Contracting Operations and Maintenance Services – Getting the Principal’s and Contractor’s Objectives Aligned Through a New Form of Contract

Rob Lorden  and  Garry Law

Water Services, North Shore City Council and Law Associates Consultants Ltd


Operations and maintenance contracts in the water industry have usually followed the form of construction contracts. Construction contracts deal with physical outputs, outputs which can be put right if they are not delivered to the specified standard. The outputs of operations and maintenance are of a different character. Timeliness of individual tasks and reliability of the network can be specified but linking these to contractual consequences is not readily achieved in contracts based on construction models. Poor customer service once delivered, cannot simply be corrected.

North Shore City Council is wanting a much closer alignment between its network operations and maintenance outcomes and the Customer Charter standards of service and Annual Plan performance measures the Council is committed to delivering. It is changing its operations and maintenance contract for its reticulation to a management fee contract. Here key performance indicator targets are used to achieve customer satisfaction. The profit/margin the contractor makes on the contract is linked directly to the performance as measured by the Key Performance Indicators.

The paper describes how such contracts are linked to a Customer Charter, how the profit payment works and discusses how this could be aligned to different priorities in different circumstances.

See conference proceedings for full paper.