Role Of Operational Research In The PFI Bid Process

Transcription

1 Role Of Operational Research In The PFI Bid Process Siôn Cave HVR Consulting Services Ltd September September 2007

2 CONTENT 1 WHAT IS PFI? 2 CHALLENGES OF THE BID PROCESS 3 THE ROLE OF OR 4 CASE STUDIES - C VEHICLE CAPABILITY PFI 5 FINAL THOUGHTS 21 September 2007 Slide No. 2

3 THE PUBLIC FACE OF PFI Brown takes on on critics with 26bn gamble The Guardian - March 22, 2006 The Guardian - March 22, 2006 County in in 200m schools PFI PFI deal BBC News - 23 December 2005 BBC News - 23 December m claim after PFI PFI deal scrapped BBC News - 20 June 2006 BBC News - 20 June 2006 AirTanker closes in in on on 13bn MoD contract The Guardian - March 1, 2005 The Guardian - March 1, 2005 Ministers ground airport PFI PFI deal BBC News - 17 June, 2005 BBC News - 17 June, m offer after PFI PFI scheme fails BBC News - 6 January, 2005 BBC News - 6 January, 2005 Mowlem writes off off 70m from PFI PFI contracts The Guardian - September 21, 2005 The Guardian - September 21, 2005 PFI PFI hospitals face huge overspend BBC News 19 May 2006 BBC News 19 May 2006 PFI PFI hospital deal was was 'unacceptable face of of capitalism The Times - May 03, 2006 The Times - May 03, 2006 PFI PFI blamed for for trust cash crisis BBC News - 9 July 2004 BBC News - 9 July 2004 PFI PFI critics line line up up to to attack huge windfalls The Times - May 10, 2006 The Times - May 10, September What is PFI? Slide No. 3 1

4 TYPICAL PFI PROJECTS 1 Cumberland Infirmary Skynet 5 Pucklechurch Remand Centre C-Vehicles Capability Wynstream school Future Strategic Tanker (FSTA) 21 September What is PFI? Slide No. 4

5 THE PRIVATE FINANCE INITIATIVE (PFI) 1 Procurement approach announced in 1992 Long-term service contract for a Government department (e.g. MOD, NHS) Provision of capital assets Associated services to manage the assets Annual payment to the contractor for services provided Associated performance related payment mechanism Guaranteed annual income Contractor handles the finance of the project Advantages to Procurer Guaranteed level of service Incentivise contractors to improve management and service efficiency Encourages innovation Integration of services Flat budget line This allows more concurrent capitalintensive projects to be implemented simultaneously Greater capital investment Disadvantages to Procurer Are we still going to need the service in years time? Long term lock in of financial commitment 21 September What is PFI? Slide No. 5

6 SCALE OF THE UK S PFI PROJECTS PFI is now delivering 590* operational projects, including: > 185 new or refurbished health facilities > 230 new or refurbished schools 47 MOD projects PFI Deal Pipeline By Government Department, M There are around 200 projects with a capital value of 26 billion in the procurement pipeline to 2010 One of the largest committed programmes of new investment in public service infrastructure through PPP/PFI projects PFI: Strengthening Long-Term Partnerships, March 2006, HM Treasury * As of July 2007 HM Treasury 21 September What is PFI? Slide No. 6 1

7 CONTENT 1 WHAT IS PFI 2 CHALLENGES OF THE BID PROCESS 3 THE ROLE OF OR 4 CASE STUDIES - C VEHICLE CAPABILITY PFI 5 FINAL THOUGHTS 21 September 2007 Slide No. 7

8 BID PROCESS AIM FOR THE BIDDER BID STRATEGY To produce a service solution which demonstrates service quality and innovation at a price that is acceptable to the government authority and still results in a suitable profit The cheapest bid doesn t always win Service Quality Measured against the Public Sector Comparator Project may be cancelled 21 September Challenges of the Bid Process Slide No. 8 2

9 TYPICAL PFI STAKEHOLDER MAP Special Purpose Vehicle UNITARY CHARGE Capital Projects FINANCE Public Sector Customer Financial Institutions End User Facilities Management/ Service Provision SERVICE DEBT REPAYMENT 21 September Challenges of the Bid Process Slide No. 9 2

10 THE PFI BID PROCESS 2 6 Years 2-10 M OJEC Advert Expression of Interest Many Consortia Invitation to Negotiate (ITN) 3-4 Consortia Best and Final Offer (BAFO) 2 Consortia Preferred Bidder 1 Consortium Delivery Form SPV / Select Advisors Submit Outline Proposals Fully Costed Proposal Contract Negotiations/ Mobilisation/ Financial Close Public Sector Comparator (PSC) Requirement for low level tactical decisions Delivery and support to detailed costing Requirement for high level strategic decisions Strategy and ROM Time 21 September Challenges of the Bid Process Slide No. 10 2

11 CONTENT 1 WHAT IS PFI 2 CHALLENGES OF THE BID PROCESS 3 THE ROLE OF OR 4 CASE STUDIES - C VEHICLE CAPABILITY PFI 5 FINAL THOUGHTS 21 September Introduction Slide No. 11

12 OPERATIONAL RESEARCH (OR) Application of advanced analytical methods to help make better decisions Identification available options Data analysis / data gaps Predictions of outcomes Produce the right solution with the right numbers Estimates of risk Support implementation 21 September Role of OR Slide No. 12 3

13 OBSTACLES TO SOLUTION DEVELOPMENT Complexity of the service to be provided Understanding the requirement Changes to project specification Changes to the bid team composition Size of the bid team Time taken to assess the alternatives Data Time constraints 21 September Role of OR Slide No. 13 3

14 WHERE OR CAN SUPPORT ANALYSIS BOUNDARY Issue Driven Specific problem Mini models High level of detail Spreadsheets Continuum Whole Systems Model A systemic approach where the proposed solution is considered as a whole Link together capital and service provision, performance metrics and finance Auditable decisions Describe/communicate the solution. Brings together the team Unintended consequences Lower level of detail System Dynamics / Discrete Event Simulation Rapid Assessment of viable solutions and the impact of changes 21 September Role of OR Slide No. 14 3

15 ANALYSIS REQUIREMENTS IN THE FORMULATION OF A PFI BID BID STRATEGY TACTICAL / DELIVERY Proposed Solution Supply Vs Demand Cost Model Service Performance Criteria Viable Alternatives Bid / No Bid STRATEGIC 21 September Role of OR Slide No. 15 3

16 ROLE OF OR IN THE FORMULATION OF A PFI BID BID STRATEGY TACTICAL / DELIVERY Proposed Solution Supply Vs Demand Cost Model Service Performance Criteria Viable Alternatives Bid / No Bid STRATEGIC 21 September Role of OR Slide No. 16 3

17 ROLE OF OR IN THE FORMULATION OF A PFI BID BID STRATEGY TACTICAL / DELIVERY Proposed Solution Supply Vs Demand Cost Model Service Performance Criteria Viable Alternatives Bid / No Bid STRATEGIC 21 September Role of OR Slide No. 17 3

18 CONTENT 1 WHAT IS PFI 2 CHALLENGES OF THE BID PROCESS 3 THE ROLE OF OR 4 CASE STUDIES - C VEHICLE CAPABILITY PFI 5 FINAL THOUGHTS 21 September 2007 Slide No. 18

19 CASE STUDY THE C VEHICLE CAPABILITY PFI C Vehicles is the general designation that the MOD uses for engineer and rough terrain material handling equipment The MOD maintained a fleet of over 4000 items, of over 160 different types The aim of the C Vehicle Capability PFI is to provide a complete C Vehicle service in support of the British armed forces world wide It is a Pathfinder PFI to whole fleet management in direct support of front line operations Crown copyright 21 September Case Study Slide No. 19 Image from MOD Defence Contract Bulletin, 24 th March

20 C VEHICLE CAPABILITY PFI AND ALC ALC Lex Defence (now VT Land) Amey Time line: PQQ: 2000 ITN: 2002 Preferred Bidder: December 2003 Financial close in June 2005 Phased implementation led to the full service being rolled-out in May 2006 The ALC proposal was to maintain and manage the fleet and provide associated services including: Spares support and inventory management A comprehensive fleet management system Equipment documentation Training for operators, maintainers, managers and instructors The ALC solution was designed specifically to meet the service requirement as defined by the MOD using innovation, latest technology and defence and commercial best practice The PFI will deliver the required level of service to the MOD in support of the operational fleet against strict performance criteria The contract is to be delivered over a 15 year period from full service commencement. 21 September Case Study Slide No. 20

21 C VEHICLE CAPABILITY PFI AND THE ROLE OF OR BID STRATEGY Proposed Solution Supply Vs Demand Cost Model Service Performance Criteria Viable Alternatives Bid / No Bid 21 September Case Study Slide No. 21 4

22 C VEHICLE CAPABILITY PFI AND THE ROLE OF OR Operational Demand DEMAND PROFILES Peace Time Demand Scenario Tasks Vehicles By location Time ROLE FOR MODELLING AND SIMULATION 1. VEHICLE DEMAND FOR OPERATIONS 2. VEHICLE SUPPLY TO MEET ONGOING DEMAND INFORMED DECISION MAKING Vehicle Fleet Number of Vehicles by type Location of Vehicle Pools Fleet rationalised by about 40% from just over 4000 assets to approximately 2,600 assets An optimum fleet size was identified to meet the capability requirement SUPPLY KEY STRATEGIC DECISIONS 21 September Case Study Slide No. 22 4

23 CONTENT 1 WHAT IS PFI 2 CHALLENGES OF THE BID PROCESS 3 THE ROLE OF OR 4 CASE STUDIES - C VEHICLE CAPABILITY PFI 5 FINAL THOUGHTS 21 September 2007 Slide No. 23

24 FINAL THOUGHTS OR tools and techniques are used extensively in the generation of robust bid strategies Not always called OR Used to build confidence in the proposed solution Get the numbers right Sensitivity of the solution to change The models and tools can then be used during project delivery 21 September Final Thoughts Slide No. 24 5

25 ANY QUESTIONS? Author: Dr Siôn Cave Principal Consultant Contact: HVR Consulting Services Ltd. Selborne House Mill Lane Alton Hampshire GU34 2QJ U.K. Tel: +44 (0) Fax: +44 (0) Web: CERTIFICATE NO September 2007 Slide No. 25