Enhancing whole of government VfM

In this section, the conclusions relevant to enhancing VfM at the whole of government level are discussed. These are generally areas where there would only be a benefit if a whole of government approach were taken, rather than an alliance only approach.

VfM definitions and the value proposition in the business case are the responsibility of the Owner, not of the alliance which has been engaged to deliver the capital asset component of the business case at the lowest price. The role of the Owner needs to be distinguished from the Owner's representative on the alliance, who only has responsibility for delivery and has no authority to change the business case as these are normally approved by Government.

It would appear that PPPs provide the greatest cost certainty at business case stage (an increase of 5-10% to AOC), followed by traditional (≈20%) and then alliances (≈50%).

The lack of accuracy in the business case cost estimate must be considerably improved to better inform the capital investment decision. Alternatively, the business case should include explicit advice to investment decision makers regarding the risk of potential increases. Fast track processes need to be developed for the minority of projects where time of commencement is of the essence and decision makers need to be alerted to the significant price premium that may be associated with fast tracking.

There is a plethora of selection guidelines on the use of the alliance delivery method that are inconsistent, confusing, do not reflect current practice and are not focussed on optimising VfM. Given a robust construction market it is possible that the primary competition is occurring on the buyer (Owner) side as they seek to attract NOPs to their own project using the alliance delivery method and non-price criteria, both of which are highly favoured by NOPs over traditional delivery methods.

A consistent approach across jurisdictions would improve the procurement selection strategy and buying power, and ensure consistency in government engagement with industry.

Current guidelines recommend selecting NOPs using predominately non-price criteria. This does not always reflect good government procurement practice which requires price to be included as a significant criterion. Whilst price competition is not appropriate in all circumstances, it should be required as a default position.

The range of the PAAs in use in Australia is neither efficient nor effective for government or industry. An alliance is a complex commercial transaction. Now that alliancing is a mature delivery method, there is a need for government to establish a standard form of contract that is robust, tested and clearly understood by all parties. This would improve legal certainty and transaction efficiency for government and NOPs.

Government would benefit by taking a portfolio management approach to procuring and delivering projects. This would enable the whole of government risk (and associated insurances) to be managed more effectively. This approach would also enable government to achieve synergies across multiple projects through leveraging buying power, smoothing resource demands, and possible consolidation of some activities to achieve economies of scale.

Governance arrangements above the alliance vary significantly from project to project and little guidance exists. A standard governance arrangement would result in improved understanding of roles and authorities and more effective and efficient project delivery.

An increase in the TOC of approximately 5-10% during project delivery raises doubts on the widespread perception of certainty of the initial TOC compared to traditional methods. Savings on the TOC are negligible.