Identification of Risks Related to Integrated Product Service Offerings of Rail Infrastructure

• Among construction companies in Sweden, incentives for development, increased efficiency and raised competence are low. In Sweden, construction contracts are currently used to a large extent, and have shortcomings concerning weak incentives for development of procedures. The over-detailed specifications cause major obstacles for the rail infrastructure industry in terms of technical development. There is clearly a need for change, and it is now in the strategy of the Swedish Transport Administration (STA) to get as much railway as possible for the money it spends. This includes increased productivity, level of innovation and competition, as well as a will to think more from a life-cycle perspective and increase cost efficiency. Changes in the business model is one of the strategies mentioned to reach these goals.Performance contracting could increase the drivers for change within the industry and thereby increase cost efficiency and quality from a life cycle perspective. This type of contracting is also known as an Integrated Product Service Offering, or IPSO, and implies that one actor has the responsibility to deliver a result and therefore has incentives to optimize the use of energy and material. An IPSO has a lifecycle perspective, and the combination of products and services can be combined into an optimized solution for the customer, as well as give the manufacturing company the possibility to have control over the product throughout its whole life-cycle. PSS provides the supplier with the opportunity to increase the value of the solution for the customer by integrating components in new ways, as well as incentives for the supplier to realize a more economical and environmental development when considering the whole lifecycle. More money spent on the construction, and thereby improved quality, could result in reduced cost for maintenance work. On the other hand, too high a cost for construction can never be motivated by future savings for the maintenance cost.New business models such as IPSO contracts create challenges such as uncertainty concerning forecasting costs at the bidding phase of the contract. With a business model focusing on delivering a result, a lot of the risk previously carried by the user is now assumed by the provider, and it can be difficult rededicating and controlling the risks and uncertainties. In this case the term “risk” is defined as the threat of loss from an unwanted event, to include financial, performance or timescale loss. Risk assessments, including forecasting and economic development, are very important for these long-term contracts and both the supplier side and the buyer side have to be considered. For longterm performance contracts risks caused by uncertainties arise in the bidding stage. Key uncertainties for a IPSO contract are performance, operation, training, engineering, affordability and commercial uncertainties.In cooperation with the STA, the DORIS (Development of integrated product service Offerings for Rail Infrastructure Systems) project investigates the potential use of IPSO contracts for rail infrastructure. So far, only one such contract has been realized; this was partly funded by private capital, and no such initiatives are currently planned. This limited experience in the industry calls for more thorough research. In line with this, the aim of this paper is to identify potential risk components when using IPSO for rail infrastructure for both the provider and buyer perspectives. Furthermore, the paper seeks to investigate how these risks can be potentially reduced or avoided.

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