6.2.1 VfM at whole of government and alliance level

As noted in Chapter 3, governments contract on behalf of citizens to purchase infrastructure assets using taxpayer funds. Therefore, the objective for government decision makers is to obtain the optimal value for citizens for the least amount of taxpayer funds. Government's success in solving this dilemma allows it to discharge its responsibility to deliver infrastructure in a manner that protects the public interest.

The alliance team is primarily concerned with the delivery of the capital assets, it is not usually required to manage the operational phase (other than ensuring fit-for-purpose capital assets and whole-of-life considerations for the capital assets) nor is it responsible for the ongoing service benefits to the community (for example, the alliance does not take the risk of whether a new road does actually lead to travel time savings).

Therefore, the VfM consideration important in the alliance is whether the government's/ Owner's capital project objectives and works have been delivered by them at the lowest price and in accordance with the approved business case. This is not to say governments are only interested in cheapest price, rather they are interested in achieving the social, environmental, economic, quality etc objectives that they have agreed to, as well as the direct construction cost, at the lowest price.

Prior to the business case approval, if the Owner believes that a social, economic and/ or environmental issue is important, and wants it addressed as part of the capital project, then the Owner should analyse its costs, risks and benefits and make it part of the VfM proposition in the business case submitted to government for approval.

After business case approval, if the alliance believes that there is a need to address a further social, economic and/or environmental issue, then the alliance must seek approval from the project Owner (as distinct from the Owner's representative) and potentially the Owner from government.

The role of the alliance is to dimension, detail, plan and deliver the capital assets and the VfM proposition impacting on those capital assets within the parameters of the approved business case.

 For instance, consider a case where a reduction in traffic delays due to construction activities is an aspect of VfM for a road program. Suppose a business case requires a certain traffic flow condition to be met (e.g. peak hour delays of below 15 minutes) and the alliance team identifies a method of delivery that reduces traffic delays (e.g. to 2 minutes). That appears to be a 'game breaking' outcome. But it is only game breaking if the change (e.g. from 15 minutes to 2 minutes) is sufficiently valued by the government (as an investor). This can only be assessed in light of the costs of the change - either additional cost or sacrificing possible budget savings. If there is no impact on cost or savings (and other criteria), then clearly the change should be implemented. However, if the change affects budget savings or any other criteria, it becomes a VfM decision that best rests with the Owner, not the alliance team. The decision making process (at negotiation of the PAA/TOC and during project delivery stage) needs to clearly and transparently establish the cost- benefit trade-off for all such changes in specifications, and clearly outline who can make such decisions.

By changing the purchase process to allow suppliers (NOPs) to specify elements of the value proposition, alliancing subtly shifts the accountability and responsibility mechanisms away from government. The potential impact of that shift will depend on the type and impact of criteria that are open to amendment during the project. While NOPs may have superior technical capabilities, they may not share the government's perspective on preferred outcomes, particularly with respect to trade-offs between multiple criteria, especially when taking a whole-of-government perspective to the issue. Government, therefore, needs to take care to ensure that the definition of VfM for an alliance project accurately reflects its perspective on the project.

This challenge of defining VfM has been subject to much review and has driven the development of several methods of project performance assessment. A key element of any such model is the development of a robust and comprehensive business case on which to benchmark project success as well as inform the investment decision. Government policies and guidelines generally state that investment decisions should be based on business cases where there is a full and transparent articulation of the costs, risks and benefits (the VfM proposition) of an investment proposal. This means that the VfM proposition for the project is owned by the 'investor' (usually the state and Owners), not by the alliance team (including the NOPs and Owner's representative) engaged to deliver the project. NOPs will often have either an inherent conflict of interest (since their reward is potentially linked to achieving the VfM proposition) and/or they may not understand the true preferences of the government across multiple, complex criteria on a whole-of-government basis. Engagement of NOPs prior to adequate specification of the business case may also be effectively pre-judging the investment decision.

There needs to be clear delineation between the roles of state as an investor, the Owner, and the Owner's representative as a member of the alliance. As noted earlier, these roles are fundamentally different. Of particular note is that there may be cases where the Owner and Owner's representative may be the same individual acting in different capacities. This would not be considered 'best practice', however, in such an event they then need to be very clear when they are acting as an Owner (responsible for the service outcome) or Owner's representative (responsible for joint alliance delivery of the value proposition).

If the government does not retain the right (as the investor of public funds) to set the expected performance standards or objectives, then there is a fundamental shift in the accountability arrangements surrounding the project whereby the alliance team (at least potentially) becomes the arbiter of social value.

The Research Team observed that VfM was rarely raised by either Owner's representative or NOPs as priority considerations for alliances and if it was, there was often a lack of clarity or consistency as to its definition. Sometimes it was viewed as "price (capex) and non- price", sometimes "price (whole of life) and non-price", and sometimes "only non-price". Occasionally a view was expressed that the alliance had both a right and responsibility to define the VfM proposition. This is not correct, as explained above.

VfM is defined at the highest level as ensuring that resources are optimised to achieve desired benefits for the public good. Optimising VfM in alliancing must be considered not only at a discrete alliance level, but also at a whole of government level.

This Study used the expression of 'whole of government' to denote the perspective where decisions and analysis of issues takes into consideration the potential impact across project and portfolio boundaries to optimise outcomes that are best for all citizens. Whole of government is defined in the Australian Public Service (APS) as:12

"Whole of government denotes public service agencies working across portfolio boundaries to achieve a shared goal and an integrated government response to particular issues. Approaches can be formal and informal. They can focus on policy development, program management and service delivery."

The Study findings raise two issues that government must consider in order to optimise value for money outcomes in alliancing:

1.  The project or alliance level considers elements that influence the VfM required to be delivered by that individual project.

2.  The whole of government level considers elements that must be coordinated at a whole of agency, whole of department, whole of state or even whole of country level.

It is possible that only focussing on alliance VfM outcomes may lead to sub-optimal whole of government VfM.