Infrastructure: Buildings (Infrastructure delivery and planning)

NAMIBIAN MINISTRY OF HEALTH AND SOCIAL SERVICES (MoHSS)

HEALTH PUBLIC-PRIVATE PARTNERSHIPS (PPP) CONFERENCE8th December 2014

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Agenda:

Page

1. Models in Public-Private Partnerships (PPP’s) 5

2. Management of PPP’s 14

3. Agreements in place for Infrastructure 27

4. Partnerships and its Committee’s 29

5. Lessons Learnt 32

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Bachelors of Science in Construction and Project Management

10 Years with a major contractor in the United Kingdom

7 Years leading Consulting teams in the UK and South Africa

Led biddings team in the UK for major PFI /PPP Hospitals

Supported the South African National Treasury and National Department of Health with various hospital project Feasibility Studies

Managing Director, Profica– Development, Project and Construction Management across African Continent

Who am I?

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Profica

Libya

Zambia

Zimbabwe

Botswana

Lesotho

Namibia

Uganda

Central African

Republic

Burkina Faso

Algeria

NigerChad

Egypt

Sudan

Ethiopia

Eritrea

Djibouti

Som

a

lia

Mala

wi

Kenya

Tanzania

Mada

gasc

ar

Swaziland

Moza

mbiq

ue

South Africa

Con

go

Angola

Equitorial Guinea

Be ni n

Ghana

Nigeria

Cameroon

Gabon

Cote d’Ivore

To go

Liberia

GuineaSierra Leone

Guinea Bissau

Gambia

MaliMauritan

ia

Senegal

Wes

ter

n Sa

har

a

Mor

occ

o

Tun

isia

BurundiDemocratic

Republic of Congo

Rwanda

Niger

SECTORS Social Infrastructure

Healthcare Education

Mixed-Use Retail & Shopping

Centres Industrial & Processing

Plants Warehousing &

Logistics Residential & Housing Educational &

Institutional Hotel & Leisure Infrastructure

SERVICE OFFERING Technical Advisory

(Public-Private Partnerships)

Development Management

Construction Management

Project Management Integration

Management Scope Management Time Management Cost Management Quality Management Human Resource

Management Communications

Management Risk Management Procurement

Management

COMBINING SERVICES TO ENSURE THE HANDS-ON DELIVERY OF SUCCESSFUL PROJECTS

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Two types of PPPs are specifically defined:

Where the Private Party performs an Institutional/Municipal function; Where the Private Party acquires the use of State/Municipal property

for its own commercial purposes A PPP may also be a hybrid of these types (Concessions, Leasing, JV’s

BOT, etc.)

Section 1: Models in Public-Private Partnerships

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Typical PPP Project CycleTypical PPP Project Cycle

Project I nception

Feasibility Needs Analysis Option Analysis

Project Due Diligence Value Assessment

Economic Evaluation Procurement Plan

Procurement (1) Request for Qualification (RFQ) –

Pre-qualification of Bidders

(2) Request for Proposal (RFP) – Selection of Preferred Bidder

(3) Negotiations with Preferred Bidder

(4) Finalisation of PPP Agreement and Management Plan

Development / Construction

Delivery / Operation

Phas

e IPh

ase I

IPh

ase I

II

Proje

ct Pr

epar

ation

Responsibility

Government

Government

Government and Private Party

Exit

Private Party with Government

Monitoring Role

Government and Private Party

Proje

ct Te

rm Ph

ase I

VPh

ase V

Phas

e VI

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A New Virtuous Circle

Asset & Infrastructure Procurement

Strategy

Funding & Financing

Construction

Operation

Change

National Infrastructure Plan

A New Approach to Financing

Government Construction Strategy

Placing responsibility & risk where it can best be managed

Improved Flexibility

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Long Term Relationship

Traditional Design & Build

Prime Type

Contracting

DBO & BOT PPP PFI

The Established Construction & Infrastructure Delivery Models

Perceived Risk Transfer

Flexibility

Commercial Competitiveness

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Long Term Relationship

Evolving Models

Capital Funding

Loan / Grant

FundingAlliancing Partnerin

g

Competitive

Partnership

Private Developer Scheme

LEP / LIFTLocal Asset

Backed Vehicles

PPP’s

Perceived Risk Transfer

Flexibility

Commercial Competitiveness

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PPP’s enable public sector to spread the cost of infrastructure

It gets clear private sector buy-in to risk

It encourages a whole life cost approach to be taken, ignoring cash affordability constraints

It drives on time delivery and the maintenance of defined service standards

PPP’s can be off balance sheet

PPP’s historically...

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Financiers have differing approaches to riskThe project finance model needs to recognise this

Real risk is in construction (and perhaps life cycle)Hence the construction industry has a clear role & responsibility to drive efficiency

Speed (or lack of) to market is a huge issueAdds significant cost and risk – faster procurement is much more attractive

Market Confidence is essentialNeed to seek to reduce bidding costs whilst still delivering VfM

The procurement route needs to be appropriate to the risk profileSelect a procurement option with care, once the long term business needs are properly assessed

And …

Some of the real issues linked to PPP’s

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The way the Ministry manages their programmes plays a key role in achieving success and value for money

So:

Effective Programme & Project Management is Essential to

Success

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Maintain a stable and credible policy and regulatory framework for infrastructure across the sectors,

so that investors can plan and invest with confidence, and political and regulatory risk is minimised.

And give confidence regarding the project pipeline

And what must Government do?

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Phase I – Feasibility

The objective of the feasibility study is to enable the Ministry to make an informed decision as to the best option for the redevelopment or new build of a facility. The feasibility study will calculate the affordability and value for money to the government through comparing the PSC and PPP models.

The feasibility will also assess the marketability of the project and the opportunity for the Ministry to raise additional funding should this be required.

Section 2: Management of PPP’s

New South Glasgow Hospital (1,109 beds)

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Needs Analysis This stage is to obtain an understanding of the Ministry’s needs and requirements from the

Project. The needs analysis will document the User Requirements for the hospital, the service levels

to be achieved and any other User driven aspects of the development that the Ministry might wish to achieve.

This stage in the process is critical in that it is the foundation on which the rest of the project is built.

Options Analysis The Option Analysis stage is used to identify, at a high level the options available to the

Ministry, including delivery and service options as well as procurement options. The site has been identified and thus there will not be an option assessment for the site. The

process will culminate with the selection of the Preferred Option. The options agreed upon will be evaluated in terms of their benefits, constraints, risks,

service delivery, market capability and other qualitative aspects.

Approach and Methodology

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Text...

Approach and Methodology

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Project Due Diligence The Project Due Diligence stage is conducted to complete technical due diligence in relation

to the preferred option. Existing data from the previous work or new data is used to assess the suitability of the site

and any associated costs. The Engineers will carry out a review of the utilities and services available to the site and

assess their suitability for the envisaged project. The technical site review will include a desktop review of the geotechnical characteristics of the site, the utility services (water, electricity, sewerage, and telephone), access, planning constraints, future infrastructure development, surrounding development planning, space standards, technology and security requirements.

Approach and Methodology

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Value Assessment The objective of the VfM Assessment stage of the Project will be to determine the overall

feasibility of the Project, having regard to the project needs, the preferred option and any issues identified from the Project due diligence. The VfM Assessment is conducted in the following stages:

Project specifications – the Project specifications will be amended, as appropriate, and costed for the purposes of input into the financial models, such specifications shall include the Department’s user requirements, the output specifications, availability and performance standards;

Whole life-cycle costing – the capital, operating and lifecycle costing of each element of the Project shall be conducted at this stage. The whole life cost carried out at an elemental level will include the capital costs, operating costs including consumables, maintenance costs, and refreshment cots.

Risk Analysis – the Advisor, in consultation with the Project Team, will workshop the risks in the Project and will prepare a comprehensive Risk Allocation Matrix. The risk matrix will involve the identification of the risks, allocation of the risk to Government or the Private Party, the probability of a risk event occurring and the consequential value of a risk event. The risk quantification is an important input to the financial model and impacts the resulting value for money.

Approach and Methodology

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Procurement Plan Development of procurement strategy and timelines

Reference Design The design brief requires a clear vision for the functionality of the hospital based on design

principles derived from the client department’s strategic plan. This will require input from various key stakeholders. The methodology should includes engagement with clinical and technical user groups which will be led by our Clinical and Architectural team.

Design principles that underlie the approach to good hospital design: Excellent clinical functionality Listening to the client, clinicians and user groups Therapeutic design, and a building environment that generates a feeling of well-being

in patients, staff and visitors Value for money – not just in terms of the capital cost, - but over the whole life cycle

of the facility.

Approach and Methodology

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Phase 2 – ProcurementIndicative Timeframe

Prepare RFQ 2 Months RFQ Release, Evaluation and Shortlist Draft RFP and Evaluation Manual 4 Months Draft Project Agreement and Technical Schedules 4 Months Issue RFP RFP Response Period 7 – 9 Months Respond to Bidders Written queries RFP Evaluation 2 Months Appoint Preferred Bidder Negotiations to Financial Close 4 – 6 Months Financial Close

Approach and Methodology

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Construction Procurement is different from procurement of most other commodities and services

Any procurement (particularly complex procurements) must adopt a Gateway process to make sure a project is in a fit state to progress

Early Contractor Engagement and Integration bring real and measurable benefits Bundling contracts and the establishment of frameworks allow the centre to drive required

quality, service and behavioural standards

Efficiencies in Procurement and the Delivery of Construction

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The problem...

Short term relationships

Lowest pricePoor Health & Safety

record

Adversarial approach

No supply chain management

Poor customer focus

Lack of learning culture

Poor collaboration in problem solving

Research directs us to a new approach:

From:Lack of Integration

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The Problem

Short term relationships

Lowest pricePoor Health & Safety

record

Adversarial approach

No supply chain management

Poor customer focus

Lack of learning culture

Poor collaboration in problem solving

Better Performance

Construction meets user requirement

Lower whole life & operational costs

Greater cost and time predictability

Eliminate waste

Lack of IntegrationTo:

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The desired Culture Shift

Poor management Risk adverse culture Design & construction in

isolation Poor project flow Non-value oriented approach

to procurement Misinterpretation of need for

public accountability

From

Leadership Risk assessment and mgt Integrated teams Reviews and decisions Design quality and value for

money

To

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Management & Culture Change Commitment and Leadership Empowerment and Skilling Consistent and Skilled Project Management

Measurement Standard Key Performance Indicators Post Project Implementation Reviews Client Performance Surveys

Achieving Excellence

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Standardisation Key standard practices on:

Procurement decisions on total value for money Use of risk and value management Output / performance specifications Whole life costing Robust change control

IT and standardised document handling

Integration Teamwork and partnering Procurement strategies – focus on:

Design & build PPP Prime contracting

Achieving Excellence

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Phase 1: Feasibility Study / Business Case

Feasibility Study

Relevant Treasury, Finance and Ministry of Health Approvals

Land Ownership

Reference or Sample Design (Optional)

Section 3: Agreements in place for Infrastructure

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Phase 2: Procurement PPP Agreement Common Terms Agreement (CTA) - Lenders Construction Subcontract Operations Subcontract Private Party Proposal Output Specifications

Clinical & Operational NarrativesDesign & BuildMechanical, Electrical and PlumbingMedical Equipment FM Services

Section 3: Agreements in place for Infrastructure

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Phase 2 Procurement (cont’d) Works Programme Independent Certifier (IC) Agreement Payment Mechanism Reviewable Design Data (RDD)

Section 3: Agreements in place for Infrastructure

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Typical StructureTypical Project Finance

Structure for a PPP

Institution

PPP Agreement

Private PartyShareholders Agreement

Shareholders Financing

Agreement Lenders

Direct Agreement

Construction Sub-Contract

Operations Sub-Contract

Construction Sub-Contractor

Operations Sub-Contractor

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Lesotho Hospital PPP

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Planning, Planning, Planning1. Develop a clear Brief Adopting international best practice

2. Appoint the right team (Advisors, Specialist etc) Adopting international best practice

3. Consultative Meetings with bidders during the RFP process Adopting international best practice of engaging in robust and frank consultative meetings

with individual bidder teams during the RFP exposure period. It’s possible achieve effective results in a manner that would ensure fairness and transparency during the process and thus realise the considerable benefits of this practice for the Project.

It is a proven observation that those projects which undertake this practice have easier evaluations, are able to select a preferred bidders quickly, spend less time in negotiations and thus reach financial close sooner than those projects which only rely upon a written question and answer process.

Section 5: Lessons Learnt

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4. Client to establish Technical and Clinical Lead teams Create specialist teams for the technical and clinical work streams. These teams will have

consistent membership over time, delegates should be avoided if at all possible (unless both principle and delegate routinely attend together). Each team would be allocated a terms of reference and each team member delegated specific areas of responsibility.

Teams tasked to interface with the TA team and assist in the process of clinical planning, the development of the PSC design solution, Output Specification and the PPP Agreement.

5. Academic single point of contact for interface with TA Team Similar concept to the one above but rather focused on the academic / higher education

stakeholder group. The principle is the same, a single point of contact will make the process of creating the documentation for the project and initially arriving at an accurately articulated solution much simpler and increasing the probability of a high quality outcome.

Section 5: Lessons Learnt (cont’d)