development of a sectoral infrastructure procurement strategy sean phillips 25 march 2010
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DEVELOPMENT OF A SECTORAL INFRASTRUCTURE PROCUREMENT STRATEGY
Sean Phillips
25 March 2010
SUPPORT PROGRAMME FOR ACCELERATEDINFRASTRUCTURE DELIVERY
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Problem Statement: why is a procurement strategy required?
Improved selection of procurement strategy will result in improved delivery outcomes.
CIDB has produced a range of standards, practice notes and guides Contain large number of options for procurement approaches and contracting options
Currently no overall guide of how to choose from myriad of available options for a particular expenditure programme
Organs of state (with some exceptions) generally only utilise time honored and familiar procurement approaches regardless of changing circumstances
Tend to be highly resource intensive-intensive for the client Implementing agents often cannot cope with workload using these approaches Leads to poor outcomes: under-expenditure, poor contract management
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Development of a methodology for sector infrastructure procurement strategies
Support Programme for Accelerated Infrastructure Delivery (SPAID) Joint project between BT and Presidency President’s Big Business Working Group requested BT to identify creative ways in which the public and private sectors
could cooperate to support infrastructure delivery
Discussions between BT, NT and DOE led to project to develop social infrastructure procurement strategy methodology
Limpopo DOE volunteered to be the test site
National steering committee: NT (PPP, IDIP, TAU), LT, LDOE, national DOE and Health, CIDB
Generic methodology has been developed and tested in Limpopo
Now being implemented in Limpopo and approach is being rolled out to other provinces (Education and Health), as part of IDIP
A national initiative to develop a methodology for producing a social infrastructure procurement strategy has been piloted in Limpopo.
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Strategic planning and investment planning
Procurement is preceded by strategic planning and investment planning Provincial strategic planning is guided by Treasury Regulations and strategic
planning guidelines Social infrastructure investment planning is guided by CIDB Toolkit for
Infrastructure Delivery Management, developed as part of NT Infrastructure Delivery Improvement Programme (IDIP)
Limpopo DOE IDIP five-year infrastructure plan was reviewed Contains prioritised lists of projects to be funded over five years
Findings: Logical and reasonably robust methodology Appears to be directing expenditure towards most urgent needs Infrastructure plan will generally not result in procurement of ‘wrong things’ Project should proceed to next phase of developing procurement and contracting
strategy to enable infrastructure plan to be procured in the right way
The existing education infrastructure plans, planning processes and quality ofunderlying data in Limpopo were reviewed.
All procurement and contracting options are considered equally valid
Methodology does not say that some approaches better than others (eg does not say that some forms of contract document are better than others)
Different options are most suitable under different conditions
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Underlying principle of the generic methodology
“Procurement strategy” = Choosing the most appropriate procurement and contracting approaches to meet your objectives.
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Gather information on local conditions and formulate objectives
Spend and category analysis – what are the characteristics of what is being procured, from a procurement point of view?
Categorise needs in terms of types of output and other commonalities
Organisation analysis What capacity and approach to risk does the organisation have and wish to have?
Market analysis – what capacity is in the market?
What are the organisation’s primary procurement objectives, e.g. budget / cost quality and performance characteristics required from the completed work
And secondary procurement objectives, e.g. BBBEE
The choice of options is dependent on local conditions.
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Meeting needs through a programme of projects or a series of independent projects
Meeting needs through PPP
Meeting needs through implementing agent(s)
Meeting needs through framework agreements
Packaging of the work
Decision tables are used to match options to local conditions.
Match options to local conditions
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Gather information
Formulate objectives
Make strategic delivery management decisions
Meet needs through PPP
Meet needs through
Implementing AgentMeet needs through own
organisation
Package works
Delivery management strategy
Decide on contracting strategy
Decide on procurement arrangements
Contracting strategy
Procurement arrangements
Conduct annual evaluation of infrastructure spend on projects and programmes
Implement procurement strategy
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Identify contracting strategy per procurement category for contractors and PSPs
Contractual arrangements
Pricing strategy
Form of contract
Identify procurement arrangements per procurement category for contractors and PSPs
Quality strategy
Procurement procedure
Prequalifications
Targeted procurement strategy
Tender evaluation procedure
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Consideration Options Decision criteria for PPP
Non-PPP PPP The pre-requisites for using this option are that: the private party assumes substantial financial,
technical and operational risk in the design, financing, building and operation of a project over time
capability and capacity exist or can be put in place to effectively manage the PPP.
the nature of the service to be provide through the PPP is such that the risks can be clearly quantified and priced with certainty i.e. there must be a low level of intangibles e.g. potential for land claims or latent defects in existing infrastructure
the quantum of payments associated with the level of service to be provided through the PPP for the life of the PPP are affordable in the context of the client’s available and forecast budget and identified needs
there is a high level of certainty that the usage of the facility will be required without alteration over the lifetime of the PPP
the needs to be met are spatially located such that the PPP can be efficiently implemented
Contract outcome
Provide infrastructure
Provide assets and services which extend beyond construction for an agreed outcome over time.
Finance On budget Off budget (i.e. private finance required)
Risk Public body retains substantial risk relating to:
cost of construction, operation and maintenance
level of service
Transfer substantial risk relating to:
costs
level of service
to the private sector party
Decision table for PPP
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Decision table for framework agreements
Consideration Options Decision criteria for framework agreement
Non-framework
Framework Framework agreements are appropriate where:
The budgets available and the detailed scope of the needs are uncertain.
The potential for additional funds to be made available exists
The need involves repetitive work of a similar nature
A quick response time is required
Long term relationships (3 to 5 year) are desirable to achieve efficiencies
The pre-requisites for using this option are that
enabling procurement policies and procedures are in place, and
capability and capacity exist or can be put in place to effectively manage the framework agreements
Contract outcome
Provide specific construction works
Provide broadly defined construction services over a period of time
Procurement Separate procurement process for each transactional contract
Appoint in terms of pre-approved framework or reopen competition between framework contractors
Flexibility Time frames, scope and level of service defined per transactional contract.
Flexibility in terms of time frames, scope and level of service
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Options for contracting strategy for construction services (the methodology contains decision tables for each)
Contractual arrangements
Construction Management
Design and construct
Design, construct, operate and maintain
Develop and Construct
Design by Employer
Management Contract
Third party management support
Pricing strategy
Priced contract
Bills of quantities
Activity schedule
Cost based
Cost reimbursable
Target cost
Standard form of contract
FIDIC –Red Book
FIDIC –Yellow Book
FIDIC – Short Contract
FIDIC –Silver Book
GCC -2004
JBCC Series 2000 – PBA
JBCC Series 2000 - MWA
NEC3 ECC
NEC3 ECSC
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Options for procurement arrangements for construction services
Procurement procedure options
Com
petiti
ve s
elec
tion
Nominated
Open
Qualified
Quotation
Proposal procedure using the two-envelope system
Proposal procedure using the two-stage tendering system
Negotiations with a sole contractor
Competitive negotiations (open or restricted)
Targeted procurement procedure options
Preferencing
Incentives for KPI’s
Mandatory subcontracting
Contractual obligations
Tender evaluation options
Method 1: Financial offer
Method 2: Financial offer and preferences
Method 3: Financial offer and quality
Method 4: Financial offer, quality and preferences
Quality strategy options
Specifications
Life cycle costing
Prequalification
Evaluation criteria
Undertakings at tender stage
Preference
Eligibility criteria
Identified five procurement categories and grouped the 2201 projects in the five year infrastructure plan into the five categories
Category 1: Greenfields Category (high value new buildings), managed by Head Office
Category 2: Brownfields Upgrade and Repair Category (medium value)
Category 3: Water and Sanitation Category, consisting of a mix of small civil and building projects managed by DWAF
Category 4: Routine and Preventative Maintenance Category, managed in consultation with SGB’s
Category 5: Electrification of schools by Eskom
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Application to LDOE: Spend analysis
Application of the methodology LDOE’s 5 year infrastructure plan resulted in radical changes to its procurement and contracting strategies.
Developed a procurement strategy for construction services for each category
Identified PSPs required and developed a procurement strategy for each type of PSP
Introduced framework agreements for small and medium-sized projects and for some professional service providers
Introduced appropriate targeted procurement procedures including preferencing, incentives and contractual obligations to meet secondary procurement objectives Draws on Ethekwini water mains replacement experience
Introduced competitive tendering for professional service providers
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Application to LDOE: procurement strategy
Application of the methodology LDOE’s 5 year infrastructure plan resulted in radical changes to its procurement and contracting strategies.
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Benefits of new procurement strategy:
Total 95 contracts to manage over five years for 2201 projects (excluding professional service providers)
Historically would have had 2201 contracts (excluding professional service providers), each with its own procurement process
Resulted in severe strain on capacity of department and IAs and delivery problems
Much quicker response times using framework contracts
Officials can spend more time on strategic issues and less time on operational issues
Anticipating substantial reduction in costs over current fee on cost of construction pricing strategy – potentially R350 million over five years
LDoE’s new procurement strategy will greatly reduce the workload on officials, reduce costs, and improve response times.
Summary of benefits for LDOE
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Contractor development using framework agreements
Status of transformation in contractor market Black owned suppliers make up > 90% suppliers at grades 1 – 5 Supplier market at grades 1 – 5 is probably over supplied
Hence meaningful contractor development entails developing: Black Grade 6/7 contractors to Grade 7/8 Black Grade 3/4/5 contractors into Grade 4/5/6 using the sub-contractor & mentor model
Strategy supports meaningful contractor development programme by: Applying preferential procurement to select Limpopo BEE contractors Large contractors will have to meet contractual obligations
Subcontract a minimum % of work to lower grade BEE contractors Develop black contractors through a predetermined number of grades The 3 year framework agreement will ensure continuity of business and mentorship for
the BEE suppliers, ensuring a more sustained learning curve The CIDB register will be used to track performance and identify sub-contractors
Mentorship by experienced contractors yields best results
Similar model has been applied on the eThekwini contractor development programme
Objective is to develop more black owned contractors at higher grades
National % black owned
contractorsNumber of Limpopo
contractors
Grade General building General building
1 98% 5011
2 94% 253
3 95% 65
4 89% 81
5 89% 75
6 79% 61
7 67% 19
8 51% 0
9 12% 0
Total 5565
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Develop Grade 3/4/5 contractors into Grade
4/5/6 using the sub-contractor & mentor model
Develop Grade 6/7 contractors to Grade 7/8
Medium sized contractors > 80% black Medium sized contractors > 80% black ownershipownership
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Does not require any special approvals from Treasury – all allowable in terms of the existing SCM and CIDB frameworks
In-sources professional expertise (apart from programme management) IA’s do not need large numbers of engineers, architects, QS, or project managers Just needs small number of open-minded programme managers willing to
familiarise themselves with various contracting and procurement approaches and forms of contract
Envisaged challenges to rolling out a new approach to social infrastructure procurement Client difficulty in deciding on objectives Resistance to change, particularly from professional service providers
Implications of changes
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Broader roll-out
National workshops to be held this year
One-on-one engagements with key national stakeholders
Integration into IDIP IDIP technical assistants will help provincial health and education departments to
implement the methodology
SPAID is working with NT, nDOE, nHealth and CIDB to roll out the approach in the social sector.
THANK YOU
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