1. Procurement 25 th March 2014 Warwick Max Brooker BSc(hons), MBA, AMIMechE, MAPM Partner – OTB Engineering LLP O: 020 7099 2608 M: 07799 765 286 mbrooker@otbeng.com www.otbeng.com

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

3. 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 www.businesslink.gov.uk) Crossrail TBM

4. 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

5. UK Procurement Threshold Levels for 2014 Action 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 Station NATM Design by OTB engineers NATM Construction by LBA engineers

6. EU Procurement Processes Overview Complexity ?

7. 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

8. 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

9. 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

10. 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) DLR Woolwich Arsenal Extension

11. 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

12. Tunnelling Projects Procurement Contract 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.

13. 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

14. Case Study Aspects of PPP Procurement

15. TWUL Thames Tideway Reuters 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. construction 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)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.China 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.

16. 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 –...

17. 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

18. 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

19. 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

20. 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.

21. Thankyou for your attention Any Questions