Procurement 20 th March 2012 Warwick Max Brooker BSc(hons), MBA, AMIMechE, MAPM Partner – OTB Engineering LLP O: M:

Agenda Topics EU Procurement Approach Competitive Procurement Procurement Procedures Conventional vs PPP Procurement Risk Allocation Case Example – Aspects of PPP Procurement

Public Procurement Process EU 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 Crossrail TBM

Competitive Selection Processes EU 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 2012 Information Note 10/11 ( Services & R&D – £347,868 All Sectors Works – £4,348,350 All Sectors Small Lots – £69,549 Supplies & Services – £869,670 Works Example – The Utilities Contracts Regulations

EU Procurement Processes Overview Complexity ?

Submit OJEU Award Notice within 48 daysAward contract allowing for 10 day Standstill Period Evaluate Tenders against Award Criteria Receipt of Tenders Issue Invitation to Tender Restricted Shortlist Submitted Expressions of Interest against qualification criteria (minimum of 5 bidders) 40 Days* OJEU Process Chart OJEU NOTICE Normal OJEU NOTICE Electronic OJEU NOTICE PIN OJEU NOTICE PIN Electronic OJEU NOTICE Urgent OJEU NOTICE Urgent Electronic 37 Days 30 Days 15 Days 10 Days Issue PQQs 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 Prepare Specification

Submit OJEU Award Notice within 48 daysAward contract allowing for 10 day Standstill Period Evaluate Tenders against Award CriteriaReceipt of Tenders Competitive Dialogue Invite shortlist to participate in dialogueConduct dialogue(in successive stages if necessary)Conclude dialogue and invite sufficient tenders to ensurecompetition OJEU NOTICE Normal 37 Days 30 Days Shortlist Submitted Expressions of Interest against qualification criteria (minimum of 3 bidders) OJEU Process Chart OJEU NOTICE Electronic Prepare Specification

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 Selection Adjudication 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)

Risk Allocation Conventional vs PPP Procurement Design Private Construction Private Operate Authority Private Authority Private Maintenance Availability Authority Private Authority Private Finance Authority Private Demand Authority Risk D&BBOTDBFTDBFO Form of Contract PPP Risk Allocation Public Authority Private Company

Tunnelling Projects Procurement Contract Forms CTRL – PPP Dartford Crossing – PPP SOPC M25 – PPP SOPC4 Crossrail Tunnels - NEC3 Thames Tideway – NEC3 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 Study Aspects of PPP Procurement

Public Sector Procurement & the PPP Option Why choose the PPP Option for public infrastructure development? – 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 Procurement Authority Banks Equity Holders Special Purpose Company Asset ProviderService Company Unitary Charge Principal & Interest Subordinated Debt & Equity Dividends, Principal & Interest Senior Debt Capital Expenditure CAPEX Operational Expenditure OPEX Users Usage Payments NEC3

Example Thames Tunnel PPP Option Structure Water Consumers Water Utility Procurement Authority ISP Project Co Ltd Secretary of State DEFRA Regulator OFWAT Environment Agency IPC Lending Banks ISP Project Agreement Facility Agreement Constructors E, C, W Design E, C, W OperatorMaintainer ISP Shareholders Agreement Main Contracts Direct Agreement Licence Thames Water Shareholders EU Urban Waste Water Treatment Directive £ rates

PPP Project Timescales Financial Model Financial Model Cash Flow:- REVENUE CAPEX OPEX Financing 2 years 3 to 5 years 25 to 35 years Project Agreement Lifecycle Design & Build CAPEX Pre-contract Operate & Maintain - OPEX Transversal Hand-back Payment Mechanism Revenue Financial Close Operational Date

PPP Market Size & Segmentation Market Segmentation – business focus – World Bank: PPP Infrastructure Resource centre: Energy, Water, Transport, Telecoms & ICT – Infra News: Transport, Social, Environment & Renewables – Geographic Regions: Language, Finance, Legal Framework, Maturity, UK, EU, USA, SA, Canada, SEA, ME, Australia, Russia, China, Korea... – Business Functional: Roads, Rail, Airports, Sea Ports, Hospitals, Schools, Prisons, Courts, Power Stations, Water & Wastewater, Waste... – Private Sector Opportunities: Project Co (SPV), Construction, Operations, Consulting (Legal, Financial Technical), Insurance

PPP Market Size & Segmentation Market Size Factors: business potential – Demand for infrastructure development – Procurement Authority maturity and Legislative Framework – Seed-corn Funding and deal Finance available – Project Feasibility, Business Case & Bankability – Bank Lending Market appetite – Design, Construction & Operations Teams –...

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. Risk Allocation and Procurement Strategy. Structure of PPP deals – debt finance and cash flow. Market Segmentation and Size.

Thankyou for your attention Any Questions