Civilution Congress 2014 CESA: Break-Away Plenary Session Panel Discussion 1 Infrastructure Procurement Civilution : Best Practice Approach PROCUREMENT.

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

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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

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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

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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]