FACTORS AFFECTING OUTPUT SPECIFICATION IN PPP PROJECTS

Transcription

1 FACTORS AFFECTING OUTPUT SPECIFICATION IN PPP PROJECTS Danijel Kušljić PPP Knowledge Centre (Croatian Institute for bridge and structural engineering), Croatia Josip Čengija PPP Knowledge Centre (Croatian Institute for bridge and structural engineering), Croatia Prof.dr.sc. Saša Marenjak PPP Knowledge Centre (Croatian Institute for bridge and structural engineering) & Faculty of Civil Engineering, University of Osijek, Croatia In traditional form of procurement of construction projects specification of building requirements are defined by the Client who mainly lack expert knowledge to express his needs, and usually covers separated project functions design, construction, operation and even sometimes demolition. With lack of this synergy, project outcomes often do not reach expected performance. New types of procurement, such as PPP have led to new practice in defining output specification for Facilities that are focused on user requirements and enables great flexibility for all participants involved, but also enables Clients to penalize under-performance of the Contractors. One of the most critical parts of PPP Contracts are technical specifications of building requirements known as the Output specification requirements which presents Client needs. Output specification are building specific requirements defined by the Client that have to be satisfied by the Contractor during operational period of constructed Facilities. Output specifications should define what have to be achieved, not how it has to be achieved. Output Specifications should not be too ambitious but should take proper account of what the Clients are prepared to fund. In this paper the factors affecting Output specification will be defined and discussed, as well as some practical tips in order to avoid overestimation of these specifications. KEYWORDS: output specification, operation, PPP type of procurement. INTRODUCTION In traditional form of procurement of construction projects specification of building requirements are defined by the Client who mainly lack expert knowledge to express his needs, and usually covers separated project functions design, construction, operation and even sometimes demolition. With lack of this synergy, project outcomes often do not reach expected performance. Public Private Partnership (PPP) and Private Finance Initiative (PFI) have led to new practice in defining output specification for Facilities that are focused on user requirements and enables great flexibility for all participants involved. 956

2 The procurement of PFI projects is a complex process. The primary objective is service delivery over an agreed time span, which is designed to meet a policy objective. This requires a shift in the mindset of construction contractors, as their own financial success and hence future is locked up in the long-term future of the constructed facilities they create (Construction Industry Council, 1998). This cultural change will transform the structure of project teams, redefine roles and responsibilities, and the risk management strategies adopted (Button, 2008). The fundamental differences that distinguish the PFI regime from the traditional procurement of public sector construction projects are: a) The opportunity for construction companies to take an equity share in the facility as part of the a concessionaire agreement with other stake holders; b) the transfer of risk to the private sector; and c) different criteria for evaluating project risk defined by the consortium providing the capital (The HM Treasury, 2000). PFI projects must also demonstrate value for money when compared with the Public Sector Comparator (PSC) as well as being affordable to the client (Construction Industry Council, 2000). Constructed facilities must be fit for purpose, and robust, to programmes and lifecycle costs identified including construction, asset renewal, Facility Management (FM), contingencies and margin (El- Haram et al., 2002). Uncertainty can deter success so there must be risk mitigation and payment procedures. The performance of the service provider needs to be measured against agreed criteria with a risk of penalties. One of the most critical parts of PPP and PFI Contracts are technical specifications of building requirements known as the Output Specification (OS) requirements which presents Client needs. OUTPUT SPECIFICATION In order for the Client or a (local authority and its stakeholders) to achieve its Project goals or to satisfy the needs he would need to clearly state what those goals are and what needs are to be satisfied. When looking at PPP models of procuring Public infrastructure or Public services, the needs would cover a wide range of works or services to be procured in order to satisfy the end Project goals or Client needs (Marenjak et al., 2008). These works and services in PPP project in most cases cover Design, Construction, Maintenance, Cleaning, Security, Catering, as services to be provided in relation to facilities that are being used by Public sector in order to provide the Public services. In some cases even the Public services it self would be contracted out of house for provision of the same by Private sector. Since one of the founding ideas and one of the main characteristics of the PPP models is how to find more effective and efficient provision of services in combination with more flexibility of Private sector, introducing innovative technologies and techniques in carrying out provision of those services, the need for different kind of defining requirements immerged. PPP types of procurement could be seen as a type of procurement where Public sector procures the end product, whether it is a facility or services to be conducted, and is paying for that product in accordance with the product performance. To define the requirements for Private sector partner in such PPP projects it is clear that, having in mind everything stated, there is a need for requirements to be performance based. In order for 957

3 the requirements to be performance based they would need to be described in output terms in a way that they describe the end goals of Project and specify the level of performance to be achieved in provision of services or works. The Output Specification is the base on which the local authority and its stakeholders state in output terms what they need to achieve from the facilities and services to be provided (Sanders and Lipson, 2001). Generally in PPP Projects the Output Specification would need to define outcomes, without defining means for attaining that end. This is the main characteristic of OS because it leaves room for Private sector to introduce novelties in techniques or technologies and optimization of processes and organization in provision of the procured services. The Output Specification should detail what needs to be achieved, not how it is to be achieved (Sanders and Lipson, 2001). Table 1: What is Output Specification School example (Sanders and Lipson, 2001) Output specification Classrooms must have an adequate power supply to meet operational requirements. Ensure that there are adequate arrangements in place to maintain the safety of the school and its users. Ensure that the school is clean enough when in use to provide a safe, hygienic environment. Not Output Specification Ensure that classrooms have at least two pairs of 240V power supply socket outlets available on each wall. The school should have a 24-hour security patrol. Internal cleaning of a school every morning and evening. All project requirements stated in the Output Specifications need to be intelligible for all relevant project participants as they will form the basis for monitoring of the Contractor s performance. Valid Output specifications should contain following characteristics: - clearly state Client s objectives and be concise and unambiguous, - only contain affordable and deliverable requirements, - highlight constraints which are essential to project, - allow compliance with statutory requirements, - ensure lifecycle coordination between design, construction and operation, - give bidders sufficient information to prepare their offers including identification of service areas which are most critical and will be given most importance in the payment structure and performance monitoring, - in the procurement process allow that bidders proposals be evaluated against defined criteria (Scottish Executive, 2004). The Output Specifications need to be in correlation with other tendering and contract documents as to avoid the discrepancy between them, such as: 958

4 - tendering documentation (instructions and guidance to bidders), - risk allocation matrix, - the payment mechanism and the performance monitoring system. Output Specification can be developed using workshops or brainstorming sessions which involve all key stakeholders, where they can achieve consensus on realistic and affordable outputs, also it is possible to start with an input specification that can then be converted into outputs or refer to Output Specifications used elsewhere. It is important to involve the end users of the product that is to be procured (public services, facilities, and services in relation to usage of facilities) in order for them to state their expectations which then have to be formulated in the concise and understandable OS. The PPP Project will have greater chance of becoming successful and being perceived as such from the public if the end users are satisfied with outcomes and if they feel that they added value for the money in terms of quality performance for the provision of procured services. FACTORS AFFECTING OUTPUT SPECIFICATIONS By analyzing literature and case studies of 11 different PPP/PFI contracts in Croatia for three different types of public buildings (sport halls, administrative buildings, primary and high schools) this paper suggests relevant influence factors which affect Output specification and possible way of their classification. In relation to PPP/PFI Projects the Output Specifications usually cover a range of services that will be related to the functionality and availability of the public sector infrastructure or facilities used by Public sector to provide some public service. Output Specification in PPP/PFI Projects are mostly related to Design, Construction, Maintenance and other facility management services such as Catering, Security, Cleaning As such they can be grouped in different categories depending on the phase of Project lifecycle and the nature of works and services. Table 2 represents one of possible categorizations of the Output specifications. Every proposed category in Table 2 has been broken down in to domains specific for that category. Proposed domains are related to specific works and services that have to be procured through PPP/PFI project. Table 2 demonstrates a short description of characteristics for every stated OS domain as well as highlighting some of the most important factors affecting those OS domains. 959

5 Table 2: Factors affecting Output Specifications in PPP/PFI projects Output Specifications (OS) Categories Building design Maintenance Domains for defining OS Layout of a facility Building services and infrastructure (utility, water ) Design and planning of traffic regulation at site Designing firefighting and evacuation corridors Horticulture and external design Protection of culture goods at project location Protection of sea and other goods at project location, ecological Building maintenance Maintenance of installation, infrastructure and plants or equipment Maintenance of external areas Maintenance of roads, pathways and parking areas Lifecycle replacements of building elements and equipment Characteristics of OS domain Architect s solutions of a facility should be functional for operation, maintenance and services to be provided Building installations, utility, specialist services installations Connection to surrounding roads and traffic infrastructure, car parks, pathways, garage, traffic regulations on site Architect s vision of evacuation corridors Green and other external horticulture areas, external playgrounds, parks, public spaces For example, monuments, protected architecture, Incorporating sustainable development ideas, ecological guidelines Maintenance of all building elements (roof, walls, ceiling, building construction ) Maintenance of services, aqueduct, sewerage, heating, IT, plants and equipment, regular testing Green and other external areas, horticulture, playground Traffic regulations, state of roads, pathways and parking areas according to existing regulation throughout the Contract period Lifecycle replacements of building elements, equipment Factors affecting OS (Influence factors) Planning regulations, Site characteristics, Capital investment budget Infrastructure at surrounding site location, infrastructure at location, services to be provided Already extant traffic infrastructure network surrounding site, laws and regulations, number of car parking spaces, expected traffic frequency Characteristics, type and purpose of building, site specific conditions regarding risks from unforeseen circumstances, disastrous events Micro-climate and other agronomy conditions on project location (site specific conditions), purpose of the building, planning regulations Buildings under heritage protection, special requirements of the Ministry of Culture Position of protected coastline areas of project location, site specific conditions, changes in laws and regulations, existing guidelines Building design, site location, needed service response times in relation to level of importance of affected functional area, labor and material availability in relation to location of the facility Surrounding infrastructure, needed service response times in relation to level of importance of affected functional area, labor and material availability in relation to location of the facility and the services being provided Level of maintenance, service response times Traffic regulations, occupancy, types of vehicles State of the facility at the end of contract period, building demolition 960

6 Table 2: Factors affecting Output Specifications in PPP/PFI projects, Continued: Output Specifications (OS) Categories Operation Commercial activities Domains for defining OS Cleaning services and waste management Security services IT systems Energy and Utility services Building administration Space lease Catering services Marketing Characteristics of OS domain Internal cleaning, external cleaning, specialist cleaning, specialist waste management, recycling Type of security services, what areas, specialist security services, building security, site security Modularly drafted to enable installation of new systems, Utility consumption control based on volume or all risks concerning volume and energy price transferred to contractor, types of energy and utility Own energy sources Helpdesks, Reception, Facility related documentation Lease of non required or unneeded space/areas/ or giving the potential for other spaces at location or inside facility to be used commercially Food and beverages, Restaurants Cafe bar Outsourcing catering services Marketing needs and possibilities Factors affecting OS (Influence factors) Characteristics, type and purpose of facility Characteristics, type and purpose of facility, services required, e.g. level of required security, security risks (for example vandalism) Changes in technology, Service specific needs Configuration and capacity of public supply network, utility supplier market, services specific requirements (example hospital always might have an alternative power and energy systems in place) Solutions of Echo homes which are motivated and enabled by legislation Characteristics, type and purpose of Facility, needs for logistic support to the end users of the Facility, organization of service provision to be carried out at the Facility Laws and regulations, purpose of facility, commercial attractiveness of facility or location, (e.g. are there any benefits for end users or project) Sanitary law regulations End user profile/needs, occupancy Laws and regulations, As presented in the Table 2, every category of Output Specification common for PPP/PFI project is in close correlation with all other categories. This comes from a fact that Project is perceived during whole life and most OS have an impact one at another. This is especially important when talking about OS for Building design category. Since Building design can and will have an enormous impact at all later phases of project it is clear that OS at Building design can and in most cases will influence drafting Output specifications for Maintenance or Operation. This close correlation of categories should always be in mind of team that is responsible for drafting Output specifications. Table 2 indicates some of the factors affecting particular category of OS. The other influence factor that will be present in drafting most OS will be current and future legislation and guidelines. This influence factor should also be looked at carefully because it will be in close relation to risk allocation of the PPP/PFI contract regarding the legislative changes throughout the contract period. One more categorization of OS could be added to Table 2. In relation to PPP/PFI projects and categorization could be Construction. Output specifications for 961

7 construction works and services can be drafted but they can be optional. Reason for this comes from the fact that construction works will be highly influenced by Building design and also with OS for maintenance and operation phase. OS for Building design and for Maintenance and Operation will cover most of the quality requirements for construction works if drafted carefully and with logical sequence. OS regarding construction can cover construction works, organization, risks, communication of project participants At the project start up and during development of PPP/PFI project, Output Specifications represent important tool for the to express his project needs and Private partner s (Contractor) obligations in project. All of these are embraced in tendering documentation which contains Contract proposal with variety of important Contract appendixes. When Bidders take over tendering documentation, OS form basic input at which bidders develop theirs offers and represent the foundation for negotiation. During the negotiation it is critical to analyze influence of any change to the correlation of Contract elements and especially to the OS. Submission of the offer and successful negotiation leads to Contract signature which contains final version of OS. These become base Contract element for monitoring period during Project operational stage and enables to monitor performance of the Contractor s realization of Contract obligations. According to defined Contract standards, Client applies contract mechanisms to reduce payments to Contractor if he fails to meet required standards that are defined with OS. At the end of Contract period, Contractor returns building to the Client and during take-over the constructed facility has defined Contract standard levels. Importance, position and characteristics of OS during Project development stages, along with related influence factors are demonstrated in the Table 3. Table 3: Factors affecting Output Specifications during project development Project stages Project preparation and definition Feasibility Preparation of a Project Brief (project description, legislation issues, project goals ets.) Liability domain Activities with OS Brainstorming of OS logic ( needs to understand OS logic, Project idea need to be developed in a way that embrace OS logic) Basically defining OS (defining Client s/ 's requirements and OS scope) OS properties Contains proposals that are possible to apply in project Contains scope of services Contains basic characteristic of included services Influence possibilities at OS large large Factors affecting OS (Influence factors) Understanding of OS logic by the Understanding of OS logic by the Ratio of wishes/possibilities of the 962

8 Table 3: Factors affecting Output Specifications during project development, Continued: Project stages Expression of interest Preparation of tendering documentation Liability domain Initiated by the, response from companies on the market Activities with OS Beginning of OS development (services scope revision and alignment with project goals) Development and defining OS OS properties Contains principals of best practice and in line with existing legislation Contains principals of best practice and in line with existing legislation Enables measuring realization performance of required services levels by the Influence possibilities at OS large large Factors affecting OS (Influence factors) Ratio of wishes/possibilities of the Client s/ 's experience in realization of similar projects Quality of performance measuring mechanism in Contract documentation Tendering documentation Contains defined OS Clearly defined Client s/ 's requests medium Tendering and Contracting Taking-over Tendering documentation Planning Bidders that pass Expression of interest Bidders Contains defined OS Possible suggestions of OS changes by the Bidders Issued OS (in public procurement process) becomes project milestone and does not have full liberty for OS changes Represent foundation on which Bidders develop and submit theirs offers small small Characteristics of Public procurement law legislation Experience of the Bidders in realization of similar projects Bid preparations Bidders Possible suggestions of OS changes by the Bidders Represent foundation on which Bidders develop and submit theirs offers small Experience of the Bidders in realization of similar projects Bid submissions Bidders Bidders contains suggestions of possible changes and completions of OS Possibility that offer viability is based on suggested changes and completions of OS Bid analyses and negotiations and Bidders Negotiation for possible changes and completions of OS Contains adoptive changes and completions of OS small to medium Quality of suggested changes and completion of OS Construction Maintenance and Operation Contract end CONTRACT SIGNATURE Realization according to construction time plan that is adoptive in Contract Realization according Contract terms CONTRACT EXPIRATION and selected Bidder Contractor Contractor All OS should be clearly defined and final version of OS should be adoptive by the Contract signature Monitoring construction so that the building is able to meet OS demands in signed Contract Monitoring realization of OS in accordance with Contract Control of Contract defined OS during building take-over by the Contains final OS version that is harmonized and accepted by the and Bidder Contains final OS version that is harmonized and accepted by the and Bidder Contains final OS version that is harmonized and accepted by the and Bidder none none none Possibilities of accidentally errors (grammar ) in final Contract version which may influence OS interpretation and meaning in later project stages Contractors experience in realization of PPP Projects Clients/ s competence to monitor performance of services realization regarding agreed services standards in Contract none

9 As it is presented in Table 3, in all project development stages OS are affected in different ways by variety of factors. Factors in early project development stages (preparation, definition, competition and contracting) mostly affect definition, development and quality of OS and directly affects Contract documentation. Factors during Construction, Maintenance and Operational project stages mostly affect usage of OS standards and interpretation of Contract by Contractual parties. Proposed factors classification structure affecting output specification and list of influence factors provide checklist for PPP practitioners and researchers to enhance realization framework of important elements when considering PPP projects. CONCLUSION During the development of PPP/PFI Projects it is essential to find the tool that will effectively express Client s project goals and expectations, and later during realization and usage of project Client has to be able to monitor realization of Contract obligations by the Contractor. Output specification represents a choice for these purposes allowing Client and Contractor to avoid misunderstanding about contract expectations and obligations. Describing term and concept of OS it demonstrates new way of thinking in realization of PPP projects. Systematically positioning factors that are affecting development of Output specifications and analyzing/defining theirs characteristics/restrictions regardless their position at different Project categories or Project Stages, it is possible to improve PPP Project realization process. With clearly defined concept of Output Specification and limitations in liberty to describe OS through factors that are affecting process of defining OS, the Contract moderator has tool to minimize vagueness of Contractors project obligations and potential project conflict nodes. Applying this knowledge it is possible to moderate the Project in course that allows Bidders to prepare qualitative Bids and to avoid misunderstanding of project obligations during the validity of the PPP contract for all participants in the project. REFERENCES Construction Industry Council (1998) Constructors Key Guide to PFI, London, UK, Thomas Telford Services Ltd. Button M. Ed. (2008) A practical guide to PPP in Europe, Second Edition, Surrey, UK, City and Financial Publishing. The HM Treasury (2000) Public Private Partnership The Government s Approach, London, UK, The HM Treasury publication. Construction Industry Council (2000) The role of cost saving and innovation in PFI projects, London,UK, Construction Industry Council. 964

10 El-Haram M. A, Marenjak S., Horner R.M.W. (2002) Development of a Generic Framework for Collecting Whole Life Cost Data for the Building Industry. Journal of Quality in Maintenance Engineering, MCB University Press, Vol.8, no. 2., pp Marenjak S., Kružić D., Čengija J. (2008) PFI/PPP Case study - multifunctional Sport Hall LORA in Split, Croatia, Proceedings of the PM-04-4th SCPM & 1st IPMA/MedNet Conference Project Management Advances, Training & Certification in the Mediterranean, Chios Island, Greece. Sanders S., Lipson M. (2001) Output Specification for PFI Projects, A 4Ps guide for Schools, London, UK, Public Private Partnerships Programme. Scottish Executive (2004) Output Specification: Building our future: Scotland s school estate, Edinburgh, UK, Scottish Executive Press. 965