Procurement

25th March 2014Warwick

Max BrookerBSc(hons), MBA, AMIMechE, MAPM

Partner – OTB Engineering LLPO: 020 7099 2608 M: 07799 765 286

mbrooker@otbeng.comwww.otbeng.com

Agenda Topics

• EU Procurement Approach

• Competitive Procurement

• Procurement Procedures

• Conventional vs PPP Procurement

• Risk Allocation

• Case Example – Aspects of PPP Procurement

Public Procurement ProcessEU Approach

Procurement Authority – Major Projects – Competitive Procurement

Requirements Definition Feasibility/Business Case/Budget Planning Advertise for Expressions of Interest (EOI)

Pre-Qualification Questionnaire (PQQ) – Long List of Bidders Outline Proposals (OP)

Clarifications/Risk Workshops Select - Shortlist Bidders

Costed Final Proposals (FP) Competitive Dialogue

Select Preferred Bidder (PB)Negotiate Contract Terms Award Contract

(see www.businesslink.gov.uk)Crossrail TBM

Competitive Selection ProcessesEU Approach

See “Official Journal of the EU” (OJEU)

• Open Procurement – any interested parties may tender

• Restricted Procurement – only selected bidders are invited to bid (PQQ)

• Competitive Dialogue – on major projects (unique or complex) a complex dialogue process is undertaken

• Negotiated Procedure – Procurement Authority negotiates the terms of the tender

UK Procurement Threshold Levels for 2014Action Note 10/13(www.cabinetoffice.gov.uk)

• Services & R&D– £345,028 All Sectors

• Works– £4,322,012 All Sectors

• Small Lots– £66,672 Supplies & Services– £833,400 Works

Example – The Utilities Contracts Regulations

Jubilee Line Extension Project, London Bridge StationNATM Design by OTB engineers

NATM Construction by LBA engineers

EU Procurement Processes Overview

Complexity ?

Subm

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Issue Invitation to TenderRestricted

Sh

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ubm

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qualification criteria (m

inimum

of 5 bidders)

40 Days*

OJEU Process ChartOJEU NOTICENormal

OJEU NOTICEElectronic

OJEU NOTICEPIN

OJEU NOTICEPIN Electronic

OJEU NOTICEUrgent

OJEU NOTICEUrgent Electronic

37 Days

37 Days

30 Days

30 Days

15 Days

10 DaysIssu

e PQ

Qs

22 Days*

10 Days

* Times indicated with an asterisk can be reduced by 5 days where “unrestricted and full access by electronic means” to contract documents

Pre

pa

re S

pe

cificatio

n

Subm

it OJE

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ward N

otice within 48 days

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ard

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llow

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for 1

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tan

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CompetitiveDialogue

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com

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Normal37 Days

30 Days

Sh

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Exp

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OJEU Process Chart

OJEU NOTICEElectronic

Pre

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pe

cificatio

n

Developing The Procurement Strategy

• Requirements Definition• In-House or Buy-in• Competitive/Non-competitive• Expertise & Scale of Project Packages – WBS/OBS• Delivery Partner/Programme Management • Market Expectation• Private Public Partnership (PPP) vs Conventional• Risk Allocation & Budgeting for Cost Exposure• Procurement Planning• Selection Criteria

Competitive Procurement SelectionAdjudication Criteria

• PQQ – 6 to 12 Long List of Bidders– Capacity & Experience– Quality

• Shortlist of Bidders – 4 Bidders– Project Management & Quality– Design & Construction– Cost & Risk

• Final Bids – 2 Bidders– 20% - Requirements Compliance

(Ts & Cs of Contract)– 30% - Technical– 50% - Cost (Value for Money)

DLR Woolwich Arsenal Extension

Risk AllocationConventional vs PPP Procurement

Design Private Private Private Private

Construction Private Private Private Private

Operate Authority Private Authority Private

MaintenanceAvailability Authority Private Authority Private

Finance Authority Authority Private Private

Demand Authority Authority Authority AuthorityRisk

D&B BOT DBFT DBFOForm of Contract

PPP Risk AllocationPublicAuthority

PrivateCompany

Tunnelling Projects ProcurementContract Forms

• CTRL – PPP (Old Format)• Dartford Crossing – PPP SOPC• M25 – PPP SOPC4• Crossrail Tunnels – Conv. -> NEC3 Pain/Gain• Thames Tideway – PPP -> NEC3 Pain/Gain

The New Engineering Contract (NEC) form was developed to improve team-working, co-operation and trust between the Employer, the Consultant and the Constructor. It includes a risk sharing approach aimed to deliver the project on time, at cost and to quality. It has Options A to F.

New Engineering Contract (NEC3) Options

• Option A – Priced contract with activity schedule – a “lump sum” contract

• Option B – Priced contract with bill of quantities – the quantities are re-measured

• Options C & D – Target cost with activity schedule or bill of quantities, respectively pain/gain above a target (tendered or negotiated) is shared between the parties in a flexible way as defined by the Employer

• Option E – Cost reimbursable• Option F – Managed contract

Case StudyAspects of PPP Procurement

TWUL Thames TidewayReuters alert 25/3/14

(Reuters) - British utility Thames Water has begun a hunt for international investors to pay for the construction of a 15-mile (24-kilometre) "super-sewer" in London, a British newspaper reported, without citing sources.

Britain's biggest water and sewage services provider will formally advertise for backers in May in a process led by the investment bank UBS AG, the Independent said (link.reuters.com/geb87v)

Thames, owned by a group led by Australian investment bank Macquarie and including Chinese sovereign fund China Investment Corporation, is expected to get some of the project's funding from its shareholders. The Independent said the project, called the Thames Tideway Tunnel, would cost £4 billion.

It added that Thames would set up an investment vehicle that would own the tunnel, whose investors would be repaid with interest from increased water bills paid by the utility's customers.Thames had submitted plans in December to increase water bills by 11 percent for its 14 million customers between 2015 and 2020 to fund the sewer, which will run west to east across the capital.

Preliminary work on the tunnel, which Thames Water has said was needed to provide additional capacity to London's ageing sewer network, is due to start in 2015 after it gets permission from planning authorities.

Public Sector Procurement & the PPP Option

• Why choose the PPP Option for public infrastructure development?– UK Flood & Water Management Act 2010 allows TWUL to contain risk

of TT inside a subsidiary PPP deal.– Leverage private sector capital and accelerate economic development– Gain private sector innovation and efficiencies– Transfer risk of service delivery to the private sector– Long term Public/Private contracts– Only pay when service is available and to performance– Fiscal accounting advantages (PSBR)– Emerging market support funding available– ...

Generic Structure of PPP Deals

ProcurementAuthority

BanksEquity

HoldersSpecial Purpose

Company

Asset Provider Service Company

UnitaryCharge

Principal &Interest

Subordinated Debt & Equity

Dividends, Principal& Interest

SeniorDebt

Capital ExpenditureCAPEX

Operational ExpenditureOPEX

UsersUsage

Payments

Cash Flow Viewpoint

NEC3

Example Thames TunnelPPP Option Structure

WaterConsumers

Water UtilityProcurement

Authority

ISPProject Co Ltd

Secretary of StateDEFRA

RegulatorOFWAT

EnvironmentAgency

IPC

Lending Banks

ISP Project Agreement

Facility Agreement

ConstructorsE, C, W

DesignE, C, W Operator Maintainer

ISPShareholders

Shareholders Agreement

Main Contracts

Direct Agreement

Licence

Licence

Thames WaterShareholders

EU Urban Waste Water Treatment

Directive

£ rates

PPP Project Timescales

FinancialModel

Cash Flow:-REVENUECAPEXOPEXFinancing

2 years

3 to 5 years

25 to 35 years

Project Agreement Lifecycle

Design & Build CAPEX

Pre-contract

Operate & Maintain - OPEX

TransversalHand-back

Payment Mechanism

Revenue

Financial Close

Operational Date

Summary of Key Points

• Why governments go for PPP procurement – leverage.• Procurement options & risk transfer – conventional to PPP.• EU Procurement processes – negotiated soln/competitive

dialogue.• EU Procurement processes.• NEC 3 Options e.g. Lump sum, pain gain, cost reimbursable.• Risk Allocation and Procurement Strategy.• Structure of PPP deals – debt finance and cash flow.• Market Segmentation and Size.

Thankyou for your attention

Any Questions