Performance-based contracts (PBC) are becoming the most favored procurement strategy among road agencies. Many agencies over the last few decades have implemented the use of PBC to maintain and manage roads. The World Bank studies have shown that applying PBC includes cost savings and improved road conditions. The selection of key performance indicators (KPI) and their threshold is of vital importance; however, several agencies have demonstrated that KPI's thresholds are based on ambition alone instead of rational analysis. This is as a result of a lack of procedure and framework to quantify the impact of different KPI levels on agencies and users’ costs. Thus, this study was aiming to investigate the change of the International Roughness Index (IRI) threshold to the construction cost in a PBC project and satisfy agency’s minimum operational intervention expectation. Electronic toll collection (ETC) data from Central Taiwan was used to derive a site-specific traffic volume and was further linked to traffic load spectrum. The mechanical-empirical (ME) pavement analysis approach was employed in the study to analyze the performance of pavement in-place and various pavement rehabilitation strategies with different IRI thresholds. The results were used to calculate the agency costs including construction works cost, traffic control cost, quality management fees, and health facilities fees. It was found that small variation in the IRI threshold significantly affected the cost of PBC. Also, doing rehabilitation every five years to maintain an IRI standard of 2.5 m/km, reduces agency maintenance cost. Finally, this study recommends that the IRI threshold selection process should be accompanied by deliberation of project constraints.

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