Outlining trends in rail project delivery


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Ashley Douglas, National Pre-Contracts Manager, from John Holland Rail Australia delivered this presentation at the 2013 ARA Rail Suppliers Forum. The annual conference is the only event of its kind in Australia which has been specifically researched and developed for the benefit of the rail supply and rail contracting sector. For more information about the event, please visit www.informa.com.au

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Outlining trends in rail project delivery

  1. 1. Outlining trends in Rail Project Delivery The John Holland Experience Ashley Douglas, National Pre-Contracts Manager July 2013
  2. 2. 2  Current domestic rail projects  Future domestic rail projects  Future international rail projects  Challenges  Industry trends in rail project delivery: - Public Sector - Private Sector - International business environment Agenda
  3. 3. Current domestic rail projects (incl. form of delivery) ARTC MPM (LS-R) Traction Power - Londsdale to Seaford (ECI) CRN (F) BHPBIO Ballast Cleaning (LS) Brookfield Rail Maintenance (LS-R) PTA Maintenance (SoR) Grains Line Resleepering (LS-R) Adelaide Rail Revitalisation (ECI) Metro Trains Melbourne (F) Regional Rail Link - WP’s ‘A’ & ‘B’ (A) Grade Separation – Rooks Rd (LS) Trackwork Services Alliance (A) Glenfield to Leppington Rail Link (LS) Liverpool Turnback (A) Sydney Light Rail (LS) Perth City Link (A) Butler Extension Project (LS) Eastern Goldfields Re-railing (LS-R) Esperance Port Access Corridor (LS) NSFC – North Strathfield Rail Underpass (A) Rail Services (SoR) LS – Firm Price, Lump Sum SoR – Schedule of Rates (term maintenance contracts) LS-R – Open book procurement, Risk Sharing, Lump Sum delivery ECI – Early Contractor Involvement F – Franchise A – Alliance PPP – Public/Private Partnership
  4. 4. Future domestic rail prospects (incl. form of delivery) Roy Hill Rail Construction (LS) BHP Track Maintenance Services (SoR) Brisbane Inner City Rail (PPP) Alpha Coal Rail Link (ECI) Surat Rail Line (LS) Cobbora Coal (LS) Hexham Maint Centre (LS) Melbourne Freight Terminal (LS) Melbourne Metro (F) North West Rail Link (PPP) Sydney Light Rail (PPP) Moorebank Intermodal (PPP) Hobart Rail Yards Perth Light Rail (PPP) Perth Airport Rail Link (LS) Rio Tinto Maintenance (SoR) Rio Tinto Koodaideri Rail (LS) PTA Maintenance (SoR) BHPBIO Ballast Cleaning (LS) Brookfield Rail Maintenance (LS-R) Adelaide to Gawler Electrification (ECI) LS – Firm Price, Lump Sum SoR – Schedule of Rates (term maintenance contracts) LS-R – Open book procurement, Risk Sharing, Lump Sum delivery ECI – Early Contractor Involvement F – Franchise A – Alliance PPP – Public/Private Partnership
  5. 5.  Rail Investment continues to grow across Asia, Middle East, Europe and America.  High Speed Rail and Light Rail are increasingly popular.  Overseas jurisdictions at a different stage in developing forms of delivery – still mainly traditional.  Our overseas clients are interested in Australia procurement models 5 Future International Rail prospects
  6. 6. Industry Trends in Delivery  “There is gap between what the Australian community want and what they are prepared to pay for” (Rod Eddington – Chairman of Infrastructure Australia)  “What we‟ve seen (with the PPP form of agreement) is an almost complete transfer of risk from the client to the contractor, and that‟s an unworkable model” (Glenn Palin – President of Australian Constructors Association and Managing Director of John Holland Group P/L)  “We‟ve either got to reduce the expectations of clients in terms of putting those (PPP) tenders together, or they will have to start contributing more substantially to the costs involved” (Glenn Palin)  “New ways of approaching funding are required such as user charging and …. levies” (Australian Academy of Technological Sciences and Engineering) 6 Challenges:
  7. 7. Industry Trends in Delivery A. State infrastructure budgets under pressure so agencies are looking for private sector funding where feasible – PPP‟s, Franchises B. Clients want open-book, risk sharing during procurement phase but fixed price during delivery phase – ECI‟s. C. Some agencies are providing partial compensation to losing bidders – conventional and relationship-style forms of delivery. D. Network operators are considering extended possessions in order to reduce overall programme duration. 7 Public Sector Clients
  8. 8. Industry Trends in Delivery A. Resource sector projects being delayed or cancelled resulting in significant unrecovered expense by proponents. B. Clients looking for proponent provided finance to lift the viability of certain project – equity positions. C. Partial reimbursement of proponents bid costs becoming more common. 8 Private Sector Clients
  9. 9. Public Sector Clients  PPP models becoming popular again following recent poor outcomes for the private sector, however prohibitive bid phase costs are discouraging proponent involvement.  Patronage risk being managed in different ways – in some cases the agency is taking on patronage risk initially and then marketing the concession once usage is established.  In other cases the private consortium is only required to ensure that the asset is available for use with no patronage risks involved.  In both cases this results in less risk to the BOOT consortium and a more „bankable‟ proposal.  Franchises are also becoming more popular as State Governments look to save costs by outsourcing their network operations and maintenance activities to private operators. A. Private Sector Funding 9
  10. 10. Public Sector Clients  For conventional forms of delivery (D&C, CO) the agencies are increasingly interested in understanding the proponents risk profile and so client workshops and briefings during the tender phase are becoming commonplace.  For relationship style contracts (Alliance, ECI) the agencies are running dual proponent teams prior to award in order to maintain competitive tension. ECI‟s are popular because they combine the alliance style of partnering and openness with the risk limiting aspects of conventional forms of delivery.  The demarcation between „risk limiting‟ and „risk sharing‟ forms of delivery is becoming increasingly blurred. B. ‘Open Book’ Risk Sharing during Procurement Phase, Fixed Price during Delivery Phase. 10
  11. 11. Public Sector Clients  In recognition of the considerable costs of tendering imposed on the industry, proponents are now being advised in advance whether the agency will be contributing by way of bidding costs to the losing bidder. The compensation is rarely full value and still leaves the contractor with a considerable burden.  It is an improvement from past practice however, and enables improved procurement phase budget management as well as encouraging world class proponents to become involved. C. Partial compensation to losing bidders 11
  12. 12.  There has been stronger support by the community and other stakeholders for longer “mega-shuts” (extended shutdowns). These mega-shuts are now being considered outside the traditional Christmas shut where their benefits were first realised.  For example, projects such as Middleborough Road in Melbourne (Victoria) where the short term inconvenience far outweighed the prolonged disruption to the rail service. Extended shutdowns are now becoming more accepted outside of Christmas. Another example is one of the Regional Rail Link projects that is starting a two week shutdown at the end of June this year in order to minimise the overall programme of works.  Longer shutdowns give greater certainty of service to Stakeholder with minimised impacts as long as alternative services (e.g. bussing of patrons) are properly planned. D. Network Operators considering extended possessions (shutdowns) 12 Public Sector Clients
  13. 13. Private Sector Clients 13  The resource sector is not as active as in recent years and a number of large projects have either been put on hold or delayed indefinitely.  Proponents lack certainty that firstly the project is going to proceed and secondly that there is a reasonable likelihood of bid costs being recovered.  It can be difficult for proponents to maintain the teams originally considered for the delivery phase if there are significant delays in awarding the works.  Clients sometimes utilise market pricing to validate project feasibility studies and, if there is pressure on their construction and commissioning budgets, alter the scope accordingly. This approach can result in contractors over-capitalising the tendering phase and other unsatisfactory project outcomes. A. Resource sector projects delayed or cancelled
  14. 14. Private Sector Clients  Access to cost effective finance can affect the viability of certain projects and clients may look to the proponents to take an equity position.  This can be challenging for delivery consortiums unless they have large balance sheets.  Contracting organisations operating in this space need to have access to high quality financiers who are willing to take project risk. B. Clients looking for Proponent provided finance 14
  15. 15. Private Sector Clients  In order to encourage high quality consortia to participate in expensive and time consuming procurement phases, private clients are increasingly adopting a stance similar to that of some government agencies in that they are providing part-funding to the proponents.  As for Public Sector work, this payment enables improved business development and procurement phase budget management. C. Partial reimbursement of Proponent bid costs 15
  16. 16. International Trends  In many cases, the commercial frameworks utilised in other countries are as per our „traditional‟ forms of agreement.  This presents opportunities for Australian organisations to work with overseas clients on complex, multi-discipline projects. 16