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Civilution Congress 2014 CESA: Break-Away Plenary Session
Panel Discussion 1Infrastructure Procurement Civilution : Best Practice Approach
PROCUREMENT STRATEGY
Dr Ron [email protected]
Consulting Engineers of South AfricaPublic infrastructure
Infrastructure Procurement Civilution – A CODESA of Infrastructure Procurement
• has little inherent value• creates value through the economic and social
activities it supports. Public infrastructure which • provides improvements or efficiencies in
services, production or export capabilities • is delivered and maintained in a manner which
minimizes waste of materials, time, and effort in order to generate the maximum possible amount of value
is most likely to contribute to economic growth
Key question - “does the investment provide value for money?”
Consulting Engineers of South AfricaRecent cost overruns in SA
Infrastructure Procurement Civilution – A CODESA of Infrastructure Procurement
Project Initial Budget(R bil)
Estimated or final Cost
(R bil)
% over budget
Gautrain 25.1 30.5 21Kusile 90 121 34
Medupi 33.6 105 213
Gauteng Toll Roads
6.3 90 1329
NMPP 11.1 23.4 111
OR Tambo 5.2 8.5 64De Hoop Dam 7.9 20 153FIFA Stadiums 8.1 18.4 126N4 toll roads 2 3 50
Consulting Engineers of South AfricaValue for money concept
Optimal use of resources to achieve the intended outcomes
Underlying VFM is an explicit commitment to ensure that the best results possible are obtained from the money spent or maximum benefit is derived from the resources available
VFM is a means for developing a better understanding (and better articulation) of costs and results so that more informed, evidence-based choices can be made
Consulting Engineers of South AfricaResults chain framework
Activities Outcomes
Economy(cost of resources)acquiring inputs of the right quality at the right price
Efficiency(productivity)how well inputs are converted to outputs.
Effectiveness(achieving of outcomes)how well outputs achieve desired outcomes
Cost ImpactOutputsInput
Equity considerationsWhat equity (promotion of secondary objectives) can be leveraged through a project
planning implementation close out
6
Gap between achieved and expected outcomes
Activities Outcomes
Economy(cost of resources)acquiring inputs of the right quality at the right price
Effectiveness(achieving of outcomes)how well outputs achieve desired outcomes
Cost ImpactOutputsInput
Gap
Value for money?
Gap puts value for money for a project at risk
7
Consulting Engineers of South AfricaRoot causes for lack of success
Activities Outcomes
Cost ImpactOutputsInput
Planning
(economy)
efficiency effectiveness
Optimism bias (the human mind’s cognitive bias in presenting the future in a positive light) Strategic misrepresentation (behaviour that deliberately underestimates costs and overestimates benefits for strategic advantage
8
Consulting Engineers of South AfricaRoot causes for lack of success
Activities Outcomes
Cost ImpactOutputsInput
What proactive action can be taken during implementation (efficiency) to minimise any gaps?
Implementation
(efficiency)
Procurement strategy–selected* Packaging * Contracting* Pricing * Targeting strategy and procurement procedure?
Organisation of work packages into contracts
How to secure financial offers
and to remunerate contractors
Nature of the relationship between the
parties
Procedures for promoting secondary
procurement objectives
Consulting Engineers of South AfricaRecent cost overruns in SA
Infrastructure Procurement Civilution – A CODESA of Infrastructure Procurement
Project Initial Budget(R bil)
Estimated or final Cost
(R bil)
% over budget
Gautrain 25.1 30.5 21Kusile 90 121 34
Medupi 33.6 105 213
Gauteng Toll Roads
6.3 90 1329
NMPP 11.1 23.4 111
OR Tambo 5.2 8.5 64De Hoop Dam 7.9 20 153FIFA Stadiums 8.1 18.4 126N4 toll roads 2 3 50
optimism bias / strategic misrepresentation
poor / lack of procurement
strategies
poor procurement practices in selecting contractors and
consultants
Issues to address
THANK YOU Dr Ron [email protected]