Life Cycle Contract in the Road Economy is a New Budget Planning Tool

24 april 2019

A life cycle contract (LLC) in the sphere of the road economy is a new economic budget planning tool which must provide an innovative breakthrough not only in the transport industry but also in the production sector. That was the topic of the round table on the barriers to the expansion of LLC practice under the National Project "Safe and High-Quality Motorways" held at the Analytical Center.

In her opening speech Tatyana Gorovaya, Head of the Department of Economics and Transport Development of the Analytical Center, said that LCC is a relatively new mechanism for road system development provided for by the national project "Safe and High-Quality Motorways". But due to the imperfection of the regulatory base, the regions face multiple problems when implementing this mechanism.

So, according to Artem Ermolaev, Deputy Head of the Expert and Analytical Administration of the Federal Autonomous Organization ROSDORNII, within the framework of the national project passport, the LCC functionality is limited to maintenance and repair of roads only, while the regions would like to use this mechanism in other roadwork types. Regional offices of the Federal Antimonopoly Service and the Ministry of Finance still have not arrived at a consensus on the norms of making these contracts. Moreover, the contractors cannot obtain bank guarantees for the projects with time duration exceeding 3 years.

According to Sergey Ikryannikov, Deputy Director of the Contract System Development Department at the RF Ministry of Economic Development, in order to implement long-term projects, banks may provide guarantees to contractors for each work stage. "However the materials, intellectual inventions and capitalization must be local. The added value must remain in Russia," Ikryannikov added.

The existing difficulties with the life cycle contracts administration are temporal because of the approbation of the new mechanism, explains Oleg Stupnikov, Head of the Highways Division of the Department of State Policy in the Sphere of Road Economy at the RF Ministry of Transport. "A new phase of LCC administrating is currently underway under existing regulatory base. Approved are the methodological materials designed to help the regions, and all the problems that arise are being worked out in the Ministry. The second stage of introduction of contracts involves a serious amendment of statutory regulation," Stupnikov said.

It is the round table participants opinion that further on the life cycle contracts shall be awarded for a long period and cover all types of infrastructure works from road construction to road maintenance and renovation. This mechanism will allow us to solve the road quality problem, the experts believe.