PPPs from Government’s Perspective – The Partnerships Victoria Guidelines Richard Foster Director Foster Infrastructure Pty Ltd
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
Agenda
• Scope & Application of the Partnerships Victoria Policy • Initiation of the PPP delivery process • Project Governance
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
Agenda
• Scope & Application of the Partnerships Victoria Policy • Initiation of the PPP delivery process • Project Governance
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
Development and Use of the PPP Model in Victoria • •
1980s/90s: PPP style projects in a number of sectors 1980s: Overriding concern was to achieve off balance sheet financing – Avoidance of limits for State borrowings. – Little risk transferred. – Financiers’ rate of return assured.
•
1990s: Belief that increased private sector involvement in infrastructure services could drive growth and efficiency – Economic and financial outcomes from these projects were largely positive. – However, the quest for maximum risk transfer and private sector efficiencies led to some projects being unsustainable.
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
A new approach‌
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
Development and Use of the PPP Model in Victoria June 2000: Partnerships Victoria policy introduced – Clear aim of achieving value for money in the public interest – No presumption that the private sector is more efficient in building and operating public assets – Focus on whole of life costing – Optimal, rather than maximum, risk transfer to the private sector
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
Partnerships Victoria publications ยง Partnerships Victoria Policy
June 2000
ยง Overview ยง Practitionersโ Guide ยง Risk Allocation and Contractual Issues - a guide ยง Public Sector Comparator - a technical note
June 2001
ยง Contract Management Framework
June 2003
ยง Public Sector Comparator - supplementary technical note ยง Use of Discount Rates ยง Standard Commercial Principles ยง Infrastructure Australia Guidance ยง Other specific guidance - ongoing
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
July 2003 June 2005 (Updated 2008) November 2008
The current Policy and Guidance Framework Relevant Guidance for Victorian PPP Infrastructure Projects
National PPP Guidelines Overview and Volumes 1-7 Sum m ary of Jurisdictional Requirem ents ACT - AUS - NSW - NT - QLD - SA - TAS - VIC - WA
Partnerships Victoria Requirements Annexure Commercial Principles Annexure Further Guidance & Templates Annexure Contract Management
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
Conduct of Commercial Engagements in Government
National PPP Policy Framework
Gateway Lifecycle Guidance
Investment Management Standard
Asset Management Framework
Partnerships Victoria Framework
The current Policy and Guidance Framework • The Partnerships Victoria Framework requires compliance with both: • •
the National PPP Policy and PPP Guidelines; and the Victorian specific requirements outlined in the Partnerships Victoria Requirements document and its annexures.
• The Baillieu government has not yet announced any refinements to this PPP Framework, but may do so in the future.
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
The scope of the Partnerships Victoria Policy • Delivery of infrastructure-based services by the private sector under a contract with government • Does not cover outsourcing or other service delivery arrangements where no capital investment is required • In most cases, but not all, the capital investment is funded by the private party and repaid out of service fees received over the life of the contract
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
Traditional Procurement and PPPs compared Traditional Procurement Approach: •
PPP Approach: §
Government engages an architect who develops an
build and operate (or maintain) the facility to deliver
input based design for the facility •
•
Government engages a
Government engages one private sector party to design,
specified outputs / services.
contractor for construction
Payment is based on the services delivered and
Following construction, the
conditional on meeting the KPIs specified in the contract.
Government operates and maintains the facility
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
§
Traditional Procurement and PPPs compared Traditional Procurement Approach: •
PPP Approach: §
Government engages an architect which designs the
build and operate (or maintain) the facility to deliver
facility based on input requirements •
•
Government engages a
Government engages one private sector party to design,
specified outputs / services.
contractor for construction
Payment is based on the services delivered and
Following construction, the
conditional on meeting the KPIs specified in the contract.
Government operates and maintains the facility
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
§
PPPs are NOT: • • • •
Another bucket of money An alternative to the Cabinet funding process A financial device to get things off the balance sheet Simply about building things
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
PPPs – their role in meeting infrastructure needs • PPP delivery does not suit all needs • PPPs are one delivery option – others include design and construct, project alliances • Over the medium to long-term, PPPs account for around 10% of Victoria’s infrastructure needs • PPP delivery is applicable to more complex projects where outputs can be measured, and there is scope for innovation and whole-of-life efficiencies
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
Characteristics of likely PPP candidates: • Scale: $50-100m + (some water/wastewater projects can be smaller) • Measurable service outputs • Non-core services • Risk transfer • Long term • Innovation • Market appetite
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
Value for Money drivers • • • • •
Whole of life planning and costing Output specification and scope for innovation Efficient risk allocation Asset utilisation and third party revenues Rigorous process
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
Agenda
• Scope & Application of the Partnerships Victoria Policy • Initiation of the PPP delivery process • Project Governance
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
PPP Project Development and Procurement in Victoria
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
PPP Project Development and Procurement in Victoria
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
A Project starts with a Service Need‌
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
The Service Need – Strategic Assessment • The strategic assessment identifies the: – – – –
requirement to meet the identified business needs anticipated benefits and timelines alignment with government policy directions fit with departmental or agency strategic priorities
• Enables government to decide whether it is worth proceeding either to options analysis or to develop a business case
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
Next is Option Appraisal‌
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
Options Analysis • Evaluation of a wide range of options, including: – Considering asset and non-asset solutions – Considering the timing, scale, location and delivery options
• Enables government to decide which (if any) options should be considered in a full business case for the proposed investment • May involve initial consideration of PPP delivery, particularly where there is a choice between government funding and user charging
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
Next is Option Appraisal‌
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
Business Case • The business case: – validates or amends the project assumptions – clarifies the quantitative and qualitative costs, risks and benefits from a whole-of-life perspective – provides a project plan that will steer the project’s implementation
• Enables government to decide whether the investment should be funded, taking into consideration: – The merits of the investment – The merits of other competing investment proposals – The available budget
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
Business Case – Outcomes The Business Case enables government to answer three key questions: 1.Should the project be funded? –
This is the Investment Decision
2.How should the project be delivered? –
This is the Procurement Decision
3.What governance arrangements should be put in place? –
This is the Governance Decision
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
The procurement strategy • Commenced as part of the business case • Finalised prior to commencement of tendering • Results in a decision as to the appropriate delivery model
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
Selecting a delivery model
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
Hypothetical waste treatment project – Should PPP be a short-listed delivery model? • Is it large-scale and long-term?
ü ($100m plus, long-life asset) • Are there measurable outputs?
ü (Treatment of waste to comply with environmental regulations etc) • Are there opportunities for risk transfer?
ü (Design, construction, operation, incoming waste(?), energy cost(?)) • Is there scope for innovation?
ü (Significant scope in design, construction and operation) • Is there market capability and appetite?
ü (Market testing; Private sector delivery and operation of waste treatment plants has occurred elsewhere)
• Are there non-core services?
ü (Operation of the plant) Presentation to RMIT Advanced Construction Management Students | 9 March 2011
Hypothetical waste treatment project – Selecting a delivery model from a shortlist
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
•
Delivery models are qualitatively assessed against project/procurement objectives
•
The objectives may be weighted
•
If the analysis has identified specific weaknesses of the preferred model, mitigants are considered
Separation of the funding and delivery decisions • Funding is approved on the basis of government delivery of the project • If a decision is made to deliver the project as a PPP, the approved funding represents the Public Sector Comparator •
The Public Sector Comparator is used as a price benchmark representing the cost if government was to deliver the projects – private sector bids are compared against this price
• Upon financial close occurring, the approved funding is “rephased” into the PPP cashflows
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
Funding Approval – “User Pays” Projects • A project undertaken on a “user pays” basis must still be considered in the context of the State’s overall infrastructure programme • Interface issues must be considered – e.g. impact of a user pays toll road on the surrounding network • Government contributions (e.g. land), contingent liabilities (e.g. on contract termination) and potential benefits must be considered
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
Project Development follows‌
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
Agenda
• Scope & Application of the Partnerships Victoria Policy • Initiation of the PPP delivery process • Project Governance
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
Portfolio Responsibility • Projects are a result of an asset requirement identified by a line agency/department •
This “Client Agency” may engage a separate team within the same agency, or in another Department (for example, Major Projects Victoria) to manage the project delivery process
• All Ministers have power to enter into PPP contracts • The Treasurer is responsible for PPP policy •
Therefore, a Partnerships Victoria Unit exists within the Department of Treasury and Finance, managing the implementation of this policy
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
Portfolio Responsibility for Projects Sample PPP Projects
Responsible Department
New Hospital Projects
Department of Health
EastLink Toll Road
Department of Transport
Southern Cross Station Waste Water Treatment Projects
Department of Sustainability and Environment / Relevant Water Authority
Prisons, Court Buildings
Department of Justice
New Schools
Department of Education and Early Childhood Development
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
Partnerships Victoria Unit – Key Roles Policy Role • Development of policy and guidance material:
Project Implementation
Advisory Role • Represented on Project Steering Committee and Working Group
• Process guidance
• Provide expert commercial advice
• Standard commercial principles
• Ensure policy issues identified / addressed
• Liaison with other jurisdictions
• Maintain integrity of Partnerships Victoria: • Policy positions • Process
• Monitor budgetary issues • Facilitate Treasurer’s approvals • Development of policy and guidance material
Contract Management
• Effective contract management
• Provide expert commercial advice • Ensure policy issues identified / addressed • Maintain integrity of Partnerships Victoria policy positions • Monitor budgetary issues
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
A Typical Project Governance Structure Steering Committee
Minister for Transport DOT Secretary (chair) Project Director DTF DPC Independent
Secretary Department of Transport
Probity Adviser
Commercial Manager
Commercial Financial
Project Director (Chair) Comm Manager DPC Tech Manager DTF
Project Director
In-House
Communication Manager
Legal
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
In-House
Technical Manager
Planning
Engineering
Working Group
Design
Summary • The PPP model in Victoria has been developed and refined over a number of years • The model is used where there are clear value for money drivers • The robust PPP delivery process helps us deliver value for money • The client agency, the delivery agency and the Department of Treasury and Finance each play a key role
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
Questions?
Presentation to RMIT Advanced Construction Management Students | 9 March 2011
Contact Details Richard Foster Director Foster Infrastructure Pty Ltd E-mail: richard@fosterinfrastructure.com Web: www.fosterinfrastructure.com
Presentation to RMIT Advanced Construction Management Students | 9 March 2011