CSM80013 Procurement, Tendering and Contracts Session 4

CSM80013 Procurement, Tendering, and Contracts - Selected extract of Live Online Lecture Session in Week 4
(Semester 1 2022: SUT-Hawthorn)
CSM80013 Procurement, Tendering

and Contracts (Semester 1, 2022)
Ekambaram, Palaneeswaran
Office: ATC738
Tel: 92148526
Email: pekambaram@swin.edu.au
Procurement strategy development – A quick recap…
Figure Ref: Austroads and APCC (2014) Building and Construction Procurement Guide – Principles and Options
CSM80013 – Session 4, Semester 1, 2022 (E. Palaneeswaran)
© A/Prof Palaneeswaran Ekambaram (Tel: +61 3 92148526, Email: pekambaram@swin.edu.au; Office: ATC738);
School of Engineering, Swinburne University of Technology, Hawthorn, Victoria 3122, Australia 1
Public OR Private OR Public-Private-Partnership?
Procurement strategy & approvals process in public sector
Figure Ref: Austroads and APCC (2014) Building and Construction Procurement Guide – Principles and Options
Outsourcing – SWOT analysis
Can you identify some outsourcing examples in procurement

arrangements?
Briefly discuss pros & cons (strengths & weaknesses) as well as risks
(opportunities and threats) of outsourcing
This Photo by Unknown Author is licensed under CC BY-NC-ND
Outsourcing decision
Figure Ref: AASHTO (2012) Decision Making for Outsourcing and Privatization of Vehicle
and Equipment Fleet Maintenance
Possible sources of outsourcing risk

Commercial/ legal relationships
Custody of information including the duty to provide and to withhold access
Financial/ market activities
Intellectual property
Management activities and controls
Natural events
Occupational health and safety issues
Personal & human behaviour
Political/ legal influences
Property/ assets
Public/ professional/ product liability
Security measures
Socio-economic factors
Technology/ technical issues
The activity itself/ operational issues
The need for business continuity
Reference: Standards Australia HB240:2004: Guidelines for managing risks in outsourcing
Possible areas of risk effects of outsourcing

Asset and resource base cost (both direct & indirect)
Business continuity
Community
Corporate knowledge
Intangibles
Intellectual property
Natural environment
Organizational behaviour
People
Performance of activities (e.g. how well the activity is performed)
Timeliness of activities, including time, downstream or follow-up impacts
Reference: Standards Australia HB240:2004: Guidelines for managing risks in outsourcing
Procurement with PPP
Can you identify some opportunities and/ or examples?
This Photo by Unknown Author is licensed under CC BY-SA-NC
Public Private Partnership (PPP)
“PPPs are arrangements typified by joint working between the public

and private sectors. In their broadest sense they can cover all types
of collaboration across the private-public sector interface involving
collaborative working together and risk sharing to deliver policies,
services and infrastructure.” (HM Treasury - UK, 2008)
The aim of a PPP is to deliver improved services and better value for
money primarily through appropriate risk transfer, encouraging
innovation, greater asset utilisation and an integrated whole-of-life
management, underpinned by private financing. (National PPP Policy
Framework, Infrastructure Australia, December 2008)
Public and private sector ownership of infrastructure – UK examples

1. Private ownership where the competitive market is most effective in providing services
e.g. communications;
2. Private ownership with targeted support or pricing mechanisms to meet government
objectives, usually in areas of developing technology (e.g. Feed-In Tariffs for renewable
energy generation) or where externalities such as environmental damage are not
effectively priced e.g. a carbon price through the EU Emissions Trading Scheme;
3. Regulated private ownership often with a regulatory asset base and price controls to
protect consumers and ensure downstream competition, e.g. water;
4. Private ownership with a combination of regulated cash-flows and direct government
support , e.g. Network Rail;
5. Private ownership with public contracting for service delivery, e.g. local authority
waste management;
6. Mutual ownership, e.g. Welsh Water, British Waterways (post announced changes);
7. Public ownership with user charging, e.g. Scottish Water; and
8. Direct public ownership where there is a strong economic or social need, e.g. flood
management.
Ref: National Infrastructure Plan 2010" by Infrastructure UK. (Full report available at: www.hm-treasury.gov.uk)
Key features of PPPs for provision of assets/ facilities

a joint working arrangement between the public and private sector, which may be by
contract or through a joint venture company,
– e.g. to deliver infrastructure assets and usually, but not always, the ongoing maintenance and
operation of the infrastructure assets and the delivery of associated services
risks are allocated between the parties on the basis of which party is best placed to
manage and bear the risk.
– Typically design, construction and operational risks are expected to be borne by the private
sector; other risks which are shared are allocated in the way that best incentivises both parties
to manage the risks
generally a PPP is a long term (25-30 years) arrangement between the parties
– In rare cases, PPP can be shorter term, e.g. where ongoing maintenance of the infrastructure
assets and associated services are excluded
– If a long term PPP include ongoing operation and maintenance of the infrastructure assets
and delivery of associated services, the public sector may pay the private sector for all or part
of the use of the infrastructure over the life of the arrangement
Reference: HM Treasury (2008) Infrastructure Procurement: Delivering Long Term Value

Key features of PPPs for provision of assets/ facilities (Contd.)

the PPP project is often financed either in part or in whole through private finance
the public sector is seeking to access private sector management and expertise to drive
value for money
payment to the private sector is structured in such a way as to ensure the private sector
is incentivised to deliver the required services or obligations under the arrangement,
– payments are usually made by the authority but can be made by the end user,
• for example for the use of a toll road
Reference: HM Treasury (2008) Infrastructure Procurement: Delivering Long Term Value
National PPP Policy Framework – Infrastructure Australia

The objectives of the National PPP Policy Framework are to:
encourage private sector investment in public infrastructure and related services where
value for money for government can be clearly demonstrated;
encourage innovation in the provision of infrastructure and related service delivery;
ensure rigorous governance over the selection of projects for PPPs and the competition
for and awarding of contracts;
provide a framework and streamlined procedures for applying PPPs across Australia; and
• clearly articulate accountability for outcomes.
Reference: Infrastructure Australia (2008) National Public Private Partnership – Policy Framework

Value for money drivers for PPP suitability:
– Sufficient scale and long-term nature (major capital investment over $50 million) with long-term
requirements (whole life NPV >$100 million)
– Complex risk profile and opportunity for risk transfer
– Whole-life costing
– Innovation
– Measurable outputs
– Asset utilisation
– Better integration design, construction, and operational requirements
– Competitive process

Key principles:
– Value for money
– Public interest
– Risk allocation
– Output oriented
– Transparency
– Accountability
– Engaging the market
Types of PPP/PFI
BBO: Buy – Build – Operate
BLT: Buy – Lease – Transfer
BOO: Build – Own – Operate
BOOM: Build – Own – Operate – Maintain
BOOT: Build – Own – Operate – Transfer
FDBT: Finance-Design-Build-Transfer
BTO: Build-Transfer-Operate
DBFO: Design-Build-Finance-Operate
DBOM: Design-Build-Operate-Maintain
DOT: Develop – Operate – Transfer
LDO: Lease – Develop – Operate
ROO: Rehabilitate – Own – Operate
ROT: Rehabilitate – Operate – Transfer
TOT: Transfer – Operate - Transfer
Reference: Zhang, X.Q (2001) Procurement of Privately Financed Infrastructure Projects .
Major types of PPP in USA transport sector

Asset Sale
Long-term concession/ lease, complete service delivery
High
PPP – multimodal agreement
Predevelopment JDA (i.e. joint development agreement)
Degree o Private sector participation &
Post-development TOD (i.e. transit oriented development)

Integrated (Innovative) project delivery arrangements
BOO (Build-Own-Operate), DBOO
associated risks
BTO (Build-Transfer-Operate), DBTO

DBFO (Design-Build-Finance-Operate), FDBO Medium
DBOM (Design-Build-Operate-Maintain), FDBOM
DBW(Design-Build with Warranty Contracting)
DB (Design-Build – with or without novation/ bridging)
CM@Risk (Construction Management @ Risk)
Contract maintenance
Traditional project delivery including fee-based services by contract Low
Procurement by PPP – basic elements
Reference: Infrastructure Australia (2008)
Public Sector Comparator (PSC)

PSC compares anticipated outputs and costs of PPP proposals to determine whether
PPP delivery presents value for money, by estimating risk-adjusted whole-of-life cost for
a project on the basis of it being financed, owned and implemented by government as
opposed to under a PPP model (Infrastructure Australia 2008)
– The reference project must be equivalent
PSC evaluates the project using following criteria:

– Project Cost (Capital & Operating)
– Value of risk to be transferred to private sector
– Value of risk to be retained by public sector
– Competitive neutrality adjustments
Reference: Austroads & APCC (2014) Building and Construction Procurement Guide – Principles and Options
PPP: Advantages and Disadvantages
Reference: Infrastructure
Australia (2008)
Critical Success factors for PPP
Favorable investment environment

Economic viability
Reliable franchise/ concessionaire consortium
Sound financial package
Appropriate risk allocation
Reliable agreements
Can you suggest any other CSFs?
Critical Success factors for PPP (contd.)
Project positioning in social – economic spectrum
Example of a PPP Structure
An example of Tunnel Franchise arrangement in Hong Kong
A question for in-class exercise

Assume that you are an independent consultant/ advisor to a government transport
ministry in a Asian country. Prepare a SWOT analysis report for providing transport
sector (e.g. metro/ urban railways) services by:
A. Public sector
B. Private sector
C. Public-Private-Partnership
Early Contactor Involvement (ECI)
Can you identify ECI risks (threats & opportunities) in project delivery?
Early Contractor Involvement

2-stage relationship style delivery ECI suitability
Project risks are somewhat unknown
Some degree of innovation is likely to be required
Project delivery timeframes are constrained
Interests for using relationship model and yet
resources are not adequate to support an alliance
contracting
Identified value for collaborative Stage 1
arrangement to drive innovative outcomes &
knowledge transfer
Need for price certainty & transparency of price
Uncertain or complex interfaces
Requirements for flexibility on scheduling & delivery
Reference: Austroads and APCC (2014) Building and Construction Procurement Guide – Principles and Options
Early Contractor Involvement (contd.)
Reference: Austroads and APCC (2014) Building and Construction Procurement Guide –
Principles and Options
Early Contractor Involvement (contd.)
Alliance Contracting
Figure Source: DIT (2012) National Alliance Contracting Guidelines, Department of Infrastructure and Transport, Australian Government, July 2012
Alliance Principles
a) All Participants win, or all Participants lose, based on achieved project outcomes. Win/lose
outcomes are not acceptable;
b) Participants have a peer relationship where each Participant has an equal say in decisions
for the project;
c) Risks and responsibilities are shared and managed collectively by the Participants, rather
than allocated to individual Participants;
d) Disputes are avoided by adopting a no blame culture;
e) Risks and rewards are shared equitably among Participants;
f) Participants must provide ‘best-in-class’ resources;
g) Participants act consistently according to agreed values;
h) Participants are committed to developing a culture that promotes and drives collaboration,
innovation and performance which achieves the objective set out in the Owner’s VfM
Statement;
i) Alliance Leadership Team and the Alliance Management Team are developed towards
empowered decisions and actions;
j) All transactions are transparent and fully open book;
k) Communication between all Participants is open, transparent and honest so as to enable
informed decision making;
l) Ethical and responsible behaviour at all times;
m) Learnings of the Participants are identified and shared and capability is developed;
n) Important decisions are made, and processes and systems are adopted, on a best-for-
project basis, or as otherwise agreed by the Alliance Leadership Team from time to time.
Figure Source: DIRD (2015) National Alliance Contracting Guidelines: Guidance Note 3 – Key Risk Areas and Trade-offs, Department of Infrastructure and
Regional Development, Australian Government, September 2015
Alliance contracting
Structure of typical project alliance ECI suitability
Project scope & risks are highly uncertain
Significant time constraints
Highly challenging in technical aspects
Complex external factors (e.g. political,
environmental, stakeholder related)
Requirement for innovative solutions
Need for flexibility (e.g. in scheduling)
Collective approach for managing risks and
challenges
Desire for knowledge sharing/ transfer
Capacity for alliance
Alliance (contd.)
Reference: Austroads and APCC (2014) Building and

Construction Procurement Guide – Principles and
Options
Competition in Alliance Contracting
Non Owner Party (NOP) selection in Alliance Contracting
Non Owner Party (NOP) selection in Alliance Contracting (contd.)
Figure Source: DIT (2012) Developing the Target Outturn Cost in Alliance Contracting Guidelines, Department of Infrastructure and Transport, Australian Government,
A comparison of Full price and Non-Price selections
Pain Share – Gain Share arrangement in target cost contract

alliancing arrangements
Figure Ref: HK HYD
Pain Share – Gain Share arrangement in target cost contract

alliancing arrangements
Figure Ref: HK HYD
Cost certainty over alliance contracting project life cycle
Cost certainty over alliance contracting project life cycle
Target Outturn Cost (TOC) in Alliance Contracting
A comparison of alliance contracting & other procurement routes
Reference: DIT (2012) Developing the Target Outturn Cost in Alliance Contracting Guidelines, Department of Infrastructure and Transport, Australian Government,
Auction & Reverse Auction

Can you define auction and reverse auction?
Auction
In a normal auction process, a seller puts an item for bidding
The seller may set an initial auction price for bidding; the competition
among buyers (as bidders) drives the price
– i.e. a number of buyers bid ‘up’ for the item under auction, and one or more of the
highest bidders buy the auctioned items at a price determined at the conclusion of
the auction bidding.
Normally, the seller awards the contract to a buyer quoting highest price in
the auction.
Sometimes a caution deposit might be collected.
Buyers compete to obtain a good or service, and the price typically
increases during auction process
Reverse Auction
In a reverse auction, a buyer puts an item for bid
Multiple sellers offer bids on the item, competing to offer the lowest price
that meets all of the specifications of the bid
As the auction progresses, the price decreases as sellers compete to offer
lower bids than their competitors
The buyer may award the contract to the seller who bid the lowest price.
– Best Value based Reverse Auctions: Sometimes, a buyer may award the contract
to a relevant supplier (even if that bid is a higher price), depending upon the buyer's
specific non-price requirements
• E.g. quality, lead-time, capacity, or other value-adding capabilities
Sellers compete to obtain business opportunity, and prices typically
decrease during the Reverse Auction process
Consultations in large projects

Clients/ Owners
Consultants (e.g. Architectural, Structural, Geotechnical, Building Services)
Contractors
Subcontractors, Suppliers, Vendors
Users!
Government Departments and Approval Authorities
Other stakeholders
This Photo by Unknown Author

is licensed under CC BY-SA
Stakeholder and End-User Consultation

Suitable modes/ methods for consultation…?
Dealing with different preferences/ priorities that are noteworthy…?
Conflict analysis of data collated from stakeholder consultations
This Photo by Unknown Author is licensed under CC BY
Towards Consensus from Conflicts
This Photo by Unknown Author is licensed under CC BY-SA
Strategic Alliance with supply chain participants (e.g. suppliers)
Can you define strategic alliances & distinguish between project

alliancing?
Sustainable Procurement – basic points

When buying goods and services organisations practicing sustainable
procurement will consider:
strategies to avoid unnecessary consumption and manage demand;
minimising environmental impacts of the goods and services over the
whole of life of the goods and services;
suppliers’ socially responsible practices including compliance with
legislative obligations to employees; and
value for money over the whole-of-life of the goods and services,
rather than just initial cost
Reference: APCC (2007) Australian and New Zealand Government Framework for Sustainable Procurement
Key concepts in Sustainable Procurement

Value for money
– the price of a good or service is not the sole determining factor in assessing value
for money
Sustainable Development
– development that meets the needs of the present without compromising the ability of
future generations to meet their own needs
Wellbeing
– combination of economic prosperity, community liveability and environmental
integrity
Sustainability
– maintaining or enhancing the wellbeing of society over time
Environmental management
– strategic arrangements to reduce the environmental impacts of an organisation’s
operations
Reference: Australia Government - Department of the Environment (2013) Sustainable procurement guide
Principles of Sustainable Procurement

Accountability
Transparency
Ethical behaviour
Full and fair opportunity
Respect for stakeholder interests
Respect for the rule of law and international norms of behaviour
Respect for human rights
Innovative solutions
Focus on needs
Integration
Analysis of all costs
Continual improvement
Reference: ISO20400:2017 Sustainable Procurement – Guidance
Implementation of Sustainable Procurement - 4 Guiding Principles

Principle 1: Adopt strategies to avoid unnecessary consumption and
manage demand;
Principle 2: In the context of whole-of-life value for money, select
products and services which have lower environmental impacts across
their life cycle compared with competing products and services;
Principle 3: Foster a viable Australian and New Zealand market for
sustainable products and services by supporting businesses and industry
groups that demonstrate innovation in sustainability; and
Principle 4: Support suppliers to government who are socially responsible
and adopt ethical practices.
Reference: APCC (2007) Australian and New Zealand Government Framework for Sustainable Procurement
7 Core subjects of Sustainable Procurement

1. Organizational governance: decision-making processes and structures
2. Human rights: due diligence, human rights risk situations, resolving grievances, civil
and political rights, economic, social and cultural rights, fundamental principles and
rights at work
3. Labour practices: employment and employment relationships; condition of work and
social protection, health and safety at work; human development and training
4. The environment: prevention of pollution, sustainable resource use, climate change
mitigation and adaptation, protection of the environment; etc.
5. Fair operating practices: anti-corruption, fair completion, responsible political
involvement, promoting sustainability in the value chain, respect for property rights
6. Consumer issues: fair marketing, factual and unbiased information, fair contractual
practices, consumer data protection and privacy, sustainable consumption, etc.
7. Community involvement and development: community involvement, education and
culture, wealth and income creation, social investment, etc.
Reference: AS ISO20400:2018 Sustainable Procurement – Guidance
Key considerations in Sustainable Procurement decisions
Overview of LCC
Reference: AS ISO20400:2018 Sustainable Procurement – Guidance
Whole-of-life costing in Sustainable Procurement decisions
Waste minimisation in Procurement hierarchy
ROAMEF Cycle
Figure Ref: The Green Book, HM Treasury, London
Sustainable Major Project Procurements

Public & Stakeholder Consultations

CSM80013 Procurement, Tendering and Contracts Session 4

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CSM80013 Procurement, Tendering, and Contracts - Selected extract of Live Online Lecture Session in Week 4

(Semester 1 2022: SUT-Hawthorn)

CSM80013 Procurement, Tendering

Procurement strategy development – A quick recap…

CSM80013 – Session 4, Semester 1, 2022 (E. Palaneeswaran)

Public OR Private OR Public-Private-Partnership?

CSM80013 – Session 4, Semester 1, 2022 (E. Palaneeswaran)

Procurement strategy & approvals process in public sector

CSM80013 – Session 4, Semester 1, 2022 (E. Palaneeswaran)

Outsourcing – SWOT analysis

Can you identify some outsourcing examples in procurement

This Photo by Unknown Author is licensed under CC BY-NC-ND

CSM80013 – Session 4, Semester 1, 2022 (E. Palaneeswaran)

CSM80013 – Session 4, Semester 1, 2022 (E. Palaneeswaran)

Possible sources of outsourcing risk

CSM80013 – Session 4, Semester 1, 2022 (E. Palaneeswaran)

Possible areas of risk effects of outsourcing

CSM80013 – Session 4, Semester 1, 2022 (E. Palaneeswaran)

Procurement with PPP

Can you identify some opportunities and/ or examples?

This Photo by Unknown Author is licensed under CC BY-SA-NC

CSM80013 – Session 4, Semester 1, 2022 (E. Palaneeswaran)

Public Private Partnership (PPP)

“PPPs are arrangements typified by joint working between the public

CSM80013 – Session 4, Semester 1, 2022 (E. Palaneeswaran)

Public and private sector ownership of infrastructure – UK examples

CSM80013 – Session 4, Semester 1, 2022 (E. Palaneeswaran)

Key features of PPPs for provision of assets/ facilities

Reference: HM Treasury (2008) Infrastructure Procurement: Delivering Long Term Value

Key features of PPPs for provision of assets/ facilities (Contd.)

Reference: HM Treasury (2008) Infrastructure Procurement: Delivering Long Term Value

CSM80013 – Session 4, Semester 1, 2022 (E. Palaneeswaran)

National PPP Policy Framework – Infrastructure Australia

CSM80013 – Session 4, Semester 1, 2022 (E. Palaneeswaran)

National PPP Policy Framework – Infrastructure Australia

CSM80013 – Session 4, Semester 1, 2022 (E. Palaneeswaran)

National PPP Policy Framework – Infrastructure Australia

CSM80013 – Session 4, Semester 1, 2022 (E. Palaneeswaran)

CSM80013 – Session 4, Semester 1, 2022 (E. Palaneeswaran)

Major types of PPP in USA transport sector

Post-development TOD (i.e. transit oriented development)

BTO (Build-Transfer-Operate), DBTO

CSM80013 – Session 4, Semester 1, 2022 (E. Palaneeswaran)

Procurement by PPP – basic elements

Reference: Infrastructure Australia (2008)

CSM80013 – Session 4, Semester 1, 2022 (E. Palaneeswaran)

Public Sector Comparator (PSC)

PSC evaluates the project using following criteria:

CSM80013 – Session 4, Semester 1, 2022 (E. Palaneeswaran)

PPP: Advantages and Disadvantages

CSM80013 – Session 4, Semester 1, 2022 (E. Palaneeswaran)

Critical Success factors for PPP

Favorable investment environment

CSM80013 – Session 4, Semester 1, 2022 (E. Palaneeswaran)

Critical Success factors for PPP (contd.)

Reference: Zhang, X.Q (2001) Procurement of Privately Financed Infrastructure Projects .

CSM80013 – Session 4, Semester 1, 2022 (E. Palaneeswaran)

Critical Success factors for PPP (contd.)

Reference: Zhang, X.Q (2001) Procurement of Privately Financed Infrastructure Projects .

CSM80013 – Session 4, Semester 1, 2022 (E. Palaneeswaran)

Critical Success factors for PPP (contd.)

Reference: Zhang, X.Q (2001) Procurement of Privately Financed Infrastructure Projects .

CSM80013 – Session 4, Semester 1, 2022 (E. Palaneeswaran)

Project positioning in social – economic spectrum