November 2010
Infrastructure Procurement
Options Guide
Sharing knowledge, developing leading practice and
driving innovation to improve government infrastructure
planning, delivery and management.
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
• M
argaret 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
http://www.ceiid.wa.gov.au/publications.html.
Further information on this project is available from Sam Mileti, who can be contacted
via email: sam.mileti@dtf.wa.gov.au or phone: (08) 9222 5531.
All other enquiries can be directed to the CEIID PMO which can be contacted via email:
ceiid@dtf.wa.gov.au or phone: (08) 9222 5406. For additional CEIID information, visit
www.ceiid.wa.gov.au.
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.
INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Table of Contents, Glossary & Foreword
Table of Contents
1.0 Introduction .................................................................................................................... 7
2.0
1.1 Context................................................................................................................... 9
1.2 Purpose of the Guide.............................................................................................. 9
1.3 Who will benefit from the Guide............................................................................ 10
1.4 Scope of the Guide............................................................................................... 10
1.5 Structure of the Guide.......................................................................................... 10
Infrastructure Procurement.............................................................................................11
3.0
2.1 Purpose of a Procurement Strategy..................................................................... 13
2.2 Key Elements of a Procurement Strategy............................................................ 15
2.3 When to Develop the Procurement Strategy........................................................ 16
2.4 Considerations and Timing of Procurement Decisions.. ............................. 17
Procurement Methodology Decisions............................................................................ 19
3.1 Market Engagement and Analysis........................................................................ 21
3.1.1 Engaging in Preliminary Dialogue with Industry and Market Analysis....... 21
3.1.2 Tendering and Related Engagement Processes....................................... 22
3.2 Procurement Delivery Model Selection................................................................ 22
3.2.1 Procurement Delivery Model Usage in Government Agencies................. 23
3.3 Agency Capacity and Capabilities........................................................................ 23
3.4 Agency Strategic Fit............................................................................................. 24
3.5 Contract Management.......................................................................................... 24
4.0 Procurement Delivery Model Options............................................................................ 25
5.0
4.1 Construct Only (Lump Sum or Fixed Price).......................................................... 29
4.2 Design and Construct........................................................................................... 31
4.3 Design, Construct and Maintain........................................................................... 32
4.4 Construction Management................................................................................... 34
4.5 Public Private Partnership Models........................................................................ 36
4.6 Alliance Contracting.............................................................................................. 39
4.7 Early Contractor Involvement............................................................................... 42
4.8 Managing Contractor............................................................................................ 45
4.9 Direct Managed.................................................................................................... 48
Selecting a Procurement Delivery Model....................................................................... 51
5.1
5.2
5.3
5.4
5.5
5.6
The Expert Panel.................................................................................................. 53
5.1.1 Briefing the Panel...................................................................................... 54
Preliminary Procurement Options Analysis.......................................................... 55
Detailed Procurement Options Analysis............................................................... 56
5.3.1 Determine the Models to be Assessed...................................................... 56
5.3.2 Review the Considerations........................................................................ 56
5.3.3 Identify the Key Criteria............................................................................. 56
5.3.4 Assess the Models Against Each Criteria.................................................. 56
5.3.5 Identify the Preferred Model...................................................................... 57
Scrutinising the Preferred Model.......................................................................... 61
Documenting Findings in the Procurement Strategy............................................ 63
Contract Forms..................................................................................................... 63
INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Table of Contents, Glossary & Foreword
Glossary
Procurement
Methodology
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.
Procurement
Strategy
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.
Public
Construction
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 1994.
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).
"
“...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.
INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Table of Contents, Glossary & Foreword
Foreword
The State Asset Investment Program for 2010-14 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:
1.0
Introduction
1.1Context
1.2Purpose of the Guide
1.3Who will benefit from the Guide
1.4Scope of the Guide
1.5Structure of the Guide
page 7
"
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.
INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Introduction
1.0Introduction
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
INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Introduction
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
Introduction
Establishes the significance of sound public infrastructure procurement strategy decisions and provides a broad overview of the Guide.
Section 2.0
Infrastructure Procurement
Explains the purpose and key elements of a procurement strategy and considerations and timing of procurement decisions.
Section 3.0
Procurement Methodology Decisions
Explains the key considerations and activities agencies need to undertake to support the procurement and delivery model selection process.
Section 4.0
Procurement Delivery Model Options
Outlines a range of procurement delivery models including the
advantages, disadvantages and best use scenarios for each model.
Section 5.0
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
2.0
Infrastructure Procurement
2.1Purpose of a Procurement Strategy
2.2Key Elements of a Procurement Strategy
2.3When to Develop the Procurement Strategy
2.4Considerations and Timing of Procurement Decisions
page 11
"
Major infrastructure projects require detailed planning
and a robust value for money assessment of each
procurement option available.
INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Infrastructure Procurement
2.0Infrastructure 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.
The key purpose of a
procurement strategy is
2.1 Purpose of a Procurement Strategy
to help identify the most
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.
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
Preliminary
Procurement
Delivery Model
Selection
Definition
Delivery
Transition
to
Operation
Project
Review
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
INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Infrastructure Procurement
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
If delivery
as a PPP is
justified
If proposal has
the potential for
delivery as a PPP
Preliminary POA
see Section 5.2
of the Guide for
PPP as part of
business case
development.
Move to
Definition
Phase and
commence PPP
establishment
Detailed PPP
POA as per
Infrastructure
Australia
Guidelines.
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.
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
Delivery
Definition
Develop
Contract
INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Infrastructure Procurement
2.2 Key Elements of a Procurement Strategy
Designed to identify and recommend a preferred procurement methodology, the
procurement strategy usually contains:
A key element of the
• a statement of objectives
procurement methodology,
• a description of the requirements
which includes decisions
• 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
procurement strategy is the
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
INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Infrastructure Procurement
Figure 3: Procurement Strategy Elements
Information
prepared for the
business case
flows into the
Procurement
Strategy
Objectives

Cost Analysis


Risk Analysis
Procurement
Methodology


Policy Context

Project
Characteristics
Contract
Management

Funding
Procurement Model:
• Construct Only
• Design & Construct
• Public Private
Partnerships
• Early Contractor
Involvement
• Other

Market
Engagement
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 58-60 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.
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INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Infrastructure Procurement
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 Reviews2.
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
3.0
Procurement Methodology Decisions
3.1Market Engagement and Analysis
3.2Procurement Delivery Model Selection
3.3Agency Capacity and Capabilities
3.4Agency Strategic Fit
3.5Contract Management
page 19
"
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.
INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Procurement Methodology Decisions
3.0Procurement Methodology Decisions
For the purpose of this Guide, there are five primary procurement methodology
decisions to consider:
The procurement
1. Market Engagement and Analysis
recommended approach
2. Procurement Delivery Model Selection
on a value for money
3. Agency Capacity and Capabilities
basis. Justification should
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.
strategy should justify the
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.
3.1.1Engaging 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.
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INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Procurement Methodology Decisions
3.1.2Tendering 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.
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INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Procurement Methodology Decisions
3.2.1Procurement Delivery Model Usage in Government
Agencies
The chart below relates to feedback provided by CEIID's Alternative
Delivery Mechanisms Project Reference Group late 2008.
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
 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
DTF
Department of Treasury and Finance
SP Strategic Projects
BMW Building Management and Works
MRWA Main Roads Western Australia
PTA Public Transport Authority
FP 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
INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Procurement Methodology Decisions
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.
page 24
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.
4.0
Procurement Delivery Model Options
4.1Construct Only (Lump Sum or Fixed Price)
4.2Design and Construct
4.3Design, Construct and Maintain
4.4Construction Management
4.5Public Private Partnership Models
4.6Alliance Contracting
4.7Early Contractor Involvement
4.8Managing Contractor
4.9Direct Managed
page 25
"
Each procurement delivery model has its own strengths,
weaknesses and characteristics that suit different conditions
and circumstances.
INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Procurement Delivery Model Options
4.0Procurement 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
page 28
Actual
Actual
Actual
Actual
Actual
Managing Contractor
Construct Only
Construction Management
Alliance Contracting
Direct Managed
Fixed
Actual
Actual
Early Contractor Involvement
Contract costs
are fixed prior to
proceeding
Actual
Design & Construct
Legend
Actual
Design, Construct & Maintain
Actual
Actual
Actual
Fixed
Actual
Fixed
Fixed
Fixed
Fixed
Actual
Actual
Actual
Actual
Actual
Actual
Actual
Fixed
Fixed
Actual
Actual
Actual
Actual
Actual
Actual
Actual
Actual
Fixed
Operate
Contractor makes
the main decisions
Maintain
Contractor
Construct
Contract costs are
incurred as they
arise
Actual
Actual
Actual
Actual
Fixed
Fixed
Fixed
Fixed
Fixed
Design
Predominant Payment Method
Concept
Fixed
Public Private Partnership
Procurement delivery
models detailing
responsibilities based
on risk factors
Figure 4: Responsibilities based on risk factors
Client
Client
Client
Client
Client
Client
Shared
Client
Client
Contractor
Concept
Client
Shared
Contractor
Contractor
Contractor
Contractor
Contractor
Contractor
Contractor
Construct
Client makes the
main decisions
Client
Shared
Client
Client
Contractor
Contractor
Contractor
Contractor
Contractor
Design
Shared
Client
Client
Client
Client
Client
Client
Client
Client
Client
Client
Client
Client
Client
Client
Client
Contractor
Operate
Main decisions
are shared
Contractor
Contractor
Maintain
Main Decision Maker
INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Procurement Delivery Model Options
INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Procurement Delivery Model Options
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.
Irrespective of the actual
The following table lists features of the Construct Only model.
the parties) at the
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.
cost of the works, the
contractor is entitled
to be paid the contract
sum (as agreed between
commencement of the
project with adjustments
made for all approved
variations.
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Procurement Delivery Model Options
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
When considering this procurement delivery model against project needs, the following
typical characteristics will indicate a ‘suitable’ scenario for the selection panel:
is the most prominently
• high levels of certainty with regard to cost and quality
used and best understood
contracting strategy in
• project risks that are well defined, clearly understood and easily allocated to an
appropriate party
government and the private
• a high level of client involvement and control during the design phase
sector across Australia.
• 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.
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INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Procurement Delivery Model Options
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.
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INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Procurement Delivery Model Options
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
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
construction and finishes
to reduce long-term costs.
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.
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Procurement Delivery Model Options
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.
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INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Procurement Delivery Model Options
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
• d
esign, 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
Agent for
Principal
Contractors
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Design Consultants
INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Procurement Delivery Model Options
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)
• d
oes not take any cost or design risk although may be paid to assist the client with
cost control and design advice
• w
ill 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).
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INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Procurement Delivery Model Options
Suitable Characteristics of Construction Management
is often selected as a
When considering this procurement delivery model against project needs, the following
typical characteristics will indicate a ‘suitable’ scenario for the selection panel:
procurement delivery
• the project can be split into a number of very definable parts
model where the project
• there is a requirement for early commencement, such as forward works, that are
possible ahead of completion of project design and documentation
Construction Management
is large and able to be
separated into smaller
packages with definable
boundaries.
• 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.
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INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Procurement Delivery Model Options
Figure 9: A form of Public Private Partnership structure
Step-in Deed
State
Equity
Project Vehicle
Construction
Debt
Sponsors
Lenders
Operate & Maintain
Contractor
Operator
Subcontractors
(Including Design)
Subcontractors
In a typical PPP project, the government will:
Through Public Private
• prepare an output-based specification rather than a prescriptive specification
Partnership modes,
• engage a provider to deliver services over a long term (e.g. 20 to 35 years or more)
• r equire 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
• p
rovide 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
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.
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INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Procurement Delivery Model Options
Under a Public Private
PPP's are most beneficial when:
Partnership, the
• it is possible to clearly define required outputs in order to structure a payment
mechanism
government becomes a
purchaser of asset-based
services that are paid for
• c ompetitive bidding can achieve significant innovation in design, construction and
delivery of government infrastructure
according to performance.
• the project has complexity and offers significant scope for innovation
It allocates certain risks to
the private party and locks
• 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
in whole-of-life budgets
• whole-of-life asset management is achievable and cost effective
and quality standards
• 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.
which allows the client
agency to focus on its core
business.
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.
page 38
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.
INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Procurement Delivery Model Options
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
Public Private Partnerships
promote potential benefits
in terms of lower life-cycle
costs if the provider has
appropriate incentive
• there are opportunities for appropriate risk transfer
to build quality that
• there is a significant service component and an opportunity for bundling of services
reduces maintenance and
• a whole-of-life approach (integrating design, construction, operation and
maintenance over the life of an asset) is feasible in a single contract package
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:
• E
fficiency - are there efficiency gains from bundling post-construction services
together, and if so, what are they?
• Q
uality - 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.
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Procurement Delivery Model Options
Under an Alliance
Contracting model, the
non-owner parties are
typically guaranteed
reimbursement of their
direct project costs and
payment of corporate
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.
project overheads in an
open-book arrangement.
Figure 10 below illustrates the AC arrangement.
Figure 10: Typical Alliance Contracting structure
Head Contractor
Principal
Alliance
Management Team
Consultants &
Subcontractors
page 40
Consultants &
Subcontractors
Consultants &
Subcontractors
Consultants &
Subcontractors
INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Procurement Delivery Model Options
The following table lists features of an Alliance Contracting model.
Disadvantages
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.
(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
• w
here 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
• w
here shorter periods are required to engage the contractor and a pure (noncompetitive) alliance has been approved.
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Procurement Delivery Model Options
Suitable Characteristics of Alliance Contracting
For AC to be suitable, in general there must be:
• an agency culture that promotes innovation
• s ignificant uncertainty about risks that are unquantifiable and would result in large
risk premiums under traditional procurement delivery models
• o
rganisational 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.
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Procurement Delivery Model Options
Figure 11 below depicts the ECI contractual arrangement.
Figure 11: Typical Early Contractor Involvement structure
Consultants &
Subcontractors
Principal
Communication
Accountability
Communication
Alliance for Planning
and Design
Accountability
ECI
Contractor
Principal
ECI or another
Contractor
Subcontractors
Consultants &
Subcontractors
Subcontractors
Consultants &
Subcontractors
Consultants &
Subcontractors
Planning and Design
Subcontractors
"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.
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Procurement Delivery Model Options
Early Contractor
Involvement (in contrast to
the traditional ‘Construct
Only’ model) involves the
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
contractor working with the
• there is a scarcity of available resources
principal in the project’s
• price certainty is paramount
initial stages to develop
• there is limited delivery time
the design (including any
• there is an increased opportunity for innovation
innovative private sector
• there is a need for price and time certainty after initial contract development phase
techniques) and a detailed
project plan with realistic
time-frames.
• 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
• p
roject 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
• a
side 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.
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INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Procurement Delivery Model Options
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 principal and the
The MC is responsible for administering these sub-contracts and accepts some delivery
risk.
generally tender or
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.
sum management fee.
The following figure illustrates the MC contractual arrangement.
Managing Contractor
negotiate a fixed lump
The Managing Contractor
may also receive incentive
payments for achieving
cost and schedule targets.
Figure 12: Typical Managing Contractor structure
Principal
Specialist
Support
Consultants &
Subcontractors
Managing
Contractor
Consultants &
Subcontractors
Consultants &
Subcontractors
Design
Consultant
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)
• p
repares 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.
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INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Procurement Delivery Model Options
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
• n
ot all component parts of the project are required to be fully designed and
developed prior to commencement of work on site.
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INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Procurement Delivery Model Options
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.
•
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.
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.
•
The Construction Manager is
usually paid a fee based on
time or a percentage of the
value of the works.
Design Risk
•
The Managing Contractor
accepts design risk.
•
The Construction Manager
may provide some design
advice but does not accept
overall design risk.
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INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Procurement Delivery Model Options
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)
• p
repares 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
• w
here 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
Subcontractors
page 48
Planning
Consultants
Design
Consultants
Subcontractors
Contract
Managers
Subcontractors
Others
Subcontractors
INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Procurement Delivery Model Options
The following table lists features of the Direct Managed contracting model.
Disadvantages
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.
(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:
Direct Managed as a
• the client is willing and has the capacity and capability to take on all project risks
specialised infrastructure
• the client has full control of the project throughout its life-cycle
procurement projects.
procurement strategy
is used in discrete and
• there is a lack of available contractors
• 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.
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5.0
Selecting a Procurement Delivery
Model
5.1The Expert Panel
5.2Preliminary Procurement Options Analysis
5.3Detailed Procurement Options Analysis
5.4Scrutinising the Preferred Model
5.5Documenting Findings in the Procurement Strategy
5.6Contract Forms
page 51
"
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.
INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Selecting a Procurement Delivery Model
5.0Selecting 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 58-60. 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 www.infrastructureaustralia.gov.au.
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.
A panel of at least three
Panel members should be chosen with consideration given to the following:
delivery model selection
people should undertake
the procurement
• The panel must have collective knowledge and first-hand experience in the delivery
of projects using each of the procurement delivery models under consideration.
process, with majority
• Collectively the panel must understand how the asset(s) built as part of the project
will be used/operated and maintained.
government whenever
• 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.
representation from within
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.
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INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Selecting a Procurement Delivery Model
5.1.1Briefing 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.
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9. Other Risk Factors and Opportunities not previously considered.
INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Selecting a Procurement Delivery Model
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
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.
large-scale, complex
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.
the project’s feasibility for
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.
documentation can be
in using a Public Private
Partnership to deliver
projects; however, the
process of investigating
delivery as a PPP and
developing the necessary
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?
In some cases, to
• Competitive Process
Does a competitive market for the project exist?
manage the risk of
If the answer to all or most of these questions is “Yes”, the relevant agency should
contact the PPP Support Unit (email: ppp@dtf.wa.gov.au) 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.
be beneficial to develop
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.
potential delays, it can
an alternative (second)
preferred procurement
delivery model in the
background as a fallback
position should PPP not
be considered the best
procurement option.
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INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Selecting a Procurement Delivery Model
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.
5.3.1Determine 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.
5.3.2Review 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.
5.3.3Identify 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.
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5.3.4Assess 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
INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Selecting a Procurement Delivery Model
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
http://www.ceiid.wa.gov.au/publications.html.
5.3.5Identify 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.
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page 58
• risk to government credibility and reputation.
• 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
2. Public Profile and Policy Environment
• expectations of Ministers, Treasury, Strategic Projects,
BMW or other agencies
• likelihood of changes to the project scope through the life
of the project including the ability to accommodate scope
trimming to meet budget.
• opportunities to bundle or unbundle including ongoing
property services
• government management capability/ability to retain
competent resources for duration of contract
• opportunity or need for contractor input into innovation
in design, construction or maintenance (routine or nonroutine)
1. Scale, Complexity and Flexibility to Refine
Scope
• Is master planning in place, are environment approvals
simple and are risks understood?
Criteria (and considerations)
• Insert Panel Members
• Insert Date
• Insert Project Name
Procurement Delivery Model Assessment Page 1
Scoring Options 0 to 6:
6 = Best ; 3 = Acceptable; 0 = Unacceptable
Table 1: Procurement Delivery Model Assessment Tool
6 = Best
3 = Acceptable
0 = Unacceptable
Scoring is Relative
Comments
INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Selecting a Procurement Delivery Model
Direct Managed (DM)
Managing Contractor (MC)
Early Contractor Involvement (ECI)
Alliance Contracting (AC)
Public Private Partnerships (PPP)
Construction Management (CM)
Design and Construct and Maintain
(DC&M)
Design and Construct (D&C)
Construct-Only (CO) after full design
KEY PROJECT CRITERIA (KPC)
(H – High, M – Medium, L – Low)
• impact of site or technical uncertainties (e.g. geotechnical,
environmental, new technology, etc.).
• required level of government and stakeholder involvement
in, and influence over, the design
• iconic vs. functional outcomes
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
• ability to achieve the optimum combination of whole-of-life
costs and quality to meet the user requirement.
• is it more important to have the most skilled or most
economical team?
• need for lump sum (full-price) cost competition in the
tender decision
5. Cost
• need for certainty of cost predictions/funding availability
• outstanding or yet to be finalised approvals, agreements
and land acquisition.
• ability to accommodate potential disruptions
4. Time
• certainty that deadlines will be met, critical completion
dates, need for a quick start, is early completion of benefit
to government?
• market sustainability, capability and capacity/opportunities
for contribution from the private sector, government
management capability/ability to retain competent
resources for duration of contract.
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
Procurement Delivery Model Assessment Page 2
Scoring Options 0 to 6:
6 = Best ; 3 = Acceptable; 0 = Unacceptable
Table 1: Procurement Delivery Model Assessment Tool
6 = Best
3 = Acceptable
0 = Unacceptable
Scoring is Relative
INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Selecting a Procurement Delivery Model
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DM
MC
ECI
AC
PPP
CM
DC&M
D&C
CO
KPC
(H, M, L)
page 60
• what is the most economical way to manage project risks?
• tactical allocation of capital works program to maintain
proficiency in supported procurement delivery models
• precedents set and lessons learned on other similar projects
• 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
• current experience of government personnel that will
embark on the project vs. opportunities to increase project
management and other skills of government
9. Other Risk Factors and Opportunities not
Previously Considered
• availability of sufficient government resources to manage
project delivery
• opportunity for operational staff and service providers to
have input and participation in project.
• likelihood of achieving desired efficiencies in the operation
and maintenance of the asset (to minimise recurrent costs,
staffing levels etc).
8. Focus on Future Operations of Asset and
Knowledge Management
• knowledge handover to operations and maintenance
personnel to ensure a smooth start to operations
• greenfield (vacant site) vs. brownfield site (site containing
existing infrastructure), adjacent or concurrent: (a) works,
(b) operations and (c) future works.
• approvals and agreements required, and the likelihood of
significant approval conditions
• commitments made to the public or stakeholders
• degree of stakeholder liaison, influence and agreement
required for success of the project
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
Procurement Delivery Model Assessment Page 3
Scoring Options 0 to 6:
6 = Best ; 3 = Acceptable; 0 = Unacceptable
Table 1: Procurement Delivery Model Assessment Tool
6 = Best
3 = Acceptable
0 = Unacceptable
Scoring is Relative
INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Selecting a Procurement Delivery Model
DM
MC
ECI
AC
PPP
CM
DC&M
D&C
CO
KPC
(H, M, L)
INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Selecting a Procurement Delivery Model
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.
When scrutinising
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.
be managed under the
preferred options, it is
useful to determine how
a range of issues will
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
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INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Selecting a Procurement Delivery Model
•
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.
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INFRASTRUCTURE PROCUREMENT OPTIONS GUIDE
Selecting a Procurement Delivery Model
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.
Executive Summary
A high level summary that should include a table outlining
the procurement options considered and the assessment
undertaken to reach a preferred procurement method.
Introduction
Covers the purpose, background and scope of the report.
Project Description
Outlines the objectives, key characteristics and preferred
technical solution.
Approach to Procurement
Options Analysis
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.
Potential Procurement
Options
An overview of the various options and potential for
aggregation and packaging. Includes details of the PPP
suitability assessment and Procurement Options Analysis.
Assessment Against
Evaluation Criteria
Covers issues such as demand and operational flexibility
under different procurement methods and an assessment
against the criterion. Include whole of life-cycle issues.
Assessment Summary and
Recommended Procurement
Method Option(s)
A high level summary on the recommended procurement
methodology option(s).
Next Steps
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).
Appendix
Notes for development of the future contract
documentation.
The procurement strategy
should be a concise stand
alone document that
is also appropriate for
appending to a business
case or project definition
plan.
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.
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