INFRASTRUCTURE PROCUREMENT IN A RESOURCE CONSTRAINED MARKET

Transcription

1 INFRASTRUCTURE PROCUREMENT IN A RESOURCE CONSTRAINED MARKET

2 EXECUTIVE SUMMARY INFRASTRUCTURE PROCUREMENT IN A RESOURCE CONSTRAINED MARKET Urbanization is driving strong infrastructure investment, but for many major cities demand is becoming bigger than the local industry is geared to cater for. Compounding the problem is a downsizing public sector so that infrastructure agencies lose critical capacity and capability, increasing reliance on industry to assist with project development and procurement. Governments risk losing investment and project innovation, capability and capacity however, if industry cannot respond effectively, or is not given the best chance to respond. This Arcadis White Paper sets out key strategies to improve infrastructure procurement and innovation in a busy market where the investment program is threatened by industry capacity. THE SOLUTION Four key strategies need to underpin dynamic infrastructure investment and development: 1 Maximize industry participation 2 Minimize wasted resource and effort 3 Encourage innovation 4 Act as an enabler for infrastructure providers trying to cope with increased program requirements with limited resources. 1. MAXIMIZE PARTICIPATION To deliver maximum community and economic value, industry must be given the best possible chance to participate and contribute. Key strategies include: Develop and publish a clear whole of government procurement plan and program. Provide an even workload of projects in the procurement phase within the overall program. Once established and published, stick to the procurement program. Allow and facilitate industry participant teaming in the procurement documents.

3 2. MINIMIZE WASTE Procurement needs to focus on achieving commercial tension and competitive compliance while using up the least possible amount of industry resource. Procurement processes must minimize the resource effort invested to achieve the required commercial and participation outcomes. Key strategies include: Use the Expression of Interest (EOI) processes to create shortlists for preferred tenderers, not the tender process. Keep shortlists short (2-3 only in most cases). Minimize design in tender to only those cases where the potential project returns warrant the investment. Where this is the case, focus tender design on those areas where innovation in design and delivery can deliver a return. Minimize tender submission requirements. Keep documents standard, particularly contract terms and response schedule requirements. The White Paper includes recommendations for preferred procurement models that, from an industry perspective, contribute to minimizing waste in the context of the wider objectives. In summary the preferred procurement models are; Greater use of Early Contractor Involvement (ECI) and Pure Alliance models where significant investment in innovation for design and delivery is warranted. Greater use of partial design and construct (d&c) where limited investment in innovation for design and delivery is warranted. Limited use of full design & construct (D&C), but used in conjunction with very small shortlists and tender guidance workshops to minimize tender investment. 3. ENCOURAGE INNOVATION The quality of infrastructure in the investment program is as important as the size of the program. Better quality infrastructure provides greater return for investment. Key considerations for optimizing innovation in projects are: Where innovation has the potential to add significant value to a project, ensure the procurement process & model allows for and encourages innovation in design and delivery. Specify clear performance based outcomes to provide industry participants with a framework to innovate within. Allocate risk fairly to the party that has the most scope to manage and mitigate the risk. Avoid over-specifying requirements for materials, workmanship and constructability. 4. ACT AS AN ENABLER Procurement processes need to act as enabler for government organizations challenged with bringing an expanded program to market. Approaches that enable government to deliver more works with less resource include: The use of larger project procurement packages that combine elements that would otherwise be delivered as separate procurement packages. Engagement of industry participants to act as program delivery partners. The use of unsolicited proposals in the market where industry is encouraged, and has a legal / commercial framework, to develop and deliver new project solutions. AUTHOR Phil Kajewski Managing Director, Infrastructure T E phil.kajewski@arcadis.com

4 INCREASING PROCUREMENT DEMAND Urbanization and the competitive economic development of major cities is resulting in strong infrastructure investment programs. As major cities in the global economy seek to cater for increasing population and compete for economic activity, infrastructure programs in many cities are becoming bigger than the local industry is geared to cater for. In such an environment governments risk having their infrastructure investment and projects suffer from a lack of innovation, capability and capacity due to an industry that cannot respond, or is not given the best chance to respond. This is not in the interest of government or the community who are both seeking maximum service outcomes from their infrastructure investment, cater for their increasing population base, and maximize economic activity in a competitive global market. DECREASING PROCUREMENT CAPACITY & CAPABILITY T his increase in demand often occurrs in parallel with government programs to downsize the public sector in an effort to minimize cost and provide more efficient organizations responsible for delivering, maintaining and upgrading infrastructure assets. These organizations have often lost critical capacity and capability in an effort to reach mandated staff targets, and often have staff caps in place that limit their ability to grow to meet new program requirements.

5 The decreased capacity and capability within infrastructure provider organizations means they need to rely more heavily on the industry to respond to program needs. This adds to the increasing demand imposed on industry to deliver increasing infrastructure programs. Industry capacity and capability can also reduce within cities when infrastructure programs are in recession. Cities compete for many success ingredients, and one of those ingredients is industry capacity and capability to efficiently and effectively deliver large infrastructure programs. In periods of low investment a portion of this capacity and capability moves to stronger markets. A consistent infrastructure investment program therefore becomes a critical component in maintaining local capacity and capability. BRIDGING THE GAP Infrastructure providers need to address these issues of increasing demand on limited industry resources, and their own declining capacity & capability, if they are to deliver their infrastructure programs, deliver required service benefits, and compete strongly in the world economy. The infrastructure industry also has a role to play in this equation. The industry needs to take a mature approach to procurement processes and the changes necessary to business as usual practices in a market where the infrastructure investment program is anything but business as usual. Procurement practices play a big role in bridging this gap. Well planned and executed procurement strategies play a big role in maximizing industry contribution to the delivery of infrastructure programs. A willingness to innovate and try new approaches can also help to maximize industry participation and address the capability & capacity gaps experienced by infrastructure providers. PROCUREMENT OBJECTIVES Procurement processes will assist in bridging the gap, and will maximize the value industry can add to infrastructure solutions, if they are able to satisfy several basic criteria; 1 Maximize industry participation 2 Minimize wasted resource and effort 3 Encourage innovation 4 Act as an enabler for infrastructure providers trying to cope with increased program requirements with limited resources. The following sections outline and discuss procurement practices that contribute strongly to these objectives.

6 1. MAXIMIZE INDUSTRY PARTICIPATION Busy infrastructure programs cannot afford to have competent industry resource under-utilised. For busy infrastructure programs to deliver maximum community and economic value from their projects, industry must be given the best possible chance to participate and contribute. Well planned and executed procurement processes will maximize the industry s opportunity to add value. Procuring organizations cannot simply act in isolation to the industry on the basis that the market will respond to whatever it is asked to do. While it is true to say the market will respond, the response may not be in the best interest of the client or community who seek to maximize the value delivered by the project. In a busy infrastructure market where service providers (contractors, consultants, advisors, etc) have an abundance of opportunity, market forces dictate that these service providers will gravitate towards those opportunities that represent their individual sweetspot, that is, the opportunities that best match their experience, expertise, their greatest opportunity to add value, and their greatest opportunity to succeed technically and commercially. Outlined below are approaches that will maximize industry participation, minimize the chance that good players are left on the sidelines, and increase the likelihood that industry participants will gravitate to the projects & roles where they can provide the greatest value. APPROACH Develop and publish a clear procurement plan and program Provide an even distribution of projects within the overall program, locally and nationally OUTCOMES Visibility of a well documented and detailed procurement program allows industry to plan its involvement to the overall benefit of the program. Organizations can then focus on project roles where they can add the greatest value, plan to involve the best of their national and international resources, and invest in winning these roles through innovative solutions and value-add approaches. By resisting political pressures to bring projects to market earlier than what is desirable, procurement programs can plan and spread industry demand and maximize industry participation. Procurement organizations, projects, and the community are not served by lumpy program profiles. Follow priorities set by independent advisory bodies for infrastructure investment. Once established and published, stick to the procurement program Where competing roles exist on a project, avoid reducing competition that comes from conflicting parties out of the process Allow and facilitate teaming in the procurement documents. Such teaming allows industry greater scope to respond as companies can spread their workload risk associated with the uncertainty of what projects they will win & lose through the procurement process. The market makes decisions based on established and published procurement programs. Program disruptions put these decisions at risk and potentially removes quality players from the procurement process. While probity for project information is important, good procurement programs will not conflict out parties other than what is absolutely necessary. Where multiple roles are available for a project, procurement programs will ideally avoid participants being excluded from roles earlier in the process than is absolutely necessary, will allow client organizations to step through the roles such that its more critical roles are procured first, and will allow unsuccessful participants the opportunity to bid for subsequent roles. Some procurement organizations produce documents that do not allow or actively discourage teaming. This is not in the best interest of the project or the overall infrastructure program. Increased teaming will reduce the incidence of under-utilised pockets of resource sitting in some organizations, and encourage greater industry participation in the face of uncertain future workloads.

7 2. MINIMIZE WASTED RESOURCE AND EFFORT Busy infrastructure programs also cannot afford to waste specialist resource that is critical to delivery. For busy infrastructure programs to deliver maximum community and economic value from their projects, industry must be given the best possible chance to apply its best participants to each project. This outcome is achieved when the least possible resource and effort is spent in the procurement process while not compromising on the need for the process to be competitive, fair, and able to deliver value for money for the economy and community. Industry supports this approach. Budget for the production of tender design, pricing and preparation is a growing issue for the industry designers and constructors alike. Participants are more prepared to invest in innovative and quality submissions when the number of players is reduced and the chance of a return on investment is increased. It was noted above that in a busy infrastructure market where service providers (contractors, consultants, advisors, etc) have an abundance of opportunity, market forces dictate that these service providers will gravitate towards those opportunities that represent their individual sweet-spot, that is, the opportunities that best match their experience, expertise, their greatest opportunity to add value, and their greatest opportunity to succeed technically and commercially. In this environment industry participants are less inclined to chase positions in procurement processes where their chances of success are limited, and are more willing to support fewer, well credentialed players in each procurement process. Procurement processes need to focus on achieving commercial tension and competitive compliance while using up the least possible amount of industry resource. The industry is not well served by having its best resources tied up on overly conservative or over-subscribed tender processes that could be better utilized.

8 Outlined below are approaches that will minimize the extent of wasted resource and effort expended in procurement processes. The outcome of these approaches is to free up more capacity for the wider infrastructure program without impacting negatively on the procuring organizations ability to obtain quality submissions and fair market prices. APPROACH Use the Expression of Interest (EOI) processes to create shortlists for tenders Keep shortlists short OUTCOMES It is often self-evident which providers are best placed to service and add value to a project. EOI submissions that then focus on the key issues (key people to be committed, ability to meet program and resource requirements, understand of key project issues, proposals to address key issues) can then be used to shortlist the most appropriate respondents based on these key issues and proven track record. This approach minimizes industry effort expended in getting to the pointy end of the procurement process. The industry supports keeping shortlists short. With adequate EOI processes there should be no need to have more than 3 tenderers preparing an RFT response. For large schemes where a significant investment is to be made in design, construction planning and innovation, it would be ideal to limit the shortlist to 2 tenderers. If the procuring organization perceives a risk associated with not receiving 2 competent tenders, a performance bond could be imposed. Minimize design in tender Where there is design required to submit a tender, keep the number of participants very short Minimize tender submission requirements. Ask for the bare minimum details around the most important issues. Apply low page limits to responses. Delay the submission of less critical detail until a preferred proponent is identified. Keep documents standard, particularly contract terms and response schedule requirements Tender design costs the industry considerable expenditure and resource that cannot be applied elsewhere. For simple schemes where the solution is self-evident, procuring organizations should provide a well-documented and competent reference design to minimize or eliminate the need for further design as part of the RFT. Tenderers can still innovate around part or all of the project where they believe they can add value. For RFT s that can have significant value added through tender design, the number of RFT participants should be kept to a bare minimum; 3 at most, 2 if possible. The amount of design documentation specified to be provided with the RFT should also be minimized to those areas where value can be provided. Minimizes the time and investment made by unsuccessful tenderers. This can be invested in other parts of the infrastructure program. This approach does not present a risk to procuring organizations as preferred proponents will always play nicely to avoid losing an imminent prospect, and the EOI process used well will ensure capable and experienced tenderers are responding. Less time and money is required to review and understand RFT documents / contracts that are standard. Extensive drafting of new contracts for new projects is time consuming and costly for both the procuring organization and those participating in the RFT. Allow and facilitate teaming in the EOI / RFT documents. Such teaming allows industry greater scope to respond with better resourcing (capacity and capability) drawing from multiple resource pools with different workload profiles. Some procurement organizations produce documents that do not allow or discourage teaming. This is not in the best interest of the project or the overall infrastructure program. Increased teaming will reduce the incidence of under-utilised pockets of resource sitting in some organizations. IN KEEPING WITH THE ABOVE DESIRED APPROACHES AND OUTCOMES, THE FOLLOWING PROCUREMENT MODELS ARE CRITIQUED.

9 PROCUREMENT MODEL Design Only followed by Construct Only (DthenC) suitable for simple and lower value projects where the design / construction interface is minimal. Full Design and Construct (D&C) suitable where design can add considerable value to the design solution or the construction process. REASONING Efficient model in terms of industry resource use. Not preferred by procuring organizations who end up owning the risks and workload around the design/construct interface. Less efficient model in terms of industry resource use, so should be limited to cases where the value of design investment is warranted. In such cases the EOI process should be used to choose participants that have nominated resources and track record that bring innovation & value. Keep shortlists short to minimize waste (3 at most). Partial Design and Construct (d&c) - suitable where the design solution is relatively self evident and does not lend itself to extensive optioneering. In such cases the procuring organization should provide a well developed and documented reference design for use by the tenderers. Industry Preferred Model for projects that do have a D&C interface, where the design solution is relatively self evident and does not lend itself to extensive optioneering. Early Contractor Involvement (ECI) - suitable for large, complex projects, especially those where there are significant risks or opportunities that lend themselves to a collaborative, shared approach. The model has shortlisted proponents (usually 2) working collaboratively with the Client / procuring organization / stakeholders to address key project risks and opportunities. From this work a preferred proponent (or in some cases both proponents) are asked to prepare a D&C tender submission. Industry preferred model for large, complex, high risk/ opportunity projects where the approach to delivery of the works is a key success factor. Pure Alliance suitable for large, complex projects, especially those where there are significant risks or opportunities that lend themselves to a collaborative, shared approach by having all major parties / stakeholders inside the tent. Industry preferred model for large, complex, high risk/opportunity projects where the approach to delivery of the works is a key success factor. Full Design & Construct with Client Guidance as above for D&C with the added dimension that the Client provides guidance workshops during the tender period to interact with the tenderers around options and alternatives. Industry preferred model if very short tender lists are used. This approach should be limited to projects where there is significant opportunity for innovation in the design and delivery that can justify the additional investment in tender design. Moderately efficient model in terms of industry resource use, so should be limited to cases where design investment in some elements of the project is warranted. In such cases the EOI process should be used to choose participants that have nominated available resources and track record that bring innovation & value. Keep shortlists short to minimize waste, but larger shortlists can be used (3-4 at most). This is an efficient procurement model, particularly if only one proponent is taken through the process of preparing a detailed D&C proposal. The EOI process is used to choose participants that have nominated available resources and track record that bring innovation & value. Commercial tension can be provided by having dual D&C submissions prepared (at a cost to the industry and overall infrastructure program), although alternative approaches to gain commercial tension are more efficient (engage an independent estimator to review and sign off costings, use the early ECI stages to develop maximum not to be exceeded lump sum prices in the absence of a more rigorous tender design and price. Efficient delivery model as only a small number of key personnel are involved through the procurement process. Enables Clients and key stakeholders to select the project partners that are likely to add the most value to the project and work collaboratively to minimize risk and optimize opportunity. The model provides commercial tension through the involvement of an independent estimator that ensures the successful proponent develops a target cost for the project that represents market rates and a fair price for the works. This approach fosters and encourages innovation by providing tenderers with greater framework and guidance in which to play. It also minimizes wasted effort by steering tenderers away from the wrong paths. Clients should provide very clear tender guidance to the proponents, and shortlists should be kept short to minimize tender investment (2-3 at most) Competitive Alliance a modified alliance model where alliance principles are used to shortlist 2 proponents who then participate in a dual TOC process (preparation of parallel, competitive project proposals including target outturn cost). Less efficient process than the pure alliance, but appears to give procurement organizations more confidence that a competitive market price has been achieved. Despite treasury & finance departments first championing pure alliances, they now seem to favor and support competitive alliances for commercial reasons. Industry would prefer the use of pure alliances to select the right team with reliance on Independent Estimators to verify that an appropriate market price is achieved.

10 The above approaches also require industry participants to play their role by being willing and sufficiently mature to; Partner with competitors when this is in the best interest of the projects and the overall infrastructure program. Accept the shortlisting of tenderers based on EIO documentation aimed at identifying the tenderers most likely to add value to the project. Acknowledge that in order to reduce tender costs and wasted effort in procurement processes, there will be fewer participants in each tender process, each with a greater chance of return on investment. Not be negative when truncated tender processes, that are otherwise fair and reasonable, result in them missing out on individual project opportunities. 3. ENCOURAGE INNOVATION In developing economies it is almost a case of any infrastructure is good infrastructure. In such cities where there is a massive infrastructure deficit the greatest focus is rightly on the size of the infrastructure investment program. In a developed economy it is not simply enough to have a large investment program and the quality of infrastructure in the program becomes as, or more, important than the size of the program. Better quality infrastructure provides greater return for investment in terms of stimulating economic activity, improving the quality of life for the community it serves, its customers, and improved productivity. Good quality infrastructure is a partnership that requires; Infrastructure providers (usually government) to choose the right projects to invest in. This requires decisions to be based on defined objectives and data based evidence, rather than allowing political expedience or public sentiment interfere with this process.

11 Industry to innovate through its involvement in developing and delivering projects. This innovation can come through creative design solutions that increase project benefits or reduce costs across the project lifecycle, improved project delivery, or more efficient construction practices. Before discussing innovation in projects it is worth noting that the most important role is that of government choosing the right projects in which to invest. This outcome requires; A long term plan to aid planning and guide successive governments in working towards common objectives and avoid the cycle of program changes that often follow changes of government. Governments should follow the priorities established by independent advisory bodies. A balanced portfolio of projects. For transport infrastructure this balance will evidence itself in a range of modes (rail, road, maritime, aviation), purpose (commuter, freight, economic growth, business efficiency), and size (smaller value & high return projects that improve efficiency and remove constraints in addition to flagship major projects). Clear objectives against which to measure competing investments and guide the development of potential solutions. Objective data and analysis on which to base these decisions. This is necessary to keep infrastructure investment decisions being driven by political expediency and populist opinion. The central theme of these actions is to de-politicize the selection of infrastructure projects, base selection on objective data, and move project selection above political posturing. The reports and work of independent infrastructure advisory organizations should play a key role in the selection and prioritization of projects. Once the right projects are chosen industry has a key role to ensure the very best project solutions are developed and then delivered as efficiently as possible. Procurement processes have a large role to play in fostering innovation in projects, and as such the procurement model needs to consider the level of innovation appropriate for the project. Key considerations for optimizing innovation in projects are as follows. APPROACH Allow for innovation in the design solution only where it is appropriate OUTCOMES Innovation in design solutions does not come cheaply. Where the project does not lend itself to innovation, or the design solution is self-evident, choose a procurement model that does not require significant design in the tender process. Provision of a competent and well documented reference design can achieve this outcome without having the procuring organization take on design risk in a d&c procurement model. Where innovation has the potential to add significant value to a project, ensure the procurement process allows for innovation to shine. Specify clear performance based outcomes required by the project to provide industry participants with a framework to innovate within. Allocate risk fairly to the party that has the most scope to manage and mitigate the risk. Avoid over-specifying requirements for materials, workmanship and constructability. Complex schemes and challenging projects lend themselves well to innovation. Procurement for such projects should allow tenderers the time, flexibility and freedom of constraint to innovate on the solution. Even with a well defined reference design significant gains can be achieved by a fresh set of eyes. Allow for planning processes that cater for changes in reference design produced during the procurement process as these changes often produce the greatest project returns. Innovation is fostered by a clear understanding of objectives and constraints (what can and cannot be played with). Providing such detail with RFT documentation will promote the development of innovative outcomes and avoid wasted effort in pursuing unacceptable options. Guidance workshops during the tender process will also foster innovation as participants can obtain a deeper understanding of client views to guide the investment of tender time and cost. Allocating risk to a contracted party that has little or no opportunity to manage or mitigate the risk suppresses creativity, discourages innovation, and ultimately does not lead to the best risk management outcome for the project. Correct risk allocation will always produce superior project outcomes. While standard specifications simplify tender processes, innovation is encouraged and supported where owner clients express a willingness to consider alternative approaches to standard materials, workmanship and constructability that do not detract from identified project outcomes.

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13 4. ACT AS AN ENABLER Busy infrastructure programs put as much strain on government and procuring organizations as it does on the industry participants. Sometimes the capacity of government and procuring organizations to bring projects to market can in fact be the limiting component in the overall infrastructure program. It is therefore important that procurement processes act as an enabler for government and procuring organizations to deliver more works with less resources. Some of the approaches nominated above act as an enabler, such as; The use of standard documentation in lieu of producing project specific documents. Keeping shortlists short, as this minimizes the work required by procuring organizations in the tendering process. Minimize the requirements for tender submissions, reducing the workload required in tender review and assessment. The use of collaborative based selection and procurement processes such as alliances and ECI s. These models allow procuring organizations to share the task of project development and definition with industry, providing some resource to guide these pre-construction planning tasks while industry provides the bulk of the resource to execute the work. In addition to these approaches there are several procurement models government and procuring organizations can adopt that act as enablers for program delivery; The use of larger project procurement packages that combine elements that would otherwise be delivered as separate procurement packages. This is particularly effective for common works where wider network planning can aid delivery or economies of scale can be realized. In such cases smaller packages of work often filter down to other industry players providing work to smaller industry participants. Larger packages significantly reduce the overall workload and time required to bring projects to market. Engagement of industry participants to act as program delivery partners. Such partners can manage and resource the delivery of a program of works on behalf of and in partnership with the procuring organization. Such an approach can produce overall program efficiencies while providing the procuring organization with the support and resource it needs to deliver. The use of unsolicited proposals in the market where industry is encouraged, and has a legal / commercial framework, to develop new project solutions to address needs identified in the market and infrastructure stock. CLOSING Further reading is provided below by way of specific project examples that illustrate the key principles outlined above. By focusing on procurement practices that; Maximize industry participation. Minimize wasted resource and effort. Encourage innovation. Act as an enabler for infrastructure providers. Significantly greater progress can be made in the delivery of busy infrastructure projects that are critical to the success or our cities and the quality of life for their communities.

14 PROJECT EXAMPLE PACIFIC COMPLETE PROGRAM DELIVERY PARTNER This model is currently being used by Roads & Maritime Services (RMS), the State road authority of New South Wales, Australia. RMS is responsible for planning, building, maintaining, and managing the State s principle road network. RMS has been progressively upgrading the Pacific Highway connecting the large urban centres of Sydney and Brisbane / Gold Coast for 2 decades. The upgrade involves the provision of a 4 lane divided carriageway rural highway to address capacity, safety and reliability (flooding) issues. Despite the upgrade program being 20 years old, approximately 170km of the Pacific Highway is still required to be upgraded for completion. The current program of tackling one 30km section of highway at a time would take another 15 years to complete. In 2014 the NSW State Government committed to completing the Pacific Highway Upgrade within 5 years. This would take a drastically different approach to procurement and delivery to that previously adopted. The approach taken to achieve this step change in delivery was a Delivery Program Partnership, with the successful proponent being Pacific Complete (contractor & consultant team). Conventional tender process used to procure the services of a contractor / consultant team to work with RMS as their Program Delivery Partner. This gives RMS access to significant resource, technical skill, industry knowledge of both design & construction, procurement expertise, costing expertise, and construction methodology knowledge. Program Delivery Partner procures key preconstruction activities that are common to the entire route (survey, geotech, flood mapping, hydrologic models, etc). PDP prepares a delivery strategy, choosing to break the project up into D&C work packages and construct only packages (and any other packages) as it sees fit. PDP prepares concept design / reference design for the entire 170km of upgrade. As part of the concept design the PDP also prepares standard drawing sets covering all required standard details for roadworks, bridgeworks, drainage, traffic engineering and roadside furniture. These are made available to all D&C packages.

15 PDP prepares procurement documents for the packages. These packages are taken to the market through one procurement process. While undertaking procurement activities for the packages, the PDP also proceeds with detailed design documentation and procurement documentation for construct only packages to the extent that it has the internal capacity & capability. Within a 15 month period the PDP will have completed all major pre-construction, planning and procurement activities necessary to have the entire 170km route handed over to industry to deliver as D&C and Construct Only contract packages. PDP remain in the service of RMS to administer the delivery program, administer contracts, and serve as independent verifiers / advisors for the design and construct works. BENEFITS Able to accelerate the overall Pacific Highway program delivery to deliver 15 years of work in 5 years without increased internal resource. The PDP model provides for economies of scale in the overall program delivery, resulting in cost and time savings. This includes fewer procurement processes, the use of common standard documentation across the project, purchasing of services on a program wide basis. The economies of scale and efficiency in the process also minimize the industry capacity required to deliver the works program without lumping the entire project into one package. By working in partnership with industry RMS are able to pick up considerable corporate and personal knowledge in the delivery of large scale programs. Clear program of work published that allows industry to plan and execute its response. Industry has fewer procurement processes to respond to, with each process covering several work packages (fewer tender processes for the overall program). Through one procurement process RMS gain access to a wide range of skills and resources necessary to deliver the accelerated program. This includes industry expertise normally not available to RMS.

16 PROJECT EXAMPLE TULLA SYDNEY ALLIANCE Alliances allow infrastructure clients to deliver large projects or large programs with relatively small commitment of internal resources. Alliances are a no fault no blame contract model where the project owner (or asset owner or program owner) enters into a joint venture with other parties (usually a team comprising contractors and designers) to deliver a project or a term program of works. Through the procurement process the parties agree on commercial metrics, outturn costs, and other performance metrics (safety, program, stakeholder satisfaction, other key outcomes) that govern the financial compensation payable by the owner. Typically the model provides for the non-owner participants to receive business as usual cost recovery and profit margin for business as usual performance, with painshare or gainshare (less or more profit margin) payable for under-performance or over-performance respectively. Project Alliance Agreements (form of contract) and Governance Frameworks provide for the owner to be represented in small numbers at every level of the project structure. This allows the project owner the opportunity to influence, guide and manage performance of the Alliance towards the agreed targets. The joint venture nature of the agreement, and the all win or all lose approach to delivery means a shared approach to staffing the project is taken on a best for project basis. Commercial tension is provided by the procuring organization employing the services of an Independent Estimator to sign off on the quantities, cost rates, risk allowances and margins applied by the proponent.

17 The Tulla Sydney Alliance in Melbourne, Australia is an example of a pure alliance used by the State of Victoria to effectively deliver a $600M upgrade to the Western Ring Road. This complex brownfield freeway upgrade had several challenges, including resolution of the right project solution and corresponding business case. The Project Owner was able to expedite delivery of the project through an alliance procurement model that saw the successful proponent complete project optioneering, prepare a successful business case, prepare a reference design and target cost for the works, and then deliver the project. The approach allowed VicRoads to deliver these activities with one procurement process and with relatively few internal resources (sufficient resources to guide the solution and process) supported by the alliance partners. As well as being an efficient procurement process for VicRoads, the model was also very efficient for industry and minimized wasted effort. Through the alliance process VicRoads selected one party it believed was most likely to work collaboratively and innovatively in addressing key project challenges, and then had this one organization prepare a reference design & detailed project proposal.

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19 CONTACT US If you would like to discuss the report further please contact Arcadis at the following locations: BRISBANE T MELBOURNE T DUNSBOROUGH T PERTH T GOLD COAST T SYDNEY T KARRATHA T BLAYNEY T

20 AUTHOR Phil Kajewski Managing Director, Infrastructure T E phil.kajewski@arcadis.com