Transcript SEMINAR ON LEGAL, ECONOMIC AND IMPLEMENTATION ISSUES IN PPP PROJECTS

Safe roads, Reliable journeys, Informed travellers
SEMINAR ON LEGAL, ECONOMIC AND
IMPLEMENTATION ISSUES IN PPP PROJECTS
Warsaw, Poland – 17 and 18 June 2008
UK ROAD PPP CONTRACTS: PRINCIPLES, POLICY AND
IMPLEMENTATION
by
ALEC BRIGGS, Senior Project Manager, Highways Agency
and
BARRY DREWETT, Technical Director, Pell Frischmann Consultants
Limited
OUTLINE OF PRESENTATION
Part 1 – Principles and Policy – Alec Briggs
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Role of HA and Background
Key Objectives of DBFO (PPP) Procurement
Procurement Process, Risk and Performance
DBFO Projects Awarded To Date
Some Lessons Learnt
Next DBFO Project – M25 London Orbital
Part 2 – Implementation Case Study – Barry Drewett
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A1 Darrington to Dishforth Project Summary
Procurement History
Tender Period
Construction Period
Congestion Management Payment Mechanism
ROLE OF HA and BACKGROUND
The HA is an Executive Agency of the Department
for Transport
Responsible for operating, maintaining and
improving the 7,500 km strategic road network in
England, valued at £84bn, carrying a third of all
traffic and two-thirds of freight traffic
(over 130 bn vehicle-kilometres per annum)
In conjunction with its ‘Customer First’ initiative, its
primary aims are to provide:
Safe Roads
Reliable Journeys
Real-Time Information for Travellers
Main Types of Procurement Contracts
Major Improvement Projects:
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Design, Build, Finance and Operate (DBFO) (PPP)
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Early Contractor Involvement (ECI)
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Design & Build (D&B)
Maintenance:
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As part of DBFO contracts (PPP)
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Managing Agent Contractor (MAC)
Specialist Services:
Framework Agreements, e.g. design services
Indicative Budgets 2008-09
Headline Programme Expenditure
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Major Schemes: £1,049M
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Managing Traffic (incl. Traffic Officer Service): £125M
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Technology: £220M
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Maintenance: £896M (incl. DBFO service payments)
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Small Schemes & Research: £193M
KEY OBJECTIVES OF DBFO PROCUREMENT
● To foster development of a private sector road operating
industry
● To transfer appropriate levels of risk to private sector
● To provide better outturn cost certainty
● To provide earlier delivery of large projects
● To foster improved partnerships between public and private
sectors (less adversarial contracts)
● To provide scope for innovation in all areas including finance
● Overall, to provide better value for money
PROCUREMENT PROCESS, RISK and PERFORMANCE
Typical Procurement Process for Privately-Financed Major Highway Scheme
Task
Undertaken by
Type of Contract
Payment Method
Study work for Scheme Identification Consultants
Project Support Framework
(PSF)
Target Cost based on time
charges
Assessment ofAlternative Options
and Public Consultation
Consultants
Project Support Framework
(PSF)
Target Cost based on time
charges
Development of Preferred Option
inc.
Consultants
Project Support Framework
(PSF)
Target Cost based on time
charges
Consultants
Project Support Framework
(PSF)
Target Cost based on time
charges
Consultants and Contractors in
DBFO Company
Design, Build, Finance and
Operate (DBFO)
Negotiated Service Payment
Surveys
Outline Design
EnvironmentalAssessment
Cost Estimates
Draft Order Publication
Public Inquiry and Secretary of
State’s Decision
Land acquisition
Detailed Design and Construction,
and Operation and Maintenance
Risk Assessment and Management
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RISKS ASSESSED under Highways Agency’s ‘Value for Money
Manual’
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Risk Assessment WORKSHOPS held
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OUTPUT feeds into:
- Highways Agency’s Risk Management (HARM) Model
- PUBLIC SECTOR COMPARATOR
- decisions on ADVANCE WORKS
- CONTRACT requirements (risk transfer to private sector)
Risk Allocation
Few risks retained by Highways
Agency, such as:
● Land acquisition
● Change (instigated by HA)
● Unforeseeable archaeology
● Imposition of User Paid Tolls
Majority of risk transferred to private
sector
Contract Requirements
● High-level CORE requirements, such as:
- providing and maintaining a SAFE highway
- providing appropriately HIGH LEVEL OF SERVICE
- MINIMISING ADVERSE EFFECTS on third parties /
environment
● Specific TECHNICAL requirements, such as:
- compliance with HA’s STANDARDS
- QUALITY and DURABILITY requirements
Current Standards for O&M during Whole Contract Period
Purpose: to overcome need for HA changes in standards as contracts
become older
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DBFO Cos obliged to automatically adopt revised or new
standards for O&M over whole concession period
Only exception – Step Change (remote unforeseeable change
affecting whole motorway and trunk road network)
Not applicable to design and construction (standards fixed)
TYPICAL PERFORMANCE INDICATORS
Each “Area of Measure” consists of a number of Performance Indicators
Service
Product
Organisation & Management
Delivery to Project Brief
Procurement of Specialists &
Suppliers
Highway Design
Structures
Environmental Assessment
Traffic & Economic Assessment
Draft Orders & Statutory
Processes
Risk Register and Opportunities
Plan
Supply Chain
Management & Improvement of
Client Relations
Cost
Reliability of Estimating &
Forecasting
Change in Scheme Cost
Predictability of Cost
Management & Improvement of
Customer & 3rd Party Relations
Innovation & Value for Money
Safety
Management of Change
Health, Welfare & Workforce
Development
Time
Compliance with CDM
Regulations
Right First Time
Change from Accepted
Programme
Right First Time
Reliability of Programming
Quality Management System
Predictability of Time
Safety of the Public
Accident Frequency Rate
The Performance Indicators have been selected to reflect the Highways
Agency’s performance expectations of its Suppliers
DBFO PROJECTS AWARDED TO DATE
Tranche
1
Works
Cost
Payment
Mechanism
Contract
Award
● A69 Newcastle to Carlisle
£9.4m
Shadow tolls
Jan 1996
● A1(M) Alconbury to Peterborough
£128m
Shadow tolls
Feb 1996
● A417/A419 Swindon to Gloucester
£49m
Shadow tolls
Feb 1996
● M1-A1 Motorway Link, Leeds
£214m
Shadow tolls
Mar 1996
● A50/A564 Stoke to Derby Link
£20.6m
Shadow tolls
May 1996
● A30/A35 Exeter to Bere Regis
£75.7m
Shadow tolls
July 1996
● M40 junctions 1-15
£37.1m
Shadow tolls
Oct 1996
● A168/A19 Dishforth to Tyne Tunnel
£29.4m
Shadow tolls
Oct 1996
Tranche 2
● A13 Thames Gateway, London
(Transferred to T f L in July 2000)
£146m
Lane availability
Apr 2000
● A1 Darrington to Dishforth
£245m
Congestion
Feb 2003
● A249 Stockbury to Sheerness
£100m
Congestion
Feb 2004
Tranche 1A
Key Point: Mechanism needs to be tailored to project
SOME LESSONS LEARNT
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Schemes with large new-build elements more viable (more risk)
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Need to reduce tendering costs
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Need to reduce tendering / negotiation period
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Need for robust reality check, e.g. risk pricing
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Need for well-resourced DBFO companies
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Need to streamline contractual procedures
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Need for appropriate monitoring
NEXT DBFO PROJECT
M25 London
Orbital
New-build cost:
£2bn
O/A cost (incl.
O&M): £5bn
Availability-based Payment Mechanism
Managed Motorways (ATM)
Options for Motorway Management:
Access control
Speed control
Hard shoulder running
High occupancy vehicle lanes
Integrated demand management
Part 2 – Implementation Case Study – Barry Drewett
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A1 Darrington to Dishforth Project Summary
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Procurement History
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Tender Period
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Construction Period
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Congestion Management Payment Mechanism
A1 DARRINGTON TO DISHFORTH DBFO
PROJECT SUMMARY
Length: 53 km
New D4M motorway: 22 km
2 TPI Schemes
New or upgraded
Motorway
Communications
Facilities throughout
Works cost: £245m
Concession period: 33 years
Key Technical Information
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Overall length:
53 km
New dual 3 lane motorway:
22 km
Motorway widening to 4 lanes:
5 km
Local road improvements:
12 Km
New/upgraded motorway
communications facilities:
Project-wide – Triple Package
(minimum on B-W ECI section)
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Structures:
5 viaducts; 31 bridges; 130 signal gantries
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Earthworks:
Excavation – 3.8 m cubic metres
Fill – 4.4 m cubic metres
PROCUREMENT HISTORY
 Ministerial decision
December 1998
 Expressions of Interest returned
September 2000
 Tenders invited
March 2001
 Tenders returned
September 2001
 Preferred Bidder selected
September 2002
 OGC Gateway 3 Review (Investment Decision) December 2002
 Contract awarded
February 2003
 Construction/Maintenance commenced
May 2003
 Substantial completion of Works
January 2006
 Total completion of Works
November 2006
 End of overall Contract Period
May 2036
TENDER PERIOD – Key Points
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Tender preparation – around 1½ years
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4 tenderers invited – tender return period 6 months
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Tender assessment, short-listing to 2 tenderers, invitation and
assessment of BAFO, and selection of Preferred Bidder – 1 year
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Both BAFOs very favourable against PSC
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Final negotiations and contract-award – 4½ months
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Overall pre-award duration – just under 3½ years
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Process used up most of Contract Pre-Commencement Period
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HA underwrote early design costs if project failed
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Work started on-schedule in Spring 2003
Financial
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Pass/fail on quality, then “most economically advantageous” on
NPV assessment
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Last-minute Rating Agency requirement for AADSCR of 1.25 and
minimum of 1.19 for Investment Grade Rating
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Solved by: (1) increasing contractor equity; (2) extending Contract
Period from 30 to 33 years; and (3) slightly reducing cost of
Works.
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Equity < 20%
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Balance: 50% EIB Loan and 50% Bond Issue
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Package Monoline-insured for AAA rating
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Financial close – 2 weeks after contract-award
Shared Risk of Increases in Insurance Premia
(Reflecting OGC (Office of Government Commerce) guidelines)
Actual Cost of
Premia
(Percentage of
Benchmark*)
Liability
(Percentage of Increase)
SoS
DBFO Co
100 %
0%
100 %
100 – 150 %
0%
100 %
150 – 200 %
50 %
50 %
200 – 500 %
90 %
10 %
> 500 %
100 %
0%
* Benchmark reflects actual costs at Tender
Advance Works
MAJOR SERVICE DIVERSIONS such as 132 kv overhead
power lines associated with Ferrybridge Power Station
MAJOR RE-LOCATION OF EXISTING FACILITIES such as
Brotherton Ings Ash Lagoons
IMPORTANT ARCHAEOLOGICAL INVESTIGATIONS such
as at Ferrybridge Henge (Scheduled Ancient Monument)
KEY POINT – Client often in best position to manage
risks involved in such works
CONSTRUCTION PERIOD - Key Contract Information
Client:
Highways Agency
Department’s Agent:
Faber-Maunsell / Pell Frischmann Consultants
DBFO Company:
Road Management Services
Contractor (CJV):
Road Management Group (Amec- Alfred McAlpine-Dragados-KBR)
Designer:
Mouchel-Parkman
Construction commenced:
May 2003
Construction substantially
completed:
January 2006
Construction cost:
£245m
Overall Contract Period:
(for O&M)
33 years
Contractual Arrangements
Secretary of State
Highways Agency
Department's Agent
(FM / PFC)
Department's Representative
(Highways Agency)
DBFO Agreement
(inc. Direct Agreement)
DBFO Company
(RMS)
Construction
Contract
Contractor (RMG)
(AMEC, A. McAlpine, Dragados, KBR)
Funders
(Shareholders)
(Bank Loans)
(Bond Finance)
Finance Company
O & M Contract
Operation and Maintenance
(A. McAlpine)
Design Contract
Designer
(Mouchel-Parkman)
Design sub-consultants
(KBR, Carl Bro)
Total No. of contracts: 160
Partnering
Health & Safety
Land &
Third Parties
Design Review
Public Relations
&
Communications
Structures
Project Forum
HA
DBFO Co
CJV
DES
DASR
DADRC
Operations &
Maintenance
Motorway
Communications
Traffic
Management
Non-Conformities,
Certification &
Records
Construction
Environmental
Management
Quality
Management
+ Partnering
Protocol
Contractual Remedies:
● Non-Conformance Reports
● Letters
● Remedial Notices
● Penalty Points (generally up to 5 per breach)
● Warning Notices (material breach or 100+ penalty points
in 3 years)
● Increased monitoring at DBFO Co’s cost (50+ penalty
points in one year or one Warning Notice)
Practical Delivery – Key Points
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Opened several months ahead of programme
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Good construction quality
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Major pavement problem – Contractor’s risk
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Very good safety record
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Minimal disruption to public (core requirements to keep
traffic moving at all times)
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Post-Opening OGC Gateway Review (Benefits Evaluation)
showed Project met all key objectives
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Has been operating successfully for over 2 years
Financial / Contractual Delivery – Key Points
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4 agreed Compensation Events
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6 Department’s Changes
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Outturn Works cost to HA around £221m v Pre-Contract
estimate of £245m (both 2003 figures)
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Dispute Resolution Procedure – not used for construction
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1 Dispute to date on Current Standards provisions
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Payment mechanism working well
CONGESTION MANAGEMENT PAYMENT MECHANISM
Congestion Payments on Each of 50 Carriageway Sections
Minimum Condition Criteria
must be met before any
payment made, e.g. TRACS
Active Safety Adjustment
Benchmark
Criteria for Safety Payments or Deductions
Cap
Zone A – no
adjustments
Zone B – enhanced
adjustments
Zone C – standard
enhancements
£ Bonus
+PIAs
-PIAs
C
B A B
C
Cap
£ Deduction
-8 -2 2 8
Thank You!
[email protected]
+44(0)113 283 6303
[email protected] +44(0)1924 335 292