the production units from the basic road administrationThe drive for this change has its roots in present political policy strongly supported by the privatecontractors.

To day, production units, both for construction and maintenance, are integrated in the NPRA-also on the regional level. From 2003, however, they will be part of a new state owned Companycompletely separated from the Road Administration.

This involves around 5000 employers (ca. half of those employed by NPRA to day). Even ifways to measure competition with private companies have been practiced for a great part of theconstruction budget, resurfacing and some other tasks over the last years, the creation of the newcompany will imply full competition on equal terms, with an expected increase in output/efficiency.

Conflicting objectives in the process have been the drive for increasing competition wishing atthe same time to keep the benefits of transferring knowledge from the production side to planningand contracting and using our own production unit strategically in some segments of the market.This last objective might be kept to a certain extent also through the new State owned company, butthe close ties will not be there any more.

This is by far the greatest change now to come. We might afterwards feel it like a sort of“cultural shock” compared with the integrated road sector that has existed in the NPRA since it wasestablished. Only a few countries (including Finland) has gone as far as we now will do in puttingalso road operation and minor maintenance work into full competition.

b. Restructuring of (the remaining) NPRAAs mentioned in point a the road workers involved in maintenance/operation as well as localconstruction units/project sites - today working within the NPRA - will be transferred to the newproduction company. Except for this, the responsibilities for the NPRA, will not change, however, acomprehensive restructuring of the administration will take place. This is a process initiated by theNPRA.


54

To achieve a more efficient administration and at the same time obtain greater coherent regionsfor strategic transportation and traffic planning and development of the road network, we will fromJanuary 2003 change the now county-based system of 19 units, into 5 regional administrations.Beneath these, on the local level, being responsible for contracting maintenance/operation andminor investments, tasks related to drivers, vehicles and traffic management and the “day to day”contact with local authorities/municipalities, there will be a total of 30 district offices. This is lessthan the number of such local units to day, but they will hold a broader competence.

In addition, some tasks (like accounting) will be performed at one location covering the wholeNPRA – other tasks only in certain regions.

One high priority political goal in Norway is decentralization of employment, which in thisrestructuring has been followed up by the location of the regional administration centres outside themain cities in respective region, by the location of special units as mentioned and not least byincreased delegation of tasks to the regional and district levels.

Some parts of the technical units at The Road Directorate in Oslo will be moved to Trondheimand thus come in a closer cooperation with the Technical University situated there.

Reduction of employees:The increase in efficiency will naturally lead to a considerable reduction in the number of peopleemployed – ca 20% in the administration. There will be a program for fulfilling this successivelyover a four-year period. For the new production Company this will be more open and related topossible market shares in the future.

Adding the need for moving/commuting, the changes will have impact for a considerable part ofthe people employed by NPRA. Much effort is thus used to come up with acceptable terms for thoseinvolved both on the administrative and production side.

The Ministry of Transport and Communication,its Subordinate Authorities and Service Agencies

Ministry of Transportand Communication

Post- and Tele-com. Authority

National RailAdministration

Public RoadsAdministration

Civil AviationAdministration Telenor Ltd

NorwayPost Ltd

NorwegianState Railways

1 Public Entreprise 3 Administrative Agencies 1 State owned Company 2 Public Companies


55

Directorate of Public RoadsDirector General of Public Roads

Dep. Director Ass. Director Ass. DirectorGeneral General General

Planning andBudgetting

Information

Quality assuranceHealth & Safety

Internal Auditing

Production Traffic Personnel

Development Finance

Legal Affairs

IT

Road Museum

Bridge

Envir & Community

Transport & SafetyAdm. Affairs

Road Techology

Executive Management

Management & Operations

Advicers (to Executives)

Advicers (technology and administrationRoad & Traffic Operations, Vehicle Control)

Basic organization for all the 19state roads offices

Director of Public Roads

Advisers &Secretariate

Administration Development Traffic Production


56

Road-Network in Norway 2000

Motorway 599 kmOther national roads 26116 kmTotal national roads 26705 kmCounty roads 27213 kmMunicipal roads 36962 kmPublic roads in total 90880 km

The national roads have 75% of the trafficwork in Norway.


Instruction lines

Directorate ofPublic Roads

VegkontorVegkontorVegkontorPublic RoadsAdministration 19

Parliament

Ministry of TransportCounty Administration

County RoadsPublic Roads Administration

Norwegian

Financing

The Norwegian Public Roads Administration (NPBA) is responsible for the National Roads and theCounty Roads. In 2000 NPBA get the funding from 3 sources.

1) National budget 10000 mill Nkr (1200 Ecus)2) Counties budget 2000 mill Nkr (240 Ecus)3) Tollroads 2000 mill Nkr (240 Ecus)

Our Purpose

The Norwegian Public Roads Administration takes responsibility for roads and traffic in pursuingthe goal of contributing to a better society.


57

Our Vision

• The road system connects all parts of the country in an environmentally sound, safe and effecientmanner.

• We contribute to the conditions necessary for the enhancement of pleasant and viablecommunity.

• The travel experience for all road users is worry free and enjoyable.• Our reputation is one of being both innovative and strong competitively.• Our efforts are guided by respect and consideration for everyone concerned.

Responsibilities of the Norwegian Public Roads Administration

• Planning of new roads• Supervision of road constructions and maintenance of the road network• In house construction and maintenance of roads• Standard specifications for roads and vehicles• Traffic rules and regulations• Vehicle registration and inspection• Rules for drivers training and testing• Information and service to the road users.

Staff 2000

Directorate of roads 560Road offices (19):

Administration 840Road development 1300Traffic 2300In house production 4700

Total 9700

Main priorities

• A policy for reducing road traffic and promoting more environmentally friendly means oftransport, especially in the major city areas.

• A action to obtain a substantial reduction in transportation related accidents• Efficiest and reliable transportation for the business sector• Improving conditions for business and settlement in remote regions.• Giving the linkages with the international transport network.


58

ROAD ADMINISTRATION REFORMS IN SWEDENIngemar Skogö

Director-GeneralSwedish National Road Administration

Honourable Minister, my Baltic and Nordic colleagues, Ladies and Gentlemen.

My speech will deal primarily with the reorganisation now underway at the head office of theSwedish National Road Administration in Borlänge, and which will ultimately also affect our sevenregional offices.

Background

The Swedish National Road Administration (SNRA) is an independent public authority under theSwedish Government.

All in all, it employs some 6 500 people throughout the country. At head office in Borlänge thereare some 600 employees and an additional 400 at the National Traffic Registry in Örebro, which isa division within head office in the current organisation scheme.

By the end of 2001, I was able to determine that there are some problem areas with respect totoday’s head office that had to be analysed and attended to if the SNRA’s organisation was going tobe efficient. Key problem areas included the following:- the lack of a holistic view of the operations in many instances,- unclear and ambiguous roles at head office- that the interaction between client and provider within head office was cumbersome- that a balance was needed between national uniformity and regional differences.

The SNRA has an important part to play in society through its responsibility for providing anddeveloping a road transport system that is sustainable in the long term. The work must be carriedout in the direction indicated by Parliament and the Government. The demands placed on the roadtransport system today are far-reaching, and if these demands are to be met, a well-functioning andefficient organisation is mandatory. The principles on which the current SNRA organisation isbased were laid down in 1996, and only minor adjustments have been made since that time.

Demands and expectations

Public authorities, institutions as well as private companies must all constantly adapt theirorganisation to reflect changes in society. As a public authority, it is particularly important for us tobe able to meet and live up to the expectations placed upon us. Demands from owners andcustomers mean that the organisational structure must be adapted to be able to do this in the bestpossible way … and in my case as Director-General of the National Road Administration inSweden, to best be able to meet the demands placed by our owners and customers on the SNRA as apublic authority. We must have an organisation that can keep up with the steadily increasing pace ofchange in the world around us, not least of all considering the impact of internationalisation. Thegrowing complexity in the trend of events also speaks for the need of a sound knowledge basisconcerning the implication of different changes in society, nationally as well as internationally, onthe work conducted by the SNRA both in the long and short run.

Some examples of the changes in the world around us that the SNRA must handle are:- the implications of large-scale climate changes on transport patterns and road management- population concentrations, particularly in metropolitan areas, and the increasing depopulation of

the countryside


59

- the potential in technological developments, also from the perspective of greater interaction onthe European and international arena

- drawing up a method to initiate, monitor and influence EU activities in consultation with theMinistry of Industry, Employment and Communications in a way that is most beneficial toSweden and the SNRA.

There is an interrelationship between a sustainable transport system and socio-economicdevelopment. This judgement has been made by the Swedish Government. The view is also heldthat since society is in a constant state of change, the transport system must be adapted to new needsand demands in society within the framework of sustainable development. In this context, focus isdirected both at the transport needs of the business community and the changes in the transport andtravel needs of individuals in society. This all places demands on the SNRA to respond to thesetransport needs.

In conjunction with this, applicable goals for transport policy were proposed. These wereformulated in one overall goal and six sub-goals.

The overall goal in transport policy is to guarantee a socio-economically efficient and sustainabletransport system for individuals and the business community throughout the country.

The six sub-goals are: a transport system that is accessible, a high level of transport quality, safetraffic, a good environment, positive regional development and a transport system that promotesequal opportunities.

Interim goals have been formulated for these sub-goals stipulating the rate at which they are tobe achieved. The interim goals applicable today place very high demands on the SNRA to findeffective solutions.

The Government Bill entitled ”State administration at the service of society” presents the basesfor a common administrative culture in the exercise of public authority. The aim espoused at theturn of the millennium is a state administration that is accessible, courteous and obliging, with highdemands on the legal rights of the individual, efficiency and a spirit of democracy. It is to have thefull confidence of people in society and provide the private sector with viable working conditionsand prerequisites for growth. It is to be successful and respected internationally.

Steadily closer ties with EU places demands on adapting to the rest of Europe, while at the sametime opening up new opportunities for developing our operations. Even other bi- and multilateralinternational co-operation places high demands on our having an accurate image of the worldaround us to be able to tackle this successfully.

The SNRA has been assigned overall sectoral responsibility for the entire road transport system,and is to work towards the achievement of the goals in transport policy according to its mandate.

The demands made by the Government on the SNRA are given expression in the annualappropriation of funds, which also includes the economic framework.

In conclusion, we can observe that the demands placed on the SNRA by its owners can generallybe summarised as follows: the SNRA is to use the resources placed at its disposal to meet the sub-goals in transport policy in a way that is found satisfactory by the business community and peoplein society without disregarding high demands with respect to the legal rights of the individual,efficiency and democracy.

Current situation at the SNRA

In the survey analysing the opportunities and weaknesses in the present organisation, severalopportunities were revealed that the SNRA ought to take advantage of.

One opportunity that can be mentioned is the ambitious development work that has beenconducted in recent years to clarify organisational control and better equip the SNRA to meet thedemands from the outside world – and not least of all the development of management and controlmethods, which also gave positive input. Another opportunity mentioned by employees is the


60

relatively large potential to change both work tasks as well as geographical location that existswithin the organisation.

The interviews conducted outside the organisation also gave a positive picture of the SNRA andits employees. The sub-goals in transport policy are well known and the SNRA was acclaimed forhow well it co-operates with stakeholders and other relevant parties.

Nonetheless, a common overall image of the developments within the transport sector is lacking.Neither is there a common view on how to transform the sub-goals in transport policy into one’sown field of activities.

Also lacking is a coherent image of the demands placed to an increasingly greater extent byinternational developments, as well as an organisation for how these demands must be analysed andmet in practice.

The role and tasks of head office in relation to the rest of the operations is not clearly defined. Afair amount of the actual operations is currently being done at head office.

The practical application of the client/provider model in the present organisation was consideredto result in extra work and ambiguity.

The survey revealed a clear tendency towards a duplication of work, both within head office andbetween head office and the regional administrations.

It is perfectly clear who the customers of regional administrations, the traffic registry and drivingtests organisation are. This is not quite as apparent within other parts of head office.

Based on the opportunities and weaknesses observed, it can be ascertained that a neworganisation at head office must concentrate first and foremost on improving customer orientation,on making clear the managerial and strategic role played by head office and on creating theconditions for developing and utilising employee expertise in a much better way. The work onchange must be accompanied by a clear vision, and the development of control and managementsystems now in progress must continue.

A specific assessment of the client/provider model was conducted, which I can say revealed thatonly a few of the criteria for ultimately achieving a well-functioning model of this kind are beingmet today.

On the whole, it can be determined that both the analysis of the current situation and theassessment of the client/provider model show that today’s organisation and work procedures leaveroom for improvement.

Vision

In order to be able to manage complex demands, we must rally our resources throughout the entirecountry. In connection with the reorganisation, it became apparent that the established vision wasinsufficient as a guiding light to do so. The revision of the existing vision under my leadership hasresulted in the following:

We make the good journey possible.

This vision is to be seen in relation to our mission:

With a focus on people, the Swedish National Road Administration creates opportunities forefficient, safe and environmentally-sound transport for individuals and the business communityalike.

The good journey in itself implies an aspiration to fulfil all the sub-goals in transport policy, as theyindicate the quality of the journey. A good journey is, for example, one in which I- arrive at my destination at the appointed time and without incurring any serious injury- cause the least possible negative environmental impact and consume a minimum of natural

resources- do not harm anyone else- am able to make this journey even if I have a physical disability and/or live in a sparsely

populated area.


61

By the good journey I also mean the transport of goods from one place to another. Making the goodjourney possible also means ensuring that anyone who needs to travel or transport goods are awareof the different possibilities available.

Principles and bases for a new organisation

The basic premises for drawing up the principles for a new organisation were:- the organisation was to promote a customer-oriented approach- the organisation was to support a holistic view of the operations- the roles within the organisation were to be clear- the organisation was to support efficient working methods.

In the light of these four basic premises, the following guiding principles were used when designingthe new organisation:

- Customer orientation and a process-oriented method of workingThe SNRA exists for the benefit of people in society and the business community. They are ourcustomers and it is their needs and desires that we are to fulfil within our mandate. This alsoincludes being open and accessible, and we must also provide a clear picture of what we can offer.This facilitates contact and dialogue with our customers.

Clear and better customer orientation will improve our operations. Needless to say, a neworganisation must support the work in the main processes.

- Clear management and controlHead office must be adapted to a management and development role. The overall review shalldistinguish what constitutes support to SNRA top management, development tasks, support to therest of the organisation and actual operations.

- Promote a holistic viewForums will be created to promote a holistic view, organisational or otherwise, to co-ordinate ouroperations in the direction of the goals in transport policy, to adapt operations to reflect customerdemands, and for co-ordinated action within head office and between head office and the other unitsin the organisation as well as between regional offices.

- Utilise expertiseThe SNRA enjoys a good reputation outside the organisation as regards the expertise of itsemployees. In order to be able to meet the increasingly complex demands placed on the SNRA bythe community, this expertise must be utilised and given the opportunity for further development. Anew organisation must stimulate this development.

- Simplicity and intelligibilityAt present, both those working within the organisation and external players find the organisationdifficult to understand. The general review will provide the conditions to make it easy for everyoneto understand the area of responsibility in which they are working and how this relates to theSNRA’s overall goals and tasks.

- Climate of innovationA climate of innovation is a key prerequisite for achieving both creativity and fresh ideas. TheSNRA’s youth council has defined the following conditions for an innovative climate:

• a physical environment that promotes informal and spontaneous contact• management that encourages a wealth of ideas and new ways of thinking• a balanced work load• breaking patterns of habit through employees spending 10% of their time in projects that

extend beyond normal work tasks


62

• a well-balanced composition of employees as far as experience, gender and age are concerned• promote employee participation in in-house and external networks• engage the assistance of external consultants as sources of inspiration• encourage spending a certain time during normal working hours on other types of activity

(e.g. keep-fit).

Organisation of the head office

The proposed organisation means that there will be considerably fewer people working in the newhead office than at present, and that head office tasks will be more defined. This is a step in thedirection towards making a clearer distinction between management, support and actual operations.It means that many of the present-day units, departments and staff functions will be divided suchthat strategic issues will be moved to the new head office and other elements will be placed in a unitfor administrative support or alternatively a competence centre.

The new head office will:• support me in my relations with the Government• assist me in managing, prioritising and monitoring activities• be responsible for the development and updating of a strategic framework within which the

different units will be able to work• constitute and function as a player in the national and international arena.

This proposal also means that the SNRA will be taking a first step towards a process-orientedorganisation. This will occur through adapting the head office organisation towards a process-oriented approach.

The purpose of process orientation can vary between organisations. For the SNRA, the mostimportant purpose is to focus more on customer needs /increase customer orientation. Clear processorientation is expected to lead not only to greater focus on customer needs, it also means that thesub-goals in transport policy will be handled as a whole entity in relation to different categories ofcustomer. Greater process orientation does not imply that new operations and activities will becreated, but that the main emphasis in management - and hence the focus of attention andlocalisation of resources - will be shifted and carried out through another approach or perspective.

The new organisation proposal entails the following:• Two departments will be created, with heads of department who are also the main process

owners: the Department for Private Travel (main process to support journeys made byindividuals in society) and the Department for Business Community Transports (main processto support private sector transports).

• Five other departments will be created, also headed by support process owners: theDepartment for Finance and Operations Development (support process being managementand control), the Department for Information and Communication, the Department for PublicProcurement and the Market, the Department for IT and Data Handling and the Departmentfor Human Resources.

• The organisation will also include a Director-General’s Secretariat and Director-General’sStaff. The latter includes representatives for the sub-goals in transport policy.


63

2002-09-19

IT and D ataH and ling

P ub lic P rocurem ents and the M arke t

F inance and O pera tions

D eve lopm ent H um an R esources

In fo rm ation and C om m un ica tion

P riva te T rave l

B us iness C om m unity T ransports

Head OfficeD irecto r-G enera l

S ecre ta ria tD irec to r-G enera l’s S ta ff

With this new organisation of the head office, it is my hope that roles and responsibilities willbecome clearer in an atmosphere of creative teamwork. The intention is to create the conditions forefficient working methods so that its activities in interaction with those carried out in other parts ofthe SNRA operations will help achieve the sub-goals in transport policy.

Outside head office, two new units will be created. One will be assigned the task of supportingthe rest of the organisation with specialist competence and expertise and the other will provideadministrative support.

It is proposed that the Competence Centre will assemble all the expertise and supportcompetence which is not of a general administrative nature, and which is found today both at thedivisions within the competence and development unit as well as at the departments responsible forprocuring products and services. This Competence Centre will be responsible for developing expertsupport as commissioned from the departments at head office, the regional offices or from otherareas within the SNRA.

Administrative Support will assemble all support activities of an administrative nature that aretoday carried out at the head office in Borlänge as well as the tasks that support activities spanningover many areas. This unit will have an important task: to support all other activities at the SNRA inthe most effective and efficient way.

An additional two units will be created for the operations within the traffic registry and theadministration of driving tests. These units will be financed through direct charges, and be run as faras possible in basically the same way as the other profit centres at the SNRA. The difference is thattheir operations will not be subject to competition on the open market and that the fees will be setby the Government.

The Driving Tests unit will include the actual operations in relation to driving tests as well as theadministrative support related to this. The unit will put into application the regulations on drivinglicences, driver education and driving tests.

The Traffic Registry will include current operations within the national traffic register andcustomer services as well as the administrative support related to this. This unit will, with theassistance of IT based systems and routines, be responsible first and foremost for the official


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collection and accounting of road taxes, road charges and parking fines, as well as for makingadministrative decisions based on legislation.

2002-09-19

B oard o f D irecto rs

In te rna l A ud it

D irecto r-G ene ra l

H ead O ffice

R oad T ra ffic Inspecto ra te

C entra lR eg ion

W este rnR eg ion

M ä la rda lenR eg ion

S tockho lmR eg ion

S ou th -E aste rnR eg ion

S kåneR eg ion

N orthe rnR eg ion

C onstruction & M a in tenance

C onsu lting S erv ices

Fe rry O pe ra tions

T ra in ing & D eve lopm en tC entre

C om pe tenceC entre

A dm in is tra tiveS upport

T ra ffic R eg is try

D riv ing Tests

Ladies and gentlemen, it is my hope that we will be able to keep to schedule and that thisorganisation will be launched on January 1st, 2003.

Thank you for your attention!


65

TARTU REGIONAL ROAD OFFICEHOW IT FUNCTIONS

Kuno MännikRegional Road Director

Estonian Road Administration

Dear colleagues,

I represent Tartu Regional Road Office. I have been in charge of the first regional road directorscarcely three months. You can find my area of responsibility on the slide.

It is one of 6 which are emerging out of former 15 road offices as mentioned by my directorgeneral this morning.

Tartu region involves two neighboring counties – Tartu and Jõgeva.Former Jõgeva Road Office was united to Tartu Regional road network is maintained by 2

organizations in my region.Road maintenance in Jõgeva was contracted out last year to the government-owned company

Vooremaa Teed Ltd. Maintenance operations in Tartu are still executed by a state agency- TartuRoad Office. According to its statutes only maintenance works in the territory of Tartu county areallowed to carry out by state agency, no repairs and no new construction.

As mentioned, we shall have 6 regional road offices by the year 2003. Each of them carries outmaintenance works in the territory of county where the regional office is located.

Tartu Regional Road Office is responsible for 2360 km of national roads. Maintenance of 1100km is contracted out, 1260 done in-house.

By the year 2003 all in all in Estonia 6 road offices maintain 44% of national road network, 56%will be contracted out.

How does a regional office function?As you can see the management has been divided into 2 substructures. The yellow box is public

service or client, including the roles of an employer and a supervisor, in total 24 officials on the payroll. Also it includes the small branch office in Jõgeva with 6 white collar workers, who deal withsupervision of maintenance works, with permits and with road safety in Jõgeva county. The greenbox means so called production or maintenance department where16 maintenance managers andtechnical assistants are employed.

A deputy director heads both sections.When the budget has been approved, the employer gives an annual maintenance order to the

maintenance department and supervises the execution of maintenance works in Tartu county. In theterritory of Jõgeva county the same supervisors from our road office observe activities of thecontractor Vooremaa Teed Ltd. Hopefully both road maintainers will be treated equally.

Repair and construction contracts are supervised by consultant firms.This first regional road office in Estonia has existed only 3 months and today maybe it`s too

early for a serious analysis. However I try to give a short overview about changes in my region.As you have understood restructuring of road sector in Estonia consists of two parallel processes:

privatizing of maintenance works and reorganizing of road administration, that results in reductionof county road offices.

I compare our today’s situation to the main purposes, set up for the restructuring of EstonianRoad Administration:

• To ensure competition in the road maintenance marketIn Estonia we have 5-years maintenance contracts. Since the year 2000 up to 2003 nine countywideperformance-based contracts are launched. Usually 4-7 bidders compete. For minor repairsadditionally short-list bidders are invited. I can say the road maintenance market is progressively


66

developing in Estonia, depending on the location of road construction companies- the mostdeveloped is Tallinn area, Tartu follows the next. There is less entrepreneurship on islands and inthe Southern Estonia.

My road office must prove that so called in-house method is competitive. Honestly speaking notan easy task for us, because only in government-owned roads and only maintenance operations areallowed to execute by a state agency. Market is closed for us. Surely we have to decrease thenumber of road workers. We can`t look for a complementary work in road construction sites as asubcontractor and use the whole capability of machinery and labor, when due to weather conditionsno sense to do maintenance works on national roads. We loose in speed when purchasing equipmentand materials because we must follow public procurement rules. In return our activities are notforced by profit.

However a competition does exist. Road users and local governments are observant to activitiesor in-activities of road maintainers regardless the ownership and force the competition. The coming2-3 years will show who are more efficient and more acceptable for road users.

• To improve the administrative and professional skills of personnel in the state agencyUp to now mainly our head office in Tallinn is involved with big investment projects but I’m sure 6regional road offices including Tartu will take over certain functions in the nearest future. Ourdirector general has agreed to start with delegating duties of an employer of bigger rehabilitationprojects step by step. Our specialists are to be trained and obtained the European rules and theyshould communicate in foreign languages.

Surely a state agency as an employer should be an educated and well-prepared partner for acontractor. The best road experts are concentrated to the regional centers. Joining of 2-3 formercounty office personnel offers promising choice. In Tartu 3 new heads of department have beenappointed and the personnel refreshing process continues.

At the same time road administration in Tallinn can focus on planning and budgeting andupgrading of requirements for the state of road. Better cost-benefit analysis of contracted outmaintenance is expected.

Services for public like issuing of permits, road information, and response to road user claims aremore professional and available thanks to web-basis application forms. Branch offices continue toissue permits for local customers as they did earlier when named as independent road offices.

• To separate roles of a client and a contractorThis purpose is accomplished partially in Tartu by now. 47% of public roads in my region, it meansroad network in Jõgeva county, is maintained by the contractor; 53% by state agency in Tartucounty. To make road works more transparence and comparable at such a co-existence, themaintenance unit is being separated from the employer inside the road office and works executed byroad masters are supervised by supervision engineers from the respective department of road office.

I predict the reorganizing will continue and the roles of an employer and a contractor will beseparated completely. Both an employer and a contractor can independently focus to their specifictasks only in separate organizations. If a 100% privatizing is not acceptable for politicians, somegovernment-owned companies could be established from the maintenance units of road offices.

• Restructuring should benefit both - a road user and a road agencyThere is a price for every change in an organization. Such a big restructuring causes costs likecompensations for fired employees, change of name-labels, producing of new institutionaldocuments etc. Costs must be justified by benefits. This year, during the transition period, it isdifficult to calculate benefit.

Savings in overhead expenses have come from reduction of road directors and financedepartments. In Tartu at least 20% of overhead expenses will be saved with restructuring. I do hopethese savings will be re-allocated to road sector not for patching of state budget.


67

Earlier specialists were responsible for various tasks; now in the regional center officials canfocus more deeply to their main specialty. It is cheaper to train 6 experts instead of former 15.

Public service like permits and professional road-related information are available throughout theyear regardless vacations. 6 experts instead of former 15 update road database, consequently higherreliability is achieved.

Road user will meet fewer surprises in road conditions because instead of 15 now 6 regional roadoffices can differently interpret requirements for the state of road. Inside the region, the ends ofmaintenance routes of neighboring contractors can be moved to the nearest crossroad regardless theborder between the counties. We agreed to do that with our contractor. Again less unpleasantsurprise for a road user!

For conclusion: start of the first regional road office seems to be promising. By the end of nextyear all 6 new road offices have passed their first year and better analysis, how the purposes forrestructuring have been reached, can be presented.

I remind the topic of this seminar is a question:Restructuring road management – trend or necessity?

I propose the answer like this: it is a trend caused by the necessity to develop.

# #

#

#

##

VIRU

TARTU

KAGU

PÄRNU

HARJU

SAARTE

Regional Road Offices

••

•• •

•


68

Tartu Regional Road Office��

Voorema Teed Ltd Contractor

��

Tartu Regional Road Office State Agency

#

#

Jõgeva

TARTU •

•

ROAD OFFICES IN 2003

ESTONIAN NATIONAL ROAD ADMINISTRATION

Tartu Regional RoadOffice 2361 km

In-house 1260 km

Viru Regional RoadOffice 2060 km

In-house 1141 km

Saarte Regional RoadOffice 1561 km

In-house 1087 km

Harju Regional RoadOffice 3498 km

In-house 1047 km

Pärnu Regional RoadOffice 3436 km

In-house 1424 km

Kagu Regional RoadOffice 3518 km

In-house 1245 km


69

T a rtu R eg io n a l R o a dO ffice 2 3 6 1 k m

In -h o u se 1 2 6 0 k m...........C o n trac t 1 1 0 0 k m

6 R o a d O ffices 1 0 C o n tra cts

4 4 % o f N a tio n a l N etw o rk D o n e In -h o u se

5 6 % o f N a tio n a l N etw o rkC o n tr a cte d O u t

T A R T U R E G IO N A L R O A D O F F IC E

R eg io n a l D ire cto r

E m p lo y in g D irec to r M a in ten a n c e D irec to r

S u p er v iso rs R o a d M a ste rs

M ain ten an c e C o n trac ts C o n tr a cto rs R ep air C o n tra c tsR eco n s tru c tio n C o n tra c ts

P u b lic S erv ice P ro d u ctio n

M ain ten an c eO rd er

H O W D O E S IT F U N C T IO N ?

Jõ g e v aB ra n chO ffic e

Restructuring purposes:

• To ensure competition in road maintenance market• To improve the administrative and professional skills of personnel in a state agency• To separate roles of a client and a contractor• Restructuring should benefit both – a road user and a road agency

Restructuring Road management – Trend or Necessity?

It is a trendcaused by the necessity

to develop.


70

ROAD MANAGEMENT REFORM IN LATVIA,ITS RESULTS, RECOMMENDATIONS AND PERSPECTIVES

WITHIN THE CONTEXT OF ROAD MAINTENANCEVilnis Urbanovics

President of State Joint Stock Company (Central Region Roads)Latvia

Introduction

The structural reform of the Latvian road management has been carried out since 1992. It was basedon objective political and economic factors, while the following principles were suggested aspriorities:- users finance roads of public access, thus determining the general level of quality of the road

network;- general economic principles should be introduced on the market of road maintenance

(commercialisation of enterprises and free competition);- the state reserves the strategically important part of the road network in its competence (about 55

per cent of all state roads today) and gradually reduces its dominating role in management,increasing the influence of local authorities and private companies.

The main aim of the reform was to stabilise management, to make it profitable and more society-oriented in order to improve the quality of the roads. Actually in the last ten years significantinstitutional changes have occurred during several periods of development of management. Thecourse of the reform may be conventionally divided into three stages (changes in the field ofmaintenance took place in 1994-1998), with the following principles:- to create and develop a stable and predictable source to finance road management (the Road

Foundation);- privatisation and formation of the state-owned enterprises, to create commercial companies that

compete on the market of road services;- to determine the status of road-related bodies and enterprises, completely separating the

functions of the customer and the contractor, to develop these relations (standards, tenderdocuments and reports etc.).

Today we can say that many of the targets have been achieved and a stable legal and economic basefor further development has been created as a result of the reform.

Overview of the current situation on the market of road services

Analysing the current situation on the market of road services for the Latvian state roads, we shouldmention the following:- all road construction and design institutions have been privatised, the state road design,

construction, maintenance and reconstruction programs are realised on the principle of freecompetition

- four state public limited companies (GAO) carry out the complex maintenance works in differentregions of Latvia, having received this licence in 1998 at the closed and in 2002 – at the opentender for the period till 2007.

From the businessman’s point of view the current situation in Latvian road management may becharacterised as the period of severe competition. After the crisis of 1992-1995, when financing wasbelow the critical point, management began developing in 1996-1998. During this period aconsiderable annual growth of road programs allowed to reinforce the road companies. Then wehad the whole set of promises for keeping the trends of development, as the amount of work wasstill not optimal. But due to political reasons in the next years the financing stagnated and thestagnation actually remains. For the next five years the main task will be to preserve the state road


71

network in an acceptable condition with the existing level of financing, and to expect progress inremote perspective only.

As a result competition has become very severe, and the road companies have to work withminimal profit or just cover the costs on the background of lack of work and excessive resources.These factors worsen the business environment and may cause reduction in the number of roadcompanies and in the total productivity of management, which is undesirable, taking into accountthe real needs and the availability of considerable financial funds in future.

Since the potentially vast programs of reconstruction and periodical maintenance have beenreduced to the minimum, the interest of private companies has been drawn to the daily maintenanceof the roads. Thus the problem of licencing these works and the criteria for selecting contractorsbecomes acute, a doubt arises if the specialised GAO maintenance enterprises could fulfiel thesetasks. We can say that in the current situation the private companies can only balance their activitiesand increase the sphere of influence at the cost of the program of current maintenance without realprofit for the Latvian Road Administration (LAD), because due to the reasons described below theactual competition will be complicated because of objective factors.

The administration of the management agency is still acting conservatively, understanding thatthe long-term perspective of development cannot be sacrificed to seeming or short-time profit. Thisapproach is completely justified, because if the competition becomes unhealthy, and the state doesnot regulate the process, then the grounds appear for cheap purchase, merger and acquisition of theenterprises, forming possible monopolies of road services. In the current situation the state economycannot feel real benefit from the corresponding investments, as the money is spent to purchasecapital, not to create new assets. On the other hand, preserving the influence in the road by means ofGAO, the state will be able to restrict the price growth of road services and keep reasonable balanceof the programs in the years to come.

Further in the article we shall estimate the development opportunities in the daily maintenancebusiness and prove the strategic importance of GAOs.

Problems and solutions

The matter of free competition in the field of daily road maintenance cannot be the subject ofdiscussion, as this is a harmonic model of road service in the state oriented towards marketeconomy, but now it is important to define the right time and create basis for such transition. Todaywe may point out several serious problems that add risk to hasty actions in this field.The technical problems are:- there is no overall maintenance standard (except for winter works)- considerable part of the state roads is in poor condition, which diminishes the efficiency of

maintenance.About 20 per cent of the bitumen and 60 per cent of the gravel state roads remain in unsatisfactorycondition, thus it is impossible to maintain this part of the road in accordance with the regulationswithout significant investments in reconstruction (not taking into account the reinforcement oftransit route according to the EU norms). Today GAOs do not carry out classical maintenance, butwork like emergency services, granting elementary passability in this part of the network. Thuscomplex maintenance of the roads is complicated, as, for example, most of the funds is spent torepair pits and we pay no attention to the aspects affecting long-term quality of the roads(superficial water drainage, vegetation control etc.). So the program of the daily maintenance everyyear solves the problem of the state road repair deficiency (postponed road works accounting forabout 300 mln. Ls). Taking into account the growing deficiency, the extensive non profit-orientedactivity will continue for a long time.

There are also financial aspects that force us to flexibly solve the maintenance problems,sometimes shifting priorities:- lack of funds for current maintenance (35 per cent of the level provided by regulations), and we

expect a breakthrough not earlier than in 2007


72

- income forecast of the Road Foundation is still under stabilisation, and in the nearest three yearsthe foundation will have to repay the largest part of the credits.

Leaving the daily maintenance of the roads in the competence of the GAO, the Latvian roadadministration reserves the right to manoeuvre within the frames of the program. We should notforget that GAO invests the income from the business activity in the development of the company,increasing the cost of assets, and transfers a part of the profit into the state budget, hence, thesecompanies are profitable enterprises for their owner – the state.

Allowing unrestricted competition and attracting a large number of contractors to the sphere ofcurrent maintenance, the road administration has to deal with radical changes of planning,management and control of the services. At the same time we have to change the size of tenders(shifting from the regional to larger administrative divisions or to the linear principle for somesections of roads) and the current set of maintenance works. It is evident that in order to managesuccessfully such a multi-component program, we need the principle of a determined maintenancestandard, not the principle of the actually accomplished works as we have now, or theadministrative costs will considerably increase.

In order to open the current maintenance program to free competition of contractors, we have tosolve the above-mentioned problems, otherwise there will be no positive effect. Similarly we canachieve serious improvement of the current maintenance only planning the works on the basis oftechnical requirements, not on the basis of limited financial funds, and the competition itself cannotsolve the problem. Foreign experience also proves that in the conditions of scarce funds, handingover road maintenance to private companies implies controversial consequences and painful legalprecedents.

The private companies still do not have the real technical means to carry out road maintenance atthe regional level. GAO’s advantages include a well-developed network of road service offices andthe capability to accomplish large amounts of maintenance works within short time, which isespecially important in the winter period. The peculiarity of daily maintenance is that these workscannot be postponed or suspended if the contractor for any reason does not fulfill its contractualobligations. Inactivity may cause damage and paralyse traffic. While maintenance is thecompetence of GAOs, this aspect is arranged, but when introducing unrestricted competition, wehave to determine additional criteria to prevent such cases.

This is another reason why in estimating the tender offers for road maintenance we have toconsider not only the price, but also the infrastructure, the technical facilities and the experience ofthe participants. If we do not evaluate the whole complex of parameters, we’ll have a “virtual”competition only during the tender, without any real alternative for the future and in case ofunforeseen circumstances.

The above-mentioned factors prove that it is important and economically efficient for the state tokeep the current format of road maintenance for five years more, until the overall condition of roadmanagement has improved.

Trends of development

The program of preservation and development of the state roads for the period of 2000-2015includes the following tasks:- re-arrange the roads of public use, passing the local roads and the appropriate material resources

over to the local authorities- raise the income of the Road Foundation to the optimal level- multiply the road reconstruction and repair programs in order to actually improve the state of the

road network.In respect of the current maintenance program, we expect the increase only after the year 2007, andby this time the preconditions for unlimited competition in this field will naturally ripen. In theperiod of 2002-2005 the transitional process will be developing, organically approximating thecomplete commercialisation of current maintenance.


73

Up to now five years have passed since the creation of the regional GAO. During this periodthese enterprises have been establishing, stabilising and technologically developing. Thedevelopment of the GAOs will go on by the following guidelines:- improve the road maintenance quality, introduce and develop the quality assurance system and

use perspective technologies- actively attract the private subcontractors (up to 30 per cent of the whole amount of works), at

the same time allowing the customer to compare the performance of the state and privateenterprises

- optimise the activity of the enterprises, paying special attention to the improvement of economicresults.

This concept suggests that GAO does not increase and even reduces its production facilities,undertaking the project management in the field of road maintenance and the role of the generalcontractor. This scenario is a realistic one, taking into account the high intellectual potential ofGAO, as the staff of the enterprises consists of high-skilled engineers and technicians. As a result,in the nearest future the program may employ private contractors. The state-customer will have nocontracts with these contractors directly, hence the corresponding risks will be minimised.

If the program will increase twice, as it has been planned, from the year 2007, then the state-customer, on the basis of the experience of the previous five years, will be able to call unlimitedtenders for maintenance works or keep a part of it for GAO. If the program significantly increases,there will appear a natural need to employ more full-time contractors than now.

Privatisation of GAO will be the next stage of development, as under perspective conditions ofacceptable financing the state will be able to keep aloof from the business activity of roadmanagement. Besides, at the moment the state will be able to receive the maximum profit, as theactual cost of such specific enterprises depends on the current liquidity of its assets, hence, on theamount of the market of road works in Latvia.

In privatising the GAO and finally commercialising the industry we have to pay special attentionto the participation of foreign capital in these projects, channelling it into to the most beneficialareas for Latvian economy. At the legislative level we have to create the pre-conditions for thecompanies with the prevailing share of foreign capital to participate in the market as contractors andalso to realise their vast investment potential and the unique experience (in respect of transportinfrastructure concessions). On the other hand, it would be logical to provide local capital withadvantages in privatising GAOs. Then the foreign investors, seriously willing to strengthen theirinfluence in Latvia, will have to create new enterprises, thus toughening competition and improvingthe macroeconomic situation. This approach will also help to attract the maximum amount of directinvestments to the road management.

In carrying out these measures we cannot forget the situation in the road network, which belongsto the local authorities. In future the municipalities will increase their influence and will control upto 50 per cent of the road services market. But, except for the large cities, their road companies arestill weak, as they do not have adequate funding and skilled specialists. Thus it is important that inthe course of further reforms a real productive potential is created, which is able to render qualityservices to this segment of the market. It is evident, that in this case the objective price and qualitylevel is possible if in the beginning there are many enterprises of different size on the market. Thatis why further reduction of the potential of the road management, though possible from the narrow-minded point of view, is unacceptable. Its restoration will cost much more.


74

SURPASSING THE SWEDISH MODEL OF ROADMANAGEMENT LIBERALISATION?

Finland’s Use of Patience and Selectivityin adopting Foreign Models

Martin de JongDelft University

1. INTRODUCTION 1

Since the 1980s a wave of institutional and policy reforms, starkly coloured by an Anglo Saxon lensof economic theory, has raged across the globe. Several chapters in this book bear witness to thisphenomenon. These chapters include countries one would not immediately regard as culturallyaffiliated to either Britain or the United States.

A country that often adopts the strategies of institutional reform pioneer Great Britain is Sweden,albeit that consequences are usually ‘softened’ to fit the social-democratic tradition of that country(Micheletti, 2000). Some of these adaptations in the domain of various utility policies, including theliberalisations of rail, buses and taxis, have acquired international attention. Something similar, butperhaps less conspicuous to the public eye, has happened in the process leading to the liberalisationof road management (design, construction and especially maintenance), that started off in thebeginning of the 1990s.

Historically, political and cultural ties between the different Nordic countries have been close(Derry, 1979). In road management, for instance, apart from existing bilateral contacts betweenDenmark, Norway, Sweden and Finnish policy-makers, there is the Nordic Road Federation wherepolicy experiences are often exchanged and inspiration for novel directions arises. As aconsequence, institutional frameworks in the Nordic countries follow international developments,but often interpret and translate them in comparable ways. Both constitutionally and institutionallythey can be seen as a Nordic model or family with distinct features (Zweigert, & Kötz, 1998). All ofthe Nordic countries bear the imprint of international developments such as the upsurge ofglobalisation, Europeanisation and concomitant trends as the dismantling of public monopolies andsizeable bureaucratic organisations and legal harmonisation. Just as in many other countries, bestpractices, which spread via international organisations, are influential when it comes to political andeconomic reform in Scandinavia and Finland. But the way in which these policy signals areimported and the specific flavour they get, can only be understood with the help of their commontradition and mutual inspiration. Regularly, though not always and often only unwillingly admittedby the other Nordic countries, Sweden is the leading nation in introducing and bringing about thosechanges in the region. On the other hand, however, as in the case of the liberalisation of the taxiservices, the dialectics of progress are sometimes at work here. It turned out to be a failure inSweden, and the Finns averted making the same mistakes.

This chapter tells the story of how road management was liberalised, first in Sweden in thebeginning of the 1990s and later on in Finland, by the end of the 1990s2. Developments in Finlandclosely mirrored those in Sweden, but the Finnish policy actors had the benefit of being in theposition to draw some very instructive lessons from their neighbour. As one Swedish respondentsaid, the Finns had actually achieved to get the Swedish model implemented, whereas the Swedeshad been halted somewhere halfway, and were now lagging behind with no turning back. The actors

1 The author expresses his gratitude to the many people he interviewed in Sweden and Finland in the Summer of 2001,

especially to Dick Jonsson, Lars Edelman, Pekka Pakkala and Markku Teppo for their very detailed information onthe evolution of the liberalisation process in both countries. He also thanks Juha Aijö for his collaboration in theresearch and Ahti Salo for hosting the author at Helsinki University of Technology.

2 Introduction of policy very similar but not identical to the one in Sweden was enacted in Norway in the year 2002.


75

responsible for framing and adopting the new regulatory framework in Finland benefited from theirwait-and-see attitude and carefully moved around political and other impediments to liberalisationthat surfaced in Sweden. They were also inspired by a larger group of foreign examples presented ininternational conferences and meetings, mostly from British, New Zealand, Australian, Canadianand US origin (Teppo, 1998, 1999).

The rest of this chapter will proceed as follows. Section 2 will present a stylised version of theprecepts of New Public Management (Lane, 2000), a strand of theory in public governance thatapplies concepts derived from micro-economic theory to the public sector. It is a line of thought thathas been and still is highly influential and underlies public sector reform in Britain, Australia, NewZealand and the Nordic countries in the Post Reagan and Thatcher era. It is especially helpful inunderstanding the objectives behind the liberalisation of utility management, being to move frommonopolistic enterprises and inert bureaucracies to healthy competition among providers andflexible services contracting.

Section 3 describes the actual course of events in Sweden and Finland when it comes torealisation of open tendering. In order to achieve this, as a preliminary but crucial stage, newinstitutional conditions have to be created. It will be shown what choices were made in the Swedishcontext and then it will delve more deeply in how the Finnish actors actively filtered out hindrancesencountered in Stockholm and circumvented the critical ones to get past their original. Section 4describes the divergent consequences for the strategic positions of each of the involved actors as aresult of the different institutional developments in the respective countries. It becomes clear thateven though actors in Finland have not even approximated a situation of free and equal competitionyet, the independent position of their regulatory agency is more promising for running a successfultendering procedure than the aborted reform attempts in Sweden can offer. Now that the FinnishRoad Administration is closely following best practices from around the world, they ask themselvesif they are now ready to vie with New Zealand.

After this empirical overview of the tribulations of the Nordic model of road managementliberalisation in Sweden and Finland, in the concluding section the element of strategic actorbehaviour and eclecticism in drawing lessons from across the border is highlighted. Actors behavestrategically, in the sense that they reflect on choices made by others and themselves, are aware oftheir mutual dependence and anticipate future preferences and options. By-passing one’s model byselective learning and making strategic adaptations, allows countries to be in the forefront in the ratrace when in comes to institutional transformation in the face of globalisation.

2. THE PRECEPTS OF NEW PUBLIC MANAGEMENTEver since Anthony Downs wrote his seminal and insightful books An Economic Theory ofDemocracy (1957) and Inside Bureaucracy (1967) and neatly laid out all the imperfections publicsector organisations and the budget mechanism that rules them suffer from, economists oreconomically inspired students of politics and administration have been keen to show that the‘market’ could be a source of inspiration for their improvement. This expanding line of thoughtoriginated and found its theoretical perfection in the United States and became known under thelabel of ‘public choice’ and was closely affiliated with the literature around property rights,institutional economics and principal agent theory (see for example Niskanen, 1971; Williamson,1975, 1985; Eggertson, 1990; Mueller, 1989; Dunleavy, 1991; Buckley, & Michie, 1996; Foss,1997; and Jensen, 2000 for overviews and anthologies of this literature).

The general idea is always that each time the preferences of the public, citizens, users, customersor clients are translated to what is served by a (set of) public organisation(s) acting on their behalf, aloss of information validity, quality and efficiency should occur. As a result of this, customers ofpublic services do not get what they ask for and see a part of their dear tax payer’s money lost as Xinefficiencies or slack in the confines of public sector organisations. The first loss takes place whendesires are transferred from citizens to elected politicians, the second when bureaucrats implementthe agendas of politicians, then once more when bureaucrats in ministerial offices delegate tobureaucrats in executive agencies, and then finally between these agencies deal with their


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customers. Each time, analysts observe a great information asymmetry between the body that ordersa good or service and the one that provides it; the agency has direct supervision over most or all ofits tasks and can and does use this information advantage to its own self-interest by providingselective or even false information to its principal. The preceding analysis has importantrepercussions for the performance of bureaus and public enterprises. Organisations provide neitherthe quality nor the quantity citizens want and they also work inefficiently. The result of all theabove is that by force, bureaus and public enterprises are hierarchical, slow, unresponsive andinefficient and benefit from manipulating information. Differences in nuance can be seen among thevarious public choice authors. For example, Downs himself (1957, 1967) and Dunleavy (1991)were of the opinion that these public sector imperfections could also lead to less instead of moreservices than the public wishes, but none of them denies the severe imperfections in themselves.

This Post War harvest of economic thought was not lost on many theorists of publicadministration and public policy, neither in North America nor in Europe and Australia and NewZealand. An influential propagator of privatisation and liberalisation of utilities in the United Stateshas been Savas (1982, 1987). The public choice approach was worked out to its normativeadministrative ramifications in the 1990s and came to be known as New Public Management(Hood, 1991; Ferlie, Ashburner, Fitzgerald & Pettigrew 1996).

The most important representative of New Public Management in the Nordic countries clearly isthe Norwegian Lane, whose collection of famous papers written in the 1990s appeared very recently(Lane, 2000). Lane has adopted all essential features from public choice theory and worked themout to administrative constructions, which basically means liberalisation, contracting and ifnecessary privatisation. Though he has not influenced the regulatory reforms in Sweden and Finlandbelow in any direct sense, his framework fits the Nordic administrative structures and cultures quitewell. Whether realistic or not, he assumes that increases in efficiency through liberalisation andprivatisation do not necessarily impact equity issues in any negative sense. The characteristicdifferences between traditional public governance and new public governance he observes areoutlined in table 1:

Table 15.1: Old versus New Public Management

Traditional Public Governance Modern Public GovernanceEmphasis on Political andBureaucratic Struggles

Emphasis on getting the Job done

Use of Public Law(Bureau and Public Enterprise)

Use of Private Law(Contracts and Tendering/Bidding)

Separation between Public andPrivate Players

Levelling the Playing Field

Separation between Allocation andRegulation

Integration of Allocation andRegulation

Compiled and adapted from Lane, 2000.

If traditional public governance had all the caveats outlined above by the theorists of public choice,then modern public governance has all the attractive alternatives on the right hand side. Thisincludes measuring and evaluating performance through contracts with private parties, givingregulation and allocation both in the hands of one, possibly privatised, agency. This agency thencontracts with those private parties (derived from private law). Horizontal relations developbetween public ‘authorities’ and private executors of clearly delineated functions and obligations.Old bureaux and public monopolists would lose their privileged status and compete on an equalfooting with new entrants to the market, a phenomenon called ‘level playing field’. These newentrants, by virtue of being ‘market parties’, would operate more efficiently and effectively andwould also force the privatised ex-monopolist to change its outdated managerial ways.


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To achieve this, a certain reconceptualisation of types of organisation could prove helpful. Infact, New Public Governance (NPM) recognises three types of actors:

• Principals (State, Government, Ministries) who establish the basic legal, institutional and/orregulatory framework.

• Agents (Executive or Purchasing Agencies and Regulators) that organise tenderingprocedures, allowing them to buy public services as good and as cheap as possible.

• Entrepreneurs (Corporations, either public or private) that provide the facility and therefore todo the actual work.

Thus far, the direction for reforming the provision of facilities for the public is ratherstraightforward. What would this mean more specifically to road management?

Getting to the heart of the matter, it would require allowing for the possibility of free contractingwith any party capable and willing to offer road design, construction and/or maintenance servicesand inviting them for a free contest from which the best and cheapest would be chosen to deliver theservices for a specified number of years. The actual situation in both Sweden and Finland in thebeginning of the 1990s was the existence of a relatively small ministry providing central guidelines,a large public agency doing most of the maintenance, a small share of the construction andsupervising all the design, construction and maintenance done by construction companies and otherprivate parties. The part of the work done by the private sector was not contracted systematically inopen tenders, however. Now, following the NPM recipe, the ministry should stay as it is and havelegislation enacted to create an agency responsible for organising the tendering of bids and privatiseor do away with the rest of the road authority, so that exclusively private parties could make theirbiddings. In addition, all design, construction and maintenance should therefore be out in the marketwith no restrictions. The predicted benefits of pushing through this reform would thus be: (1) fullcompetition instead of public monopoly, (2) higher levels of innovation and (3) remarkable costreductions through efficient delivery. All this begs the question what empirical evidence comesabout when these NPM lessons are really taken to heart and diligently implemented. Below, theactual liberalisation process for road construction and maintenance in which the NPM ideas weretried is described. Though most of the story plays in Helsinki, it originated in Stockholm.

3. THE NORDIC MODEL OF ROAD MANAGEMENT REFORMAny organisational follow-up to pleas for open tendering necessitates the creation of specificinstitutional conditions. This is exactly what Sweden and a few years later on Finland have done.The Nordic countries often have small ministries laying out the general policy framework and muchlarger executive agencies to do the more practical work. Design, construction and maintenance ofroads had been the competence of one such big agency, the road administration, which managedmost of the maintenance by itself and contracted with private parties about most of the design andconstruction activities3. The private parties in Sweden are dominated by Swedish global players inthe construction business such as Skanska and NCC, and in Finland by reasonably sizeable but stillmarkedly smaller Finnish companies such as YIT and Lemminkäinen (Kokko, 1999). It was mostlythe maintenance part in the public hands of the respective road agencies in Sweden and Finland thatwas intended to be shaken up.

Devising the Nordic model in Stockholm

It was a severe economic recession hitting both Sweden and Finland that provided the impetus forthe liberalisation process. This recession strengthened the position of the Ministry of Financerelative to the spending departments in both countries. A list of utility sectors due to be liberalisedand/or privatised step by step was drawn up (MOTC, 2001). Following experiences in the United

3 The share of private involvement in Finland has increased in maintenance (where it was incidental) as well as

construction (where it was already much more than half) due to its growing capacity problems in the bosom of theFinnish Road Administration (Teppo, 1998). The situation in Sweden was likewise.


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Kingdom from a distance, the Ministry of Trade and Commerce (responsible for transport mattersin Sweden) and Transport and Communication somewhat later in Finland emphasised that cuttingexpenses by 20% was an achievable objective. Even though this figure was widely known amongpolicy-makers, few if any of them actually knew the origin of this figure so influential in harnessingpolitical support for the reform. It took the author a great many interviews before he could retrieve arespondent who named a report by Arthur Andersen consultants to Treasury Task Force of theBritish government. It claimed that after liberalisation, road life cycle costs should decrease by apossible 17% (Arthur Andersen & LSE 2000). This report, however, cannot have influenced theSwedish and Finnish liberalisation processes directly, because it was published only recently.Referring to it should rather be seen as post-hoc rationalisation and can only have been extraammunition for proponents since 17 January 2000. Whatever may have been exactly the case, whatwas possible in the UK, should also be within reach in the Swedish context, and perhaps it couldeven be exceeded. Difference with regard to the market structure and institutional framework aswell as fundamental differences in the approach were largely overlooked. At a later stage, the verysame figure, 20%, would spread untainted to Helsinki.

The road maintenance market was gradually liberalised from 1992 on; each year a new set ofregions was opened up to competition and four-year maintenance contracts were awarded to biddersoffering the best combination of low price and high quality, at least on paper. The country wasdivided up into a great number of functional regions, each with a distinguishable network of roadsections. The bid tendering process in Sweden was set up as a ‘beauty contest’, meaning that bothprice and quality points had an impact on the final score of the bid4. A number of institutionalchoices were made that were alien to Britain that can be seen as typically Nordic and would reachthe Finnish actors a few years later. Apart from cutting costs and promoting innovation, two otherprominent Nordic values gave the Swedish model its particular flavour. These were to give theprevious public monopolist a strong position in the market to rescue it from an otherwise probabledownfall and to protect its employees against the vagaries of mass dismissal. Therefore, theliberalisation did not go hand in hand with simple privatisation of the road maintenance agency.Vägverket did not become a public limited company, but it still had to compete on an equal footingwith private bidders despite its organisational and financial dependence on the state (Vägverket,2001). In fact, the initial Vägverket reform plan had been to split up the company in an independentauthority responsible for the tendering process and a large road maintenance enterprise. However,political interventions led to a badly diluted compromise. The labour unions feared for theirmembers’ career perspectives and managed through their good connections with the social-democratic government to thwart this proposal and block any prospects of thorough reorganisation.Current legislation has it that Vägverket, though consisting of several semi-independent divisions,officially remains under one organisational roof and under public labour law: it is not allowed todismiss any of its people. Only that when offered a job in another part of the country, the workerswould have to accept it or leave.

In the following years, Vägverket paid very dearly for this half-hearted legislation. Huge privateconsortia such as Skanska and NCC as well as small road maintenance companies, consisting ofvery small numbers of people, have exploited the administrative lack of clarity ruthlessly byaccusing Vägverket of cross-subsidisation between its various divisions and lack of transparencyand reliability in the tendering process. Though these allegations have never been proven correct,the accused was unable to defend itself because it had all the appearances against it. In truth,Vägverket lost all of its profits to the state, and was forced to strive for black numbers in each of theindividual regions it serviced. By contrast, Skanska and NCC, whose turnover as multinationals wasmany times higher than Vägverket’s, were submitted to private law and could downsize theirorganisation with far fewer restrictions. They could also even out their profits between the variouscontract regions they had acquired in the bidding process if this was strategically handsome to 4 In the literature on open tendering, beauty contests are characterised by the explicit attention paid to minimum service

quality requirements and company solvability. This also implies that participation is not open to all. In contrast,auctions are open to all and there, only the pecuniary element matters (Van Twist & Veeneman, 1999)


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increase their market share. Evidently, Skanska and NCC could cash in their own profits and evenincur temporary losses in this specific business field if necessary to improve their strategic positionor build up required levels of know how (excess profits in the offices and housing constructionbusiness would compensate for that). Since 1992, these companies have won an increasing numberof financially attractive areas in Central and South Sweden, where the density of the road networkoffers serious economies of scale. By means of comparison, Vägverket booked losses in both 2000and 2001 and their strong pleas to have an organisational separation of its road agency from theroad enterprise accepted in legislation are not yet under serious consideration.

Practically speaking, some sort of duopoly (NCC and Skanska together against Vägverket) hasevolved at a strategic level, because NCC and Skanska were prepared to pool specialised roadmaintenance facilities with each other and demand high prices for sand and gravel sold toVägverket, which depends on these supplies. It is even claimed that if the one does a serious offer inone particular region, the other certainly does not and vice versa. Lately, stories of collusion andcartel-formation backed by forbidden written contracts have come out in the open (DagensIndustrie, 7 February 2002; NCC 2002). Though some cases of collusion have been proven, othershave not, and unless some whistle-blower informs the authorities, the difference between facts andrumours is hard to draw in these situations. On the other hand, the private contractors lament thefact that when Vägverket calculates the costs for the construction of a new road funded in a PPPconstruction, false estimates of geological risks are established of which the costly consequencesare pushed onto them (BKK, 1996). Here too, relations have been marred and the watered downlegislation has not achieved some of the intended objectives. The Swedish Road Enterprise has beenfinancially weakened despite its still dominant market share, employees have not been fired, butfamilies have been torn apart by forced removals and the trust in fair and open tendering hassuffered.

Adjusting the Nordic model in Helsinki

The experiences in Sweden have been of decisive importance for the route chosen in Finland. Boththe government and parliament adopted more of a wait-and-see attitude and by the time the idea ofa possible road management liberalisation appeared on the political agenda in 1996, the Finnishactors were well informed, forewarned and armed. Both the labour unions and the employer’sorganisation reacted lukewarmly to energetic attempts by the Ministry of Transport andCommunication to promote the reform. Furthermore, the private parties YIT and Lemminkäinen andthe many very tiny subcontractors were even hostile (Teppo, 1998).

When in the end, the government definitively had the liberalisation legislation adopted, theSwedish experience was a source of both positive and negative inspiration. In accordance with theoriginal Swedish initiative, it was decided to split up the former road agency into two separateorganisations before the actual liberalisation became operational. Finnra was to become the newFinnish Road Administration (Tiehallinto) responsible for the open tendering procedure and otheradministrative duties, while the Finnish Road Enterprise (Tieliikelaitos) was installed as a publiclimited company taking care of the actual maintenance business and prepared to compete with theprivate parties.

The opening up of the market, contrary to the Swedish situation, took place only from 2001 on inthe form of signing 3+1+1 contracts (three-year deals with the possibility of two one-yearextensions).

The labour unions, affiliated with the social democratic party like in Sweden, succeeded inpreventing any Road Enterprise employees from being dismissed, at least immediately. In fact, theywere classified as ‘Category B Workers’ officially deemed superfluous, but having the advantage ofbeing hired for special projects related to the environment or the construction of some road sections.Compared to Vägverket, Tieliikelaitos had the advantage of seeing these people funded by speciallyallocated public funds. It was only after a transition period of five years that private labour lawwould apply and by then these employees were expected to have found new jobs. A remarkable


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memorandum issued in combination with the official legislation, stated that these people were to bepaid not from the budget of the Road Enterprise, but the public budget.

Furthermore, it was ruled that certain bottleneck facilities needed for the service provision, suchas maintenance equipment, gravel and sand pits and truck stations would be sold to the RoadEnterprise ‘at market prices’. An apparently reasonable proposal from the private parties to makethe Road Administration the supervisor of the bottleneck facilities or to manage these essentialfacilities as common pool resources or to allocate the facilities to the highest bidder was to no avail.The tactical relevance of these donations should not be underestimated, since YIT, Lemminkäinenand others did not have such machines at their disposal at that time. Worse, even if the RoadEnterprise clearly did not need them, they would still not sell or let them to direct competitors.Some of the second hand equipment badly desired by YIT a few years ago is now in use in Estonia.Rumours have also spread that other machines that were denied to YIT were later on let to smallsubcontractors if they solemnly swore not to do business with any other company but the FinnishRoad Enterprise. All in all, the Road Enterprise’s dowry was far more attractive and impressivethan Vägverket’s and it offered a fairly good starting position for the road enterprise in the comingyears. The sole clause to offer some consolation to the private actors was one in which the RoadEnterprise submitted itself voluntarily to not treading the construction market still dominated by YITand Lemminkäinen. Buying facilities required to enter that part of the market was supposed to bepostponed until 2005, when all the conditions for full competition in the maintenance business werealso to be fulfilled because all regions would have been granted to the best contractors. This, in asense, was a non-intervention pact to divide the respective markets until that year. Just as inSweden, the Road Enterprise was the only company obliged to offer in all the regions to preventany of them from not being served. But, since prices were free and could be set as high as desired,this could hardly be seen as a disadvantage. The final aspect the private parties raised complaintsabout was the fact that although the Road Enterprise’s bookkeeping was modelled after that inprivate companies, the state as its sole shareholder expected it to make annual profits of only 1%,whereas the usual percentage in the private sector was 3%.

In the year 2001, out of a possible 17 issued contracts, Tieliikelaitos has obtained 11 as a maincontractor and YIT 4. The Swedish firm Skanska, that regularly buys up smaller local players inFinland and is keen to increase its market share also in Finland obtained one and a specialised smallcontractor won one. Other potential players, such as Lemminkäinen and Swedish NCC have decidednot to enter this new Finnish market thus far. The Road Enterprise’s goal to confirm its stronghistorical tradition in the business by showing superior quality and a market share of 70% has beenreached, though of course only future developments can tell if this will continue to be the case andif the planned expansion to the construction business will be a success. Privatisation of thecompany, as desired by some, would take things yet another step further, but the political decisionon this topic in fact is of secondary importance when it comes to the firm’s continuity.

4. BRINGING THE NORDIC MODEL TO PERFECTION WITH NEWZEALAND’S HELP?

The Swedish road administration has consistently tried to develop an image of an impartialcontracting agency, but largely to no avail. Even when trying as much as possible to take anindependent stance towards Vägverket Produktion, actors in the outside world who lack belief inreally open and fair contract bidding or benefit from incriminating it have reasons to keepVägverket as a whole in a vulnerable position. Its efforts to discredit its competitors by claimingthat environmental quality or safety would be endangered with road maintenance in their hands alsomet with little success. Complaints that only the old technicians employed by Vägverket work withtheir hearts, while the others just go down the list of things to be done (spreading enormousamounts of salt just once instead of saving ground water by doing this several times in smallerportions, or failing to remove trees and branches from road sections before the frost sets in becauseit is time-consuming) also proved mostly unjustified. Consecutive reports did show that service


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quality had declined slightly since liberalisation had set in, but this was at least as much the casewith the public provider as with the private ones. They also showed that costs had gone down byapproximately 20% as predicted. But that was as far as things went compared to the initialintentions. The implementation of the Swedish model of road management liberalisation had beenaborted in Sweden itself.

The Road Administration’s improving profile

That very same figure of around 20% savings on the public purse was also more or less achieved inFinland, already in 2001, the very first year the open bidding was organised. Yet, developmentsthere went much further as a result of the Road Administration’s newly acquired independence.Even though Tiehallinto and Tieliikelaitos are still located in the same building in Pasila, in theoutskirts of Helsinki, the doors between the two wings where these organisations reside are lockedhermetically and any transgression of this symbolic forbidden line causes an alarm bell to ring. Onecould even say that the Road Administration, in order to strengthen its own image, purposivelytakes a more distant stance towards other parties to ward off lobbies and instead fosters reliance onperformance indicators and management by objectives (MOTC 1998, Parantainen 1998).

The Road Administration has also used this momentum to devise an interactive tenderingprocedure and set of public guidelines for the evaluation in collaboration with involved parties.Consultants as well as future contractors and public servants have participated in this process. Itsresults have been made public to allow each potential bidder to keep abreast of the criteria on thebasis of which proposals are evaluated. During the actual evaluation of the bids, not the RoadAdministration itself, but independent experts from the region carry out the evaluations on the RoadAdministration’s behalf. The distant and impartial attitude of a regulator that judges bids solely oneconomic merits or one that grounds its judgement on opinions expressed by consumer panels as issuggested for the future only could add to that reputation.

This is not to imply that Tiehallinto has been capable of ridding Tieliikelaitos influence fromeach element of its work. For example, each bid is evaluated on the basis of price (75%) and qualitypoints (25%). Of this latter part, the main components are (1) reputation and qualities of the biddingorganisation, (2) quality of the maintenance plan and (3) quality certificates with regard to safety,the environment and other aspects. By force, both the reputation of the organisation in the field withregard to (1), the availability of relevant equipment with regard to (2) and to a lesser extent thepossession of certain ISO certificates in (3) are a boost for the Road Enterprise’s score. On the otherhand, YIT also has a number of ISO certificates making it sometimes a serious candidate.

Generally speaking, prices in Finland have gone down and the price levels offered by the variousplayers are growing increasingly similar. It is questionable, however, whether this down-slopingcurve is bound to continue. Profit percentages are currently exceedingly low (YIT, for instance,admits it is striving to break even and hopes to obtain positive financial results only in a couple ofyears) and one cannot expect shareholders to accept this situation for many years in a row.

The Road Administration’s new hunt for best practices worldwide

It is now widely recognised among the Finnish policy makers that Sweden as a source of inspirationhas become of decreasing relevance. This has made the urge to find new fonts of inspiration farfrom irrelevant. Various options for the future have been explored, mostly recent developmentsobserved in Anglo Saxon countries (New Zealand, Australia, Canada and the United States), whichthe Finns learn through international organisations, business visits to other countries or people fromthese countries paying a visit to Helsinki for a presentation. The Ministry of Transport andCommunication, which was responsible for pushing forward the whole set of liberalisations of theFinnish utilities since the 1990s (MOTC, 2001), is satisfied with the budget cuts that the roadmanagement reform has made possible thus far, but admits that they cannot be taken for granted inthe future also and is even concerned about innovation levels in the road sector in general.Furthermore, though it is impossible to privatise Tieliikelaitos until the end of the five-year political


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agreement reached in parliament, after that this issue is certainly not off the agenda. The RoadAdministration, which as said is enjoined with the actual implementation of the Ministry’s ideas, byand large has the same topics on its research and policy agendas. Especially the dearth oftechnological or other innovation in the (road) construction business is a reason for concern.Moreover, it is feared that with the short contract periods and the small regions allotted to thecontract partners now in vogue in Sweden and Finland, any possible progress in this field will behampered only more. The less secure contractors are about the duration of their contracts and thesmaller the size of the area they service, the smaller the slice they can apportion their knowledgeinvestments over and the less incentives they have to innovate. In other words, far from pushing thelogic (or rhetoric, depending on one’s taste) of orthodox micro-economics to its ultimateconsequences, a situation of oligopoly is observed, in an empirical as well as in a normative sense(De Jong, & Aijö, 2001).

The above implies that the Road Administration is seriously considering increasing the size ofthe regions to be serviced and reducing their number from about one hundred to only a few dozen oreven less. Though lesson-drawing from other countries in order to learn from their experience istempting here, Finland has a specific geographical structure that makes many comparisons ratherdeceptive. Determining the most desirable size is therefore something where advice from othercountries can be of little help. It is rather the domestic arena that comes into play here, becausemany of the small-scale companies usually hired as subcontractors object to this potentialdevelopment for fear of losing their independence. They do not have the necessary capital andequipment for such large scale operations and this is a reason for SME, the representative of theFinnish small and medium enterprises, to style the road management liberalisation as a sham.

Lesson-drawing from Anglo Saxon countries is much more feasible when it comes toestablishing the length of the contract period. After adopting the Swedish model as the initialmakers intended, only more eclectic borrowing from various other sources is feasible. Finnishpolicy-makers are acquainted with the six-step model of liberalisation and privatisation of thepublic utilities as sketched by its proponents at the World Bank (see Table 2).

Table 2: Phases in Road Management Reform

Phase 0: Public Works all in Bureaucracy (Agency and Production together)Phase 1: Identify Client (Administration) and Producer (Deliverer)Phase 2: Separate Client and ProducerPhase 3: Corporatise Producer and establish Road FundPhase 4: Privatise ProducerPhase 5: Corporatise ClientPhase 6: Privatise Client

NB: Each phase has a decreasing level of government involvement. Source: Teppo, 1999.

It suggests that the one step logically follows the other. Considering the fact that Finnish policy-makers are now somewhere halfway (phase 3), they seem bound to get inspiration from thosecountries in the picture that have already evolved further in this schema.

More specifically, people working for the Road Administration follow with interest examplesfrom Great Britain where integrated Design Build Finance Operate (DBFO) contracts have beensigned for 30 years as well as their successes and failures of Public Private Partnership. So far, theintegration of design, construction and maintenance in ‘roading’ had been out of the question, yes,even prevented by an informal rule pushed forward by SME cutting the link between these activitiesto strengthen competition and protect the position of the smaller companies. Economies of scale areenjoying a growing interest among Tiehallinto’s employees. Foreign speakers and researchers arealso regularly invited for talks. In the Summer of 2001, Finnish policy-makers listen with greatinterest to Mr R.J. Dunlop, General Manager of Transit New Zealand, on how prolonging thecontract period from 3 to 10 years leads to an additional cost reduction of 20% after the one already


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incurred beyond the reduction following immediate liberalisation of a decade previous. NewZealand and Australia are widely seen as most advanced in the implementation of NPM recipes andwelcome sources of inspiration and experience.

In the end, it is up to the Finnish policy-makers if they follow Mr Dunlop’s ‘Alice inWonderland’ stories (words used literally by the speaker). In addition, they take to heart hiscommenting on the British policies and the fact that 30 year contracts are really too long becausepublic authorities should never give up their decision rights till so far in the future. Last but notleast, they become acquainted with the choice made by New Zealand’s recently elected Labourgovernment not to privatise the regulator, which bars the taking of the ineluctable sixth and finalstep in the schema.

With the political tide in New Zealand turning, laggard countries that have remained morecautious in the face of imminent privatisation of all constituent elements of the utilities may regainat least some of their self-confidence. After all, the future of policy making in all countries is not aninevitable line towards ultimate convergence. Policy-makers in Finland seem to be timely in comingto that conclusion, despite seductive schemas that implicitly convict country policies to being aheador behind as compared to others. The institutional advantage of an agency independent from serviceprovision has been realised, however, and is highly unlikely to be undone in the future.

5. STRATEGIC ACTORS STANDING ON FOREIGN SHOULDERS

The Theory and Practice of New Public Management

Implementation of NPM’s recipes turns out to be no sinecure, but it is a process in which drawinglessons from foreign examples and finding one’s own solutions are clearly helpful. As to the desireto implement the NPM recipe, there can be no doubt:

In the Client-Producer concept the client function is the key role of the agencyorganization (Ministry, separate agency or municipal organization). The role of theclient is: to plan, to set specifications and standards, to provide and allocate budgetfunds, to arrange and award contracts and to make the payments to the producer. In thisrole, the client has to encourage and promote competition and create prerequisites for afunctioning market situation (Teppo 1999, p.2).

Ironically, the political and bureaucratic struggles, which Lane predicted would vanish if contractsthrough private law were introduced to the heart of the public sector, stayed as strong as ever. Infact, strategic games between actors have perhaps even intensified due to the turmoil of the reform;only the institutional setting in which they are fought and the relative positions of each of the actorshave changed.

It has been comparatively easy to commercialise or privatise activities in an alreadycompetitive sector of the market. The creation of competition and the development ofcompetitive conditions has been a more demanding undertaking. On the other hand,corporatisation of state activities which are essentially a monopoly should be retained instate ownership, at least until adequate competition is available. Private monopoly iseven worse than state monopoly (Teppo 1999, p.2).

Though possibly the emphasis on getting the job done may have come more to the fore, the questionon what constitutes a qualitatively ‘good service’ and how this can be settled and monitored is morepoliticised than ever. It must be added that the predicted reduction in price levels has indeed comeabout, but its sustainability will be an issue of the future that heavily depends on the generation offuture innovation. Innovation in this business, however, is now believed to work at cross-purposeswith full competition due to scale issues and contract security. Actual empirical experience at homeas well as in foreign countries has led the pragmatic Finnish policy-makers to conclude that due tothe market constellation perfect competition will never be realised. In fact, either market leadershipor some form of oligopoly is developing and the specific form it gets depends heavily on the


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strategic anticipation and reaction of each of the actors affected by the liberalisation and theinstitutions, regulations and contracts appearing from this struggle. It appears that apart from thesmall subcontractors few organisations really deplore the course events have taken. If innovationrequires bigger market parties enjoying some contract security and combining their research anddevelopment efforts, manageable oligopoly is now even considered desirable. This is unmistakablya far cry from Lane’s admonition to always keep contract terms very short, competition fierce andprices durably low. On the other hand, integration of allocation and regulation in the hands of asingle organisation, being the Finnish Road Administration here, has been accomplished andappears to be of decisive importance. It is of inestimable institutional importance to have a strongand independent competition and quality watchdog for the road maintenance sector. This isfundamentally where Sweden and Finland parted company and it is much more an issue ofsafeguarding the public interest in the long run by supervising and influencing market developmentsas it is of narrow efficiency. It is precisely the Road Administration’s newly acquired independenceand increased administrative status and proficiency that have provided it with the credibility toweigh off cost aspects against aspects of innovation and market structure. It may have been herethat the Finnish learning from the initial Swedish model has allowed the essential positive elementsof New Public Management to be realised while avoiding the more dubitable and unachievable onescoloured by NPM’s clearly ideological overtones. In spite of the academic status of fundamentalmicro-economics, a practical follow-up of the theoretical assumptions that markets are perfect andthat private firms do not suffer from harmful politicking has been countered by practical lesson-drawing, an appetite for institutional clarity and an incremental dealing with strategic behaviourshown by the various participants.

Strategic Actor Behaviour and Eclectic Learning

It appears that actors do not accept legislative proposals passively, but anticipate and react to eachother’s moves. As has been observed in the implementation trajectory of road managementliberalisation, actors (1) attempt to influence the institutional conditions for the liberalisationprocess, (2) aim to monopolise essential assets or ‘bottleneck facilities’ needed for providing theservice, (3) incriminate rivals by questioning their reliability or service quality or (4) line up withpotential competitors in alliances while escaping the anti-collusion rules. In that sense, a qualitativeinterpretation of game theory (Duke, 1984; Dixit, & Nalebuff, 1991; Scharpf, 1997) or oligopolytheory (Fellner, 1949; Shepherd, 1985; Friedman, 1983) can lead to a greater source ofunderstanding of the implementation of public policies.

It should be noted, however, that some choices with regard to the institutional framework areirreversible. The compromising process in Sweden, which made liberalisation precede separation ofthe former road authority into an administration and an enterprise has already had important path-dependent consequences. It has definitively weakened both the road enterprise and the roadadministration. The Finnish actors have had the unfathomable advantage of standing on somebodyelse’s shoulders and they have grasped this opportunity to the full. They have not only anticipatedand reacted strategically to policy interventions from government, parliament, the labour unions andeach other, they have also glanced the evolution of the liberalisation process in Sweden andelsewhere, such as in New Zealand more recently. They have promoted and pushed forward theelements they appreciated and warded off the less appealing ones. The results can never be perfectfor all involved actors; the sum of individual (bounded) rationality rarely adds up to collectiverationality. As a matter of fact, most repudiate the near-monopoly and privileges the new publicRoad Enterprise has obtained. However, bringing one’s model to perfection is a continuous processand implies that one never reaches any ‘final stage’; eclectic learning from ‘best practices’ aroundthe world while maintaining a critical attitude and moulding lessons and examples in one’s ownmanner will always remain important.


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REFERENCES

Arthur Andersen & LSE (2000). Value for money drivers in the Private Finance Initiative, Report commissioned by theTreasury Task Force, 17 January 2000, London, www.ogc.gov.uk/pfi/series_1/andersen.7tech_contents.html.

Buckley, P.J., & Michie, J. (1996). Firms, organizations and contracts. Oxford: Oxford Management Series, OxfordUniversity Press.

Byggandets Kontraktskommitte (BKK, 1996). General conditions of contract for building, civil engineering andinstallation of works, AB92, revised 1995. Varnamo: AB Falths Truckeri.

Dagens Industri (2002). Karellbevisen, Asfaltharvan nar fler bolag, pages 6-7.De Jong, M., & Aijö, J. (2001). Infrastratego; Strategic behaviour shown by actors in a liberalised road design,

Construction and maintenance market. Report produced for the Finnish Ministry of Transport and Communications.Delft: Delft University of Technology.

Derry, T.K. (1979). A history of Scandinavia. Minneapolis/London: University of Minnesota Press.Dixit, A.K., & Nalebuff, B.J. (1991). Thinking strategically, The competitive edge in business, politics and every day

life. New York/London: W.W. Norton & Company.Downs, A. (1957). An economic theory of democracy. New York: Harper & Row Publishers.Downs, A. (1967). Inside bureaucracy. Santa Monica, California: The Rand Corporation.Duke, R.D. (1984). Gaming; The future’s language. New York: John Wiley & Sons.Dunleavy, P. (1991). Democracy, bureaucracy and public choice: Economic explanations in political science.

Englewood Cliffs: Prentice Hall.Eggertson, T. (1990). Economic behaviour and institutions. Cambridge: Cambridge University Press.Fellner, W. (1949). Competition among the few; oligopoly and similar market structures. New York: Knopf.Ferlie, E., Ashburner, L., Fitzgerald, L., & Pettigrew, A. (1996). The new public management in action. Oxford: Oxford

University Press.Foss, N.J. (Ed.) (1997). Resources, firms and strategies, A reader in the resource-based perspective. Oxford: Oxford

Management Readers, Oxford University Press.Friedman, J. (1983). Oligopoly theory. Cambridge: Cambridge Surveys of Economic Literature, Cambridge University

Press.Hood, C. (1991). A public management for all seasons. Public Administration, 69, 3-19.Jensen, M.C. (2000). A theory of the firm; Governance, residual claims and organizational forms. Harvard,

Massachusetts: Harvard University Press.Kokko, J.M. (1999). Asfalttialan Markkinat, in: Asfaltti, Asfalttiliitto ryn Julkaisu, Kesakuu 1999, 63, page 6.Lane, J.-E. (2000), New Public Management. London: Routledge.Micheletti, M. (2000). End of big government: is it happening in the Nordic Countries? Governance: An International

Journal of Policy and Administration, 13 (2), 265-278.Ministry of Transport and Communications (2001). Reform of Structures on the Purview of the Ministry of Transport

and Communications 1990-2000, Helsinki.Mueller, D.C. (1989). Public choice II, A revised edition of Public Choice, Cambridge: Cambridge University Press.NCC (2002). NCC confirms Cartel Suspicions, Press Release from NCC, 31 January 2002,

http://www.ncc.se/English/start/index.html.Niskanen, W.A. (1971). Bureaucracy and representative government. Chicago: Aldine Publishing Company.Parantainen, J. (1998). Indicators for general objectives of the transport system, Study report, Ministry of Transport and

Communications, Helsinki.Savas, E.S (1982). Privatizing the public sector; how to shrink government? Chatham (NJ): Chatham House Publishers.Savas, E.S. (1987). Privatization; The key to better government. Chatham (NJ): Chatham House Publishers.Scharpf, F. (1997). Games real actors play; Actor-centered institutionalism in policy research. Oxford: Westview

Press.Shepherd, W.G. (1985). The economics of industrial organization. Englewood Cliffs: Prentice Hall.Teppo, M. (1998). Development of the Finnish Road Administration in the 1990s, unpublished paper, Helsinki.Teppo, M. (1999). The global change of road organizations, paper presented at the Bicentenary Jubilee Seminar of the

Finnish National Road Administration, 10-11 June 1999, Turku, Finland.Vägverket (2001). Annual Report 2000, Stockholm.Van Twist, M., & Veeneman, W. (Eds.) (1999). Marktwerking op weg; over concurrentiebevordering in

infrastructuurgebonden sectoren. Utrecht: Lemma.Williamson, O.E. (1975). Markets and hierarchies, A study in the economics of internal organization, New York: Free

Press.Williamson, O.E. (1985). The economic institutions of capitalism. New York: Free Press.Zweigert, K., & Kötz, H. (1998) An introduction to comparative law, Third Edition. Oxford: Clarendon Press.

http://www.ncc.se/English/start/index.html


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Strategic Behaviour in Post-Liberalised Utilities and Possibilitiesand Limitations in Learning from other Countries

Outline of this Presentation• Research Programme Strategic Actor Behaviour in Liberalised Utility Sectors• Assumptions behind Liberalisation of Utilities• What exactly is Strategic Behaviour?• Examples of Strategic Behaviour from Different Actors• How does it affect Realities of Post-Liberalised Industries?• Examples of Different National Institutional Solutions• Possibilities and Limitations in Lesson-Drawing from other Countries

Background of the Study• Research Programme on Liberalisation of Utility Markets at Delft University of Technology• Case Studies on Different Utility Sectors• Case Studies on Different Countries• Auctions, Tenders with Specific Framework, Beauty Contests• What Forms of strategic Actor Behaviour exist?• What can the Role of the Regulatory Agency be?• Assignment from Finnish Ministry of Transport and Communication• Games and Policy Suggestions

Assumptions of Utility LiberalisationOnce upon a Time there was the Natural Monopoly• Technological, Economic and Institutional Circumstances are believed to have changed• Bigger, Faster, More, more Efficient• Public Enterprises are Hierarchical, Slow, Unresponsive and Inefficient• Private Sector and Competition can do at Lower Prices• Unbundling between Various Sub-activities (Infrastructures, Production, Distribution,

Maintenance, Repair etc.)• Competition can be considered for each of these Sub-activities; Privatisation is also Possible

A. Traditional Public Governance• Emphasis on Political and Bureaucratic Struggles• Use of Public Law (Bureau and Public Enterprise)• Separation between Public and Private Players• Separation between Allocation and Regulation

B. Modern Public Governance• Emphasis on getting the Job Done• Use of Private Law (Contracts and Tendering/Bidding)• Levelling the Playing Field• Integration of Allocation and Regulation

Assumptions of Utility Liberalisation• Former Public Monopolist is split up in Many Parts• New Competitors are allowed to enter Market at all Levels• Regulator or Competition Manager looks after Orderly and Fair Market Processes• Reforms started in Anglo Saxon Countries since 1980s


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• Policy Transfer from Anglo Saxon Countries to Nordic and Baltic Countries and Rest of Europe• In Public Administration New Public Management• It actually is derived from Micro Economics• Most Assumptions in Micro Economics are related to Private Goods and Perfect Competition• Is there Perfect Competition? Or is it on its Way? Has the Industry become Profitable Business

now?• Technological Advances mainly in Telecommunications• General Performance Indications are Ambiguous at Best• Most Sectors now have Private Monopoly, Market Leadership, Collusive Oligopoly or

Competitive Oligopoly• All the Market Forms above are Games• Games are characterised by Strategic Behaviour

What is Strategic Behaviour?• Game Theory works with Rational Behaviour• Best Means to achieve Set of Preferences in a Situation of Interdependence• The Art of Conjecture• Formal Game Theory works with Simplified World (Options, Number of Actors and Regulations

Clear)• Strategic Behaviour applies to the Real World• Information is Incomplete and Ambiguous• Regulations are Multi-interpretable• There are Vital Facilities (‘Bottlenecks’) etc.• Delivery Speed of Service is Tampered with• Actor operates in the Shadow of the Law• Actor accepts Fines, because Gains from elsewhere are Higher• Access to Bottleneck Facilities is denied• Competitors and Regulator are overwhelemed with Irrelevant Information• Investments in Crucial Infrastructures are not made (Profit more Important)• Actor says one Thing and does another• Is Strategic Behaviour Objectionable?• Picture yourself as Former Public Monopolist fighting for Market Share• Picture yourself as a New Entrant thwarted by a Giant Monopolist• Picture yourself as a Small Subcontractor fully Dependent on Bigger Players• Picture yourself as a Regulatory Agency made Responsible for Low Costs + Innovation + Fair

Market Processes• Picture yourself as a Ministry hearing Signals from Complaining Market Parties

NPM in Road Design, Construction & Maintenance

Examples of Strategic Behaviour• Strategies defined for Road Enterprise, Road Administration, Private Contractors and Ministry• Some Examples are Real, others Presumed, still others Fictitious• Strategies evoke Counter Strategies• Strategies are not Fair or even Desirable, but Part of Life and Insight in them may lay Bare their

Unfairness• Strategic Behaviour is Close to Reality, in Private Life it is seen as Treacherous, in

Organisational Life as Clever• Social Justice and Efficiency is how Opportunities for Strategic Behaviour among Players are

Balance out


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Strategies for the Road Enterprise• Refusing to sell Required Equipment, Materials and Personnel, even when not needed• Claiming Private Contractors provide Low Quality and Road Quality and Safety badly

deteriorated due to them• Using their Personal Contacts with Road Administration to get Information and keep up Good

Relationship (lobbying)• Demanding High Valuation of Reputation in Evaluation• Demanding Small Subcontractors to only work with them• Threatening to use Union and Parliamentary Connections• Seek Synthesis Design, Construction, Maintenance, enter New Markets

Strategies for the Private Contractors• Claiming a Special Privileged Link or Hot Line RE-RA• Claiming Cross-Subsidies RE-RA that mar Free Market• Seeking Close Collaboration with Foreign Players (Buy-Up, Merger, Alliance)• Colluding by submitting Proposals everywhere, but only Serious ones when others don’t and

vice versa• Only going down Maintenance Requirements List, nothing more (Spraying Salt, Branch Clearing

before Frost)• Submitting Proposals selectively, when RE must do that everywhere (‘Cherry Picking’)

Strategies for the Road Administration• Fostering Reputation of Incorruptible, Distant Judge or Consumer Organisation correcting Nasty

Market Rubble• Focusing on List of Economic Criteria and Claiming they’re Objective and Crystal Clear• Opening oneself explicitly to Market Party’s Complaints to get Maximum of Information on all

Participants• Awarding Explicit Penalties and Rewards for various Types of Conduct and influence Relative

Positions• Emphatically inviting Foreign Players to enter the Market to Break Collusive Practices

Strategies for the Ministry of Transport• Defining clearly Identifiable Products for All Agencies that facilitate Budgeting and Monitoring• Attributing Green, Amber and Red Lights to MBO List to ‘shake up the Agency’s System’• Harmonising Information Provision and Regulatory Structure for All Utility Sectors to facilitate

Monitoring• Introducing Bench Marking Systems to Compare own Agencies’ Operation with Foreign

Performance• Inviting others than Agencies to give their Opinions on the Matter and hear Second Opinions

Realities in Post Liberalised Utilities• Achieving ‘Fair Competition’ is Thorny Road• Never many Players at the same Time• Not only Sabotage by Former Incumbent, but Private Parties can also collude• Regulatory Design is not Technical, but Organic Process• Coincidence, Market and Political Constellation• Manner and Order in which Liberalisation Process occurs Crucial to its Outcomes• Market Constellation and Regulator’s Position are of Great Influence• In Each Conceivable Constellation the Regulator has Different Possibilities and Weaknesses• Order in which Reforms are introduced and pushed through matters for Actor Behaviour and

Final Outcomes


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• Final Stages in most Countries have not been reached• Liberalisation requires Legal and Cultural Preconditions• Policy Transfer can help avoiding Problems others ran into• Models of Liberalisation spread across the Globe• Simple Copying or Dialectics of Progress?• Example of Sweden and Finland• Economic Recession in both Sweden and Finland strengthening Ministry of Finance• Attractive Figures of 20% Savings picked up from Britain• Sweden liberalised its Maintenance Market in 1992, but did not split up Vagverket into separate

Principal and Agent• Cost Reductions were achieved, but Vagverket Produktion has been severely weakened by two

New Entrants• Lack of Transparency is lamented by all Parties• Vagverket Produktion and others do not compete on an Equal Footing (Labour Laws and Cross

Subsidisations)• Rumours about Collusion between Private Parties• Reform has been aborted, but no turning back• Finland first separated Road Administration from Road Enterprise (plc) and liberalised

afterwards• ‘Superfluous’ employees are hired for 5 Years at most for Special State funded Projects

(‘Category B’)• Road Enterprise kept Strategic Maintenance Facilities and was not allowed to enter Construction

for 5 Years• Road Enterprise has Book Keeping Similar to Private Firms, but with 1% Profit Level• Has become Evident Market Leader (70% of the Contracts), but one Private Company is slowly

advancing• Road Administration has achieved Independent and High Status as Contract Authority• 10 Year Contracts instead of 3+1+1 considered• Increasing Size of Contracting Regions considered to allow Cost Reductions, Contract Security

and Innovation• After 5 Year ‘Non Intervention Pact’ everything still Open• Norway considered following Suit Beginning of 2002• The Future is not Perfect Competition, but some Form of Market Leadership or Oligopoly• Strong Authority is Vital to create Desired Market Structure (Liberalisation is also Reregulation)• This requires Independence to nip Endless Rumours (True or False) about Unfair Competition in

the Bud• Creative Legislation to accommodate Labour Unions and protect Employees is needed• Giving Strategic Properties to Former Public Monopolist makes Competition much more

Difficult• Oblige Monopolist to bid in all Regions• Devise Contracting Process and Contents with various Parties under Public Guidance to increase

Acceptance• Expect Public Savings and Low Private Profit Levels or the Opposite in Short Run• Expect Size of Bidding Regions and Length of Contract Terms to influence Long Run

Developments• Invite non-Nordic Contractors to restrict Potential Market Concentration• Invest timely in Information Systems and Good Indicators for Monitoring to counter a Decrease

in Service Quality• Wirick’s Models for Role of the Regulator:

1. Quasi-judicial Model: Fair Process


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2. Policy-Making Model: Effective Decisions3. Regulation by Information: Free Flow of Information4. Regulation by Negotiation: Mediation and Facilitation5. Consumer Protection Model: Monitoring Markets and Service Complaints

Reality: They are Complementary; Intelligent Combinations

National Models and Experiences

England: the Radical Way• Both Liberalisation and Privatisation, All Sectors in the Same Manner, but with Different

Regulators• Integration of Design, Construction and Operation (DBFO, Contracts 30 Years!), Cost and

Quality Criteria thru PPP• Ministry, Regulator and Entrepreneurs clearly Separate• Cost Reductions achieved, but Fear of Potholes and Undersupply• Australia & New Zealand: 10-Year Contracts• Regulators have not been privatised

Holland: the Cautious Way• Neither Liberalisation nor Privatisation, but setting at a Distance, All Sectors organised

differently, Road has no Regulator, other Sectors do• Design, Construct and Operate mostly Separate, Cost and Quality is Interplay between Agent

and Constructor• Distinction Ministry, Regulatory Agency and Entrepreneurs sometimes Unclear, All are Public• Actual Physical Work is often Private• Not much Change, currently Scandal on Structural Fraud

France: the Cocksure Way• Privatised (Semi-Public) System of SEMs and peage with public guarantees alongside fully

Public System• Design, Construction and Maintenance All together, Cost and Quality Criteria decided by

Public/Private Technicians• Clear Separation between Decision-Making and Implementation• SEMs operate on Basis of Toll Moneys and Guarantees from Public Banks; Toll is widely

accepted• Typical Latin System, no Strong Desire for Change

United States: the Variegated Way• Fully Private Toll Road System without Public Guarantees alongside fully Public Federal and

State System• Design, Construction and Maintenance mostly together, Cost and Quality Criteria decided by

Private Marketing People or Public Technicians• Entrepreneurs in Private System clearly Private (‘Toll Authorities’)• Many Differences among the Various States; some experiment along English/Kiwi/Down Under

lines

Sweden: the Consensual Way• Liberalisation without Privatisation, All Sectors in largely the Same Manner, but with Different

Regulators• Design, Construction and Operation still Separated, but on the Move, Cost and Quality Criteria

decided on hierarchically, Debate about Duration of Contracts


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• Ministry and Agency both Public, but Separate, Agency and Entrepreneur still under one Roof:Fragile

• Cost Reductions achieved for Time being, but Liberalisation Interrupted

Finland: the Eclectic Way• Liberalisation without Privatisation, All Sectors in largely the Same Manner, but with Different

Regulators• Design, Construction and Operation still Separated, but on the Move, Cost and Quality Criteria

decided on interactively, Debate about Duration of Contracts• Ministry and Agency both Public, but Separate, Agency and Entrepreneur separated• Cost Reductions achieved, what Way ahead?

Possibilities of Lesson-Drawing• Nordic and Baltic States have Common Histories and share Cultural and Legal Characteristics• Literal Copying is VERY Dangerous because of Subtle Institutional Differences, Choices and

Constellations• Domestic Actors have to incorporate Foreign Policy Models in their own Way: Adaptation is

Necessary• This does not imply: ‘Anything goes’. Selective Learning from Various Models is best. Don’t

idolise!• Sometimes Different Cultural and Administrative Traditions (Power Distance, Respect or

Aversion to Rules)• Compared to Anglo Saxon World, saving the Enterprise and the Strength of Labour Unions are

Undeniable in Nordic Countries• Subtle Differences between Sweden, Finland and Norway in Desires, Culture, Player

Constellation and Outcomes• Denmark has a Localist Tradition of its own• Many in Baltic States strongly wanted to privatise and liberalise, but ran the Risk of incurring

Foreign Private Monopolists• Nordic and Baltic Road Federation Ideal Forum for Exchange of Ideas: Unity in Variety• Strategic Behaviour thrives in Uncertain Circumstances: eliminate Pervasive Insecurity about the

Future!• Ministry should never undermine Position of the Regulatory Agency• The more Players the Better, as Long as they are Serious Options• Keep Ownership of Bottleneck Facilities Public or Pooled• Unbundling everything recklessly leads to Stalemate and Dispersion of Know How• Zigzagging of Governmental Policy on Liberalisation is worst Case Scenario


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PRIVATISATION OF ROAD MAINTENANCE IN ESTONIAAnts Kikas

Chairman of the Board, TP Consulting, Ltd.Estonia

Kostel GerndorfTallinn Technical University

Estonia

1. Abstract

The plan for rearranging the roadkeeping organisation in Estonia, developed in 1996–97,envisaged the following main changes at the level of district road offices: alienation of auxiliaryproduction, development of the normative base, improvement of general and financial managementand organisation of experimental privatisation1 of maintenance work.

In the implementation of the plan improvement of the general management of district roadoffices as administrated public institutions and optimisation of management costs have beenregarded as of special importance. For this purpose implementation of typical staffs of district roadoffices, standardisation of work organisation by the method of procedural analysis, creation ofregional posts, wider use of information technology etc. have been applied. Systematic efforts inthese directions have helped to substantially improve the performance of district road officeswithout any radical organisational changes. However, the large-scale privatisation of roadmanagement in the near future will create quite a new situation in the roadkeeping organisation.

The present report gives a survey of the reorganisation of roadkeeping in Estonia carried out sofar, privatisation of road maintenance and further changes in the roadkeeping organisation. As thekey word of the reorganisation of the roadkeeping organisation is privatisation of road maintenance,theoretical aspects of privatisation are treated, a survey is given of circumstances supportingprivatisation of road maintenance as a public service and also of problems and dangers involved inthis privatisation. In addition, two alternatives of privatising road maintenance – through theestablishment of a state-owned joint-stock company and through a government tender – arediscussed. At the end of the report establishment of regional road offices in the organisation ofEstonian roadkeeping organisation is treated.

2. Recent history of the reorganisation of the Estonian roadkeeping organisation

Improvement of the Estonian roadkeeping organisation as a system has been basically acontinuous process with periods of different intensity. The significant changes of recent years allowus to state that reorganisation of the system of roadkeeping is underway in Estonia.

Although the Estonian roadkeeping system comprises dozens of organisations, the object ofreorganisation has been the part involved in the administration of state roads and connectedactivities, which are financed mostly from the state budget. The organisations it presently includesare the Estonian National Road Administration as a governmental institution and 15 district roadoffices as administrated state institutions. As of 1 January 2001 these institutions administrated 16434 km of national roads, which account for 32.6% of the total length of roads registered in Estonia.The density of national roads is today 380 km per 1000 km², together with other registered roads1166 km per 1000 km². The 770.7 million kroons allocated to roadkeeping in the state budget of theyear 2000 made up 0.9% of GDP. As of 31 December 2000 the system employed 1740 persons ofwhom 514 were managers and specialists.

1 The term ‘privatisation’ is used conditionally in this context. In essence it is meant that rendering public services will

be transferred under contract to private firms, that is the government’s tender to buy services. The only legally correctuse of the term is as fixed in the Privatisation Act.


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The fundamentals of reorganising the Estonian roadkeeping system were presented already in1995 in the document “Development plan of roadkeeping up to the year 2005”. In 1996 and 1997 aplan for reorganising the system in order to solve topical problems faced by the roadkeepingorganisation was developed by the leadership of the National Road Administration, a workinggroup formed by the Road Administration and consultants from TP Consulting Ltd. and TP InvestLtd. As the reorganisation of the roadkeeping system means major changes primarily at the level ofdistrict road offices, below we will discuss these in some detail.

Still in 1998 most district road offices had in addition to road maintenance also some auxiliaryproduction (milling of gravel and macadam, production of bitumen, asphalt, concrete etc.) on thebasis of which work necessary for road maintenance was carried out but they also did various jobsoutside the system. However, road construction and large-scale repairs have been ordered fromprivate firms for years. Most of such firms in Estonia began operation in the first half of the 1990s.

Several alternatives existed for the reorganisation of the activities of district road offices. As aresult of their analysis it was concluded that road offices should continue as state-owned institutionswhose activities should be reorganised through the following action plan.1. Alienation of auxiliary production at all district road offices. The main discrepancy between the

prevailing situation and the ideology of market economy consisted in the fact that the productionactivities of district road offices as state-owned institutions marred market relations and hinderedthe development of entrepreneurship and normal market competition. State-owned institutionsneed not and should not be involved in business activities. If the state wants to pursue economicactivities, it should establish a respective joint-stock company.

2. The main direction of reorganisation was development of the normative base. Working out normsand their continuous improvement proceeding form changing circumstances are an everlastingprocess. It is extremely important to establish a balance between norms and free choice. At thebeginning of the reorganisation process the activities of district road offices were clearly tooweakly regulated.

3. Implementation of the reorganisation plan required changes also in the organisation andmanagement of district road offices as well as in the financial management of the system.Changes in the organisation and management of district road offices included greater specialis-ation of employees, enlargement of road masters areas, establishment of typical staffs,standardisation of procedures etc. As to financial management, principles and norms of financingroadkeeping were developed. These were fixed by the Road Act.

4. Initially the plan of reorganising the Estonian roadkeeping system did not envisage large-scaleprivatisation of road maintenance, which was to remain one of the main tasks of district roadoffices as State institutions. To establish in practice tasks and problems concerning possibleprivatisation of road maintenance, it was decided to include in the reorganisation plan aprivatisation experiment in one district road office. The experiment was arranged in the PõlvaDistrict Road Office in Southeast Estonia. Road maintenance was privatised there on 1 April2000.

As in the course of the implementation of the above-described reorganisation plan the scope ofprivatisation of road maintenance has been significantly increased at the initiative of politicians letus have a closer look at the issue.

3. Theoretical Aspects of the Privatisation of Road Maintenance

Privatisation of enterprises has been practically completed in Estonia. Increasingly moreattention is being paid to the management of the public sector, including privatisation of publicservices. The planned administrative reform is also closely connected with this.

By public services we refer here to services offered by public institutions that are available (freeof charge) to anyone interested in using them. Politicians have suggested that the following publicservices might be privatised: road maintenance, emergency medical aid, rescue service, hospitaltreatment, state audit, customs, social work. In some fields, for example education, an increasinglylarger amount of private services are rendered in parallel with those offered by the State. In addition


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to public schools there are private schools. In parallel with the police there exist security firms.Privatisation of public services is vigorously supported by businessmen and their representativeorganisations, who are lured by government orders with a total volume of billions of kroons. Whilea few years ago businessmen regarded the State as an inevitable nuisance then by now the situationhas changed. It has become obvious that they need the State, primarily so because of large andstable orders from the government and the government is regarded as the best partner for a privatebusiness. For the politicians and the State the so-called eternal problem concerning the relationshipof public and private economy is involved. Whatever decision is made there will always beobjections even in case of predominantly good results. A traditional one is concerned with the useof the taxpayers’ money.

Here we have a case of making a choice that is mainly affected by political ideology. In theory itis hard to give reasons why one or another choice is the only right one; the more so since in theworld practice solutions ranging from one extreme to the other and yielding both good and poorresults can be found. Funding public services rendered free of charge from the state budget shouldnot necessarily mean that the State itself should produce (render) these services through itsstructures. The state can but need not do this. The task of the State is to create the system forsupplying public services that will guarantee the quality and quantity of the service in accordancewith the financing by the State. Thus, in our context the primary task of the State is to guarantee theavailability of the public service, including road maintenance, in a required quality. How this isachieved is a problem of economic policy. There are several ways. Statements made by politiciansallow us to expect further reduction of the State’s role in rendering public services.

In principle, the State has two alternatives in arranging public services:1. The present situation with services rendered by State-owned institutions financed from the budget

will continue. Financial management and structure, tasks and organisation of work of theinstitutions will be improved. The staffs will be optimised. Whatever is done, problems of fiscalcontrol and efficiency of services will remain.

2. Public services will be treated as business and transferred to be operated by private institutions.The State will play the roles of the customer and regulator. In the case the service is not renderedfor pay it will continue to be financed from the State budget, only through competitive tenders.This alternative is expected to raise efficiency and reduce costs through market regulation. Theeventual results will be seen only in several years. The problem of the efficiency of usingtaxpayers’ money will remain.

A public service as business can in principle be rendered in two ways:1. Rendering the service will be transferred to a private firm through a government tender. As

mainly this option is used in the privatisation of road maintenance in Estonia, we shall discuss itin some detail in the next chapter.

2. To render the service, a joint-stock company owned 100% by the State will be established. In theestablishment of State-owned joint-stock companies the following circumstances need to beconsidered.

(1) The government is only the owner of the shares. This means that the government transfers theassets to the joint-stock company and will itself fulfil only the functions that are directlyconnected with the ownership of the shares (in fact, only the competence of the general meeting).This means that the government will lose the opportunity to directly determine and control thedevelopment of the company.

(2) The formation of the board and its activity involve problems of principle. It has to be consideredthat in the establishment of the board of a State-owned company half of the board members shallbe nominated by the Ministry of Finance. This is expected to guarantee that the government’sfiscal policy is well represented in the board, but will in all probability decrease therepresentation of specialised knowledge. Inefficient activity of boards has been one of the majorproblems in the governance of State-owned joint-stock companies. The decline of numerous


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enterprises has been connected with the inefficiency of their boards. We can state that the boardshave been able to fulfil their tasks efficiently only in a few cases. The main question seems to be:Do board members represent the State in the company or the company in the State? Sooner orlater the situation will develop that the board members begin to represent the company in theState. In this connection there is also a danger that the power will be concentrated in the hands ofthe executive management, that is the managing board. There is no doubt that finding competentand loyal personnel will become a problem.

(3) State-owned joint-stock companies operate on the market on equal basis with other agents. Theydo not possess any legal privileges as compared with private firms, which will raise problemsconnected with government tenders. The State cannot directly provide work to and finance itsown company. If the State-owned joint-sock company does not win the tender, it will most likelyhave to be liquidated. Winning a tender is in fact the question of survival – probably unrealisticbids will be made for the sake of winning and so later it will be impossible to guarantee thevolume or the quality of work and make the necessary investments. Whoever wins the tender,underbidding raises doubts about the quality of work and capability to make investments.

(4) The customer can check and require the quality and impose sanctions according to the contract,but as to investments there may simply not be enough money. If no investments are made thecompany will not develop and will not be able to compete with the others in the future. In thatcase the State will have to finance the investments of its joint-stock companies by increasing theshare capital or guaranteeing credits. The money will have to be allocated from the State budgetand this is obviously unrealistic. A state-owned joint-stock company may get money forinvestments from loans. In this case it is quite probable that “smart” businessmen will play thecompany’s assets into the hands of private firms and the government will have only worthlessshares, debts and liquidation or bankruptcy of the company.

Below we will give a survey of circumstances that support privatisation of road maintenance as apublic service and also problems and dangers involved. In the present context privatisation of roadmaintenance as a part of fulfilling the State’s function means transferring maintenance of certainroads to private firms under relevant contracts. To put it differently, the State will continueregulation and play the regulator’s role while private firms will operate and play the operator’s role.

It is important to note that privatisation of road maintenance as an activity will have a term fixedin the contract. In this sense privatisation is not final, contracts can be terminated and amended asprovided by the contract, passed to other private firms or re-nationalised, that is the state may startoperating the activity again. However, re-nationalisation can be only an emergency measurebecause the experience of other countries has shown that it is very expensive.

On the other hand, privatisation of activities, including road maintenance involves political andeconomic problems. Estonian society and politicians have not yet fully understood this circle ofproblems. So far the problem is for many persons primarily one of principle: Can public servicessuch as road maintenance rendered free of charge be privatised due to their nature and functions?Next comes the question of economic efficiency and the use of taxpayers’ money. Especially in thecase of an activity that suffers from chronic insufficient financing.

Presently it is hard to prognosticate the State’s expenditures after the privatisation of roadmaintenance. However, we should be ready for the situation with higher total costs than if thepresent system is not changed. Still, most likely the costs will not be as much higher than could beexpected. The State will inevitably have to pay also for the private firm’s profit. On the other hand,the overheads of a private firm will probably be lower as it will be able to better organise its work.Yet the State will have to cover the costs of the depreciation of equipment and investments. Still,allocation of money from the State budget for investments causes problems also in the presenteconomic-political situation. Asking money for this purpose will sooner or later raise in theGovernment and Riigikogu (Parliament) the question of privatising the activity. Actually it mayhappen that total maintenance costs will fall as a result of privatisation as it is hard to believe thatpresently all district road offices are using the money in the most efficient way possible.


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If it is decided to transfer the road maintenance operator’s role to a private firm, complicatedproblems will crop up in regulating the operator’s activities. These are primarily legal problemsconcerning the contract and possible liability. The regulator’s role and liability of the National RoadAdministration and district road offices will increase. After privatisation, the main task of theregulator will be guaranteeing the level of road maintenance that meets the norms. Its primaryconcerns will be funding, technical surveillance and application of sanctions provided in theagreement, including termination of the contract. In the course of privatisation, the State will haveto be able to fulfil its regulator’s role so that public interests are safeguarded and the taxpayer’smoney is efficiently used.

Large-scale privatisation of road maintenance as an activity can be undertaken after the followingtwo conditions are met:1. The necessary normative base has been developed. This means that the National Road

Administration and district road offices have a basis for normative regulation. This involves alsothe development of the organisational, legal and economic mechanisms of regulation.

2. There exist sufficiently strong private firms to whom road maintenance work can be trusted. Theemergence of such firms can be promoted by alienation of auxiliary production and superfluousmachinery and equipment of district road offices.

The following circumstances speak in favour of privatisation of road maintenance as an activity:1. Several problems that are due to the presently vague relationships public–private, employer–

employee, customer–producer, regulator–operator, public servant–businessman will vanish.2. Employees of public institutions are harder to motivate (e.g. the existing wage limits). Motivation

problems at public institutions may be due to both low remuneration of excellent performanceand impunity in the case of unsatisfactory work.

3. The level of the qualifications of public servants is showing a falling tendency as compared withemployees of private firms. The reason is that if possible more qualified labour will move to theprivate sector. This means that training costs will increase while training need not yield expectedresults. Training is becoming a way of preparing labour for private firms.

4. A State-owned institution cannot go bankrupt. Instead, it will require more money, leave its workundone or the quality of services will fall.

5. Public institutions need not worry about competitors. In fact, it is a closed system, which isdifficult if not impossible to influence.

6. The fixed term of the contract will stimulate the private firm. Termination of the contract maybecome a question of survival. Efforts will be made to have the contract renewed.

The experience gained allows us to draw some general conclusions and point out some possiblefuture dangers.1. Politicians claim that one of the objectives of the privatisation of public services is reduction of

costs, that is a private firm is expected to render services at a lower cost than the State can dothrough its institutions. The authors are of the opinion that this may be just wishful thinking. Theprevailing economic policy is based on the opinion that the State is a poor owner and that thegovernments have made no attempts to study and improve the financial management ofrendering public services. However, there is no doubt that costs could be cut also under thepresent system of rendering public services. On the other hand, a private businessman is in anycase interested in profits, and undoubtedly in his relations with the State he will attempt tomaximise his profits. The State must pay for the private businessman’s investments and profits,which is quite normal.

The main argument against privatisation is that a private firm will try to maximise its profits, not thequality and volume of work done. As also the experience of other countries has shown it is notpossible to envisage everything in the maintenance contract and so the contract has to be constantlyimproved and specified, which will bring about a significant increase in the volume of business


97

management. While in case of summer maintenance of roads emergencies (a washed offembankment, acts of vandalism) leave at least theoretically some time for concluding additionalcontracts in writing between the customer and the contractor, then in winter there may occurcircumstances that deteriorate significantly the situation of roads, requiring quick measures toguarantee safe traffic. A private businessman does not represent public interests. This is the majorproblem of regulation and the regulator. Over-regulation should be avoided. Attempts should bemade to preserve regulation in public interests. A situation where the interests of one group arepreferred or claimed to be the interests of the whole society may very easily develop.

In privatisation it is extremely difficult if not impossible to gain simultaneously objectives thatexclude one another:

– reduction of the number of employees and economy of costs;– improvement of the quality of the service;– increase in the volume of the service rendered.

It would be naive to expect that a private firm will simultaneously pursue all these objectives. Somethings can of course be influenced through the contract on buying the service, but not everything.

If we proceed from the fact that the materials and machinery are bought at the same price by theState and the private firm and that their proportion in the cost price of the service may be quite high(for example, in the case of road maintenance up to 80%), the economic efficiency of theprivatisation of public services will undoubtedly become questionable.

The regulator’s role includes supervision of the volume and quality of the work done.Considering the above-said, these costs may be unexpectedly high. To determine total costs, thesecosts have to be added to the cost of the contract.2. Creating real bidding and competition in privatisation may turn out to be an insurmountable

problem. There are at least three reasons for this:First, arranging bidding makes sense only if there are at least two bidders who are eager to win

but whose bids are realistic. The problem is that there need not be strong bidders and thusthere will be no competitive bidding.

Secondly, bidders may act in collusion and so either thwart the tender or force the State into asituation favourable to the bidders.

Thirdly, despite complicated procedures and multiple control, corruption cannot be ruled out.Moreover, in case of large government tenders the stakes are high. If no real competitivebidding occurs, the whole procedure will become a game with the State’s interests where theonly winner is the private firm.

3. Before bidding the qualifications of the bidders must be clearly formulated, that is it must befixed who can participate in bidding. As an example, the following questions must be settled.Are residents of foreign countries allowed to participate? Is any preference given to local firms(operating in the given county or town)? What importance, if any, is attached to priorexperience? Are bidders from other fields of activity allowed to participate? How important isthe size of the bidder, for example its balance-sheet total? How important is the bidder’seconomic situation? How should the bidder’s trustworthiness be assessed? Should theparticipation of “large actors” be restricted in order to avoid the formation of monopolies? Theanswers to these questions reflect the State’s economic policy.

4. Fixing the schedule of the privatisation of a concrete service is of great significance for ultimateresults. For example, it must be decided whether a certain service should be privatised in thewhole country simultaneously over a short period of time or step by step, say within ten years.The answer depends on the concrete situation on the market, and each decision in turn will affectthe market. The question is which situation the State wants to develop in the market. For theprivatisation of a concrete public service it is necessary to work out a long-term plan thatincludes in addition to the temporal programme also economic-political, regional-political andsocial-political goals.

5. Presently the long-term financing of buying public services is still unsolved. A contractcould/should include a methodology for taking into consideration changes in prices. The


98

representatives of the State cannot sign a contract for years ahead, that is impose obligations onthe State. In essence, this is a problem of compiling the State budget. If the tender is arranged sothat the bidding involves only the volume of work to be done during the first year of the contractand later negotiations will be held, there will be room for bluffing and various stipulations.

6. The period during which the service will be bought requires careful consideration. A suitableperiod for a contract to buy public services seems to be 5–10 years. A longer period is conduciveto investments and provides motivation for the development of a whole organisation to guaranteesuccessful performance. When the contract terminates, there will be two alternatives: a newtender may be proclaimed or the public service may be re-nationalised.

Irrespective of the arguments presented it seems that, considering the Government’s economicpolicy, privatisation of road maintenance as an activity has no alternative. It is hard to find seriousarguments for proving that the State has to continue owning road maintenance machinery andtaking care of the roads, that is perform operator services. As in many other spheres the role of theState here should be funding and securing the public service, that is fulfilling the regulator’s role.

Above we tried to explain the potential problems of privatising road maintenance as an activity.It is difficult to foresee and solve all problems at the present moment. The process of privatisingroad maintenance will help to find at least part of the answers we do not have today. Thestandpoints and way of thinking presented above require getting accustomed to.

The whole complex of privatising road maintenance will be more complicated than it seems atfirst, at the level of political wish. It has to be born in mind that the decisions will be made for manyyears and therefore the preparatory work will be of great significance.

4. Privatisation of Road Maintenance and Its Effect on the Estonian Organisation ofRoadkeeping

As mentioned above, implementation of the reorganisation plan of the Estonian roadkeepingsystem has significantly increased the scope of the privatisation of road maintenance.

The main purposes of the privatisation of the maintenance of national roads are: first andforemost, to differentiate the roles of the customer and the producer, leaving the state institutionsonly the part of customer and public services and creating preconditions for the improvement ofadministration performance; secondly, attracting capital investments into the private sector andcreating competition in the road economy; thirdly, reducing administrative expenses financed fromthe state budget.

TP Consulting Ltd. started research into problems concerning privatisation of road maintenanceas a public service in 1998. The concept was completed and first implemented in the year 2000,when an experiment was made in Põlva District Road Office. In the following a brief survey aboutthe main principles of the concept will be given.

According to this concept 3 competitions must be carried out in order to privatise roadmaintenance. First, it will be necessary to give the fulfilment of road maintenance work to a privatefirm by public tender. Secondly, the alienation of road maintenance machinery and other assets willtake place. Thirdly, all the buildings and structures necessary for road maintenance, which consistprimarily of centres of road master's areas, must be leased out. It is not practical to sell thisproperty, because if the experiment should turn out with negative result or if after years some otherfirm wins the competition in road maintenance, it will then have a base for the start.

These three stages can be carried out only by competition. Legal analysis showed that actually itwill be necessary to arrange three competitions, because all transactions are essentially different andare based on different legal acts. As is known, in many countries it is not customary to link thesecompetitions to each other, but Estonian legislation does not forbid it. The only way is to announceall three competitions simultaneously, whereas bidders make three offers, which are estimatedtogether and all three competitions must won by one and the same firm.

During the years 2001–2003 road maintenance will be privatised according to the above-described scheme in seven more district road offices – Rapla, Ida-Viru, Valga, Hiiu, Järva, Lääneand Viljandi District Road Offices.


99

However, the approach applied by Jõgeva District Road Office is different. At first a state ownedjoint-stock company was founded on the basis of the employees and assets of the District RoadOffice. The privatisation process is planned to be carried out by alienating the shares of the jointstock company.

After the privatisation of road maintenance these district offices will fulfil the roles of thecustomer and the regulator. Decisions concerning their functions and staffs will have to be made. Inmaking these decisions numerous factors will have to be taken into account, bearing in mind thatthe goal is to create an effectively functioning customer organisation.

Presently one of the most important problems of district road offices is low specialisation levelof personnel. It often happens that an employee has to fulfil 4–6 tasks of different kind. Thesituation where employees cannot specialise sufficiently will sooner or later affect theirqualifications and administrative capability. However, after privatisation the situation towardspecialisation will aggravate as the number of employees of district road offices will be cut muchmore than the number of their functions. Analysis has shown that the costs of a road district officeas an independent administrated state institution functioning as a customer are high.

The fact that the solutions will be in the future applied in other counties in the privatisation ofroad maintenance undoubtedly increases the importance of the potential rearrangements at districtroad offices that have privatised their road maintenance. The main reason for this is that havingdifferent systems of road maintenance in different counties would not be wise as this wouldunnecessarily complicate the situation and cause only confusion. Therefore, the decisions made inreorganising district road offices will have a far-reaching affect.

However, the continuing privatisation of road maintenance, aimed primarily at separating theroles of customer and contractor and creating through this competition for maintenance work, willinevitably necessitate further rearrangements in the structure, functions, organisation of work etc. inroad maintenance.

Research made allows us to argue that in order to achieve the goals set it is necessary to form inthe roadkeeping system a management structure based on regional centres – regional road offices.For rendering the public service and ordering road maintenance work as well as for operativesurveillance a department should remain in the counties that have privatised the road maintenance;these departments should report to regional road offices.

In the near future, as privatisation of road maintenance progresses, six regional road offices willbe formed in Estonia:1. Harju Regional Road Office, including Harjumaa, Raplamaa and Järvamaa; centre in Tallinn;2. Viru Regional Road Office, including Lääne-Virumaa and Ida-Virumaa; centre in Rakvere;3. Pärnu Regional Road Office, including Pärnumaa, Viljandimaa and Läänemaa; centre in Pärnu;4. Saarte Regional Road Office, including Saaremaa and Hiiumaa; centre in Kuressaare;5. Tartu Regional Road Office, including Tartumaa and Jõgevamaa, centre in Tartu;6. Kagu Regional Road Office, including Võrumaa, Põlvamaa and Valgamaa; centre in Võru.

The regional road offices themselves will do the maintenance work in the counties where theregional centre is located (Harju, Lääne-Viru, Pärnu, Saare, Tartu and Võru).

Reorganisation of the roadkeeping organisation will continue. In the course of this it is possibleto reorganise the above-listed six regional road offices into local departments of the National RoadAdministration. It would be advisable that simultaneously with these changes the RoadAdministration will delegate the fulfilment of the functions connected with ordering roadmaintenance work and rendering the public services necessary for road users to its localdepartments. Rearrangements made at this stage mean completion of privatisation of roadmaintenance in the Estonian roadkeeping system. Although the decision to privatise roadmaintenance is above all a political decision, it would be rational to wait with the privatisation ofthe road maintenance work conducted by regional road offices until:1. Financing of road maintenance by the State has improved. By concluding a contract for road

maintenance with a private firm the state will take concrete long-term financial obligations,


100

whose fulfilment will become increasingly difficult as the number of privatised district roadoffices increases and the funding of road maintenance becomes less stable;

2. Analysis of the fulfilment of the existing road maintenance contracts has been made and relevantamendments have been made in the contract as the most important document regulating therelationships between the state and the entrepreneur;

3. The performance of regional road offices as administrated state institutions and private firms hasbeen analysed and compared.

The expected advantages of the reorganisation of the roadkeeping organisation are as follows:competition will create preconditions for a more rapid development of roadkeeping; the quality ofthe public service will improve as employees will have better opportunities to specialise; the publicservice will be more available; the existing resources of district road offices can be made optimaluse in reducing the management costs of both the public institution and the private firm; the qualityof roads will become more uniform as subjective approach to applying the requirements concerningthe State of roads will decrease; etc.

The expected shortcomings of the reorganisation of the roadkeeping organisation are as follows:the number of jobs will decrease, which will be accompanied by payments of compensation andsocial stress; for part of the employees the distance between home and place of work will lengthen;the manager making most important decisions will diverge from the object (road) and customer; theopportunities of the State to operatively arrange road maintenance work in the case of emergencywill change; the legal acts and normative documents regulating roadkeeping will need revision;change of names will mean costs; etc. The effect of these disadvantages can naturally be mitigatedby planning and implementing measures for solving the listed problems before the reorganisation ofthe roadkeeping system.

The above-described rearrangement of the roadkeeping organisation will secure the developmentof the National Road Administration as an institution of high professional level and capability ofadministration.


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102


103


104


105


106


107

DANISH USER SURVEYJarl Ahlers Mortensen

Head of Secretariat, Operation and MaintenanceDenmark

National National roadsroads((RoadRoad DirectorateDirectorate):):

ApproxApprox. 1,600 km. . 1,600 km. roadroad

01 Januar, 1998:01 Januar, 1998:•• ReducedReduced roadroad networknetwork•• But But increasedincreased responsibilityresponsibility•• New organisation for New organisation for RoadRoad Operation and Operation and MaintenanceMaintenance Unit Unit


108

TheThe RoadRoad Directorate’sDirectorate’sOrganisationalOrganisational structurestructure

M anagem entDirector G eneral H enning ChristiansenDeputy Director G eneral Per Clausen

ExecutiveSecretariat

FinancePersonnel

Inform atics UnitInfrastructureRoad management systemsCommunication and W eb

Danish Road Institute AsphaltM ateriel developmentConsultancy & measurements

M arket

Road & TrafficUnit

Road authority

Road standards

Traffic

Road &transport planning

Road Construct-ion Unit

Planning

Design

Area & geomatics

Supervision

Projects

Road O perations &M aintenance Unit

Traffic management

Road and bridge opera-tions and maintenance

Road & trafficinformation

District East

District South

District North

Operation and Operation and MaintenanceMaintenance Unit Unit


109

Budget 2002Budget 2002Operation and Operation and MaintenanceMaintenance

Mio dkr. Man years General Operation 120 Road Surface 107 Bridges and Tunnels 249 Traffic Management 10 Winter Maintenance 73 Others 27 Total 586 ≅ 78 € 77

UserUser SurveySurveyWhyWhy??

• Requirement in performance contract 1998

with the Ministry of Transport

• Because we want to optimize the satisfaction

among customers (within the given budget)

• Internal performance contracts

• Increasing focus on the users

County survey

EU survey (SG TERN)


110

CompletedCompleted useruser surveyssurveys1992

December 1998August 1999February 2000September 2000February 2001September 2001February 2002September 2002

2 per year

WinterSummerWinterSummerWinterSummerWinterSummer

UserUser surveysurvey PhonePhone interviews interviews

Segments Number of interviews

• Drivers 900

• Cyclists/pedestrians 200

• Neighbours 200


111

x

x

x

x

x

x

x

x

xx

Frequency:• Every time• Every 4th. time

Type of question:A: Regular (Model

Questions)• Satisfaction• Importance• Priority

B: BackgroundC: Ad hoc

Neigh-bours

Cyclists/pedestrians

Drivers

UserUser surveysurvey - - questionsquestions

ExampleExample (A) (A) questionquestion ofof satisfactionsatisfactionHow satisfied or dissatisfied are you about

the clearness of roadmarking - both indaylight and at night (on motorways and other national roads) ?

100.0 %905Total

0.2 %2Don’t know

0.9 %8Very dissatisfied

12.4 %112Dissatisfied

11.3 %102Neither satisfied nor dissatisfied

63.2 %572Satisfied

12.0 %109Very satisfied

PercentageComplete figureFebruary 2002


112

ExsampleExsample (A) (A) calculatecalculate thethe grade grade ofof satisfactionsatisfactionHow satisfied or dissatisfied are you about

the clearness of roadmarking - both indaylight and at night (on motorways and other national roads) ?

68.3Grade of satisfaction

903Excl. Don’t know

61.700905Total

2Don’t know

--8Very dissatisfied

2.80025112Dissatisfied

5.10050102Neither satisfied nor dissatisfied

42.90075572Satisfied

10.900100109Very satisfied

weightAnswer Very satisfied 100 (85-100)Satisfied 75 (65-85)Neither /Nor 50 (35-65)Dissatisfied 25 (15-35)Very Dissatisfied 0 (0-15)Linear weighting model

ExampleExample (B) (B) backgroundbackground questionquestionHow well do you know the Road Directorate,

on a scale from 1-5, where 1 is "Has never heardof" and 5 is "Knows quite well"?

FebruaryFebruary 2002 2002 CompleteComplete figurefigure PercentagePercentage

Knows quite well 95 10.5 %

Knows well 239 26.4 %

Knows a little 406 44.9 %

Heard of but hardly know 157 17.3 %

Never heard of 6 0.7 %

Don’t know 2 0.2 %

TotalTotal 905905 100.0 %100.0 %


113

RoadRoad usersusers awarenessawareness and and impressionimpression ofofthethe RoadRoad DirectorateDirectorate

30

35

40

45

50

55

60

65

70

Maj 1992

Dec.1998

Aug.1999

Feb.2000

Sep.2000

Feb.2001

Sep.2001

Feb.2002

%

Drivers aw ar eness

Drivers impression

Very satis fied 10 0 (85-1 00)Sat isfied 75 (65-8 5)N either /N or 50 (35-6 5)D issa tis fied 25 (15-3 5)Very D issat isfied 0 (0-1 5)

Example (C) ad hoc questionExample (C) ad hoc questionHave you recently noticed the ”My dad” campaigna yellow poster about roadworks, featuring a girl?

100 %913Respondents

8 %76NO

92 %837YES

PercentagePercentageCompleteCompletefigurefigure

September 2000September 2000


114

2002, 2001, 2000, 1999 and 19982002, 2001, 2000, 1999 and 1998Drivers Drivers satisfactionsatisfaction per per questionquestionTe x t

G ene ral Operation:Clean in g ro ad 7 4,3 76 ,0 71,7 73 ,9 73,7 7 4,3 74,9 74,9 1 ,2Clean in g dit ch / verge 6 4,2 63 ,6 63,1 62 ,2 62,1 6 5,9 64,9 64,9 1 ,6Clean in g servic e area 5 6,7 59 ,3 59,5 58 ,2 58,3 6 3,3 60,2 60,3 1 ,9Clearness of del in iat ion po le 6 9,5 70,6 70,6 71 ,6 71,6 7 3,6 71,5 80,9 1 ,4Clean in g to ilet o n service area 3 9,8 39 ,3 39,5 38 ,6 40,6 4 2,6 36,1 49,0 3 ,3

Road surface :M ain tain roa d 6 4,8 62 ,0 59,1 58 ,2 56,9 5 7,7 65,9 72,9 1 ,7Roughness o f road s 5 2,4 52 ,1 49,3 49 ,9 47,8 5 0,8 54,4 57,7 1 ,8Clearness of ro ad m ark ing 6 8,3 71 ,1 69,0 68 ,5 70,1 7 1,2 69,0 73,7 1 ,4

Winte r M ainte nance :Sa lt ing 6 6,5 69,8 69,8 65 ,3 70,9 6 6,1 68,3 67,2 1 ,8Snow c lea ring 6 7,6 71,9 71,9 67 ,3 73,8 6 8,5 72,8 67,2 1 ,7

Bridges and T unne ls:Clean in g bridg es 7 1,6 73 ,4 71,0 70 ,8 70,8 7 0,0 66,1 66,1 1 ,2Graffit t i in b ridg es an d tu nne ls 6 0,6 58 ,2 57,6 53 ,2 53,2 5 8,2 58,2 58,2 1 ,7

Traffic and ne ighbour se rv ice:Fac il it ies in infoteria 7 6,3 78 ,8 77,0 77 ,4 79,1 7 7,5 78,7 84,0 1 ,4M ain tain Infoteria /s ervic e area 7 4,9 77 ,4 76,7 76 ,7 77,9 7 5,9 78,2 78,2 1 ,3Clean in g Infoteria/servic e area 7 1,9 75 ,0 74,6 75 ,0 76,1 7 4,7 76,3 76,3 1 ,5Clean in g to ilet Infoteria/servic e area 6 2,9 65 ,7 64,5 63 ,7 68,1 6 3,8 64,1 65,9 2 ,1The p ersona l contac t 8 0,7 80 ,7 8 5,9 85 ,9 8 5,9 85 ,9 85,9 8 5,9 2 ,9Contents of interview 7 9,5 79 ,5 7 8,7 78 ,7 7 8,7 78 ,7 78,7 7 8,7 2 ,6P leas ant / unplea sant speak 7 9,3 79 ,3 8 4,7 84 ,7 8 4,7 84 ,7 84,7 8 4,7 2 ,3

Traffic engine e ringClearness of s ig ns 7 1,4 70 ,6 69,9 69 ,0 74,0 7 1,6 69,1 76,0 1 ,3Clearness of light s igna ls 7 6,1 73,6 73,6 76 ,8 76,8 7 5,6 76,9 76,9 1 ,0Inform at ion on tou ris t tables 7 1,3 68 ,6 71,1 71 ,4 74,0 7 1,9 74,8 74,8 1 ,6

Traffic M anageme nt:Clear up ac c iden ts 7 3,2 74 ,2 68,8 73 ,2 7 3,2 73 ,2 73,2 7 3,2 1 ,4Prepare ro ad works 4 9,8 48 ,8 45,5 47 ,4 4 7,4 47 ,4 47,4 4 7,4 1 ,9Inform at ion of road works 6 6,7 69 ,9 64,6 67 ,0 6 7,0 67 ,0 67,0 6 7,0 1 ,5Road works m ark ing 6 6,6 69 ,0 63,4 66 ,1 6 6,1 66 ,1 66,1 6 6,1 1 ,5

200 1 S ep te m ber 19 92 Uncertainty

2 002 February

19 99 Augus t

2 001 F ebrua ry

199 8 Decem ber

20 00 Septem ber

2 000 F ebrua ry

9. 9. RoughnessRoughness ofof roadsroads

Economy: Consumers index= Total expenses incl. pay, Price development +/- 5 %IRI (Factor 50): International Roughness IndexGrade of satisfaction: Uncertainty = +/- 1,8

62,6

97,3

78,6

65

53

61

88,488,4

84,684,6

6565

707070

44

53

3939

4445

35

40

45

50

55

60

65

70

75

80

85

90

95

100

M

aj 1992

D

ec.1998

(Financial.1998)

A

ug.1999

(Financial.1999)

Feb.2000

(Financial.2000)

Sep.2000

(Financial.2000)

Feb.2001

(Financial.2001)

Sep.2001

(Financial.2001)

Feb.2002

(A. prog.2002)

% / dk r.

400000

600000

800000

1000000

1200000

1400000

1600000

m2

Importance (Total)

Sat is fact ion (To tal)

Sat is fact ion (North)

Sat is fact ion (South)

Sat is fact ion (East )

Cons umpt ion / Budget

IRI (Fak tor 50)

Asphalt price per m2 in currentpricesLay out surface (m2)

V e ry sa t is fie d 1 0 0 (8 5 - 1 0 0)S a tis f ie d 7 5 (6 5 -8 5 )N e it h e r / N o r 5 0 (3 5 -6 5 )D is sa t is fie d 2 5 (1 5 -3 5 )V e ry D issa t is f ie d 0 (0 - 1 5 )


115

31. Toilet 31. Toilet cleaninesscleaninessUnmannedUnmanned service service areasareas

Economy: Consumers index = Totale expenses incl. PayGrade of satisfaction: Uncertainty = +/- 3,3

5,3

6,06,06,36,3

5,6

4,8

30

35

40

45

50

55

60

65

70

75

80

85

Maj 1992

Dec.1998

(Financial.1998)

Aug.1999

(Financial.1999)

Feb.2000

(Financial.2000)

Sep.2000

(Financial.2000)

Feb.2001

(Financial.2001)

Sep.2001

(Financial.2001)

Feb.2002

(A. prog.2002)

%

0

5

10

Mio . dkr.

Importance (Total)

Satis fac tion (Total)

Consumption/Budget

V ery sa tis f ie d 1 00 (8 5 -1 00 )S at is fied 7 5 ( 65 -8 5 )N eith er /N or 5 0 ( 35 -6 5 )D issa tis f ie d 2 5 ( 15 -3 5 )V ery D issat is fied 0 (0 -1 5)

ExampleExample 1 1 howhow thethe resultsresults areare usedused::The satisfaction of toilet cleaniness on

unmanned service areas4Action:

4Campaign against mess

4Frequently cleaning

4Smell remover

4Staff

4New buildings

4The good idéa


116

Check whether actions workCheck whether actions work

One action at a time

Then check the effect

Possibly next act

Check the effect

Etc.

QualityQuality model model

yDeveloped by DRD/Megafon + Mathematic

institute DTU

yReport of performance contract

(The Ministry of Transport)


117

2002, 2001, 2000, 1999 and 19982002, 2001, 2000, 1999 and 1998Drivers Drivers satisfactionsatisfaction per per departmentdepartment

QualityQuality figurefigure per per departmentdepartment

Department, Importance

1 General Operation 61,0 62,6 61,6 61,7 62,1 64,6 62,3 0,92 Surface 61,8 61,5 58,9 58,6 58,0 59,6 63,0 1,33 Winter Maintenance 67,0 70,9 70,9 66,3 72,4 67,3 70,6 1,64 Bridges and Tunnels 67,0 65,8 64,3 62,0 62,0 64,1 62,2 1,25 Road user and neighbour service 74,7 76,3 77,1 77,1 78,4 76,9 77,7 0,86 Traffic engineering 73,2 71,2 71,6 72,5 75,0 73,2 73,5 0,97 Traffic Management 64,3 65,8 60,9 63,8 63,8 63,8 63,8 1,0All questions together 67,3 68,0 66,7 66,7 67,8 67,7 68,1 0,6

1999 August

2001 September

1998 December Uncertainty

2002 February

2001 February

2000 September

2000 February

OtherOther SurveysSurveys

Exit poll survey (Service area)

Survey by TIC (DRD’s Traffic Information Center)

Results published on www.Trafikken.dk


118

www.trafikken.dk

www.trafikken.dk

www.trafikken.dk

www.trafikken.dk


119

CONCLUSIONS - PRIORITYCONCLUSIONS - PRIORITY

DANISH ROAD DIRECTORATEDANISH ROAD DIRECTORATE::

TRAFFIC SAFETYTRAFFIC SAFETY

PASSABILITYPASSABILITY

PROTECTION OF INVESTMENTPROTECTION OF INVESTMENT(CAPITAL CONSERVATION)(CAPITAL CONSERVATION)

SERVICESERVICE

DRIVERS:DRIVERS:

TRAFFIC SAFETYTRAFFIC SAFETY

PASSABILITYPASSABILITY

SERVICESERVICE


120

LEADERSHIP AND VALUESIN ROAD ADMINISTRATIONS

Elisabeth SchjølbergRegional Director


Restructuring Road Management – Trend and Necessity !!!

• Changes in focus:- Customer- Results- Efficiency- Process- Flexibility

Trends in Norway

• Paper and bureaucracy• Young people want ”trendy work”• Young people demand a pleasant work – duty is?• Urbanisation• Globalisation• ICT – New Technology• Complexity

Norwegian Public Roads Administration’s INTENTION

• Contributing to a better society by taking responsibility for roads and traffic issues.

VISION

• Norway is connected in a safe, environmental-friendly and efficient way.• We contribute to thriving and healthy local communities.• Using the road is easy and it contributes to positive experiences.• The department is valued as competitive and creative.• Our work is distinguished by respect and consideration for people.

From vision to reality:

The department is valued as competitive and creative – when?

• If…- We deliver products demanded from our owners – at time ….- We deliver new and elegant solutions to old problems – some surprices should be

welcomed!- Our university educated employees in urban areas prefer to work with us – or stay longer

than expected- Our users speek well of us in terms of changing attitude- Our cooperating partners tell our owners that we are indeed professional – again and again


121

• Competence- Basic subjects- Attitudes- Working Techniques

• How?- Recruitment – creative difference- Training- Questions

• ”Sweet and tears”- Newly recruited employees

• Frustrations- Other employees

• Be interested• Show up• Ask questions

Create possibilities

• Create places to meet other professions• Create new surroundings to excisiting groups• Ask new questions – again and again• Include new professions

What can you expect?

• Hard work• Unwillingness but also• Enthusiastic employees• Loyal friends• Fun• Very interesting days!


122

MANAGEMENT OF THE STATE ROAD FUNDVilnis Millers

Head of State Road Fund DepartmentLatvian Road Administration

The Latvian State Road Fund was established in 1994 in order to provide the financing for state andmunicipal roads and streets, which would be independent from the state, consolidated budget. TheSRF now has two independent sources of income:

• Annual vehicle tax providing approximately 15% from all Fund revenues,• Excise duty on oil products providing approximately 85% from all Fund revenues.

These revenues are not directly interconnected, but generally both of them are road user payments(charge) for the use of the road network. These two main sources of the State Road Fund have beenformed independently from each other and they have different subject of payment, thereforemanagement of expenditures differs, as well.

1. Preparation of the legal base for Annual vehicle taxUntil January 1, 2002, the law “On annual vehicle tax” was effective in Latvia, which was adoptedon January 13, 1994. The main tax rates specified in the law were the following:

• 12.5 EUR to 167 EUR for passenger cars, buses and light trucks with gross net weightless than 12 t,

• 167 EUR to 683 EUR for trucks with gross net weight above 12 t.In June 2001, the government of Latvia decided to increase Annual vehicle tax rates for 50% fromJanuary 1, 2002. After this decision the tax rates today are the following:

• 20 EUR to 170 EUR for passenger cars, buses and light trucks with gross net weightless than 12 t,

• 170 EUR to 683 EUR for trucks with gross net weight above 12 t (no changes).In the result of these changes the State Road Fund expected to receive additional financing in theamount of 5 mill. EUR.

According to the Latvian state policy oriented towards the accession to the European Union,the Ministry of Transport and the Latvian Road Administration are drafting amendments to the law“On annual vehicle tax” to adjust it in accordance with the EU directive 1999/62/EC. Today we payannual vehicle tax based on vehicle registration documents where vehicle type (passenger car,truck, etc.) and gross net weight are specified. With the new amendments to the law it is envisagedto retain the same taxing principle and in addition to that it is also envisaged that:

• taxes have to be paid also for trailers and semi-trailers;• tax for trucks with gross net weight above 12 t may not be lower than 170 –200 EUR, as

well as, not lower than rates defined in the EU directive for respective vehicle weight;• tax could be reduced for several weight categories, in particular, for vehicles with air

suspension driving axles.

Main difficulties appear when tax rates for vehicle combinations (articulated vehicles and roadtrains) are to be defined, because we have to keep in mind that it will be the Ministry Transport,which will have to manage tax collection procedure. One of the drawbacks of the existing law arefacilitations in paying the taxes for the producers of agriculture products and the owners of vehiclesthat are older than 20 years. The elimination of such drawbacks mostly is an issue to be decided bythe politicians, therefore it is too early to discuss this issue now. It is also too early to discuss theexpected increase of revenues because of changes in tax rates, as at present our goal is not toacquire more money but to improve the legislation.


123

2. What share of the excise duty on oil products has to be transferred to the State RoadFund?

The excise duty on oil products provides most of the State Road Fund revenues and at the sametime it is a significant source of revenues for the state consolidated budget. Due to this fact thedistribution of the excise duty between the State Road Fund and the state consolidated budget hasalways been an issue discussed among the politicians. Their proposals have been varying, forexample, some say that the State Road fund has to be eliminated and roads have to be financed formthe state consolidated budget, but others suggest to transfer 100% of the excise duty on oil to theState Road Fund.

The point of view of the Ministry of Transport and the Latvian Road Administration hasalways been such that only the excise duty on those oil products which are used for operating roadvehicle engines and driving on state and municipal roads, has to be transferred to the State RoadFund, and these resources have to be spent fully for state and municipal road maintenance.According to our calculations approximately 80% of the excise duty is collected from the oilproducts used in road transport. Therefore the State Road Fund is applying for the share of 80% forthis excise duty.

Unfortunately historically the SRF resources have been used not only for road maintenancebut also for the compensation to railways in the amount of 50% of the excise duty for fuel used inrailway transport, and the donations to passenger bus transportation. Because of this fact we believethat the share of excise duty to be transferred to the State Road Fund has to be increased by theamount corresponding to the compensation paid to railways, which would be approximately 5% ofthe excise duty. Thus if the present structure of the State Road Fund is retained we believe that atleast 85% of the excise duty have to be transferred to the State Road Fund.

Unfortunately our previous experience shows that the increase in the share of excise duty,which is transferred, to the State Road Fund may not be easily achieved. At present the Ministry ofTransport has initiated changes in the respective law envisaging that exactly 85% of the excise dutyare to be transferred to the State Road Fund. Unfortunately the respective decision will be made bythe new government, which will be formed after the Parliament election on October 5, 2002, andwhich will prepare the state consolidated budget for the year 2003.

3. How do local governments spend the State Road Fund resources for local roads?One of types of the State Road Fund expenditures is a target donation for local roads. For thispurpose we spend 23 –25% of the State Road Fund revenues every year, for example, 22.1 millEUR in the year 2001.

The share of the State Road Fund resources for local roads is calculated according to theexisting laws and Resolutions of the Cabinet of Ministers and is divided among local governmentstaking into account several criteria (number of vehicles, area of the streets etc.). Local governmentshave to submit reports on expenditures from this donation to the Ministry of Transport quarterly.Analysing those reports, we can see that in the year 2001 the local governments used donation forthe following purposes:

• designing – 1.3%• construction – 1.3%• reconstruction – 36.3%• periodic maintenance – 14.8%• routine maintenance – 39.3%• other expenditures (equipment purchase, management etc.) – 7.0%

At the same time we can see that the State Road Fund donation is the only source for road financingfor rural local governments. At the same time municipalities may and have to invest money fromother sources in street maintenance and repairs. For example, the Riga city municipality in the year2001 used:

• 4.2 mill. EUR from the State Road Fund donation,


124

• 10.1 mill. EUR from local budget,• 19.2 mill. EUR from loans.

Because of the reasons mentioned above, we expect, that in the nearest future we shall havediscussions on changing principles of dividing this donation among local governments.

Unfortunately we have also seen, that some of local governments use this donationimproperly. Reason for this is the shortage of local budget, and maybe seldom control ofexpenditures done by the state institutions. We hope, that in the year 2003 the Ministry of Transportwill start to control road funds of local governments on regular basis.

Those are only some of specific problems of Latvian State Road Fund management. Ofcourse, we have others too, but the Ministry of Transport and the Latvian Road Administration donot see problems, which may not be solved. It is only the question of time. Not always we can solvesuch problems ourselves. Rather often we need the politicians’ willingness to support us. It is nodoubt that at the present moment the State Road Fund is the best method of road financing forLatvia.

Expenditures of the Fund

55%

10%12%

23%

State roads

Local roads

Com pensation torailroads

D otation to Ruralpublic BusTransport


125

The State Road Fund expenditures for local andm unicipal road financing, m ill. EUR

4,5 5,4

4,9

12,817

20,6

15,2 16,2 17,621

2,2 3,8 4 4 4,3 4,3 4,40

5

10

15

20

25

1994 1995 1996 1997 1998 1999 2000 2001 2002

Annual Vehicle tax Excise duty

Revenues of the Fund

42

55

89

73 70

100

82

14

1995 1996 1997 1998 1999 2000 2001 2002

Revenues from Excise duty,

M illion EUR


126

Revenues of the Fund Revenues from Annual Vehicle tax,

M illion EUR

5,6

11,1 11,6 12,113 13,3 13,6

14,4

19,7

1994 1995 1996 1997 1998 1999 2000 2001 2002

Administrative considerations

Com pensationfor

Farm ers

O ther Purposesof

Govt. Spending

State Roads

M inistry of FinanceM inistry of Transport

Local Roads

Com pensationto Railroads

Public BusTransport

Excise Duty on O il Products

60%StateRoadFund

40%State

GeneralBudget

Rural Roads


127

Structure of Excise duty on oil products 2001

Fuel consumptionmil.litre

Paid excise dutymil.EUR %

Branches of nationaleconomy

gasoline,petrol

Dieselfuel

gasoline,petrol

Dieselfuel Total

Road transport 317 140 84,53 23,33 107,86 80,4 State

Road

Railroad transport - 75 - 12,43 12,43 7,8Fund

88,2%

Agriculture - 75 - 12,5 12,5 7,9 StateBase

Timber industry 13 15 3,47 2,5 5,97 3,1Budget

Other branches ofnational economy

- - - - 1,86 0,811,8%

Total 330 305 88,0 50,76 140,62 100%

State Road Network financing, mill. EUR

73,8

116,7

102

9,7 8,213,1

22,7

38,4

57,3

74,3

95,5

67,5

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002plan

EC Funds

Loans

State RoadFund

Stateconsolidatedbudget

Establism ent of the SRF

84,6


128

Expenditures of the fund 2001

Type of Expenditures For the StateRoad Financing

%

For Local RoadFinancing

%Designing 3,3 1,3Routine maintenance 48,0 39,3Periodic maintenance 16,3 14,8Reconstruction 11,6 36,3Construction 1,3Loan repayment 13,8Other (mgmt) 7,0 7,0

The main Principles of the RoadFinancing

Program ofExpenditures

Sources ofFinancing

Sources ofRevenues

Routine maintenance The State RoadFund

Annual VehicleTax

Periodic maintenance(special budget) Excise Duty on oil

products (road userpayment)

Development &Reconstruction

The State BaseBudget

The State Revenuesfrom other taxes &duties, other funds

(EU)


129

NEW MODELS FOR FUNDING TRANSPORTINFRASTRUCTURE SERVICES

Lasse WeckströmDevelopment Director

Finnish Road Administration

I would like to make it clear to all of you that the Report, Funding of the Transport Infrastructure, isonly a proposal made by a working group appointed by the Ministry of Transport andCommunications in Finland and it is not yet an implemented procedure.

The working group concluded by discussing the funding of road- and street transportinfrastructure services rather than the funding of big projects.

In its proposal to fund transport infrastructure services, the Working Group has adopted astepwise model in which the preceding stages provide the base for implementing the subseguentstages.

The proposal proceeds from taxes aimed at steering behaviours and from the development ofbudgeting for basic maintenance of transport infrastructure to tax-like charges and ultimately topricing based on geographical positioning.

In stage 1 the present road traffic taxes would become more like transport- and environmentpolitically steered fiscal taxes. In practice this means that the amount of tax depends on the weightof the vehicle and the volume of the engine, the age of the vehicle or the amount of fuel used. At thesame time the budgeting for basic maintenance will be developed into a more clearly cost- andservice level based. Further the financial partnership between the state, municipalities and theprivate sector will be promoted.

In stage 2 part of the special taxes for the transportation system which are independent ofkilometers driven, will be replaced by a fixed tax-like user charge and a new, reformed streetcharge. The amount of this new user charge is dependent for example on the vehicle's axle weight.The expenses for basic road maintenance, part maintenance of streets in municipalities and financialsupport to private road communities are covered by the returns of these charges.

In stage 3 the fixed tax-like user charge will be replaced by a variable and fixed user charge. Thevariable part of the charge is performance based and its unit price is dependent on the vehicle's axleweight as well as the location and time of driving if it is technologically possible. In addition to thisa kilometer based charge to replace the present fuel tax will be collected. The rate of this tax isdependent on emissions and safety of the vehicle.

The Working Group's proposal is based on the assumption that fiscal taxes will be sustituted by newfixed and variable charges without any significant change in the overall burden placed upon thetransport service user. However, four dissenting opinions were given to the Report of the WorkingGroup. This shows how difficult the pricing of transport infrastructure is: some of the road userswould benefit from the reform, while some of them would clearly have to pay more. In spite of thisit is quite clear that the pricing of transport infrastructure services is to be reformed in the future.The reformwork of this Road Pricing Project must not be a task for the Ministeries only, but alsothe Road Administrations should have a clear opinion and role in this work.


130

PROCUREMENT STRATEGY,NEW INNOVATIVE PROJECT DELIVERY METHODS,

PARTNERING & CLIENT PERSPECTIVESPekka Pakkala

Procurement Development ManagerFinnish Road Administration

Pekka Pakkala -September 27, 2002BRA/NRA SeminarRestructuring Road ManagementTrend or Necessity

Presentation Overview

Objectives:• Client Perspectives & Changes• Innovative Project Delivery Methods• Partnering• Procurement Strategy

Source: Pekka Pakkala - Finnra

��


131


Future Funding Levels - Insufficient to meet allroad needsLess Traffic Volume Roads Are SufferingMORE FOR LESSNEED => PROVIDE A BETTER ROAD SYSTEM INA HEAVILY CONSTRAINED FUNDING ARENAAND AN INTENSE COMPETITION FOR LIMITEDALLOCATION OF GOVERNMENT FUNDS


Client Perspectives


THE CLIENT-PRODUCER CONCEPT at the Beginning of 2001

FINNRA

* Road policy, strategies* Safety, Road programs* Procurement of design construction and maintenance works* Client services.

Head-quarters

RegionalAgencies

Producer

Contract

Agreements Maint-enance

Const-ruction

ServiceEnterprises

Head-quarters

* Carries out business activity,* Business planning* Design, construction and maintenance works* Responsible for profitability

Source: Markku Teppo - Finnra

ContractorsFinnish Road Administration


132


Client Role Changes

Drivers For Change:

• Need To Outsource All Capital & Maintenance Projects (New Contracting Agreements)

• Fully Integrated Client Services & Cost Savings(Developing a market & Client Services)

• Develop Performance Specifications (with Industry)• Changing Skills• Seeking Innovation (How To Evaluate In Tender)• Aging Organization & Attracting New/Young Professionals• Risk Allocation - Which Ones to Transfer• Road User Satisfaction (Meeting The Needs of theCustomer)



Characteristics of a Future Road Admin.

Characteristics:• Staying in Your Core Business• High Trust & More Collaboration (Ethical Framework)• More Sophisticated Risk Management• Improved Customer Service/Orientation• Performance/Outcome-Based Approach• Reduce Costs• Greater Management Focus/Skills (Changing Skills)

• Accountability (Cost Effective Ways Of Delivery Services)• Attuned to Social, Environmental & Economic Indicators• Assuring That The Outcomes Are Achieved• Managing & Benchmarking Performance• Contracting Will Become More Cohesive & Less Admin.



133


Information is shared inexploitable data format directly

between different systems

λλ λ

λ

λλλ

λ

Integrated Information For Effective Decision Making

Source: VERA - Arto Kiviniemi & Pekka Pakkala - FINNRA

Pavement Mgmt

Systems

Design/Engineering

Cost/ProcurementData Road Weather Info. Services

Product & CodeSpecifications

Traffic Services Maintenance Mgmt Systems

Geometry


CONSTR.FINANCE DESIGN

PRE-PLANNING

& ACQUISITION

O & M(Operatons

& Maintenance)

UPKEEP&

IMPROVE-MENTS

FULL DELIVERY or PROGRAM MANAGEMENT

IN-HOUSE D-B-B SEGMENTED

DESIGN-BUILD COMBINED

(DBOM)Design-Build Operate Maintain

Design-Build Finance Operate

(DBFO)

Consultants &PPP LONG-TERM

MAIN.AGREEMENTS

(PSMC)

CAPITALPROJECTS

Index:Traditional: GreenInnovative: Purple


Innovative Project Delivery Methods


134


Value EngineeringConstructability ReviewsIncentives and DisincentivesPartnering

National Cooperative Highway Research Program (NCHRP), called “Guidebookto Highway Contracting for Innovation: The Role of Procurement and ContractingApproaches in Facilitating the Implementation of Research Findings” (NCHRPReport 428) results:

“Partnering” was the number one approach to creating innovationA + B + QualityEU Has Now Accepted Design-Build As A Viable Procurement Model


Other Innovative Solutions


Partnering Issues

CLIENT

CONTRACTOR

SUB-CONT. SUB-CONT. SUB-CONT. SUB-CONT.

SUPPLIERS

PARTNERING

PARTNERIN

G

PARTNERING

PARTNERING

P

RO

JEC

T


PAR

TNER

ING


135


DefinitionA project focused process that brings together key stakeholders in theproject outcome.

• Obtain Open & Fair Specification interpretations• Identify Potential Problems Before Becoming Critical Ones• Reduce Project Duration & Cost Growth• Create Win-Win Thinking• Opportunities to Innovate

Why Partner



Procurement Strategy

More Fully Integrated Client Services (One Inclusive Contract)Longer-Term Maintenance Agreements - Greater Than 7 Years?Integration Of Design & Construction (Interoperability - IT)IT Is Going To Change The Normal Way Of Doing BusinessDevelop A Procurement Strategy & Proper Mix Of ModelsDifficult To Implement (Industry & Client Learning Process )Seeking Whole Life Decisions - Better Life Cycle CostingPartnering (Both Client & Sub-contractors)Develop Outcome-Based Criteria & Performance SpecificationsWith Industry



136


What Procurement Aspects NeedWhat Procurement Aspects NeedDevelopment?Development?

Outcome/Performance Based CriteriaReliable Measuring TechniquesLCC Calculation ModelsNew Contractor Technical ComparisonCriteria During Tender EvaluationProcedure For Approving New Innovations &Technical Developments

TECHNICAL FUNDAMENTALSTECHNICAL FUNDAMENTALS


Conclusion - Necessity

MORE FOR LESS WHOLE LIFE ASPECTS PARTNERING & TRUST INTEGRATION OUTCOME-BASED TRADITIONAL AGENCY SMART ORGANIZATION



137

Pekka Pakkala -September 27, 2002BRA/NRA SeminarRestructuring Road ManagementTrend or Necessity Source: Global Marine Drilling

Implementation Issues

Pekka Pakkala -September 27, 2002BRA/NRA SeminarRestructuring Road ManagementTrend or Necessity Source: Global Marine Drilling

Implementation Issues

Implementation of NewIdeas Appears RelativelyEasy on the Surface. But,

the Difficulty & Effort Below the Surface is of

Great Substance & Work

300 Million Tons


138

Pekka Pakkala -September 27, 2002BRA/NRA SeminarRestructuring Road ManagementTrend or Necessity Source: Pekka Pakkala - Finnra

www.finnra.fi

THANK YOU!

Final Report Is Available:“Innovative Project Delivery Methods For

Infrastructure - An International Perspective".


139

PERFORMANCE BASED PROCUREMENTNORWEGIAN PPP ROAD PROGRAM

Kjersti BillehaugChief Engineer


Decision making processNorwegian PPP-Road Program

• Decision in the Storting to test the PPP conceptAutumn 1998: The Storting asks the Government to propose road projects to test privatefinancing, building and operations

• National Transport PlanFebruary 2001: The Storting approves three road projects as part of the National TransportPlan. Wants to test efficiency and effectiveness in achieving political objectives by the PPPmodel

• Project ApprovalJune 2001 The Storting finally approves E 39 Klett – BårdshaugJune 2002 The Storting finally approves E 39 Lyngdal – Flekkefjord

• E 39 Klett – Bårdshaug, Sør-Trøndelag District30 km, 21 km new, construction element 1.0 – 1.2 billion NOK

• E 39 Lyngdal – Flekkefjord, Vest-Agder District30 km, 17 km new, construction element 1.0 – 1.2 billion NOK

• E 18 Kristiansand – Grimstad, Aust-Agder District30 km new, construction element 1.8 – 2.5 billion NOK (not finally defined)

The benefits the Government hopes to achieve from applying the PPPmodel are:

• Cost savings through increased competition and risk sharing• Shorter construction time• Technical innovation and optimisation through a ”long life approach”• Outsourcing benchmark

The Government wants to know if the private sector will deliver :

• Availability• Traffic safety• Environmental Standards• Aesthetic solutions• Service

through the lifetime of the project


140

NPRA as a contract partner

VDNorwegian

Public RoadsAdministration

Ministry of Transport

TollCompany

The Storting

Gov. budget

Toll

income

PPPContract PPP

Company

Norwegian Toll Financing of Roads

• Norway has a long tradition in toll financing of road infrastructure:- 96 toll financed projects completed since 1932- 37 toll projects are currently being toll financed

18 replaces ferry connections8 of them are city projects (toll rings)

• Toll companies are not for profit and owned by the local governments

Risk allocation

• The PPP model assumes that risk is allocated to the party best able to manage thedifferent risk elements

• E.g., The PPP Company will have to take responsibility for a significant part of the- Construction costs- Operation and maintenance costs- Financing of the project

• The NPRA will be responsible for the preparation of the project- The area development plan- Preliminary planning- Land acquisition

• And- Changes in specifications and public framework in general


141

Output specification

• The NPRA has developed a technical specification for the PPP-procurement based on :- description of elements (tunnels, bridges)- long life performance specifications- national and international standards- some detailed technical specifications

• The performance specifications are linked to the payment mechanism

Payment mechanism

• The NPRA obtains the political objectives through the contract including the paymentmechanism

• The yearly payment being varied according to performance against the predefined criteria inthe output specifications and political objectives:- Availability- Performance during the operational period- Safety payment

Payment profile and elements

OPS I

OPS II

OPS III

B e ta lin g s p ro fil

0

5 0

1 0 0

1 5 0

2 0 0

2 5 0

3 0 0

2 0 0 3 2 0 0 5 2 0 0 7 2 0 0 9 2 0 1 1 2 0 1 3 2 0 1 5 2 0 1 7 2 0 1 9 2 0 2 1 2 0 2 3 2 0 2 5 2 0 2 7 2 0 2 9

B e t a l in g s p r o f i l

0

5 0

1 0 0

1 5 0

2 0 0

2 5 0

3 0 0

2 0 0 3 2 0 0 5 2 0 0 7 2 0 0 9 2 0 1 1 2 0 1 3 2 0 1 5 2 0 1 7 2 0 1 9 2 0 2 1 2 0 2 3 2 0 2 5 2 0 2 7 2 0 2 9

B e t a l in g s p r o f i l

0

5 0

1 0 0

1 5 0

2 0 0

2 5 0

3 0 0

2 0 0 3 2 0 0 5 2 0 0 7 2 0 0 9 2 0 1 1 2 0 1 3 2 0 1 5 2 0 1 7 2 0 1 9 2 0 2 1 2 0 2 3 2 0 2 5 2 0 2 7 2 0 2 9


142

Procurement process E 39 Lyngdal - Flekkefjord

Advertisement OJEC October 2002Pre-qualification application deadline January 2003Preliminary path forward:

Selection of pre-qualified candidates February 2003Tender submission deadline September 2003Evaluation/negotiations September - December 2003Contract assignment March 2004