Infrastructure Procurement Options Guide

Transcription

1 November 2010 Infrastructure Procurement Options Guide Sharing knowledge, developing leading practice and driving innovation to improve government infrastructure planning, delivery and management.

2 Acknowledgements The Infrastructure Procurement Options Guide (the Guide) was prepared with the assistance of the Centre for Excellence and Innovation in Infrastructure Delivery (CEIID) Alternative Delivery Mechanisms Project Reference Group. The CEIID would like to thank the following Alternative Delivery Mechanisms Project Reference Group members for their contributions: Mike Somerville-Brown (Chair), Manager Infrastructure Assets, Public Transport Authority Lyle Banks, Manager Planning & Development, Fremantle Ports Bruce Cunningham, Director Infrastructure Delivery Services, Main Roads Western Australia Clare Dobb, Senior Project Manager, Building Management and Works (BMW), Department of Treasury and Finance (DTF) Graeme McLean, Director Standards and Practice, Strategic Projects, BMW, DTF Sam Mileti, Program Leader Strategic Sourcing, CEIID Program Management Office (PMO), BMW, DTF Margaret Sharpe, Manager Professional Services, Construction Services, Department of Housing and Works Noel Souness, A/Assistant Director Energy, Infrastructure and Finance, DTF. A further acknowledgement is extended to Lucy Monte, Program Leader Communications and Governance, CEIID PMO, for final editing and layout of the Guide. The Guide aligns with and contains information, diagrams and charts adapted from the National Public Private Partnership Policy and Guidelines, in particular Volume 1 Procurement Options Analysis. An electronic version of the Guide can be accessed via the CEIID website at Further information on this project is available from Sam Mileti, who can be contacted via [email protected] or phone: (08) All other enquiries can be directed to the CEIID PMO which can be contacted via [email protected] or phone: (08) For additional CEIID information, visit COPYRIGHT STATEMENT Centre for Excellence and Innovation in Infrastructure Delivery, Government of Western Australia (2010). Excerpts from this publication may be reproduced, with appropriate acknowledgement, as permitted under the Copyright Act. Important Disclaimer: All information and content in this material is provided in good faith by the Centre for Excellence and Innovation in Infrastructure Delivery, and is based on sources believed to be reliable and accurate at the time of development. The Government of Western Australia, the Centre for Excellence and Innovation in Infrastructure Delivery and their respective officers, employees and agents, do not accept legal liability or responsibility for the material, or any consequences arising from its use.

3 T a b l e o f C o n t e n t s, G l o s s a r y & F o r e w o r d Table of Contents 1.0 Introduction Context Purpose of the Guide Who will benefit from the Guide Scope of the Guide Structure of the Guide Infrastructure Procurement Purpose of a Procurement Strategy Key Elements of a Procurement Strategy When to Develop the Procurement Strategy Considerations and Timing of Procurement Decisions Procurement Methodology Decisions Market Engagement and Analysis Engaging in Preliminary Dialogue with Industry and Market Analysis Tendering and Related Engagement Processes Procurement Delivery Model Selection Procurement Delivery Model Usage in Government Agencies Agency Capacity and Capabilities Agency Strategic Fit Contract Management Procurement Delivery Model Options Construct Only (Lump Sum or Fixed Price) Design and Construct Design, Construct and Maintain Construction Management Public Private Partnership Models Alliance Contracting Early Contractor Involvement Managing Contractor Direct Managed Selecting a Procurement Delivery Model The Expert Panel Briefing the Panel Preliminary Procurement Options Analysis Detailed Procurement Options Analysis Determine the Models to be Assessed Review the Considerations Identify the Key Criteria Assess the Models Against Each Criteria Identify the Preferred Model Scrutinising the Preferred Model Documenting Findings in the Procurement Strategy Contract Forms... 63

4 T a b l e o f C o n t e n t s, G l o s s a r y & F o r e w o r d Glossary Procurement Methodology Procurement Strategy Public Construction The methods and guidelines used for the selection of the most appropriate procurement methodology allowing for a range of management, delivery and contract system options and project types as part of the procurement strategy (including ancillary maintenance and operation where applicable) for infrastructure works market engagement. The high level plan to achieve procurement objectives through a structured program of activity, which usually includes: a statement of objectives a description of the requirements an analysis of project and procurement risks an analysis of market and agency capability an analysis of procurement methodology options to identify the preferred methodology other elements. Any matter relating to the construction, maintenance, rehabilitation, alteration, extension, demolition or improvements to land or property owned by, or on behalf of, Government departments or public bodies and includes: design and construction practices tendering processes project delivery contract administration. The above definition is based on that contained in the Victorian Project Development and Construction Management Act Value for Money The optimum combination of whole-life cost and quality (or fitness for purpose) to meet the user s requirements. This includes value for money drivers such as: improved risk management use of competition for innovative solutions reduced cost through more efficient design and use of asset by others single contact points for long-term service delivery efficiency through up-front integration of operations and asset management with design and construction. Value for money decisions include the evaluation of a number of procurement options and other factors including: Construct Only (CO), Lump Sum or Fixed Price contract Design and Construct (D&C) Design, Construct and Maintain (DCM) Construction Management (CM) Public Private Partnership (PPP) Models Design, Build and Operate (DBO) Design, Build, Finance and Operate (DBFO) Design, Build, Finance and Maintain (DBFM) Design, Build, Operate and Maintain (DBOM) Alliance Contracting (AC) Early Contractor Involvement (ECI) Managing Contractor (MC) Direct Managed (DM) Key Project Criteria (KPC) Key Performance Indicators (KPI) Target Out-turn Cost (TOC).

5 "...if Government is to ensure that community service delivery expectations are to be satisfied in a way that maximises value for all Western Australians, then:...government will [need to] deliver infrastructure projects efficiently and effectively, with the specific circumstances of each project determining the most relevant delivery option. Economic Audit Committee Final Report, 2009, p 79.

6 T a b l e o f C o n t e n t s, G l o s s a r y & F o r e w o r d Foreword The State Asset Investment Program for is worth an estimated $25 billion. This substantial commitment of public resources is focused on providing the infrastructure necessary for the State s ongoing economic development and meeting the service delivery requirements of a growing population over the coming decades. Delivering the government s asset investment program and maximising value for money requires asset delivery agencies to consider a wide range of infrastructure delivery methods. A comprehensive exploration of infrastructure delivery models ensures that opportunities for achieving increased value for money and improved infrastructure outcomes are readily identified and capitalised to the benefit of Western Australian taxpayers. In 2009 the Centre for Excellence and Innovation in Infrastructure Delivery (CEIID) formed a multi-agency project team to collaborate in the development of a leading practice guide on infrastructure procurement options. The aim was to develop a guide that would improve agency understanding of a range of procurement methodologies and assist with the selection of the most appropriate model to achieve project outcomes. The Infrastructure Procurement Options Guide (the Guide) is the culmination of the project team s work and reflects the CEIID s ongoing commitment to sharing knowledge, developing leading practice and driving innovation to improve infrastructure planning, delivery and management. The CEIID Chief Executive Officer Group is pleased to endorse the Guide and encourages all government agencies to use it as a reference source and decision support tool when planning and evaluating asset procurements. The CEIID alliance comprises of the following participating organisations:

7 1.0 Introduction 1.1 Context 1.2 Purpose of the Guide 1.3 Who will benefit from the Guide 1.4 Scope of the Guide 1.5 Structure of the Guide page 7

8 " Procurement strategy decisions made at the beginning of an asset investment process will affect asset performance, service delivery, cost and value for money throughout the life of the asset.

9 I n t r o d u c t i o n 1.0 Introduction 1.1 Context The social and economic value of infrastructure cannot be underestimated. Well planned and managed investment in public infrastructure plays a vital role in supporting economic growth and providing capacity to meet the increasing demand for services that accompany strong population growth. It is essential for business development and the improvement of productivity and industry competitiveness through investment in roads, rail and ports. It underpins the delivery of community services such as education, health, law and order, public transport and housing. It is also fundamental to social wellbeing and maintaining high standards of living into the future through water supply and waste management systems, power generation, sporting facilities, entertainment venues and liveability initiatives in our cities and regions. The government s capacity to invest in public infrastructure is ultimately constrained by finite funding resources and the need to responsibly manage the balance between competing budget priorities. Investing in the right mix of infrastructure assets and managing them well throughout their life-cycle is important in enabling the government to meet current and future service delivery demands and maximise value for money from the funding available. In addition to determining the mix of infrastructure investments that will most effectively meet the government s objectives, a key factor in optimising value for money outcomes from infrastructure investments is the procurement strategy. Procurement strategy decisions made at the beginning of an asset investment process will affect asset performance, service delivery, cost and value for money throughout the life of the asset. Soundly based decisions involve a comprehensive exploration of a range of procurement models to determine the approach that is best suited for each infrastructure project. This ensures that opportunities for achieving increased value for money and improved infrastructure investment outcomes are readily identified and capitalised to benefit the State of Western Australia and its people. Soundly based decisions involve a comprehensive exploration of a range of procurement models to determine the approach that is best suited for each infrastructure project. 1.2 Purpose of the Guide The Guide provides an overview in the selection and development of an infrastructure procurement strategy. The purpose of the Guide is to: improve the level of understanding of a range of infrastructure procurement models provide supplementary guidance to be used in conjunction with the Western Australian Government s Strategic Asset Management (SAM) Framework, a WA Government policy document for WA public sector agencies assist public sector executives and managers with making decisions related to infrastructure asset investment. page 9

10 I n t r o d u c t i o n 1.3 Who will benefit from the Guide The Guide has been prepared as a decision support tool to assist senior executives and managers responsible for the planning, evaluation, definition, delivery and management of infrastructure asset investments. The Guide will also assist practitioners as well as others involved in supporting senior executives to meet such responsibilities. 1.4 Scope of the Guide The Guide is primarily intended to apply to government owned infrastructure where government has a direct or indirect responsibility to provide services to the community of Western Australia. Such infrastructure includes roads, rail, ports, public utilities and buildings. The Guide can be used to assess individual projects as well as a bundle of projects or program of works. There are no minimum or maximum project costs in relation to using the Guide, which can be applied to any capital works project. The Guide is to be used in conjunction with the principles, policies and standards outlined in the SAM Framework. 1.5 Structure of the Guide In using the Guide: Section 1.0 Section 2.0 Section 3.0 Section 4.0 Section 5.0 Introduction Establishes the significance of sound public infrastructure procurement strategy decisions and provides a broad overview of the Guide. Infrastructure Procurement Explains the purpose and key elements of a procurement strategy and considerations and timing of procurement decisions. Procurement Methodology Decisions Explains the key considerations and activities agencies need to undertake to support the procurement and delivery model selection process. Procurement Delivery Model Options Outlines a range of procurement delivery models including the advantages, disadvantages and best use scenarios for each model. Selecting a Procurement Delivery Model Details a step-by-step process for selecting a procurement delivery option which includes a prescriptive assessment tool to support the decision. page 10

11 2.0 Infrastructure Procurement 2.1 Purpose of a Procurement Strategy 2.2 Key Elements of a Procurement Strategy 2.3 When to Develop the Procurement Strategy 2.4 Considerations and Timing of Procurement Decisions page 11

12 " Major infrastructure projects require detailed planning and a robust value for money assessment of each procurement option available.

13 I n f r a s t r u c t u r e P r o c u r e m e n t 2.0 Infrastructure Procurement An effective procurement methodology is essential to the success of any project delivery process. Major infrastructure projects require detailed planning and a robust value for money assessment of each procurement option available. The key issue is determining which type of procurement delivery model provides the best value for money in meeting the government s service objectives. When developing a procurement strategy, it is important to consider the individual project circumstances and whether the advantages and disadvantages of the delivery methods described in this Guide are relevant to the particular project. When applying the Guide s methodology, considerations should include investigating any other delivery methods used in Western Australia. 2.1 Purpose of a Procurement Strategy A procurement strategy is a high level plan for achieving procurement objectives through a structured program of activity. It is developed during the Evaluation phase of the Project Management Framework (as outlined in Figure 1 below) and forms part of the business case. Its main purpose is to help identify the most appropriate procurement methodology for the particular project based on budget, value for money, government priorities, project requirements and industry capability. The key purpose of a procurement strategy is to help identify the most appropriate procurement methodology for the particular project based on budget, value for money, government priorities, project requirements and industry capability. Figure 1: Project Management Framework Procurement Delivery Model Selection,Timing and Interface to other Project Phases PROJECT MANAGEMENT FRAMEWORK Establish Business Needs Evaluation Definition Delivery Transition to Operation Project Review Preliminary Procurement Delivery Model Selection Final Confirmation The procurement strategy also encourages government agencies to consider procurement options early in the project s development through the preparation of a Preliminary Procurement Options Analysis (POA), as per Section 5.2 of the Guide. This analysis, a component of the business case, helps identify a suitable procurement model for the project which is then tested, detailed and confirmed (as part of the project definition plan) for timing and sequence (see Figure 2, page 14). In keeping with the Infrastructure Australia Guidelines, when considering the provision of government infrastructure during the Evaluation phase of the Project Management Framework, a desktop analysis of Public Private Partnership (PPP) Value Drivers (see Section 5.2, page 55) should be undertaken for projects that meet the capital expenditure threshold of $50 million. This should be followed by a Detailed POA, as outlined in Section 5.3, page 56, for funded projects with sufficient PPP value drivers. page 13

14 I n f r a s t r u c t u r e P r o c u r e m e n t Regardless of the selected procurement model, the POA document should always detail all assumptions, exclusions and the recommended procurement strategy. Figure 2: Timing of Procurement Options Analysis in Project Management Framework PROJECT MANAGEMENT FRAMEWORK Establish Business Needs Evaluation Definition Delivery If proposal has the potential for delivery as a PPP If delivery as a PPP is justified Preliminary POA see Section 5.2 of the Guide for PPP as part of business case development. Detailed PPP POA as per Infrastructure Australia Guidelines. Move to Definition Phase and commence PPP establishment If not suitable for delivery as a PPP or if indicative project cost is less than $50 million Detailed POA as per Section 5.3 of the Guide. Develop Contract In order to select the most appropriate procurement option, it is important to: understand project drivers and constraints including budget, time-lines, stakeholder commitments and market capacity rigorously investigate alternative procurement delivery models before project options are finalised in the 'Evaluation' stage involve key stakeholders and experts as early as possible in the planning and development of projects challenge assumptions in order to better achieve desired outcomes use practical analytical techniques in the decision making process. The Guide can be applied across all government agencies and is recommended for Government Trading Enterprises (GTE) 1 and other public Statutory organisations. The guidelines relate to all government infrastructure projects and are consistent with the Government s SAM Framework policies and guidelines and the Project Management Framework (Figure 1, page 13). Application must be in accordance with all relevant legislation, Treasurer s instructions and related government policies, as specified by the Department of Treasury and Finance. 1. A Government Trading Enterprise is a government agency that finances the bulk of their operation from their own sources, revenues and borrowings, i.e. Water Corporation, Fremantle Ports, Western Power and Telstra. GTEs operate in markets that range from monopolistic through to totally competitive. page 14

15 I n f r a s t r u c t u r e P r o c u r e m e n t 2.2 Key Elements of a Procurement Strategy Designed to identify and recommend a preferred procurement methodology, the procurement strategy usually contains: a statement of objectives a description of the requirements an analysis of project and procurement risks an analysis of market and agency capability an analysis of procurement methodology options to identify the preferred methodology A key element of the procurement strategy is the procurement methodology, which includes decisions about market engagement, the procurement delivery model and ongoing contract management. other elements A key element of the procurement strategy is the procurement methodology, which includes decisions about market engagement, the procurement delivery model and ongoing contract management. The data gathered for the procurement strategy forms the basis and justification for the procurement methodology decisions made. Figure 3 shows the key elements of a procurement strategy. Much of the data comes from information prepared for the business case (or feasibility study/scoping study). page 15

16 INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE I n f r a s t r u c t u r e P r o c u r e m e n t Figure 3: Procurement Strategy Elements Information prepared for the business case flows into the Procurement Strategy Objectives Risk Analysis Cost Analysis Procurement Methodology Funding Market Engagement Procurement Model: Construct Only Design & Construct Public Private Partnerships Early Contractor Involvement Other Policy Context Project Characteristics Contract Management Market Analysis Agency Capability 2.3 When to Develop the Procurement Strategy The final version of the procurement strategy is detailed in the business case, the platform used for project justification and funding approval. The procurement strategy is developed as part of the business case which is prepared during the Evaluation phase in the Project Management Framework (Figure 1, page 13). Before work can commence on the procurement strategy, a decision regarding the project s initial investment must be made (in line with the government s financial targets) accompanied by a completed and thorough risk assessment for the project. The final version of the procurement strategy is detailed in the business case, the platform used for project justification and funding approval. The project information gathered as part of the POA is a key element of the procurement strategy. The information can be used to develop initial high level procurement strategies and later, more fully developed options for inclusion in the final business case. As part of this process, the documenting of value drivers (such as those presented in Section 5, page 55) for projects will enable project teams and agencies to develop procurement strategies for all projects including those that are not considered for PPP development. A complete analysis of the value drivers, an evaluation of the procurement strategy elements in Figure 3 above as well as assessing the criteria contained in Table 1: Procurement Delivery Model Assessment Tool, pages will best ensure the full procurement strategy is finalised before preparation for tendering begins. The procurement strategy should be regularly reviewed throughout the various planning phases to ensure its ongoing relevance and accuracy. page 16

17 I n f r a s t r u c t u r e P r o c u r e m e n t 2.4 Considerations and Timing of Procurement Decisions Procurement decisions made by government agencies are pivotal and directly linked to their ability and capability of delivering service obligations to the community. The basis of procurement decisions should be incorporated and driven by the agency s Strategic Asset Plan (SAP). Agency SAP s must also be consistent with the Government's SAM Framework guidelines. Procurement decisions will form a part of a procurement strategy that is to be developed by the agency. The procurement strategy is the document that will summarise the decisions and provides a recommendation to government as to the most appropriate procurement methodology available. The procurement strategy forms part of the business case which is commenced during the Evaluation phase and finalised prior to commencement of the Delivery phase within the Project Management Framework in Figure 1, page 13. The Project Management Framework has been developed to align and support the SAM Framework. Agencies must also comply with all other government policies, practices and guidelines related to infrastructure procurement, such as Gateway Reviews 2. While a significant portion of asset investment in the WA public services will continue to be procured through traditional means, there is an increasing trend towards alternative approaches such as Alliance Contracting and PPP (see Section 4) for delivering some of Australia s most complex and significant public sector infrastructure projects. 2. Gateway Reviews is a process developed by the Office of Government Commerce in the United Kingdom that examines a program or a project at critical stages in its life-cycle to provide assurance that it can progress successfully to the next stage. The reviews are carried out at key decision points in the project s life-cycle by experienced people, independent of the project team. page 17

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19 3.0 Procurement Methodology Decisions 3.1 Market Engagement and Analysis 3.2 Procurement Delivery Model Selection 3.3 Agency Capacity and Capabilities 3.4 Agency Strategic Fit 3.5 Contract Management page 19

20 " Procurement methodology decisions must be based on a thorough analysis of relevant facts including procurement objectives and requirements, risks, supplier markets, agency capability and strategic fit, project precedents and so on.

21 P r o c u r e m e n t M e t h o d o l o g y D e c i s i o n s 3.0 Procurement Methodology Decisions For the purpose of this Guide, there are five primary procurement methodology decisions to consider: 1. Market Engagement and Analysis 2. Procurement Delivery Model Selection 3. Agency Capacity and Capabilities 4. Agency Strategic Fit 5. Contract Management. Procurement methodology decisions must be based on a thorough analysis of relevant facts including procurement objectives and requirements, risks, supplier markets, agency capability and strategic fit, project precedents and so on. To properly manage risks presented to government, it is important that procurement methodology decisions are justifiable on the basis of documented facts and analysis. The procurement strategy should justify the recommended approach on a value for money basis. Justification should show how project or program outcomes can be optimised, and how the methodology selected may facilitate aspects of risk management. The procurement strategy should justify the recommended approach on a value for money basis. Justification should show how project or program outcomes can be optimised, and how the methodology selected may facilitate aspects of risk management. 3.1 Market Engagement and Analysis Market engagement broadly refers to two distinct activities that are important in developing a procurement strategy: 1. Market Soundings accessing current information and intelligence (via a range of activities including industry forums and market surveys) on the potential capacity of industry to deliver the Government s annual Capital Works Program. 2. Industry Briefings collecting project-specific information during the planning phase to facilitate preliminary dialogue with industry and market analysis to help with preparing tender documentation prior to commencement of the tender process. This step also helps ensure that competitive processes are in place prior to inviting tenders and selecting suppliers Engaging in Preliminary Dialogue with Industry and Market Analysis Market soundings in the project s early planning stages can benefit both government and industry. Government can learn about markets, trends and the potential impact of its intended procurement approach; while industry can prepare to respond to government requirements. A sound understanding of relevant industry markets is vital before making any procurement strategy decisions. Consideration should be given as to whether there is merit in consulting with industry on a draft specification. Irrespective of whether the draft specification is released for industry comment, it is often beneficial to request input from subject matter experts outside the tender preparation team. It may also be appropriate to seek advice about strategies to influence or develop the market. To ensure the probity of the imminent contractual engagement process, early dialogue should be carefully planned and documented. Irrespective of whether the draft specification is released for industry comment, it is often beneficial to request input from subject matter experts outside the tender preparation team. It may also be appropriate to seek advice about strategies to influence or develop the market. page 21

22 P r o c u r e m e n t M e t h o d o l o g y D e c i s i o n s Tendering and Related Engagement Processes The procurement strategy should address issues about tendering processes and how best to engage the market. Such issues may include: single or multi-stage tendering tendering or sole source invitation from a register of pre-qualified suppliers or public invitation public market approach (Registration of Interest, Requests for Tender, Request for Proposal) pre-invitation proposals and/or pre-tender meetings open, selective or limited tendering advertising arrangements (such as Internet and newspapers) a tender evaluation strategy a negotiation strategy. It is important that communication about a particular project is consistent with the actions of the project team. The market is particularly interested in the efficiency of the processes, their predictability and probity. 3.2 Procurement Delivery Model Selection Procurement delivery models can be combined to create a hybrid procurement delivery model to better meet specific project needs. Infrastructure projects are delivered through a variety of procurement delivery models which include: Construct Only (CO) Lump Sum or Fixed Price contract Design and Construct (D&C) Design, Construct and Maintain (DC&M) Construction Management (CM) Public Private Partnerships (PPP) Alliance Contracting (AC) Early Contractor Involvement (ECI) Managing Contractor (MC) Direct Managed (DM). These procurement delivery models can be combined to create a hybrid procurement delivery model to better meet specific project needs. On a large project, there may be a number of different contracts and procurement delivery models, all of which is reflected in the procurement strategy. Where appropriate, agencies are encouraged to consider other models in addition to those described in the Guide. Section 4 of this Guide contains a brief description of the procurement models listed above. Section 5 of this Guide provides more detail on the procurement model selection process. page 22

23 P r o c u r e m e n t M e t h o d o l o g y D e c i s i o n s Procurement Delivery Model Usage in Government Agencies The chart below relates to feedback provided by CEIID's Alternative Delivery Mechanisms Project Reference Group late Agency / Procurement Delivery Model DTF/SP DTF/ BMW MRWA PTA FP Construct Only Design and Construct Design, Construct and Maintain Construction Management Public Private Partnerships Alliance Contracting Early Contractor Involvement Managing Contractor Direct Managed Legend DTF SP BMW MRWA PTA FP Indicates usage of various procurement delivery models by WA Government agencies and the availability of advice and support to assist other CEIID agencies in selecting the right procurement delivery model Department of Treasury and Finance Strategic Projects Building Management and Works Main Roads Western Australia Public Transport Authority Fremantle Ports 3.3 Agency Capacity and Capabilities An important factor to consider when making decisions about a procurement delivery model is the capacity and capabilities of the agency. The agency must question if it has sufficient people to perform the various roles and tasks required for the different procurement delivery models, especially the required knowledge and experience in the type of procurement strategy contemplated. Different delivery methods and project sizes require specific levels of knowledge, skill, experience and resource requirements. If additional resources are needed and approved, such as consultants, these resources will need to be managed by the agency. An important factor to consider when making decisions about a procurement delivery model is the capacity and capabilities of the agency. page 23

24 P r o c u r e m e n t M e t h o d o l o g y D e c i s i o n s It is also worth considering the possibility of increasing internal resource capability through training opportunities and career planning. In some cases, it might be viable to separate a project into components which are then spread over a number of years to enable continuity of work and ongoing training opportunities for existing staff. When analysing agency capability, consider the following issues before making a decision on the procurement model and its resourcing requirements: the availability and capability of human resources. For example, if there are inadequate resources within the agency to manage the preferred procurement model, consideration may need to be given to recruiting an experienced external consultant or employing other personnel from within government (e.g. secondment) how well the agency s existing capabilities and experience align to project risks the level of oversight the agency is able to provide if a design and construct procurement delivery model is chosen the ability to take on a new form of contract not previously used. 3.4 Agency Strategic Fit The key objective of a contracting strategy is to structure the provision of design, engineering, procurement, construction and management services to deliver a project that effectively addresses project objectives, issues, stakeholder requirements and risk. In much the same way that the individual contracting strategy allocates risk to the party best able to manage it, the overall portfolio of contracting strategies should seek to achieve a balance of risk allocation across the various procurement methods. In other words, the procurement methods used across the whole capital works program of an agency should be viewed in much the same way as a portfolio of investments. This allows risk to be managed across the works program by taking a portfolio approach to procurement decisions. The procurement delivery model and its context will determine the contract management requirements. For example, the resources and expertise necessary for an agency to manage an Alliance Contract would be different from those needed to manage a Construct Only contract. In some instances, this may require the use of a procurement method in which an agency has less experience. If this is the case, the agency may need to source the required skills externally. For larger agencies, individual contracting strategies should form part of an overall strategic approach to procurement in which diversification plays an important role to achieving a balance of risks and rewards (in terms of cost, time to delivery, reputation and other unquantifiable costs and benefits) across the program. 3.5 Contract Management Arrangements for ongoing contract management should be considered and provided for within the procurement strategy. The procurement delivery model and its context will determine the contract management requirements. For example, the resources and expertise necessary for an agency to manage an Alliance Contract would be different from those needed to manage a Construct Only contract. page 24

25 4.0 Procurement Delivery Model Options 4.1 Construct Only (Lump Sum or Fixed Price) 4.2 Design and Construct 4.3 Design, Construct and Maintain 4.4 Construction Management 4.5 Public Private Partnership Models 4.6 Alliance Contracting 4.7 Early Contractor Involvement 4.8 Managing Contractor 4.9 Direct Managed page 25

26 " Each procurement delivery model has its own strengths, weaknesses and characteristics that suit different conditions and circumstances.

27 P r o c u r e m e n t D e l i v e r y M o d e l O p t i o n s 4.0 Procurement Delivery Model Options The decision on which procurement delivery model to select for each project is one of the most critical steps in determining the project s success. Each procurement delivery model has its own strengths, weaknesses and characteristics that suit different conditions and circumstances. High level strategic analysis will help determine the procurement delivery model that best suits each project. While the analysis may point to several different procurement delivery models, the general thrust will be towards selecting a value for money model that suits the agency at the time. As projects move away from traditional procurement approaches towards partnering, the assessment and management of risk and the types of relationships that are promoted change significantly. The emphasis on risk management and the allocation of risk increases from risk being primarily carried by the client, through to risk sharing and/ or risk being primarily carried by the developer. Figure 4 on page 28 depicts a range of responsibilities of the various parties based on risk factors that impact on payment methods and decision making for the listed procurement delivery models. The following section outlines various procurement delivery models (including their advantages and disadvantages, suitability criteria and value for money drivers) to assist agencies to make informed infrastructure procurement decisions. page 27

28 P r o c u r e m e n t D e l i v e r y M o d e l O p t i o n s Figure 4: Responsibilities based on risk factors Procurement delivery models detailing responsibilities based on risk factors Predominant Payment Method Main Decision Maker Concept Design Construct Maintain Operate Concept Design Construct Maintain Operate Public Private Partnership Fixed Fixed Fixed Fixed Fixed Contractor Contractor Contractor Contractor Contractor Design, Construct & Maintain Actual Fixed Fixed Fixed Actual Client Contractor Contractor Contractor Client Design & Construct Actual Fixed Fixed Actual Actual Client Contractor Contractor Client Client Early Contractor Involvement Actual Fixed Fixed Actual Actual Shared Contractor Contractor Client Client Managing Contractor Actual Fixed Actual Actual Actual Client Contractor Contractor Client Client Construct Only Actual Actual Fixed Actual Actual Client Client Contractor Client Client Construction Management Actual Actual Actual Actual Actual Client Client Contractor Client Client Alliance Contracting Actual Actual Actual Actual Actual Client Shared Shared Client Client Direct Managed Actual Actual Actual Actual Actual Client Client Client Client Client Legend Fixed Contract costs are fixed prior to proceeding Actual Contract costs are incurred as they arise Contractor Contractor makes the main decisions Client Client makes the main decisions Shared Main decisions are shared page 28

29 P r o c u r e m e n t D e l i v e r y M o d e l O p t i o n s 4.1 Construct Only (Lump Sum or Fixed Price) In this commonly used form of contract the government has full responsibility for the project s design and documentation, but engages a design team to develop the design documentation that forms part of the tender for the works. The works relate to the construction component only. The following figure illustrates the contractual relationship of the principal with the design team and the contractor in a Construct Only (CO) model. Figure 5: Typical Construct Only structure Principal Consultants (Design Team) Contractor Subcontractors The contractor tenders a price for the works subject to any necessary adjustments, such as variations, which are provided for in the contract. Irrespective of the actual cost of the works, the contractor is entitled to be paid the contract sum (as agreed between the parties) at the commencement of the project with adjustments made for all approved variations. In practice, the CO contract may exceed the original contract sum if not properly planned and managed. The following table lists features of the Construct Only model. Advantages Highest level of agency control and certainty regarding scope because the principal engages design consultants and scope is well defined prior to works commencing. Contract value is known before construction commences because: the full design is prepared and endorsed prior to tendering design complexities are resolved before the contract is awarded lower cost of tendering for tenderers and agencies (although design costs and risks are borne by agencies) larger pool of potential tenderers, increasing competition greater scope for competitive prices because of design certainty Government can control stakeholder management processes. Disadvantages (and issues that may need managing) Separate design and construction contracts mean no single point of responsibility for the project. Potential claims and delays due to design deficiencies and separation of design from construction. Minimal opportunity for cost value management, build-ability or innovation input from contractor. The government retains the risk of constructability of design, designconstruction coordination, fitness for purpose and design generally. Inability to fast track long lead times to prepare design documentation results in longer overall project duration. Government acts as project manager requiring skills and resources. Adversarial contract environment, potentially higher costs from claims. Potential lack of focus on life-cycle costs and considerations. Irrespective of the actual cost of the works, the contractor is entitled to be paid the contract sum (as agreed between the parties) at the commencement of the project with adjustments made for all approved variations. page 29

30 P r o c u r e m e n t D e l i v e r y M o d e l O p t i o n s When to use Construct Only This procurement delivery model is advisable for use when: the scope is defined and there is little likelihood of scope creep or wholesale changes to requirements there is little incentive or need for innovation from the contractor there is sufficient time and desire to complete design documentation prior to tendering the work is repetitive, such as standard designs for schools or police stations there is limited opportunity for bundling services/maintenance and creating whole-of-life efficiencies the project is small to medium sized and of relatively short duration there is a large pool of potential tenderers which leads to increased competition there is greater scope for competitive prices because of design certainty the contract value is set before construction commences. Suitable Characteristics of Construct Only The Construct Only procurement delivery model is the most prominently used and best understood contracting strategy in government and the private sector across Australia. When considering this procurement delivery model against project needs, the following typical characteristics will indicate a suitable scenario for the selection panel: high levels of certainty with regard to cost and quality project risks that are well defined, clearly understood and easily allocated to an appropriate party a high level of client involvement and control during the design phase a clear-cut division between design and construction. The CO procurement delivery model is the most prominently used and best understood contracting strategy in government and the private sector across Australia. Knowledge and experience by clients, professional practitioners and the construction industry is high and skills in this procurement delivery model are readily available in the local marketplace. page 30

31 P r o c u r e m e n t D e l i v e r y M o d e l O p t i o n s 4.2 Design and Construct For a Design and Construct (D&C) contract the principal prepares a design brief that outlines the functional and key user requirements (in performance terms) for the works, which is less detailed than the design documentation required for a Construct Only contract. The principal then seeks tenders for completion of the detailed design and construction of the works as described in the design brief. The following figure illustrates the contractual relationships in a D&C contract whereby the principal enters into a single contract with the construction contractor who is required to provide design expertise. The Design and Construct procurement delivery model is widely used in government and the private sector. In many cases, work can commence prior to finalising the design and construction documents. Figure 6: Typical Design and Construct structure Principal Contractor Subcontractors including Design Consultants The following table lists features of the Design and Construct model. Advantages Single point of accountability for design and construction. Administrative efficiency. Potential to fast track the project because construction can commence ahead of full design documentation (provided there is adequate control over design quality). Contractor has the opportunity to contribute construction experience into the design, resulting in innovation and efficiencies. Contractor normally warrants the design including fitness for purpose. Lump sum for design and construction. Disadvantages (and issues that may need managing) Longer tender period needed to allow tenderers to assess design risk. Principal may pay a premium to transfer design risks. Lack of focus on life-cycle costs and considerations. Government retains whole-of-life asset risk. Government may be liable for time and cost overruns. page 31

32 P r o c u r e m e n t D e l i v e r y M o d e l O p t i o n s When to use Design and Construct This procurement delivery model is advisable for use when: the government s requirements are tightly specified before tender and do not change the contractor is better placed to manage design risks there is a requirement for a single point of accountability for design and construction there is a requirement for a fixed price contract there is a requirement to potentially reduce the overall project cost by giving the contractor the opportunity to contribute construction experience into the design, resulting in innovation and efficiencies. Suitable Characteristics of Design and Construct When considering this procurement delivery model against project needs, the following typical characteristics will indicate a suitable scenario for the selection panel: tight time-lines that require high certainty in final cost and completion date design and construction risks are best managed by the contractor client is looking for design and construction innovation the client will benefit by having a single contractual arrangement for both design and delivery. This procurement delivery model is widely used in government and the private sector. In many cases, work can commence prior to finalising the design and construction documents. 4.3 Design, Construct and Maintain The features of a Design, Construct and Maintain procurement model are the same as a Design and Construct model with the added transfer of life-cycle risk to the contractor, which encourages design efficiency and quality construction and finishes to reduce long-term costs. In this model, the contractor has ongoing maintenance obligations in addition to design and construction. Life-cycle costs can be reduced if the contractor takes into account ongoing maintenance obligations when designing and constructing the facility. The following figure illustrates the Design, Construct and Maintain (DC&M) contractual arrangement. Figure 7: Typical Design, Construct and Maintain structure Principal Contractor Building Maintenance Construction Subcontractors including Design Consultants Subcontractors and Maintenance Contracts The features of a DC&M procurement model are the same as a Design and Construct model with the added transfer of life-cycle risk to the contractor, which encourages design efficiency and quality construction and finishes to reduce long-term costs. page 32

33 P r o c u r e m e n t D e l i v e r y M o d e l O p t i o n s The following table lists features of the Design, Construct and Maintain model. Advantages Single point of accountability. Time saving because design can commence ahead of full design documentation. Contractor has the opportunity to contribute construction experience into the design, resulting in innovation and efficiencies. Full integration of design, construction and maintenance. Administrative efficiency. Contractor undertakes maintenance of the asset for an agreed fixed term. Contractor warrants design including fitness for purpose of asset. Opportunity to develop innovative solutions. Transfer of life-cycle cost and risk which encourages efficient design and quality construction and finishes therefore certainty of maintenance standards (as agreed) and cost certainty (as approved) for the long term e.g. 25 years Performance standards are in place. Disadvantages (and issues that may need managing) Longer tender period needed for tenderers to assess design and building maintenance risks. Principal may pay a premium to transfer design and maintenance risks. Success relies on well defined functional and service specifications. Significant stakeholder resources may be required if there are multiple concept designs being developed simultaneously during the bid phase. Changes to design may require contract negotiations. Ability to make variations needs to be addressed in contract. Higher agency tendering costs and resourcing costs that need to be offset against potential cost savings and efficiencies. Requires agency skills (or consultants) for financial and technical assessment, tendering and management. Need to educate stakeholders (who are likely to be unfamiliar with this procurement method) to ensure that other project success factors are not compromised. When to use Design, Construct and Maintain This procurement delivery model is suitable for use when: there is an opportunity for bundling services/maintenance and creating whole-of-life efficiencies there is a requirement for a single point of accountability for design, construction and maintenance there is a requirement for a fixed price contract the government s requirements are clearly specified before tender and do not change the contractor is better placed to manage design risks at construction and maintenance stages the building maintenance requirements can easily be determined and documented. The DC&M procurement delivery model can potentially reduce overall project life-cycle costs because the contractor has the opportunity to contribute construction experience into the design, resulting in innovation, efficiencies and lower whole-of-life maintenance costs. The Design, Construct and Maintain procurement model can potentially reduce overall project life-cycle costs because the contractor is able to contribute construction experience into the design, resulting in innovation, efficiencies and lower whole-of-life maintenance costs. page 33

34 P r o c u r e m e n t D e l i v e r y M o d e l O p t i o n s Suitable Characteristics of Design, Construct and Maintain When considering this procurement delivery model against project needs, the following typical characteristics will indicate a suitable scenario for the selection panel: the client needs to outsource asset management activities tight time-lines that require high certainty in final cost (including annual maintenance costs) and completion date for construction phase design, construction and building maintenance risks that are best managed by the contactor client is looking for innovative design ideas the client wishes to encourage and/or entice and/or reward the contractor to incorporate reliability and maintainability into the design there are benefits to the client in having a single contractual arrangement. 4.4 Construction Management Under the Construction Management structure, the construction manager performs a managerial and co-ordination role (without delivery risk) and is generally paid a fee based on a percentage of the value of the works. In Construction Management (CM), the principal engages a construction manager (contractor or consultant) to manage construction works on its behalf. The principal manages the scoping and engages the designer directly. The principal also engages the trade contractors directly, although these contracts are entered into by the construction manager as the principal s agent. The construction manager performs a managerial and co-ordination role (without delivery risk) and is generally paid a fee based on a percentage of the value of the works. The following figure illustrates the contractual relationships involved in a typical CM arrangement. Figure 8: Typical Construction Management structure Principal Construction Manager Design Consultants Agent for Principal Contractors page 34

35 P r o c u r e m e n t D e l i v e r y M o d e l O p t i o n s The construction manager typically: provides advice, co-ordination, planning, cost management and supervision is paid a fee based on time or a percentage of the value of the works engages trade contractors as an agent for the client is responsible for preliminaries for trade contractors (e.g. crane hire, site sheds etc) does not take any cost or design risk although may be paid to assist the client with cost control and design advice will take responsibility for appointing a new contractor in the event that the existing contractor is unable to complete a project. The CM model is suitable for major construction in particular situations as outlined below: if a contractor collapses mid-project, it may be more efficient to complete the project through Construction Management than to fully document and tender the balance of the works as a single package the government or the client needs to retain direct control over the works. The following table lists features of the Construction Management model. Advantages Construction manager administers contractors on principal s behalf. The principal selects its own design consultants. The principal shifts management risk to the Construction Manager. The principal can retain a high degree of control over works while engaging an expert professional to administer and coordinate the project. Parts of a project can proceed while other aspects are still being documented. Disadvantages (and issues that may need managing) No single line of responsibility. The principal must claim directly against the contractors and consultants if things go wrong. Can be administratively complicated. Extra cost of Construction Manager. Limited cost certainty for the principal. Lack of focus on life-cycle costs and considerations. When to use Construction Management This procurement delivery model is advisable to use when: the Construction Management Contractor contract manages cost risks to complete the works the contract has incentives built in to reward cost and time schedule achievements the project is complex and it is not possible to fully design some elements that are required prior to work commencing on other elements (e.g. in a hospital that requires continuity of operation). page 35

36 P r o c u r e m e n t D e l i v e r y M o d e l O p t i o n s Suitable Characteristics of Construction Management Construction Management is often selected as a procurement delivery model where the project is large and able to be separated into smaller packages with definable boundaries. When considering this procurement delivery model against project needs, the following typical characteristics will indicate a suitable scenario for the selection panel: the project can be split into a number of very definable parts there is a requirement for early commencement, such as forward works, that are possible ahead of completion of project design and documentation the principal is required to retain a high degree of control over the project but at the same time must shift the management risk to the Construction Manager the principal wishes to select its own architects and design consultants the client wishes to retain flexibility to modify or develop design elements during construction without major cost penalties and mark ups there is a requirement for parts of the project to proceed while other aspects are still being documented. CM is often selected as a procurement delivery model where the project is large and able to be separated into smaller packages with definable boundaries. This allows work on site to commence as early as possible, but will demand a high element of contract co-ordination and interface. 4.5 Public Private Partnership Models A Private Public Partnership is a service contract between the public and the private sector where the government pays the private sector (typically a consortium) to deliver infrastructure and related services over the long-term. A Private Public Partnership (PPP) is a service contract between the public and the private sector where the government pays the private sector (typically a consortium) to deliver infrastructure and related services over the long-term. The private provider will not only build the facility but also operate or maintain it to specified standards over a long period. The private provider may also finance the project. PPP's typically make the private sector parties that build public infrastructure financially responsible for its condition and performance throughout the asset s life-time. Therefore, PPP's should be considered as a procurement method if there is merit in bundling asset related services into the construction contract that will be needed post-construction. Such asset related services include cleaning, security, catering, facilities management, service delivery, operations, maintenance and the like. PPP's can be delivered through various procurement delivery models where the provider takes on responsibility for non-construction functions in addition to the construction role. In each model, the provider undertakes a different combination of roles:. Design Build Operate (DBO). Design Build Finance Operate (DBFO). Design Build Finance and Maintain (DBFM). Design Build Operate Maintain (DBOM). Figure 9, on the following page, illustrates a form of PPP where the government engages a private sector entity responsible for construction, financing, operations and maintenance. The government maintains certain step-in rights in the event of default by the private party. page 36

37 P r o c u r e m e n t D e l i v e r y M o d e l O p t i o n s Figure 9: A form of Public Private Partnership structure State Step-in Deed Equity Project Vehicle Debt Construction Operate & Maintain Sponsors Lenders Contractor Operator Subcontractors (Including Design) Subcontractors In a typical PPP project, the government will: prepare an output-based specification rather than a prescriptive specification engage a provider to deliver services over a long term (e.g. 20 to 35 years or more) require the provider to design, finance, construct, maintain and operate the facility. The private party provides ancillary services including cleaning, security, facilities management and the like (or some combination of these) and assumes the risk for those functions make no payments to the provider before the facility has commenced operation provide payments over the contract s term based on services delivered against the achievement of key performance indicators, ensuring the infrastructure is maintained over its lifetime and operated efficiently Through Public Private Partnership modes, government seeks the whole-of-life innovation and efficiencies the private sector can deliver during the design, construction and operating phases of the project. eventually take back ownership of the asset at a specified handover quality/standard. Through PPP models, government seeks the whole-of-life innovation and efficiencies the private sector can deliver during the design, construction and operating phases of the project. The government s responsibilities for managing the project are very different to all other procurement delivery models. The government becomes a purchaser of asset-based services that are paid for according to performance. It allocates certain risks to the private party and locks in whole-of-life budgets and quality standards which allows the client agency to focus on its core business. page 37

38 P r o c u r e m e n t D e l i v e r y M o d e l O p t i o n s Under a Public Private Partnership, the government becomes a purchaser of asset-based services that are paid for according to performance. It allocates certain risks to the private party and locks in whole-of-life budgets and quality standards which allows the client agency to focus on its core business. PPP's are most beneficial when: it is possible to clearly define required outputs in order to structure a payment mechanism competitive bidding can achieve significant innovation in design, construction and delivery of government infrastructure the project has complexity and offers significant scope for innovation there are opportunities to transfer certain risks to the private sector which is more adept at managing them and may even price the risks lower whole-of-life asset management is achievable and cost effective there is a competitive market where strong market interest exists and the use of a competitive process will encourage innovative service delivery within government cost objectives. The following table lists features of Public Private Partnership models. Advantages Full integration of design, construction, financing, operational, maintenance and refurbishment responsibilities. Greater transfer of risk (including price risk) to the private sector at each phase. Opportunity for the private sector to develop innovative solutions. Performance standards are in place. Transfer of life-cycle cost risk encourages efficient design and quality construction and finishes therefore certainty of maintenance standards (as agreed) and cost certainty (as approved) for a long term e.g. 25 years. Overall design and fit for purpose risk lies with the private sector party. Lower cost of asset development and service provision (may be off-set by higher agency tendering costs). Less demand on agency resources over the long term. Payments only commence following successful commissioning. Disadvantages (and issues that may need managing) Success relies on well defined functional and service specifications. Significant stakeholder resources may be required during evaluation if multiple concept designs are being developed simultaneously during the bid phase. Changes to design may require contract negotiations. Ability to make variations needs to be addressed in contract. Higher agency tendering costs and resourcing costs will need to be offset against potential cost savings and efficiencies. Requires agency skills (or consultants) for financial and technical assessment, tendering and on-going management. Need to educate stakeholders (who are likely to be unfamiliar with this procurement method) to ensure that other project success factors are not compromised. page 38

39 P r o c u r e m e n t D e l i v e r y M o d e l O p t i o n s When to use Public Private Partnerships This procurement delivery model is advisable to use when: the outputs can be clearly defined and measured there is strong market interest there are opportunities for appropriate risk transfer there is a significant service component and an opportunity for bundling of services a whole-of-life approach (integrating design, construction, operation and maintenance over the life of an asset) is feasible in a single contract package Public Private Partnerships promote potential benefits in terms of lower life-cycle costs if the provider has appropriate incentive to build quality that reduces maintenance and operating costs. there is scope for innovation there is scope for appropriate third-party use of facilities, reducing net cost to government. Suitable Characteristics of Public Private Partnerships When considering this procurement delivery model against project needs, a range of questions and typical characteristics should be pursued. For PPP to be suitable, determine whether any post-construction services could be bundled within the construction contract and procured as one package. If so, the contractor has responsibility for all the bundled services (design, construction, maintenance, financing and operating the asset) according to the specifications defined by the client in the contract. The contractor may be permitted to subcontract elements but will retain ultimate responsibility for the delivery of all services. The bundling decision requires an objective analysis of the following: Efficiency - are there efficiency gains from bundling post-construction services together, and if so, what are they? Quality - can the post-construction services be adequately defined (in terms of measurable quality) and articulated in a contract? Cost - what are the transaction costs involved in bundling? The main rationale for bundling is that by putting one party in charge of all of the services, cost savings can be made over the whole life-cycle (including innovation, risk pricing and whole-of-life trade-offs). The government can extract the benefit of these savings by running a competitive process for the contract. By contrast, the unbundled approach means the government would contract for the building of the asset and make separate contractual or in-house arrangements for the post-construction services. PPP's promote potential benefits in terms of lower life-cycle costs if the provider has appropriate incentive to build quality that reduces maintenance and operating costs. Such efficiency savings can be significant. 4.6 Alliance Contracting In Alliance Contracting (AC) the principal collaborates with one or more non-owner parties (e.g. the designer and constructor) to share the risks and responsibilities in delivering the construction phase of a project. All project delivery risks are shared by the alliance participants. The AC model and supporting structures promote a positive culture based on no-fault, no-blame and unanimous decision-making requiring all participants to find best for project solutions. page 39

40 P r o c u r e m e n t D e l i v e r y M o d e l O p t i o n s Under an Alliance Contracting model, the non-owner parties are typically guaranteed reimbursement of their direct project costs and payment of corporate project overheads in an open-book arrangement. Given the importance of behavioural culture to the success of alliancing, the selection of the right participants is paramount. Under an AC model, the non-owner parties are typically guaranteed reimbursement of their direct project costs and payment of corporate project overheads in an open-book arrangement. Targets for cost, schedule and other key parameters are developed jointly during the pre-construction phase. If actual delivery is better than the agreed targets, all parties share the reward known as gain share. Conversely, if delivery does not meet agreed targets, the pre-agreed pain share formula applies. Figure 10 below illustrates the AC arrangement. Figure 10: Typical Alliance Contracting structure Principal Head Contractor Alliance Management Team Consultants & Subcontractors Consultants & Subcontractors Consultants & Subcontractors Consultants & Subcontractors page 40

41 P r o c u r e m e n t D e l i v e r y M o d e l O p t i o n s The following table lists features of an Alliance Contracting model. Advantages All parties have shared responsibility for ensuring design is appropriate. Provides flexibility to modify design and allows on-going changes to be incorporated during construction. Provides incentives to all parties to complete the project on time and within budget under the gain-share" or "pain-share philosophy. Cost of adversarial conduct, claims and disputes is eliminated in the no blame culture. Can deliver highly complex projects with uncertain risks which would otherwise be extremely difficult or impossible to deliver. Culture promotes innovation in the project s technical, safety and environmental components. Promotes project management efficiencies through integrated management and elimination of claims. Stakeholder issues can be well managed through an alliance. Integrated planning, design and construction process with early contractor and consultant involvement. All parties commit to finding best for project solutions. Potential for greater job satisfaction and skill enhancement for personnel involved. Ability to attract greater number of tenderers and sub-contractors for complex projects. Disadvantages (and issues that may need managing) Less tender price competition and related certainty demonstrating value for money (unless multiple Target Out-turn Cost approach is used). Outturn Cost in this context is the final cost of the end of each stage within a construction project. Requires all parties to be genuinely committed to openness and collaboration relies on success of relationships, teamwork and individuals performance. Requires on-going involvement of appropriate senior staff with authority to resolve issues, therefore may require extra agency input. Cost to establish and maintain relationships can be high. Limited alliance experience to date for building projects in the public sector (though commonly used for civil engineering, road, rail and water projects). The government bears the cost risk and other unspecified risks. Overall design and fit for purpose risk lies with the government. Government s recourse in the event of catastrophic failure is limited. Lack of focus on life-cycle costs and considerations (unless the alliance includes an operating or service provision component). When to use Alliance Contracting AC for projects should generally only be considered: in the delivery of complex and high-risk infrastructure projects where the solution is unclear or there is significant likelihood of scope changes where a high level of innovation is required where risks are significant, unpredictable and best managed collectively as the costs of transferring risk is prohibitive where the owner is able to be closely involved and can add value where shorter periods are required to engage the contractor and a pure (noncompetitive) alliance has been approved. page 41

42 P r o c u r e m e n t D e l i v e r y M o d e l O p t i o n s Suitable Characteristics of Alliance Contracting For AC to be suitable, in general there must be: an agency culture that promotes innovation significant uncertainty about risks that are unquantifiable and would result in large risk premiums under traditional procurement delivery models organisational capability, resources and culture conducive to delivering a project through an alliance a need to eliminate the cost of adversarial conduct, claims and disputes through the no blame culture. 4.7 Early Contractor Involvement Boom periods in the construction industry have spurred a number of creative and alternative contracting strategies. One such innovative procurement delivery model is the Early Contractor Involvement method. Boom periods in the construction industry have spurred a number of creative and alternative contracting strategies. One such innovative procurement delivery model is the Early Contractor Involvement (ECI) method. It combines the principles of Alliance Contracting with the more traditional Design and Construct model, and is aimed at establishing a longer term relationship. ECI is about the principal engaging the contractor during the early stages of the project so they can participate in the design evolution. This approach also promotes and assists in building a better understanding of the project risks and how to manage them for the mutual benefit of the parties involved. ECI (in contrast to the traditional Construct Only model) involves the contractor working with the principal in the project s initial stages to develop the design (including any innovative private sector techniques) and a detailed project plan with realistic timeframes. In parallel, the parties will also develop the Risk Adjusted Price (RAP) for the delivery stage of the project. This is where the client and the contractor work together to identify project risks which are costed and included in the final construction costs. Although the process takes a similar path to the Design and Construct model, ECI has the added benefit of delayed agreement on the RAP until all the risks are assessed in greater detail. Unlike Alliance Contracting, there is no assumption the RAP will be a cost plus amount. If the RAP cannot be agreed at this point, the client has the option of terminating the relationship with the ECI contractor and placing the project out for public tender. page 42

43 P r o c u r e m e n t D e l i v e r y M o d e l O p t i o n s Figure 11 below depicts the ECI contractual arrangement. Figure 11: Typical Early Contractor Involvement structure Principal ECI Contractor Principal Communication Accountability Alliance for Planning and Design Accountability Communication ECI or another Contractor Consultants & Subcontractors Consultants & Subcontractors Consultants & Subcontractors Consultants & Subcontractors Subcontractors Subcontractors Subcontractors Planning and Design "Go or No Go" with ECI Contractor Implementation The following table lists features of an Early Contractor Involvement model. Advantages Tender process for ECI is less intensive and less costly. Aimed at selecting the best team to deliver a project. Does not require tenderer to prepare detailed cost estimates for the actual construction stage of the works. Shortened delivery time. Has a team approach. Experience and knowledge is harnessed early in the project cycle. Increased opportunities for innovation. Quick decision making capabilities. Better integration of construction methods. Potential for early procurement of materials. Fewer expected variations during construction. Disadvantages (and issues that may need managing) Involvement of agency senior staff in early stages for longer periods. Additional costs resulting from options costing by contractor and designer ideas being considered. The potential to involve independent cost estimators to prevent higher uncontested prices building up the RAP. Early Contractor Involvement has the added benefit of delayed agreement on the Risk Adjusted Price (RAP) until all the risks are assessed in greater detail. Unlike Alliance Contracting, there is no assumption the RAP will be a cost plus amount. page 43

44 P r o c u r e m e n t D e l i v e r y M o d e l O p t i o n s Early Contractor Involvement (in contrast to the traditional Construct Only model) involves the contractor working with the principal in the project s initial stages to develop the design (including any innovative private sector techniques) and a detailed project plan with realistic time-frames. When to use Early Contractor Involvement ECI should generally only be considered where: the project is complex and high risk and has some design unknowns there is a scarcity of available resources price certainty is paramount there is limited delivery time there is an increased opportunity for innovation there is a need for price and time certainty after initial contract development phase project risks can be better allocated there is early constructability input client wishes to have maximum involvement in early development phases it is possible to remove initial uncertainties around the project risks so the parties can agree to a realistic RAP there is a risk of not obtaining competitive tenders using other procurement delivery models there is a need to engage a contractor early due to a lack of internal and external resources it is clear that better value for money can be achieved by involving the contractor early in the planning and design stages through innovation, cost limitations and so on. Suitable Characteristics of Early Contractor Involvement When considering this procurement delivery model against project needs, the following typical characteristics will indicate a suitable scenario for the selection panel: the client requires a high degree of innovation combined with an economical and simplified construction method integrated planning, design and construction process with early contractor and consultant involvement the client wishes to retain a strong influence in the planning and design stages there are tight time-lines and a requirement for high certainty in final cost and completion date project risks are complex and worthy of joint interrogation to determine risk cost and who is best placed to manage the risk the project has potential to incorporate innovative ideas and construction methods the client may require an opportunity to sever the relationship with the ECI contractor prior to the delivery stage aside from the opportunity of involving the contractor in the planning and design definition stages, the methodology, knowledge and approach in this procurement delivery model is well understood with high levels of local capability. page 44

45 P r o c u r e m e n t D e l i v e r y M o d e l O p t i o n s 4.8 Managing Contractor This form of contracting involves the principal appointing a head contractor, the managing contractor (MC), who engages sub-contractors to deliver the works. The MC is responsible for administering these sub-contracts and accepts some delivery risk. The principal and the MC generally tender or negotiate a fixed lump sum management fee. The MC may also receive incentive payments for achieving cost and schedule targets. The MC is engaged early in the process to manage the scope definition, design documentation and construction of the works. The MC sometimes performs elements of the design and/or construction and is paid for that in addition to the management fee. The following figure illustrates the MC contractual arrangement. The principal and the Managing Contractor generally tender or negotiate a fixed lump sum management fee. The Managing Contractor may also receive incentive payments for achieving cost and schedule targets. Figure 12: Typical Managing Contractor structure Principal Specialist Support Managing Contractor Design Consultant Consultants & Subcontractors Consultants & Subcontractors Consultants & Subcontractors Consultants & Subcontractors The Managing Contractor typically: is paid a management fee and may receive incentive payments for achieving target price, schedule and other key parameters undertakes some or all of the design activities may perform some of the construction works but does not necessarily do so is responsible for preliminaries (e.g. crane hire, site sheds and supervision services), general project requirements (e.g. security and insurances) and project management (e.g. scheduling, coordinating, liaising, monitoring and reporting) prepares the trade packages, conducts the tenders and selects suppliers in close collaboration with the client warrants the quality of the whole of the works warrants the completion of the works by the practical completion date. Sometimes the managing contractor engages suppliers as subcontractors and is responsible for paying them. This variation of the MC model is more like a Construct Only or Design and Construct arrangement and may be preferred depending on the risk allocation and payment and incentive structure considered to be most appropriate. page 45

46 P r o c u r e m e n t D e l i v e r y M o d e l O p t i o n s The following table lists features of the Managing Contractor model. The Managing Contractor can advise the design team on building issues during the design development process which facilitates the integrated planning of construction and operations. Advantages Potential for shorter design and construction program as construction can commence whilst design develops. Allows government to retain control of the design development stage which means the government s requirements can be accommodated within specific designs rather than a functional specification. The Managing Contractor can advise the design team on building issues during the design development process which facilitates the integrated planning of construction and operations. Allows early involvement of all project participants and stakeholders. Reduces demand on agency project management resources. Risk of documentation lies with contractor. Often has mechanisms for resolving issues and sharing benefits. Disadvantages (and issues that may need managing) The fixed lump sum is typically negotiated, not competitively tendered. The government and contractor share the risk of time and cost until the end of design development. More risk to agency for cost, time, design and not achieving best value for money outcome. Difficulty setting cost targets with limited design details. Time and cost overruns can be expensive when the design is not fully agreed and documented prior to construction commencement (e.g. construction holding costs). Overall design and fit for purpose risk lies with the government. Limited number of potentially suitable managing contractors may lead to higher cost in management margins. Lack of focus on life-cycle costs and considerations. When to use Managing Contractor This procurement delivery model is advisable to use when: The scope is uncertain and there are uncertainties related to other risks or technology in complex or high-risk projects a high degree of government expertise and input is available there is flexibility in the delivery phase to manage uncertain risks there is a need to maximise government input to manage risks where appropriate incentives for achieving cost and schedule targets can be awarded early contractor involvement is beneficial. Suitable Characteristics of Managing Contractor When considering this procurement delivery model against project needs, the following typical characteristics will indicate a suitable scenario for the selection panel: the project can be broken up into a number of different parcels of work, such as site works and forward works not all component parts of the project are required to be fully designed and developed prior to commencement of work on site. page 46

47 P r o c u r e m e n t D e l i v e r y M o d e l O p t i o n s The Managing Contractor procurement model may appear similar to the Construction Management model. Some key differences between the two models are shown below. Element Managing Contractor Construction Management Cost Risk The Managing Contractor: assumes cost risk typically guarantees a maximum price for the works may receive incentive payments for achieving cost targets. The Construction Manager does not typically assume cost risk. The Managing Contractor procurement model may appear similar to the Construction Management model, however key differences exist between the two models. Cost Certainty The principal usually has cost certainty through the guaranteed maximum price. Remuneration A fixed lump sum management fee is usually tendered or negotiated. The Managing Contractor may also receive incentive payments for achieving cost and schedule targets. Design Risk The Managing Contractor accepts design risk. The principal has little cost certainty until all of the trade contracts are in place and will need to closely manage those contracts to control costs. The Construction Manager is usually paid a fee based on time or a percentage of the value of the works. The Construction Manager may provide some design advice but does not accept overall design risk. page 47

48 P r o c u r e m e n t D e l i v e r y M o d e l O p t i o n s 4.9 Direct Managed The Direct Managed procurement delivery model involves the contract principal (generally the client) assuming the role of contractor. This form of contracting involves the principal or government agency managing the detailed delivery. This includes providing the plant and resources or obtaining these by (sub) contracting activities. The principal is responsible for administering these subcontracts and accepts all of the delivery and interface risk. The managing agency typically: undertakes and coordinates some or all of the design activities is responsible for all preliminaries (e.g. crane hire, site sheds and supervision services), general project requirements (e.g. security and insurances) and project management (e.g. scheduling, coordinating, liaising, monitoring and reporting) prepares the trade packages, conducts the tenders and selects and pays suppliers and subcontractors has control over the quality requirements of the whole of the works. In general, this model is considered: for minor works where the cost in developing and administering small contracts may render it uneconomical for management by contract for undertaking urgent or emergency works at short notice for developing and/or retaining the skills of the agency s personnel where there is a need or desire to remain an informed agency by developing the required construction experience when there is a need to develop and retain maintenance expertise as a strategic means of developing innovative and different skills where there is shortage of suitable and available contractors in the marketplace. The following figure illustrates the Direct Managed (DM) contractual arrangement. Figure 13: Typical Direct Managed structure Agency Project Team (Design & Build) Project Managers Planning Consultants Design Consultants Contract Managers Others Subcontractors Subcontractors Subcontractors Subcontractors page 48

49 P r o c u r e m e n t D e l i v e r y M o d e l O p t i o n s The following table lists features of the Direct Managed contracting model. Advantages Potential for shorter lead times to start or undertake works at short notice. Suitable for undertaking works of a sensitive nature. Allows agency to retain control of all aspects of the design and construction. Develops and retains skills in the agency. Local employment - has ability to retain local skills to perform operations. Good strategy to keep industry within acceptable benchmarks by agency having its own delivery mechanism. Disadvantages (and issues that may need managing) Increases demand on agency project management resources. More risk to agency for cost, time, design and not achieving best value for money outcome. Agency takes all the risk for quality, safety, and environmental issues. Overall design and fit for purpose risk lies with the government. When to use Direct Managed This procurement delivery model is advisable to use when: it is difficult to specify the works required the work is urgent or of an emergency nature with very short notice the agency is able to supply or seeks to build internal specialist skills not available in the market the agency can procure/source materials more economically than the private sector, such as specialised items that have long lead times there is a lack of competition amongst lead contractors in the marketplace the work cannot be deferred or delayed there is a need for total management control by the agency there is a need for tight budget and quality management by the agency. Suitable Characteristics of Direct Managed DM as a procurement strategy is used in discrete and specialised infrastructure procurement projects. This procurement delivery model involves the contract principal (generally the client) assuming the role of contractor and should be considered where: the client is willing and has the capacity and capability to take on all project risks the client has full control of the project throughout its life-cycle there is a lack of available contractors Direct Managed as a procurement strategy is used in discrete and specialised infrastructure procurement projects. the agency wishes to develop and/or retain skills for internal personnel. This procurement method is not widely used in government or the private sector. One of the issues with this model is that it may build internal skills that cannot be deployed in a continuous way within the agency. page 49

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51 5.0 Selecting a Procurement Delivery Model 5.1 The Expert Panel 5.2 Preliminary Procurement Options Analysis 5.3 Detailed Procurement Options Analysis 5.4 Scrutinising the Preferred Model 5.5 Documenting Findings in the Procurement Strategy 5.6 Contract Forms page 51

52 " The selection process is intended to provoke debate by an expert panel (with the requisite knowledge, experience and decision-making authority) about the advantages and disadvantages of adopting various procurement delivery models for a particular project.

53 S e l e c t i n g a P r o c u r e m e n t D e l i v e r y M o d e l 5.0 Selecting a Procurement Delivery Model This section describes the process for selecting a procurement delivery model for an infrastructure project. The aim of the process is to identify a procurement delivery model that will provide the best value for money under the project s unique circumstances. The process is intended to provoke debate by an expert panel (with the requisite knowledge, experience and decision-making authority) around the advantages and disadvantages of adopting various procurement delivery models for a particular project. Following a rigorous debate, the panel is then able to identify the most appropriate model by assessing each model against standard criteria listed in Table 1: Procurement Delivery Model Assessment Tool on pages The assessment tool has been developed from key generic project risks and objectives that differentiate between the available procurement delivery model options. The process for selecting a procurement delivery model undertaken by an expert panel is as follows: Brief Expert Panel Preliminary Procurement Options Assessment See Figure 2, page 14 Detailed Procurement Options Assessment See Figure 2, page 14 Scrutinising Preferred Options Documenting the Process Where, for strategic or considered reasons the decision to use a Public Private Partnership (PPP) model has already been made, agencies should refer to the full suite of National Public Private Partnership Policy and Guidelines provided by Infrastructure Australia at The procurement strategy should also provide details of the Preliminary Public Sector Comparator (PSC) 3 based on the financial analysis from the business case where PPP delivery is an option. 5.1 The Expert Panel A panel of at least three people should undertake the procurement delivery model selection process, with majority representation from within government whenever possible. Panel members should be chosen with consideration given to the following: The panel must have collective knowledge and first-hand experience in the delivery of projects using each of the procurement delivery models under consideration. Collectively the panel must understand how the asset(s) built as part of the project will be used/operated and maintained. It is advantageous to include members with appropriate seniority commensurate with the project s scale to ensure that decisions made will generally not have to be revisited. A panel of at least three people should undertake the procurement delivery model selection process, with majority representation from within government whenever possible. The person(s) that will later produce the contractual documents including the scope is included in the panel. Alternatively, the person(s) that will later produce the documents could attend as a record-keeper. It may be beneficial to involve specialist advisers, key stakeholders or external representatives on matters of particular sensitivity and importance. Panel size should be optimised taking into account the above points. 3. A Public Sector Comparator is an estimate of the hypothetical, whole-of-life cost of a public sector project if delivered by government where PPP delivery is an option. The purpose of establishing a PSC is to provide governments with a quantitative measure of the value for money it can expect from accepting a private sector Proposal to deliver the output specification compared to public sector delivery. page 53

54 S e l e c t i n g a P r o c u r e m e n t D e l i v e r y M o d e l Briefing the Panel The panel briefing will typically present items from a risk management point of view and describe the likelihood, consequence and overall ranking of various incidents and lost opportunities wherever possible. The panel must fully understand the project in order to make robust decisions about the manner of its procurement. To aid in this understanding, the panel should receive a briefing on any key elements that might affect the selection of the procurement delivery model. The panel briefing will typically present items from a risk management point of view and describe the likelihood, consequence and overall ranking of various incidents and lost opportunities wherever possible. It may also be beneficial to make an initial suggestion as to whether the government or contractor would be best placed to manage each risk. The briefing for the panel should address the following topics derived from the criteria listed in the Procurement Delivery Model Assessment Tool (pages 58-60) prior to the commencement of the briefing: 1. Scale, Complexity and Flexibility to Define Scope objectives; functions; location; features; scale; design and construction complexity and scope for innovation; key challenges; unusual project characteristics; site status including land ownership, geotechnical conditions, demolition and disposal needs, environmental and Aboriginal or European Heritage issues; opportunities to bundle or unbundle; major overall opportunities and risks. 2. Public Profile and Policy Environment Ministerial and other significant internal or external voiced opinions potentially affecting procurement; agency risk culture; political opportunities and risks. 3. Market Conditions likely competitive interest in the project; market capacity and capability considering consultants, contractors and suppliers; anticipated number of tenderers; industry expectations; market opportunities and risks. 4. Time estimated duration; critical deadlines and their achievability; potential for delays and disruptions (e.g. seasonal conditions); value (if any) associated with early completion; need for a quick start; time opportunities and risks. 5. Cost estimated cost; level of confidence in the estimate; anticipated future recurrent costs (if applicable) in comparison to normal and industry-leading recurrent cost rates; need for a lump sum tendered price; cost opportunities and risks. 6. Ability to Deliver the Required Scope and Quality design features; user needs; operator and maintainer needs; functionality delivered by the project; planned future expansion on or affecting the site; quality standards and drivers; new technology; sustainability aspirations; need for iconic outcome; scopeability of the project: e.g. likelihood that the documented scope will need to be changed during delivery; need for specialised or custom-built plant or equipment; design, scope and quality opportunities, uncertainties and risks. 7. Ability to Manage Stakeholders and Interfaces stakeholder environment and cross section of current opinions; degree of stakeholder input required for successful outcome; potential for community disruption and opposition; interfaces with adjacent assets (including roads), operation, works or supply contracts; commitments made to stakeholders or the public; stakeholder and interface opportunities and risks. 8. Focus on Future Operations of Assets and Knowledge Management Issues government management capability and capacity; what will be required to facilitate a smooth start to operations; need for construction records and maintenance/ operations training and manuals; opportunities to expand government skills; knowledge opportunities and risks. page Other Risk Factors and Opportunities not previously considered.

55 S e l e c t i n g a P r o c u r e m e n t D e l i v e r y M o d e l 5.2 Preliminary Procurement Options Analysis Consistent with the National Public Private Partnership Policy and Guidelines, all general government infrastructure projects with a capital value of more than $50 million should be considered for delivery as a PPP. There are advantages in using a PPP to deliver large-scale, complex projects; however, the process of investigating the project s feasibility for delivery as a PPP and developing the necessary documentation can be lengthy. As PPP is a significantly different kind of procurement delivery model, it is worthwhile ascertaining its feasibility for the project early in the process (i.e. during the 'Evaluation' stage in the Project Management Framework) as presented in Figure 1, page 13. This preliminary assessment can be undertaken by the panel or a suitably knowledgeable group early in the project s life as a first pass or a desktop analysis of PPP value drivers. This can be done as part of building the project s business case assessment ahead of the procurement model selection process. There are advantages in using a Public Private Partnership to deliver large-scale, complex projects; however, the process of investigating the project s feasibility for delivery as a PPP and developing the necessary documentation can be lengthy. The PPP Value Drivers Analysis should be undertaken with consideration given to: Sufficient scale and long term nature Does the project have a total capital investment value of $50 million or greater? Will the project have a long term life span (20+ years) with related servicing needs? Complex risk profile and opportunity for risk transfer Does the project have a complex risk profile? Can these risks be clearly defined? Is the private sector better able to manage a substantial amount of these risks? Whole-of-life costing Would it be beneficial to integrate different project components by assigning responsibility to a single party (i.e. up-front design and construction costs with ongoing service delivery, operational, maintenance and refurbishment costs)? Innovation Is there the possibility for innovation driven by a whole-of-life approach? Measurable outputs Does the project have measurable outputs allowing for meaningful measurement and evaluation of performance, and the execution of enforceable performance based contracts? Asset utilisations Could the project potentially be utilised by third parties to minimise cost to government? Competitive Process Does a competitive market for the project exist? If the answer to all or most of these questions is Yes, the relevant agency should contact the PPP Support Unit ( [email protected]) within the WA Government Department of Treasury and Finance for advice on whether to pursue a full PPP procurement options analysis in accordance with the National PPP Policy and Guidelines and the State s PPP Policy. In some cases, to manage the risk of potential delays, it can be beneficial to develop an alternative (second) preferred procurement delivery model in the background as a fallback position should PPP not be considered the best procurement option. If a PPP is clearly not suitable, the procurement delivery model selection panel may elect to omit the PPP model from further considerations. In some cases, to manage the risk of potential delays, it can be beneficial to develop an alternative (second) preferred procurement delivery model in the background as a fallback position should PPP not be considered the best procurement option. page 55

56 S e l e c t i n g a P r o c u r e m e n t D e l i v e r y M o d e l The Procurement Options Analysis is designed to help identify the most suitable models for consideration based on the project s individual circumstances. 5.3 Detailed Procurement Options Analysis The Procurement Options Analysis (POA) is designed to help identify the most suitable models for consideration based on the project s individual circumstances. It involves the development of relevant selection criteria and an appropriate weighting system for each criterion Determine the Models to be Assessed This step allows the panel to eliminate procurement delivery models that are unworthy of further consideration. Decisions about whether to eliminate an option from further discussion should generally be based on unambiguous items only. This step also allows the addition of hybrid models to the list of procurement options under assessment, however this must be done with caution to ensure everyone on the panel has the same understanding of the hybrid model under assessment. The panel should also satisfy itself that the hybrid model would be acceptable to all influential stakeholders before it is assessed. Generally, the number of models considered for discussion should be between three and five Review the Considerations The Procurement Delivery Model Assessment Tool criteria in Table 1 (pages 58-60) and the considerations listed therein need to be reviewed to ensure that any circumstance of the project that may affect the procurement decision will be examined during the assessment process. While it is permissible to delete irrelevant considerations, it is generally more useful to devote time to adding considerations to capture all criteria. It is also permissible to add entirely new criteria, if needed, in light of special circumstances Identify the Key Criteria It is crucial to identify the most important project criteria to ensure they are given due weight during the assessment phase. This is done simply by writing Yes in the Procurement Delivery Model Assessment Tool spreadsheet for such criteria. While all the criteria are important for most projects, this step is designed to identify the two or three most critical items. The method for one criterion at a time is simply to run through the considerations and highlight the items of most relevance. The panel then collaboratively assigns a score for each procurement delivery model option against the criteria Assess the Models Against Each Criteria Assessment of the procurement delivery model options against the criteria is at the heart of the selection process. Typically, a facilitator should present the criteria in an appropriate medium and format so the panel s assessment can be recorded in real time. The method for one criterion at a time is simply to run through the considerations and highlight the items of most relevance. The panel then collaboratively assigns a score for each procurement delivery model option against the criteria. When all the scores have been entered for the criterion, the panel reviews the relativities of the scores before moving onto the next criterion. Scores can be numerical or alphabetical based on the panel s preference, however numerical scoring can make evaluating and presenting the results easier. It is important during this step to record any comments relevant to the future development of the contract documentation. If the comments are brief, they can be directly recorded in the page 56

57 S e l e c t i n g a P r o c u r e m e n t D e l i v e r y M o d e l working document version of the Procurement Delivery Model Assessment Tool that is to be completed to inform the assessment process. In some circumstances, it may be beneficial for panel members to independently assign scores for the procurement delivery model options against each criteria before coming together as a panel. An electronic spreadsheet version (which also contains formulas) of the Procurement Delivery Model Assessment Tool as can be accessed via the CEIID website at Identify the Preferred Model Once scores have been assigned against all criteria for the various procurement delivery model options, the results can be viewed as a whole to identify the preferences. This process is intended to provoke more debate in reaching a final decision. Rarely will one model stand out as being completely superior to all others. Typically it is easier to eliminate the least preferred procurement delivery models first. In some cases it is worth identifying a first and second preference. Scores can be assessed by using a number of approaches including: the highest average score against each criteria the highest average score against only the key criteria the greatest number of wins (or equal wins) against each criteria greatest number of wins (or equal wins) against the key criteria only the minimum number of low scores against each criteria. It is best for the panel to debate prior to reaching an agreement by consensus after analysing all of the above. page 57

58 S e l e c t i n g a P r o c u r e m e n t D e l i v e r y M o d e l page 58 Scoring Options 0 to 6: 6 = Best ; 3 = Acceptable; 0 = Unacceptable Comments Scoring is Relative 6 = Best 3 = Acceptable 0 = Unacceptable KEY PROJECT CRITERIA (KPC) (H High, M Medium, L Low) Construct-Only (CO) after full design Design and Construct (D&C) Design and Construct and Maintain (DC&M) Construction Management (CM) Public Private Partnerships (PPP) Alliance Contracting (AC) Early Contractor Involvement (ECI) Managing Contractor (MC) Direct Managed (DM) Table 1: Procurement Delivery Model Assessment Tool Procurement Delivery Model Assessment Page 1 Insert Project Name Insert Date Insert Panel Members Criteria (and considerations) 1. Scale, Complexity and Flexibility to Refine Scope Is master planning in place, are environment approvals simple and are risks understood? opportunity or need for contractor input into innovation in design, construction or maintenance (routine or nonroutine) government management capability/ability to retain competent resources for duration of contract opportunities to bundle or unbundle including ongoing property services likelihood of changes to the project scope through the life of the project including the ability to accommodate scope trimming to meet budget. 2. Public Profile and Policy Environment expectations of Ministers, Treasury, Strategic Projects, BMW or other agencies consider public profile and project sensitive commitments made to the public and/or stakeholders and potential for any community opposition that could affect the project risk to government credibility and reputation.

59 S e l e c t i n g a P r o c u r e m e n t D e l i v e r y M o d e l Table 1: Procurement Delivery Model Assessment Tool Scoring Options 0 to 6: 6 = Best ; 3 = Acceptable; 0 = Unacceptable Procurement Delivery Model Assessment Page 2 Scoring is Relative 6 = Best 3 = Acceptable 0 = Unacceptable DM MC ECI AC PPP CM DC&M D&C CO KPC (H, M, L) 3. Market Conditions likelihood of getting competitive interest from local markets, and attractiveness to contractors, sub-contractors and suppliers of materials and equipment vs. cost (to market) of tendering market sustainability, capability and capacity/opportunities for contribution from the private sector, government management capability/ability to retain competent resources for duration of contract. 4. Time certainty that deadlines will be met, critical completion dates, need for a quick start, is early completion of benefit to government? ability to accommodate potential disruptions outstanding or yet to be finalised approvals, agreements and land acquisition. 5. Cost need for certainty of cost predictions/funding availability need for lump sum (full-price) cost competition in the tender decision is it more important to have the most skilled or most economical team? ability to achieve the optimum combination of whole-of-life costs and quality to meet the user requirement. 6. Ability to Deliver the Required Scope and Quality incentives and impediments to: (a) meeting user needs, (b) improving whole-of-life recurrent cost efficiency, (c) appropriately allocating and managing design risks, (d) accommodating future works, (e) providing necessary innovation or new technology and (f) achieving sustainability targets iconic vs. functional outcomes required level of government and stakeholder involvement in, and influence over, the design impact of site or technical uncertainties (e.g. geotechnical, environmental, new technology, etc.). page 59

60 S e l e c t i n g a P r o c u r e m e n t D e l i v e r y M o d e l Table 1: Procurement Delivery Model Assessment Tool page 60 Scoring Options 0 to 6: 6 = Best ; 3 = Acceptable; 0 = Unacceptable Procurement Delivery Model Assessment Page 3 Scoring is Relative DM MC ECI AC PPP CM DC&M D&C CO 6 = Best 3 = Acceptable 0 = Unacceptable KPC (H, M, L) 7. Ability to Manage Stakeholders/Interfaces consider physical, contractual, statutory approval, stakeholders, operational, related or essential projects nearby that will impact project and other types of interfaces degree of stakeholder liaison, influence and agreement required for success of the project commitments made to the public or stakeholders approvals and agreements required, and the likelihood of significant approval conditions greenfield (vacant site) vs. brownfield site (site containing existing infrastructure), adjacent or concurrent: (a) works, (b) operations and (c) future works. 8. Focus on Future Operations of Asset and Knowledge Management knowledge handover to operations and maintenance personnel to ensure a smooth start to operations likelihood of achieving desired efficiencies in the operation and maintenance of the asset (to minimise recurrent costs, staffing levels etc). opportunity for operational staff and service providers to have input and participation in project. 9. Other Risk Factors and Opportunities not Previously Considered availability of sufficient government resources to manage project delivery current experience of government personnel that will embark on the project vs. opportunities to increase project management and other skills of government appropriateness of transferring risk, allocation of risk items to the party best able to manage them, the government's confidence that risks will be properly managed precedents set and lessons learned on other similar projects tactical allocation of capital works program to maintain proficiency in supported procurement delivery models what is the most economical way to manage project risks?

61 S e l e c t i n g a P r o c u r e m e n t D e l i v e r y M o d e l 5.4 Scrutinising the Preferred Model Once a preferred procurement delivery model has been identified, it should be individually considered to ensure adequacy and to confirm there are no major issues. This process can provide valuable guidance for the development of future contractual documents. The aspects listed below are typical items that will very likely need to be addressed for any project. The list can be expanded for projects with special requirements or circumstances. The intention aims to trigger more detailed consideration of the criteria listed in the Procurement Delivery Model Assessment Tool and further reinforce the appropriateness and correctness of the procurement model selected. When scrutinising preferred options, it is useful to determine how a range of issues will be managed under the contract for the preferred delivery model. As a guide, determine how the following issues will be managed under the contract for the preferred procurement delivery model. This list can be refined and expanded by the selection panel dependant on the project being assessed: the project s critical time deadlines seasonal or other potential time disruptions anticipated number and type of changes to the project scope cost certainty in accordance with key stakeholders and the government's expectations demonstration of value for money in the tender decision market conditions anticipated at the time of tender and whether it would attract sufficient bids envisaged field of contractors and suppliers that might bid for the project meeting the objectives and expectations of relevant senior staff within the client agency and other key stakeholders within government the allocation of risks to the party best able to manage them providing assurances to give confidence to the agency for risks assigned to the contractor geotechnical uncertainties environmental, Aboriginal and European heritage issues planning and development issues demolition/disposal needs land ownership sustainability targets obtaining all the necessary approvals for the project and complying with all the conditions that might be set required levels of stakeholder consultation, stakeholder influence and responsiveness to stakeholder concerns handling any potential community opposition to the project ensuring that planned or potential future works will be properly accommodated and records to demonstrate such for future reference will be generated appropriateness of the procurement delivery model and its ability to fulfil all promises and commitments made to the public or key stakeholders in relation to the project page 61

62 S e l e c t i n g a P r o c u r e m e n t D e l i v e r y M o d e l management of interfaces (i.e. physical, contractual or trade scheduling) with adjacent or related works undertaken by others appropriateness of the procurement delivery model for the project's design risks and complexity. Review the risk assessment item by item, factoring design innovation required and use of new (or locally untried) technology achievement of design objectives whether the project is of an iconic nature or purely a functional item of infrastructure the client s desired level of involvement in, and influence over, the design achieving the training and development outcomes desired by the client for its employees the acquisition of any particular or custom-built plant or equipment required achieving the desired goals for efficiency of operations and maintenance ensuring a seamless commencement to operations and maintenance of the built asset(s) at the time of handover ensuring the timely delivery of all design, construction, operations and maintenance records the capability and experience of the client s personnel that will be assigned to the project any special measures required to ensure the key personnel nominated in the tender are retained for the duration of the contract, or to vet and approve replacement personnel should they be required appropriateness for industrial relations climate appropriateness for local security environment. If the above list reveals significant potential problems with the preferred procurement delivery model or that possible consequences lie outside the organisation s tolerance for risk, the second preference procurement delivery model should be assessed using the same process. page 62

63 S e l e c t i n g a P r o c u r e m e n t D e l i v e r y M o d e l 5.5 Documenting Findings in the Procurement Strategy The procurement strategy summarises the basis for the panel s decisions regarding the selection of the preferred procurement delivery model. It is typically written shortly after the panel meeting(s) and circulated for endorsement by the panel within one week. The procurement strategy should be a concise stand alone document that is also appropriate for appending to a business case or project definition plan. Below is a typical Table of Contents example for a Procurement Strategy report. The procurement strategy should be a concise stand alone document that is also appropriate for appending to a business case or project definition plan. Executive Summary Introduction Project Description Approach to Procurement Options Analysis Potential Procurement Options Assessment Against Evaluation Criteria Assessment Summary and Recommended Procurement Method Option(s) Next Steps Appendix A high level summary that should include a table outlining the procurement options considered and the assessment undertaken to reach a preferred procurement method. Covers the purpose, background and scope of the report. Outlines the objectives, key characteristics and preferred technical solution. Describes the procurement options methodology and evaluation framework, criteria, rankings and assessment ratings. This harnesses the collective knowledge and contributions from each panel member leading to decisions made. An overview of the various options and potential for aggregation and packaging. Includes details of the PPP suitability assessment and Procurement Options Analysis. Covers issues such as demand and operational flexibility under different procurement methods and an assessment against the criterion. Include whole of life-cycle issues. A high level summary on the recommended procurement methodology option(s). Key issues highlighted such as: time-lines; stakeholder engagements, governance arrangements, legislative requirements, further market engagement, further development of PSC (Public Sector Comparator, see note 3 on page 53). Notes for development of the future contract documentation. 5.6 Contract Forms Where possible, the standard contract forms as endorsed and prescribed by the State Solicitor's Office (within the Government of Western Australia Department of the Attorney General) should be used. Departures from standard contracts may require independent review and specialist legal advice. page 63

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