Post on 19-Jan-2017
PPP Efficiency in Design
Adding value by taking a whole of life approach
Geoff Hardy15 November 2016
Quantifying delivered added value through design is not easy as it may not be revealed until many years later
To create value across the whole lifecycle, designers need to imagine circumstances around the asset 10 or 20 years into the future
Our ability to predict the future and respond to it is limited. Our current approach is to focus on the ability of our infrastructure to adapt to changes over time
Focus on response to brief
Work based on design standards
Discount fees in the hope the client is shortlisted
Recover the discount when fully develop the design
Leave the project
Design
Limited influence
Lack of strategic visibility
Short term view in design
Knowledge leaves the project
Increased constructability risks
Increased cost
Outcomes
Drivers of ChangeIn the Design Market
The global design market
Commoditisation of design
Digital design capability
The emergence of global
integrated businesses
If the designer owns part of an asset, is paying for its equity, is involved in its construction and taking a share of risks, has a role in its operation and is responsible for maintaining it over its whole life, you will get more innovative infrastructure that is more easily constructible, performs better and is more cost efficient to operate and maintain
Project Margin Approach
Construction Value 300Design Fee 18Total D&C 318O&M per year 10.0Design Margin @10% 1.8
Consider this against a share of:
Construction Margin @8% 24.0D&C Margin 25.8Equity Dividends @12% 9.0O&M Margin @8% 19.0Total Margin (NPV @5%) 47.0
CapitalOperating Funds
Performance based revenues
CAPEX
EquityDebt
Financing costs Operating costs Maintenance costs
Return on Equity
Debt Servicing
Operating Risks RealisedConstruction Risks Realised
OperabilityMaintainability
AdaptabilityFlexibility
Constructability
CAPEX
Increased focus on constructability reducing cost & risk
All impacted by design and have to be imagined upfront. Carrying design into operations reduces cost & risk
CAPEX injection timing and application can be optimised with better insight of the asset reducing cost & risk and increasing returns
Maximised through improved revenues and reduced operating and maintenance costs
PPP Efficiency by DesignAdding value by taking a whole of life approach to design in PPP projects
Asset specific and technically informed operating practices plus targeted maintenance spending ensures asset performance, reducing penalties and maximising performance based revenues
Use knowledge of the asset to operate it more efficiently
Optimise maintenance spending through intimate knowledge of the asset through design
Reduced costReduced riskImproved operabilityGreater adaptabilityOptimised renewal
Benefits
Examples
Hudson-Bergen Light RailLondon Highway AllianceA19 Dishforth to Tyne
$2 billion design-build-operate-maintain (DBOM) contract
First segment 2000, expanded in phases, completed 2011
Designer managed construction and has fixed price O&M contract through to 2020 (extended by 5 years)
New $100m extension line planned
Hudson-Bergen Light Rail
8 year contract 2013 – 2021
Build Operate Maintain
Designer Role:
Scheme Design - $15m
contracted design per year
Highways Maintenance $200m
JV revenue per year
London Highway Alliance
Design Build Finance & Operate
120km dual 2 carriageway
Road remains in public ownership
Concession operates and maintains
Cyclic maintenance, replacement, major
maintenance, new works
Payment through shadow tolls
Maintenance risk with Concession
A19 Dishforth to Tyne
LAX APM
$2.0B New people mover; elevated 2.2 mile guideway with six stations
LAWA CONRAC
$1B new consolidated rental car facility to house all LAX rental cars. Termination point of LAX APM
Fargo Moorhead
$800M Flood Diversion Channel, 30 Miles in length + Hwy & RR Bridges. Includes long term maintenance of channel and structures
Miami-Beach Streetcar
$140M New Streetcar circulator - First phase of 3 potential phases
Central 70
$1.2B Highway viaduct in Denver, CO - Scope includes 35 year O&M
Upcoming US PPPs
Better designed infrastructure through an incentivised designer
Engagement across the lifecycle can reduce upfront design fees
Lower risk for constructors
Strategically applied maintenance and augmentation capital funds
Insightful adaption
More efficient and reliable operating performance
Thank You
geoff.hardy2@aecom.com