Procurement

20th March 2012Warwick

Max BrookerBSc(hons), MBA, AMIMechE, MAPM

Partner – OTB Engineering LLPO: 020 7099 2608 M: 07799 765 286

mbrooker@otbeng.comwww.otbeng.com

Agenda Topics

• EU Procurement Approach

• Competitive Procurement

• Procurement Procedures

• Conventional vs PPP Procurement

• Risk Allocation

• Case Example – Aspects of PPP Procurement

Public Procurement ProcessEU Approach

Procurement Authority – Major Projects – Competitive Procurement

Requirements Definition Feasibility/Business Case/Budget Planning Advertise for Expressions of Interest (EOI)

Pre-Qualification Questionnaire (PQQ) – Long List of Bidders Outline Proposals (OP)

Clarifications/Risk Workshops Select - Shortlist Bidders

Costed Final Proposals (FP) Competitive Dialogue

Select Preferred Bidder (PB)Negotiate Contract Terms Award Contract

(see www.businesslink.gov.uk)Crossrail TBM

Competitive Selection ProcessesEU Approach

See “Official Journal of the EU” (OJEU)

• Open Procurement – any interested parties may tender

• Restricted Procurement – only selected bidders are invited to bid (PQQ)

• Competitive Dialogue – on major projects (unique or complex) a complex dialogue process is undertaken

• Negotiated Procedure – Procurement Authority negotiates the terms of the tender

UK Procurement Threshold Levels for 2012Information Note 10/11

(www.cabinetoffice.gov.uk)

• Services & R&D– £347,868 All Sectors

• Works– £4,348,350 All Sectors

• Small Lots– £69,549 Supplies & Services– £869,670 Works

Example – The Utilities Contracts Regulations

EU Procurement Processes Overview

Complexity ?

Subm

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Issue Invitation to TenderRestricted

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qualification criteria (m

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of 5 bidders)

40 Days*

OJEU Process ChartOJEU NOTICENormal

OJEU NOTICEElectronic

OJEU NOTICEPIN

OJEU NOTICEPIN Electronic

OJEU NOTICEUrgent

OJEU NOTICEUrgent Electronic

37 Days

37 Days

30 Days

30 Days

15 Days

10 DaysIssu

e PQ

Qs

22 Days*

10 Days

* Times indicated with an asterisk can be reduced by 5 days where “unrestricted and full access by electronic means” to contract documents

Pre

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Subm

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Normal37 Days

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OJEU NOTICEElectronic

Pre

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Developing The Procurement Strategy

• Requirements Definition• In-House or Buy-in• Competitive/Non-competitive• Expertise & Scale of Project Packages – WBS/OBS• Delivery Partner/Programme Management • Market Expectation• Private Public Partnership (PPP) vs Conventional• Risk Allocation & Budgeting for Cost Exposure• Procurement Planning• Selection Criteria

Competitive Procurement SelectionAdjudication Criteria

• PQQ – 6 to 12 Long List of Bidders– Capacity & Experience– Quality

• Shortlist of Bidders – 4 Bidders– Project Management & Quality– Design & Construction– Cost & Risk

• Final Bids – 2 Bidders– 20% - Requirements Compliance (Ts & Cs of Contract)– 30% - Technical– 50% - Cost (Value for Money)

Risk AllocationConventional vs PPP Procurement

Design Private Private Private Private

Construction Private Private Private Private

Operate Authority Private Authority Private

MaintenanceAvailability Authority Private Authority Private

Finance Authority Authority Private Private

Demand Authority Authority Authority AuthorityRisk

D&B BOT DBFT DBFOForm of Contract

PPP Risk AllocationPublicAuthority

PrivateCompany

Tunnelling Projects ProcurementContract Forms

• CTRL – PPP• Dartford Crossing – PPP SOPC• M25 – PPP SOPC4• Crossrail Tunnels - NEC3• Thames Tideway – NEC3

The New Engineering Contract (NEC) form was developed to improve team-working, co-operation and trust between the Employer, the Consultant and the Constructor. It includes a risk sharing approach aimed to deliver the project on time, at cost and to quality. It has Options A to F.

New Engineering Contract (NEC3) Options

• Option A – Priced contract with activity schedule – a “lump sum” contract

• Option B – Priced contract with bill of quantities – the quantities are re-measured

• Options C & D – Target cost with activity schedule or bill of quantities, respectively pain/gain above a target (tendered or negotiated) is shared between the parties in a flexible way as defined by the Employer

• Option E – Cost reimbursable• Option F – Managed contract

Case StudyAspects of PPP Procurement

Public Sector Procurement & the PPP Option

• Why choose the PPP Option for public infrastructure development?– Leverage private sector capital and accelerate economic

development– Gain private sector innovation and efficiencies– Transfer risk of service delivery to the private sector– Long term Public/Private contracts– Only pay when service is available and to performance– Fiscal accounting advantages (PSBR)– Emerging market support funding available– ...

Generic Structure of PPP Deals

ProcurementAuthority

BanksEquity

HoldersSpecial Purpose

Company

Asset Provider Service Company

UnitaryCharge

Principal &Interest

Subordinated Debt & Equity

Dividends, Principal& Interest

SeniorDebt

Capital ExpenditureCAPEX

Operational ExpenditureOPEX

UsersUsage

Payments

Cash Flow Viewpoint

NEC3

Example Thames TunnelPPP Option Structure

WaterConsumers

Water UtilityProcurement

Authority

ISPProject Co Ltd

Secretary of StateDEFRA

RegulatorOFWAT

EnvironmentAgency

IPC

Lending Banks

ISP Project Agreement

Facility Agreement

ConstructorsE, C, W

DesignE, C, W Operator Maintainer

ISPShareholders

Shareholders Agreement

Main Contracts

Direct Agreement

Licence

Licence

Thames WaterShareholders

EU Urban Waste Water Treatment

Directive

£ rates

PPP Project Timescales

FinancialModel

Cash Flow:-REVENUECAPEXOPEXFinancing

2 years

3 to 5 years

25 to 35 years

Project Agreement Lifecycle

Design & Build CAPEX

Pre-contract

Operate & Maintain - OPEX

TransversalHand-back

Payment Mechanism

Revenue

Financial Close

Operational Date

PPP Market Size & Segmentation

• Market Segmentation – business focus– World Bank: PPP Infrastructure Resource centre: Energy, Water,

Transport, Telecoms & ICT– Infra News: Transport, Social, Environment & Renewables– Geographic Regions: Language, Finance, Legal Framework, Maturity,

UK, EU, USA, SA, Canada, SEA, ME, Australia, Russia, China, Korea ...– Business Functional: Roads, Rail, Airports, Sea Ports, Hospitals,

Schools, Prisons, Courts, Power Stations, Water & Wastewater, Waste ...

– Private Sector Opportunities: Project Co (SPV), Construction, Operations, Consulting (Legal, Financial Technical), Insurance

PPP Market Size & Segmentation

• Market Size Factors: business potential– Demand for infrastructure development– Procurement Authority maturity and Legislative

Framework– Seed-corn Funding and deal Finance available– Project Feasibility, Business Case & Bankability– Bank Lending Market appetite– Design, Construction & Operations Teams– ...

Summary of Key Points

• Why governments go for PPP procurement – leverage.• Procurement options & risk transfer – conventional to PPP.• EU Procurement processes – negotiated soln/competitive

dialogue.• EU Procurement processes.• NEC 3 Options.• Risk Allocation and Procurement Strategy.• Structure of PPP deals – debt finance and cash flow.• Market Segmentation and Size.

Thankyou for your attention

Any Questions