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Stuart Cosgriff - Clayton Utz - Evaluating the Merits of Differing Contract, Procurement and Delivery Models
Stuart Cosgriff - Clayton Utz - Evaluating the Merits of Differing Contract, Procurement and Delivery Models
Stuart Cosgriff - Clayton Utz - Evaluating the Merits of Differing Contract, Procurement and Delivery Models
Stuart Cosgriff - Clayton Utz - Evaluating the Merits of Differing Contract, Procurement and Delivery Models
Stuart Cosgriff - Clayton Utz - Evaluating the Merits of Differing Contract, Procurement and Delivery Models
Stuart Cosgriff - Clayton Utz - Evaluating the Merits of Differing Contract, Procurement and Delivery Models
Stuart Cosgriff - Clayton Utz - Evaluating the Merits of Differing Contract, Procurement and Delivery Models
Stuart Cosgriff - Clayton Utz - Evaluating the Merits of Differing Contract, Procurement and Delivery Models
Stuart Cosgriff - Clayton Utz - Evaluating the Merits of Differing Contract, Procurement and Delivery Models
Stuart Cosgriff - Clayton Utz - Evaluating the Merits of Differing Contract, Procurement and Delivery Models
Stuart Cosgriff - Clayton Utz - Evaluating the Merits of Differing Contract, Procurement and Delivery Models
Stuart Cosgriff - Clayton Utz - Evaluating the Merits of Differing Contract, Procurement and Delivery Models
Stuart Cosgriff - Clayton Utz - Evaluating the Merits of Differing Contract, Procurement and Delivery Models
Stuart Cosgriff - Clayton Utz - Evaluating the Merits of Differing Contract, Procurement and Delivery Models
Stuart Cosgriff - Clayton Utz - Evaluating the Merits of Differing Contract, Procurement and Delivery Models
Stuart Cosgriff - Clayton Utz - Evaluating the Merits of Differing Contract, Procurement and Delivery Models
Stuart Cosgriff - Clayton Utz - Evaluating the Merits of Differing Contract, Procurement and Delivery Models
Stuart Cosgriff - Clayton Utz - Evaluating the Merits of Differing Contract, Procurement and Delivery Models
Stuart Cosgriff - Clayton Utz - Evaluating the Merits of Differing Contract, Procurement and Delivery Models
Stuart Cosgriff - Clayton Utz - Evaluating the Merits of Differing Contract, Procurement and Delivery Models
Stuart Cosgriff - Clayton Utz - Evaluating the Merits of Differing Contract, Procurement and Delivery Models
Stuart Cosgriff - Clayton Utz - Evaluating the Merits of Differing Contract, Procurement and Delivery Models
Stuart Cosgriff - Clayton Utz - Evaluating the Merits of Differing Contract, Procurement and Delivery Models
Stuart Cosgriff - Clayton Utz - Evaluating the Merits of Differing Contract, Procurement and Delivery Models
Stuart Cosgriff - Clayton Utz - Evaluating the Merits of Differing Contract, Procurement and Delivery Models
Stuart Cosgriff - Clayton Utz - Evaluating the Merits of Differing Contract, Procurement and Delivery Models
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Stuart Cosgriff - Clayton Utz - Evaluating the Merits of Differing Contract, Procurement and Delivery Models

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Stuart Cosgriff delivered the presentation at the 2014 National Hospital Procurement Conference. …

Stuart Cosgriff delivered the presentation at the 2014 National Hospital Procurement Conference.

The 2014 National Hospital Procurement Conference explored a number of cost-saving measures in the hospital procurement ecosystem. Highlights included sessions on improving efficiency, savings and patient safety within Australian Hospitals.

For more information about the event, please visit: http://bit.ly/hosprocurement14

Published in: Leadership & Management
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  • 1. © Clayton Utz CONTRACT, PROCUREMENT AND DELIVERY MODELS Stuart Cosgriff 24 July 2014
  • 2. INTRODUCTION Procurement objectives over the project lifecycle Selecting the delivery model ECI, Managing Contractor and PPP Developing the design brief New trends in delivery models
  • 3. VALUE FOR MONEY VFM is the fundamental criterion for all public sector procurement processes and typically requires  risks to be allocated appropriately (to party best able to manage the risk)  competitive pricing - for finance, design, construction, maintenance and operation (depending on the delivery model)  productivity improvements and efficiencies to be realised  demonstrable net benefits to Government and/or users
  • 4. PROJECT OBJECTIVES  achievement of the service delivery and commercial objectives for the project  cost-effective project delivery for Government  minimising unnecessary transaction costs (public and private)  project delivery risks are well managed  clarity and certainty to public and private sector stakeholders  timely procurement processes  a value for money outcome
  • 5. PROJECT LIFECYCLE Project initiation and development • Business case and feasibility • Procurement model • Market sounding • Functional brief • User groups and other stakeholders • Approval processes Market engagement and tendering • Confirm design standards, outputs and mandated design • Confirm procurement model, develop contract, performance requirements and risk allocation • Tendering, competitive dialogue • Preferred tenderer and financing Design, construct and commission •Concept design/ ECI engagement •Planning approvals •Detailed design •Construction •Variations •Potentially financing •Completion and commissioning Operate, maintain and hand over • Clinical services • Clinical support services • Planned and reactive maintenance • Planned refurbishment • Planned and unplanned upgrades/expansion
  • 6. PROCUREMENT 'TOOLS'  Traditional: 'lump sum' and 'fixed time'  Design & Construct: lump sum and fixed time  Early Contractor Involvement  Managing Contractor Model  Design, Construct and Maintain/Operate  Privately Financed Projects/ PPPs  Fully Outsourced Services  Not an exhaustive list - models can be 'tailored' to suit project objectives and constraints
  • 7. EARLY CONTRACTOR INVOLVEMENT (ECI)  Leverage a Contractor's specialist knowledge of construction processes to the benefit of the Principal's concept design process  Less more emphasis on non-price criteria (e.g. capability of the proposed team). Although some margins and rates assessed  Staged contracting model » Stage 1: Contractor proceeds with design development up to concept design phase on a reimbursable cost basis. Principal has discretion to transition the Contractor from Stage 1 to Stage 2 or tender Stage 2 » Stage 2: Usually a "typical" design and construction contract utilising the concept design prepared at Stage 1
  • 8. ECI - WHAT IS IT?
  • 9. MANAGING CONTRACTOR  Manages delivery 'on behalf of' the Principal  Manages the project from 'feasibility' through to commissioning for a lump sum (for the management component)  Provides management and advisory services and engages design/construct subcontractors  Not exposed to time/cost risk as is reimbursed for subcontractor costs (costs plus)
  • 10. MANAGING CONTRACTOR STRUCTURE Owner Managing Contractor Sub-Contractor SupplierSub-Contractor Design Consultants (preparing and documenting design)
  • 11. THE ECI MODEL - STRENGTHS AND WEAKNESSES Strengths Weaknesses • Early input into scope, cost plan, program (build-ability / innovation) at a stage where most value can be added • Greater control over design/scope development • Collaborative design - time/cost tensions removed • Procurement efficiency (and less adversarial) with lower tendering costs as only one design process is undertaken • more effective risk identification, mitigation and allocation in the Stage 2 contract • Less competitive pricing at Stage 1 • Uncertainty of final cost at time of initial award • Risk of cost and time overruns (depending on 'enhancements' made to the model) • Potential for higher overheads • As the process is collaborative, success is dependent on all parties: • having the right culture • understanding the delivery method
  • 12. THE ESSENCE OF THE PPP MODEL A PPP is:  a long-term contract (generally over 20 years)  between the public and private sectors  to deliver public infrastructure and services  (typically) an arrangement where the assets are delivered using private sector finance
  • 13. PPP CATEGORIES Just some of variants  Build, Own, Operate, Transfer PPP (“BOOT”) Economic infrastructure projects that are fully financed. Demand risk is transferred to the private sector  Availability Payment PPP (“Availability PPP”) Social infrastructure projects that are fully financed. Government pays the private sector facility availability and services  Design, Construct, Maintain, Operate (“DCMO”) The private sector is obliged to provide construction and comprehensive service delivery. Private finance is not required. Government retains control over the life of the project.
  • 14. PUBLIC PRIVATE PARTNERSHIPS Government Agency Project Company Equity investors Builder Services provider/s Lenders
  • 15. KEY ELEMENTS Some key characteristics:  Private sector bears the design, construction, operation and “whole of life” risks (responsible for condition and performance over the life of the concession)  Government provides land and shares some financial risks  Private sector finances the infrastructure  Private sector receives payment from Government (a service charge) or end users (demand risk)  Driver of innovation, efficiency and better productivity
  • 16. THE PPP MODEL - STRENGTHS AND WEAKNESSES Strengths Weaknesses • A source of external finance • Private sector motivated - time and cost • Time and cost certainty • Innovation • Whole of life cost and risk • Alignment of interest/long term relationship • Complex contract structure • Transaction costs • Retained risks are costly • Obtaining finance • Loss of flexibility to change • Higher costs of change
  • 17. IS PPP THE RIGHT DELIVERY MODEL? First understand the project’s key drivers and constraints:  objectives  budget  timeframes  stakeholder commitments  regulatory constraints  project/agency specific constraints  market capacity
  • 18. THE BRIEF  Standardised approaches versus innovation  Input based: specifications such as specific room requirements and Health Facility Guidelines  Output based: models of care (functional relationships)  Bearing the fitness for purpose risk - identifying a purpose?  Managing the outcomes of stakeholder consultation, interaction and review during the design phase
  • 19. KEY DESIGN CONSIDERATIONS  Develop a clear outputs/ functional brief  Driver of the development of the specifications and design for the lifecycle of the project » What clinical services will be provided from the facility » What is the expected ‘catchment’ of the facility, and what functional areas are needed to provide the services » How should the facility respond to changes the preferred models of care » how should functional areas interact, what are the requirements for durability, flexibility, expandability » Have key user groups been consulted?
  • 20. DESIGN RISK Allocating design risk  Who will bear the financial consequences of the design being incapable of delivering the required outputs? Delivering on the design requirements  When and how should government intervene? Inappropriate intervention impacts design risk.
  • 21. OTHER PROCUREMENT TRENDS Full service outsourcing Unsolicited Proposals
  • 22. FULL SERVICE OUTSOURCING Traditionally Government retains core service delivery (clinical and clinical support services) The private sector has provided non-core services (maintenance, cleaning and security) Governments expanded the scope of private sector provision, include services closer to core services (catering, distribution) Fully outsourced models are being explored (Midland Hospital, Northern Beaches)
  • 23. FULL SERVICE OUTSOURCING  “Operational PPPs” - private sector provision of operational services  The benefits » operator led solutions » further optimisation of quality and cost of service delivery » furthers innovation and responsibility for design outcomes » efficiencies from a private sector labour force
  • 24. THE ROLE OF UNSOLICITED PROPOSALS?  Ideas and solutions from the private sector  Greater level of private sector investment and participation in projects  Consistency and certainty to private sector participants as to how their unsolicited proposals will be assessed  A beneficial or innovative solution is generally not sufficient, the proposal must be unique  Uniqueness » is there no other provider in the market? » what is offered that could not be obtained through a tender process?
  • 25. A SUCCESSFUL PROCUREMENT The key indicators of success are that the project ultimately:  addresses the problems that the Government seeks to solve  ensures that the investment in infrastructure and service delivery is delivered as planned  achieves the best possible value for money for Government and/or users  achieves the key benefits Government set out to achieve
  • 26. www.claytonutz.com

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