Introduction

In 2007 Bond University undertook a comparative review of procurement methods for the purpose of objectively determining the relative strengths and weaknesses of the principal methods for the state procurement of economic and social infrastructures.

The study concerned procurement alternatives commonly used with large or complex projects and available to government, including:

●  In-house provision using a state agency or works department

●  Traditional procurement

●  Outsourcing

●  Build own operate and related forms of asset procurement

●  Alliance contracting

●  Public private partnerships.

Around 90% of state procurement in the late 1980s was traditional which employs a comprehensive input specification, a lowest price tender selection process, separation of the design and construction components of the project and an adversarial approach to contractual relationships. The main measurement methods were delivery on time and within budget.

In the 1990s with wider use of the build own operate transfer (BOOT) group of procurement methods, three evaluation criteria became more relevant. First, lifecycle costing was central to private investment economics and a higher level of science was applied to the operation of assets over 20 and 30 year lifecycles. Second, private bidders were assuming greater levels of risk that related not only to asset delivery but to the quality of service outcomes over the investment lifecycle. Third, private sector incentives are central to long-term incomplete contracts and the marginal return on investment came to be associated with improved asset design for the lower cost and sustainable delivery of quality services.

Outsourcing contracts for both procurement and delivery of services became more common in the early 1990s especially for the delivery of non-core government services such as waste management and long-term contracts in areas such as road and rail maintenance. Incentive is central to private performance under these contracts although there is generally less contractor input to service specifications or use of private capital than exists with the BOOT configuration.

Alliance contracting came into wider use in Australia in the early 1990s and was applied to large infrastructure procurement that could be articulated into a number of multi-staged contracts. Alliances are hybrid arrangements that remove the adversarial features of traditional contracting, give effect to risk transfer and may integrate the design and construction phases of a project. However, they do not necessarily involve a lifecycle approach to investment economics, the contractor is incentivised for project and not service delivery and there is little mobilisation of private investment.

Public private partnerships (PPPs) are a combination of many of the procurement characteristics outlined above. However, the competitive bid process has two distinguishing features - the service is provided to an output specification and the design and construction phases of the project are integrated into a single process. This form of procurement involves private capital and the transfer of asset and service delivery risk to the contractor. PPPs also involve full lifecycle cost; they are long-term incomplete contracts and require new approaches to relationship management. A comparison of procurement methods using quantitative measures is set out at Table 1.

Table 1 Project Procurement Performance a

SOURCE

MR 2008

NOTES

a  Sources as noted. Sample sizes vary.

b  Qualitative assessment from independent NAO 2004, 2006 reports.

d  2000-01 results: NAO 2001 Modernising Construction.

Projects delivered on or under scheduled time and price.

e  1999 results: NAO 2005 Improving Services Through Construction Part B

f  2004 results: NAO 2005 Improving Services Through Construction Part A

g  Fitzgerald 2005; Audit Office Reports Victoria & NSW 2004-08; IPA 2007

h  NAO 2004, 2006 MOD Defence Contracts.

Performance met minimum requirements.

j  NAO 2005 provides insights. No direct evidence identified.