Philippine-Australia PPP Policy Dialogue Case Study Royal Children s Hospital Tony Lubofsky Project Director
Victorian Comprehensive Cancer Centre
RCH Project Scope Construction Phase PPP Operating Phase 25 years Stage 1 - $900m (2008 2011) New hospital facilities Expanded MCRI and University of Melbourne facilities 1,300 space underground carpark Stage 2 - $160m (2012 2014) Demolition of existing hospital Construction of additional 800 space underground carpark Additional commercial facilities (hotel, gym, retail) Refurbish FEB and cloak RPB facade Hard FM - maintenance / refurbishment (incl. retained buildings) Security Help Desk Carparking operations (RCH to retain revenues) Grounds Maintenance Waste management Cleaning Food services Park reinstatement (not part of the PPP project)
Typical PPP Commercial Structure State / DOH Project Agreement Debt Providers Consortium Special Purpose Vehicle Equity Providers Construction Agreement Builder Facilties Management Agreement Facilities Manager Building Maint. Refurbishment Cleaning Security Carparking
Typical PPP Commercial Structure Construction Phase State / DHS $0 Project Agreement Debt Consortium Special Purpose Vehicle $1,000m $100m Equity Construction Agreement $1,100m Facilties Management Agreement Builder Facilities Manager Building Maint. Refurbishment Cleaning Security Carparking
Typical PPP Commercial Structure Operating Phase (25 years) State / DHS $100m pa (x 25 yrs) Project Agreement Debt Providers $60m pa Consortium Special Purpose Vehicle $10m pa Equity Providers $30m pa Facilties Management Agreement Facilities Manager Building Maint. Refurbishment Cleaning Security Carparking
Typical PPP Commercial Structure Operating Phase (25 years) Net Present Cost compared to the Public Sector Comparator State / DHS $100m pa (x 25 yrs) Project Agreement Debt Providers $60m pa Consortium Special Purpose Vehicle $10m pa Equity Providers $30m pa Facilties Management Agreement Facilities Manager Building Maint. Refurbishment Cleaning Security Carparking
Key success factors Clarity of vision Realistic budget / program Effective governance Experienced project director / project team High quality design / functional / technical briefs (incl. balance between inputs and outputs) Stress testing of KPIs Efficient rather than maximum risk transfer Clear documentation requirements Interactive tender process Active contract management Clear definition of what constitutes a modification and pricing mechanism (incl. pre-agreed margins) Knowing when to use the contract, and when to put it away
Clarity of Vision Does Government have a clear vision? Need to be able to clearly articulate the vision Fit for purpose of limited benefit Use of exemplars or budget / Public Sector Comparator Very challenging when dealing with quality / aesthetics. Value of bidder workshops
Scope / Budget Scope to fit budget, or budget to fit scope Delay announcement re scope, budget, program Don t set unrealistic timelines. Beware of optimism bias. Projects generally cost more and take longer than original estimates. Detailed analysis and modelling of project risks Use of scope ladder (identify scope items that can be added or removed if bids are below / above the Public Sector Comparator) Management of scope creep
Effective governance Decide Cabinet / Minister Accountable Steering Committee / Executive Governance Group Includes representatives of: Relevant Dept (Chair) Dept of Treasury & Finance Dept of Premier & Cabinet Other Gov. stakeholders Project Director Responsible Project Team Interagency Working Groups
Experienced project director / team Experience on comparable projects Project Director needs to be capable of understanding commercial and technical challenges Quality more important than quantity Project team to comprise mix of project management, commercial, technical (design, engineering, ICT, ESD etc), communications skills Recognise that consultants can get it wrong (eg. too much gold plating)
Quality Brief Design, functional, technical, engineering, ICT briefs Critical importance, but extremely challenging Poor quality brief = poor quality outcome Balance between input and output specifications Too input based no innovation Too output based increased chance bidders will get it wrong Language needs to be capable of contractual enforcement Recognise areas that are difficult to brief (quality / aesthetics) and address via tender response requirements
Key Performance Indicators KPIs / Service Specifications define the service standards expected during the operating phase of the PPP (eg. building maintenance, cleaning, security, catering, materials management, grounds maintenance etc) Tied to the payment mechanism Need to be capable of objective measurement Stress test to ensure they work in practice, and are affordable Rectification and abatement regime needs to be carefully calibrated
Risk Transfer PPPs are generally very effective at transferring risk from Government to the private sector (although depends on the quality of the contract documentation) Aim for efficient rather than maximum risk transfer Risks should be allocated to the party based able to manage the risk Any risk can be transferred to the private sector. However it may not equate to value for money.
Clear documentation Alignment of the contract the project brief tender documents Unambiguous language in the brief / bid documents. Addressing conflicts between the brief / bid. What takes precedence? Careful consideration of tender response requirements to address areas of ambiguity in the brief
Interactive tender process Multiple workshops with bidders during the RFP response period Aims to ensure bidders do not misinterpret the brief The greater interaction, the less risk of bidders getting it wrong Can engage with bidders and still maintain probity
Avoiding modifications / variations Clear definition of what constitutes a modification (building and equipment) The quality of the brief and tender documents directly impacts the likelihood of modification Design development v- Modification Clear understanding of how modifications are to be priced, including margins Involvement of the Independent Reviewer
QUESTIONS?