If you’re a senior executive responsible for setting – and overseeing the attainment of – your enterprise’s corporate growth goals, I have a question for you: How informed are you on the individual contracts that comprise the overall total of your organisation’s business-under-pursuit? How certain are you that the priorities underpinning the prioritisation of current […]
In a challenge workshop I held recently for a meeting of the senior marketing and sales personnel of a multi-national in the broader infrastructure and engineering space, I was told (I’m paraphrasing): “We struggle with converting client needs into end benefits. We’re good at communicating features, but not extrapolating these into project-relevant end-benefits.” Now, notwithstanding that the industry in question requires substantial use of technical specifications and other feature-related detail in submissions to its client audiences, the workshop participant that voiced that general concern was right on the money. These features still need to be converted to actual “benefits”. There’s a simple exercise for arriving at the benefits of a feature, without losing the necessary details of that feature, as required for the satisfaction of the client-side’s technical evaluators. Here’s the basic version: Throw up three columns onto your whiteboard. Head up the left-hand column, “Feature” – and articulate the key elements of the feature. Head up the middle column, “Relevance to Which Specific Project Objective?” . Head up the third column, “How It Helps to Achieve That Objective” . Again, this is just the basic version; more extrapolations are required to take this all the way through to any form of “win theme” contribution. But it’s a great start.
‘What we’re trying to buy is new and innovative thinking – not our own thinking recycled back to us from the other side of the table.’ That was the strong message from Treasury New Zealand’s Head of PPP Program Fiona Mules, as she departed the position for a new phase as an independent, advising infrastructure […]
In this article, James Mitchell, a seasoned Melbourne-based Public Private Partnerships (PPPs) bid manager, discusses one of the most essential elements of an organised and efficient PPP bidding process: the co-location of all major consortium participants into one office. With a background in the construction and investment banking industries, Mitchell has been a PPP bid consortium leader, project director and asset manager since 1996. His bidding track record features five PPP wins: Melbourne’s Royal Women’s Hospital, Perth’s CBD Law Courts, the Victorian Correctional Facilities in Melbourne, Sydney’s Royal North Shore Hospital and Melbourne’s Etihad Stadium. He has acted both as a sponsor representative, and as an independent project manager. In this commentary, Mitchell stresses that experienced PPP practitioners recognise the co-location of all key consortium participants as essential to the success of a bid. He says these operatives know how critical it is to ensure all parties have timely and ongoing input into the design in its early, formative stages: “A PPP will never be awarded to a design that won’t work for the client,” Mitchell says. “If the agency isn’t convinced the design provides a brief-compliant and functional solution, they’re not going to choose you. So you better make sure your consortium – and everyone in it – is dealing with today’s design, not that of two days ago. “If you co-locate – and co-locate successfully – you’re in a good position to lead the design team, rather than be led by it.” PPPs are all about teamwork, he says, and there are many parties that form both a consortium and its bid team. “PPPs are also a fast-moving animal: To the outside world, the six-month PPP bid process might seem painstakingly slow. But, behind the scenes, the action is happening at lightning speed. “In the first two months, that action is driven by the design – which moves rapidly. There’s a rule of thumb in a PPP bid: 2, 2 and 2. Two months for the master plan design, two months for detailed design, and two months for pricing, fine-tuning the various bid components, and submission production. Months 1 & 2: The Big Design Decisions Are Made “The first two months in the equation are the most critical. This is when the big design decisions are made: get these wrong and your bid is doomed to failure. “It’s the moment of ‘speak now or forever hold your peace’ on the master planning front; these are the decisions that will underpin your consortium’s functional design going forward. They’re all the unchangeables: the departmental adjacencies, transportation and movement flows, floor area functions, and the logistics associated with moving people and goods around between these. “The decisions made in this phase lock in the size and configuration of the floor area spaces from which the detailed design proceeds.” (The next two months are about detail design, he says. Months five and six are about writing it all up, drawing up the plans, and preparing all the production material that goes in with the bid.) “Suffice to say, if you’re not operating with a tight, well-oiled and collaborative machine in this initial two-month period, you’ll feel the pain of a disjointed bid as it evolves in months three through six. “It all comes down to providing direction to the design team at this, the most critical stage. “If the design is racing off ahead of your various consortium members’ ability to provide the guidance that’s essential to the success of their inputs, you can expect things to come off the rails not too far down the track. In short, if the consortium doesn’t lead the design, the design will lead the consortium – and the bid.” Drive Design, or Be Driven by Design Mitchell advises that, in a functional and strategically co-located office: The consortium’s operators (or operational advisers, if the facility is to be operated by the State) are right there, as the design develops, to ensure against what, from their perspective, represents an inefficient design that will result in operating inefficiencies. The equity and debt providers are there to ensure the design is financially functional, and that its construction cost and timing implications meet with its own fiduciary capacities. The construction partner (the primary manager of the design team) is full-time accessible to provide the necessary guidance on construction price, program, complexity and risk, as the design progresses. Your constructor is key (and typically manages the design process). If your design is going off the rails it’s their problem first and foremost. Sometimes the construction company’s own design management personnel will pull a wayward design back into line, to ensure target construction costs and program can be met. Those leading the development of your ancillary design propositions are able to develop their ideas in close concert with the core elements of the evolving design. The way in which the base design is moving dictates the space they have to work with. The facilities management partner is integrally involved in the developing design. The input of your FM experts is your compass in terms of evaluating the whole-of-life operating viability of your proposal. The legal and commercial experts are across the different construction risk profiles of the different design options as these are assessed. Their timely guidance is critical, for example, in instances where your design team may be inadvertently producing a design risk that gives your financiers or your construction team cause for concern. You need to know, well ahead of time, what has to be reflected in the construction contract and the project agreement between the consortium and the State. Channeling Client Communications Channeling communication back from the client is equally critical, he says. “When people are within verbal communication range of each other in the one office, it opens up communication between all the parties. Information and updates are being delivered live and through minimal filters. It eliminates the many hours team members would otherwise spend writing emails to each other, to keep everyone up with the state of play. “When four, five, six or more companies – that have never worked together before – are suddenly thrown into one team, the only way to get the necessary channels of communication in place is to do it fast, and to do it full-spectrum. You don’t have the luxury of time for any other approach.” Where Should the Bid Office Be? The answer, he says, is: “Where the client is, if it’s at all practical. You’ll have multiple interactions with the client, sometimes on a weekly basis. If you’re close to the client, you’re reducing travel time and costs markedly. “However, it’s not always possible to locate within a stone’s throw of the client – although the closer you can be, the more ideal your logistics. “Sometimes the client has key operations in more than one location. For example, your client might have its head office in a capital city and a regional facility elsewhere. Let’s say it’s been determined that all of the face-to-face meetings will happen in the regional locations because there’s a user group there that can’t travel to the city on a regular basis; they can’t leave their jobs. “In that case, you then go to the second decision-making factor i.e. where are most of your consortium’s own people located, and where are the resources they need to function? Where will the various groups have the most ready, direct access to the experts and other personnel they, in turn, need to interact with on a daily basis?” The Practical Issues When the question of where you’ll establish your co-located office is resolved, Mitchell says, a PPP team has a raft of practical considerations to satisfy, including: Availability of suitable space on a temporary lease (with extension options to allow for an extended bid period and/or deal-closing activity). Floor space and configuration (Is it easily adaptable to create the right balance between open space and separated-off meeting rooms?). Telecommunications (Do the facilities offer sufficient bandwidth to handle large file transfers and global video conferencing, and can adequate internal wireless capacity be organised?). 24/7 security-controlled access. Air conditioning (including after hours, weekends and public holidays). He says the primary goal of the bid manager must be to have the bid office and associated infrastructure available immediately his or her consortium is announced as a short-listed bidder i.e. upon the announcement of the Expression of Interest outcome. “The Request for Proposal bid documentation is, in most cases, released at the same time or shortly after this announcement, and scurrying around for premises and/or debating the location thereof, once you’re in the countdown to submission deadline, simply isn’t an option.”
Lowest price or value for money (‘VfM’)? It’s an age-old dilemma in big-ticket public sector procurement. It’s also a particularly topical one on the still-embryonic New Zealand Public Private Partnership scene. New Zealand Treasury has gone to great pains to convince the marketplace that its PPP model is different to its Australian counterparts: it’s going for best bang for the buck. Leave the pared-down price approach to the Aussies, say the Kiwi budgetary bureaucrats. The NZ Treasury’s communicated view is that the objectives of any specific PPP are bigger than the venture itself. In PPPs involving services and construction, such as the two transactions that have reached financial close to date – Wiri Prison and the Hobsonville Schools – they’re a catalyst for challenging traditional forms of delivering “State” services. Fair to say that, to date, those heading Treasury’s Public Private Partnership Program have indeed looked towards the big picture goal of instilling industry with an integral understanding of their intention that New Zealand’s PPPs be first and foremost outcome-based and full-term oriented. This approach, their Treasury people say, is the foundation upon which the success of Kiwi PPPs will rest for both the public and the private sector. The Treasury has also communicated its intent that the initial procurement processes surrounding a PPP will be used as an exercise to bring about an appreciation by the public sector of the true cost of providing assets and delivering associated services. The end game is firstly to bring about better capital asset management and improved performance in terms of service provision, and secondly to improve agencies’ understanding of whole-of-life asset costs and how to best manage the trade-off between capital and operational expenditure. It’s a whole new focus for a public sector that has traditionally, in its procurement processes, placed its emphasis on design and construction cost. But in all of this there’s a slew of dilemmas for consortia entering into the high-stakes arena of bidding a Public Private Partnership project. ‘Adding Value’ or ‘Lowest Cost’? It’s Not As Clear-Cut As It Used to Be The difference between adding value within a project budget envelope and meeting the brief at the lowest cost isn’t the clear-cut equation it might at first appear to be. Here’s how the New Zealand PPP model works in theory, and how it differs in practice to other PPP-friendly jurisdictions: Similarly to the Victorian model (Victoria being the pace-setter), a “Public Sector Comparator (PSC)” figure is disclosed to shortlistee bidders at issue of the Request for Proposal. This is the cost that, according to the relevant Government agency’s research, the public sector can deliver the same project and services package for. In a Kiwi PPP, a bidder’s success will depend upon how much value it delivers within this designated affordability threshold, with the detail of its proposition left to its own value-adding creativity. By contrast, in the UK, Canada and most states of Australia, bidders are favored for their ability to beat the “PSC” by as wide a margin as possible, and tender to a heavily-prescribed brief. While bidders in a “lowest price wins” competition have their challenges, consortia conforming to the New Zealand PPP procurement model are faced with some curly questions to which there is not always an answer. Among these is the fact that, in many instances, the PSC given to bidders isn’t always an authoritative indicator of the total project budget at all. Often only the raw construction cost, hard facilities management and service provision costs are disclosed, representing only a component of the total picture. The more comprehensive assessment – known by the Government side but not released to bidders – includes all project-specific risks, transferred and retained risks, and an allowance for the advantage the State might have (e.g. rates and taxes) over the private sector. Savvy & Early Strategy Formulation Is the Best Solution Savvy and early strategy formulation is the best solution to this particular problem. Developing a close understanding of the likely overall budget envelope should be first on the list of priorities for a consortium – and endeavours towards this end should begin long before the Government’s issue of the Expression of Interest documentation. Understanding this is critical to the bid strategy from the outset ; it stands as a signpost for the most strategic selection of consortium partners. Another dilemma faced by bidders is the degree and type of creativity and innovation the Government wants. The whole idea, from Treasury and the procuring agency’s perspective, is to avoid a lot of hand-holding. Bidders are given the latitude to bring anything to the table for consideration. This, of course, also equates to being given ample rope with which to hang themselves if they haven’t done their homework and they put forward something inappropriate, irrelevant or without value. Indeed, feedback from Treasury after the closure of the first two New Zealand PPPs was that bidders expected the public sector representatives to do much of their thinking for them. Know the Client, Know the Client, Know the Client Here again, the best advice for bidders is to know the client, its issues and its project objectives . Backwards. And upon that foundation, to do a great deal of market research, options assessment, lateral thinking and (non-probity-compromising and educated) opinion testing. On a related note, PPP novices need to understand the nuances of the PPP model itself, especially in terms of the dynamics and apportionment of responsibilities between the various partners in a consortium. The best bid is likely to be tabled by the consortium that not only does comprehensive research both of the client and of the possible solutions, but the members of which work tightly together to produce the best-bundled solution, ensuring a genuine seamlessness of asset and ongoing operation and service. Needless to say, this assurance needs to go beyond simply the carefully crafted words of a consortium’s bid. Government needs to be assured of a well co-ordinated, seamless approach to project management once the facility comes on-stream and throughout its typically 25-year concession. Underlying all of this is a potential trap for bidders: Is the Government’s message about best value versus lowest cost actually to be trusted? And even if it can be relied upon now, what about on into the future? Too Early to Take the ‘Best VfM’ Message At Face Value A close colleague of mine, James Mitchell, is a veteran of the Australian PPP scene – and he’s notched up a serious number of both bidding and project roll-out successes. He cautions Kiwi bidders against getting too comfortable with Treasury’s “best bang for the budget” message. A few more miles yet need to be put on the Kiwi model before anyone can hang their hat on a consistent trend, he reckons. Politicians, Treasury departmental heads, project owner executives, and the individual and collective priorities of each change, Mitchell counsels from the benefit of his 14 years’ experience. There’s also the reality that it’s the procurement agencies that ultimately award the contracts, and it’s always possible the Treasury position might meet with a conflicting agency viewpoint. He further points to the fact that there have been a good number of lowest price bids that turned out laudable service improvement outcomes for the Australian public sector – some by default and some by intention. The Perth CBD Law Courts and its conversion (by the lowest cost bidder) from a risk-ridden low or no-tech environment to a well-oiled high-tech machine is but one example. New Zealand decision-makers could make note of such lowest-cost and best-value project outcomes and, at any point, decide to have their cake and eat it too. Creativity or Cost? In the meantime, it’s critical to know which way to pitch: creativity or cost? Again, the admonition is to know your client, know your client, know your client. That’s obviously the objective of any bid strategy. But putting together a clear and present picture of the client’s world in the context of an intended PPP procurement requires the application of strategy fundamentals across a vaster, multi-faceted and multi-organisational canvas. The scale of the average PPP makes bidding a PPP a highly complex endeavour. Understanding the project means the novice local bidder is going to have to dig a lot deeper than it’s used to digging to understand client priorities, motivations and parameters. Meantime – to the extent that the Governmental messages are to be trusted – the seasoned Aussie contingent would be well-advised to remember the current brief: It really is about VfM; not dropping your pants on price.
