Value-for-money in practice

Value-for-money in practice

6 June 2008

EU Twinning Project: “Implementing PPP policy”

Content

On Value-for-Money in practice:

1. Real-life examples

2. Its sources

3. Its drivers

4. Its management

5. The affordability-dilemma

6. The do’s and don’ts

Morning session

Afternoon session

Real-life examples

N31 Motorway Project

• A 25 km provincial road

• Upgrading to a two-lane motorway

• Road infrastructure, bridge and aqueduct.

• DBFM-contract

• Contract value: € 80 million

• Contract duration: 15 years

N31 PPP Motorway Project

Value-for-money 21%

Value-for-money 21%

Cost savings from different material use

Cost savings from different material use

25% less lane closures

25% less lane closures

11 months shorter

construction

11 months shorter

construction

A’dam – Brussels High Speed Rail Link

• A 125 km high-speed rail line

• Greenfield + Upgrading existing rail

• Infrastructure and superstructure.

• 2 DBFM-contracts / 1 O-contract

• Contracts value: € 7 billion

• Contract duration: 15 – 25 years

A’dam – Brussels High Speed Rail Link

Value-for-money 2%

Value-for-money 2%

Non-application of unproven technologies

Non-application of unproven technologies

Greater availability

Greater availability

Embedded-rail Embedded-rail

Renovation Finance Ministry

• Accommodation of Finance Ministry

• Renovation

• 1 DBFMO-contract

• Contracts value: € 175 million


Renovation Finance Ministry

Value-for-money 15%

Value-for-money 15%

Energy efficiencyEnergy efficiencyImproved logistics

Improved logistics

Montaigne School Building

• School building

• Greenfield

• DBFM-contract



Montaigne School Building

Value-for-money (Quality)

Value-for-money (Quality)

Multi-purpose rooms

Multi-purpose rooms

Large “learning spaces”

Large “learning spaces”

Delfuent Water Sanitation Plant

• Water sanitation plant

• Greenfield & modernization

• DBFMO-contract



Delfuent Water Sanitation Plant

Value-for-money 17%

Value-for-money 17%

Lower exploitation

costs

Lower exploitation

costs

Process innovations

Process innovations

Shorter construction

Shorter construction

Real estate development

• Port and accommodation

• Greenfield, expansion & renovation

• Multiple DBFM-contracts

Value-for-moneyValue-for-money

FlexibilityFlexibility

Phased-implementation

Phased-implementation

Alternative usage

Alternative usage

The sources of value-creation

The main principles

QualityQuality

The Value-tree

Timing Cost-savingRevenue-generation

FlexibilityQuality-

improvement

Value-for-money

Life-cycle costing

InnovationsExploiting

commercial value

Off-balance financing

Technical know-how

Business process

skills

Commercial expertise

Incentive structure

Risk allocation

Output specifications

Payment mechanism

CompetitionProject scoping

Key Value-drivers: N31 Motorway Project


Functional output specifications on safety and comfort standards

By Ministry of Transport

Conditions tree

Technical specifications By private

partner

Responsibility matrix

L and ac quis ition

Infras truc ture

S upers truc ture

B ridg e

Aqueduct

T raffic and s afety manag ement

G overnmentP rivate consortium

Infraprovider

Manag eDes ig n B uild Maintain F inanc e

Risk allocation

Government Private consortium

Design K

Construction Risk K

Maintenance risk (infrastructure) K

Interface Risk K

Budget Risk K

Political risk (including amendments to laws) K

Act-of-god / force majeure K

Incentive structureQ

ual

ita

tiv

e

Procurement Contract implementation

€ Financial selection criteria

Minimum requirements

Market testing

Payment mechanism


Payment mechanism

Payment Timing Basis & reason

One-off or milestone payment

On construction completion • To ensure timely availability• To lower budget risk for financiers and thus lower financing costs• the amount is predetermined during tender

Compensation for delay in availability

Subsequent to scheduled availability

• To prevent construction / availability delays • Daily penalty (with a maximum total)• the amount is predetermined during tender

Bonus for early completion and availability

Prior to scheduled availability • To stimulate early availability• Daily amount

Availability payments During the “operational” phase • Performance-based payments• To promote maximum availability, quality service delivery, and compliance with safety standards.• See next sheet for further details

Payment mechanism – N31 / trends

Gross availability payments • Monthly performance-based payment • Level determined at contract close• Fixed indexation formula

Availability deductions • Deductions in case of (partial) lane closures or temporary speed limits • Level of deductions depends on traffic volumes and duration (see upcoming sheet)

Penalties • Predetermined (during tender stage) penalty regime• Concerns safety and planning issues (see upcoming sheet)

Nett availability payments • Equals Gross availability payments - / - Availability deductions - / - Penalties

Payment mechanism

Traffic volumes (number of vehicles)

Availability value (EUR/hour)

Lane closure Temporary speed limit

Partial lane closure

0 – 1.000 1.000 250 250

1.000 – 1.500 1.500 375 375

1.500 – 2.000 2.000 500 500

2.000 – 2.500 4.000 1.000 1.000

2.500 – 3.000 8.000 2.000 2.000

> 3.000 or with a traffic jam 15.000 2.000 2.000

Payment mechanism

Safety

1. A traffic accident has occurred with one or more casualties due to a shortcoming of the private consortium

10

2. A traffic accident has occurred without casualties due to a shortcoming of the private consortium

6

3. A shortcoming of the private consortium has put users at risk 4

4. A shortcoming of the private consortium has put third-parties, construction or maintenance workers, or emergency service personel at risk

3

Process management

5. A shortcoming of the private consortium with respect to contract clause 10.11 (Managementsystem)

3

6. A contract deviation not caused by a shortcoming of the contracting enity or a supervening event

1

7. A contract deviation or shortcoming by the private consortium is not reported timely to the contracting authority

4

8. Failure to timely rectify the shortcoming (as laid down in the contract). 4

Competition

Stages

Key Decision-making points

FinalEvaluation

Phase

Selection Phase

Dialogue Phase 1

DialoguePhase 2

FinalNegotiation

phase

Announcement Invitation for Dialogue Ph. 1 (Incl. Selection)

Invitation for Dialogue Ph. 2 (Incl. Shortlist of three firms)

Invitation for Submission

BAFO

Selection of preferred

bidder

Contract close / financial

close

Preperation for Realisation

Realisation Phase

Oplevering

Operation Phase

Aanvangs-certificaat

DialoguePhase 3

Invitation for Dialogue Ph. 3

(optional)

Certificate of Completion

Certificate of Commence-

ment

Competitive dialogue procedureCompetitive dialogue procedure

Value-for-money management

Process, instruments and time

PPP potential scan

Business case

ProcurementRequest for

proposals

Conventional implementation

PPP implementationTime

6 months 6 months

Dynamic PPC

QualitativeQualitative QuantitativeQuantitative

Organization

Management

Management support

Technical team Financial team Legal team

Negotiation team

Communication

• Finance (project/ corp./ public)

• Financial modeling

• Investment & valuation

• Risk analysis

• Market supply and demand

• Civil engineering

• Technical evaluations

• Innovative contracting


• Procurement and contract law

• Contract management

• Public finance and tax policy


Project organization

Management

Management support


Negotiation team

Communication




• Risk analysis










Management

Management support


Negotiation team

Communication




• Risk analysis











PPP Unit

Treasury

Market

Contract management

Private consortium


Quality management

planShow performance

and contract compliance

Process management / supervision

Contract

management plan

Ministry of Transport


Civil works

Maintenance activities

Quality supervision

Contract management

process product

Quality Management

Plan

Process control Product control

Verify processVerify product

quality

Check process directly

Check product directly

Private consortium

Ministry of Transport

Contract management

plan

Main focus’

On an exceptional basis

The affordability-dilemma

Conflicting objectives

Value-for-money

Optimal risk transfer

Affordability

Risk transfer to private sectorRisk transfer to private sector

The do’s and don’ts

The do’s and don’ts

1. Do allow for task-integration by private sector partner

2. Do parallelize the interests of public and private partners

3. Do ensure competitive tendering

4. Do promote cooperation and partnership

5. Do make use of international - both UK and continental - experiences

6. Do not create, but enable value-creation

7. Do not transfer all risks to private sector or keep everything yourself

8. Do not increase project scope indefinitely (do create appetite)

9. Do not create extensive tender procedures causing high transaction costs

10. Do not tender unfeasible projects

Risk transfer

Traditional model

Early DBFM-contracts

New PPP deals. .

Government Private sector

Contact information

Rebelgroup Advisory BVGeert Engelsman

Wijnhaven 3-O, 3011 WG Rotterdam, The Netherlands Tel +31 10 2755995 Fax +31 10 2755999

www.rebelgroup.nl

[email protected]

Value-for-money in practice

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