The following is an excerpt from my 320-page book, ‘Cracking the VfM Code: How to Identify & Deliver Genuine Value for Money in Collaborative Contracting’, published in 2013 (but with genuinely timeless insights on the whole ‘Value for Money’ conundrum).

Infrastructure bidders struggle mightily with the concept of “Value for Money”. In some instances, I’ve seen it extrapolated into some convoluted Einstein-ish mathematical formula; in others, I’ve seen it seen as synonymous with that questionable “value added” buzz phrase and seen as a prompter to roll out every guesswork-based bell and whistle a bid team can think of with which to sweeten the deal.

Both extremes miss the critical point: 

“VfM” is whatever the client deems it to be. Your job is to get inside the client’s world and into his head, in order get to the bottom of his unique and project-specific take on “value for money”.

Everybody’s Got A Viewpoint: A Concept Looking for a Definition

In terms of the search for *the* definition of “value for money” in alliancing and other forms of collaborative contracting, the seemingly endless “VfM” debate rages on. Many proponents have put forward their own personal take on VfM as representing that singular, much-sought definition.

Yet with all the definitions mooted and all the eminent spokespersons on the topic making perfect sense in their own individual right, still the industry continues to seek out some hallowed definition that will lead it to salvation on this issue. (Arguably, the best answer arrived at thus far is that “VfM is project-specific”. Yet that’s nothing but a principle, albeit now a widely-agreed one.)

The truth is, every one of the theories put forward has held a part of the answer. VfM, as it turns out, is a multi-layered, multi-component formula to which multiple parties hold the key. Critical to the success of the formula, however, is getting its components in order, to ensure (a) recognition by each contributor that each part of the formula is exactly that i.e. a part of the formula, and (b) that each successive component is influenced by the correct preceding component.

In other words: What needs sought out is not one exact and specific “definition” of value for money, but rather the starting point for, and successive order of, the many layers of the VfM cascade.

If we agree, then, that there’s room for everybody’s perspective of VfM, and that these ultimately make up one collective “value for money” picture, what’s required is for the lens to be pulled back to a macro focus to see where all the individual takes on VfM fit in. Once we’ve grasped the whole picture, then the role and relative priorities of the various “micro” components of that overall picture, fall logically into place. These become what we might see as a series of layers.

VfM Is A Many-Layered Thing

The first, the foundation and, arguably, the most critical component of the formula lies within the “big picture” requirements of the project funder which, for the purposes of this book and its readership we will deem to be Treasuries – either at a State, or the Federal, level.

This logic recognises the “whole of Government” imperatives of the project, as dictated by the investor.

Next would come the immediate project owner’s (usually the infrastructure delivery agency) objectives, including those dictated by the components of the supporting business case on the basis of which funding was granted.

It is critical to note that it is only after the acknowledgement and consideration of these – essentially societal – goals, and in the context of them, that any conversation on VfM can be lead by the design or construction sector.

Continuing on with the “layers” logic, next comes a layer of VfM specific to the type of project.

For example, if we’re talking a water project, then there might be certain quarters of the industry that do that with greater specialist skill than others. If we’re talking a roading project, there might be certain quarters of the industry kitted out for greater efficiency than others. And if we’re talking airport infrastructure, there might be those who have broader knowledge bases or greater experience than others, possibly leading to a high degree of project-level VfM.

From there, the VfM equation enters into the domain of the alliance or collaborative contract team itself. It’s down to the cost planning, the value engineering, the design (and any innovation therein), the construction, and all matters related to implementation (including efficient use of overhead staff, good governance, proper project controls and sound project management practices), actual functionality of the end output itself, and ongoing operational, maintenance and “future proof” value.

These layers form a logical cascade, each guided by the objectives of the preceding layer.

(Incidentally, this is why – as a bid strategist and business development operative – I constantly reinforce the danger of a bid team’s placing insufficient emphasis on researching and understanding the “big picture”. Almost without fail, I find engineers getting lost in the “micro”, without anything even nearing sufficient knowledge of the “macro”. In other words, in focusing on the “how”, it is critical never to forget the “why” behind a project.

The “why” comes first, last, and should never be forgotten in any part of the middle, either. This is the reason I also constantly reinforce the great importance of structured, well-planned research into a project being bid for, along with asking quality questions of the client and having a system to collate the findings and the answers. And doing all this well ahead of time.)

Let’s take it from the top.

To summarise thus far, VfM (as there is now little debate within the industry) must be defined at a project-specific level. But that’s only the “micro” perspective that’s created out of direct reference to the macro level provided by the investment priorities and criteria applied to the project’s approval at State or Federal level.

In other words – in a sense – the customer is always right. In this case, of course, the customer is the State or the Federal Government, and is represented by the Treasury department in question, which plays the role of investor.

There certainly wouldn’t be any argument from the Treasuries over this logic. And since they’re the only ones with the “whole of Government” perspective and drivers, this reasoning – theirs and mine – does pass the test of applied logic.

It is then the owner agency’s responsibility to guide and/or work with its non-owner alliance (or other form of contractual) partners, in the “best value” execution of the project, program or service, in direct accordance with the rationale, priorities and other essential elements of its (the owner’s) business case.

Here though, must be recognised the call from many industry participants to be given the opportunity to contribute the benefits of their expertise at earlier stages in the whole process. This is a point of passionate and worthy debate catalysed by the October 2009-released ‘In Pursuit of Additional Value – A Benchmarking Study into Alliancing in the Australian Public Sector’ (produced by industry consultants Evans & Peck and the University of Melbourne for the Treasury sector.) It should be noted that the design and construction sector at large saw ‘In Pursuit’ as endeavouring to push non-owner participants further back in the VfM identification and discussion process.

We’ll investigate that debate in detail in a later chapter. But now, let’s hear the rationale of the different parties, look at whether or not the logic always applies, and what other facets of the discussion come into play in and around this logic.

VfM – Through the Eyes of Treasury

It was the Victorian Department of Treasury & Finance which both heated up and took a lead role in the VfM debate, with its lead sponsorship of the ‘In Pursuit of Additional Value’ publication.

(As an aside at this stage, this report recommended price-competition based alliance selection be adopted as the default position for those projects delivered as alliances, although there is provision in the guidelines still for partial price-competition and non-price competition in alliance selection). The preference for this “dual Target Outcome Cost (TOC)” version was reinforced in with ‘Guidance Note No. 4 – Reporting VfM Outcomes in Alliance Contracting’ – a stance echoed, in short order, by other states’ Treasury departments.)

With the release of this publication, this particular state Treasury department put its stake in the ground and declared that what represented value for money to treasuries – as guardians of the public purse – was the default definition for VfM . . . or perhaps, more correctly, was the peak definition from which all other elements of the VfM picture should emanate.

One of the more mutually agreed findings to come out of the review was that agencies owed it to Treasury, to themselves, and to the Non-Owner Participants in their alliances to ensure the production of clear, timely, detailed and robust business cases. (A business case has been simplistically described, in this context, as an analysis of the costs and risks versus the service delivery benefits to the community.) The business case, it indicated, should form the basis for an additional, “VfM Proposition” document – which would directly guide the alliance as to the agency’s value for money requirements of the project.

Let’s get really clear on what a “business case” and a “VfM Proposition” are. The Victorian Treasury’s ‘Practitioners’ Guide to Alliance Contracting’, provides the following definitions for these in its glossary:

‘Business Case

‘The vehicle that is used by the owner to obtain approval and funding to undertake the project, as required by that owner’s jurisdiction.

‘Owner’s VfM Statement

‘The owner’s VfM Statement sets out the project deliverables to be achieved by the alliance and the success criteria by which the alliance will be ultimately judged. It is designed to be specifically relevant to, and applied by, the alliance. The development of the owner’s VfM Statement should use the approved Business Case as the starting point (etc).’

Unfortunately, one of the findings of ‘In Pursuit of Additional Value’ was that ‘business cases often did not clearly define the project VfM proposition to the rigour required for investment decision-making, and noted that ‘the average increase from base case cost estimate to AOC was of the order of 45 to 55 percent’. (It should, however, be noted that the research sample size and diversity represented a sizeable bone of contention with the non-owner participant sector.)

Further on in this report is the recognition that, “The 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.”

Distilled down to one core imperative: Treasuries and agencies must exercise their respective responsibilities for ensuring the effective application of “whole-of-Government” perspectives and priorities at project level.

Nick Tamburro, Director of the Victorian Department of Treasury & Finance’s Commercial Division, has had a decade’s experience in the full gamut of public-private partnership projects, and across a wide variety of infrastructure sectors (before which he had managed traditional public construction projects and been involved in policy development). In 2008, he was made responsible for alliancing policy and guidelines.

Tamburro believes it would behove NOPs to broaden their perspectives on projects, such that they fully appreciate that the granting of funding for any specific project represents but one element in a much larger statewide (or nationwide, if it’s a Federally-funded project) picture.

He points out that in the process of obtaining project approval, the specific Government infrastructure agency that will own that project, has had to compete with (literally) hundreds of other proposed projects for its funding. And in that process, the agency has had to argue its case primarily on the basis of value for money.

In considering the proposal, or business case, put forward by the agency, Treasury – acting on behalf of Government – has had to apply “whole of State” priorities. Its granting the funding for the project essentially deems the agency’s VfM Statement a core agreement between it, as project owner, and Government.

The Treasury’s singular objective, going forward, is to hold the agency accountable for delivering on the VfM Statement for a price which is equal to – but preferably less than – the project budget approved in the business case.

Tamburro is quick to emphasise that nowhere in this process has there been any requirement for the agency, its business case or its VfM Statement to employ the “cheapest” version of anything. The obligation is, rather, to ensure that – having identified the value elements to be achieved – these are then delivered for the lowest total cost (i.e. quality standards required for best-in-market price) . . . and certainly within the approved budget.

On this note, he points out that an alliance team should not take it upon itself to invent new VfM criteria, “outside the business case parameters”.

If they do feel the need to propose a new criterion, he says, it should be approved in its own right by the agency/project owner, and if sufficiently major, then by the relevant treasury.

A power point diagram furnished by Tamburro depicts a hypothetical VfM proposition for an imaginary motorway interchange.

Depicting his point graphically, he uses a set of scales – one side weighing the call on public resources (or costs and risks) and the other side weighing the service benefits of a hypothetical proposal for an equally hypothetical “Big M” motorway interchange.

Excerpting from Victorian Treasury’s March 2011-released ‘Guidance Note 4: Reporting Value for Money Outcomes in Alliance Contracting’, let’s look at the type of crossroads an alliance might typically find itself faced with, and how its decision has the potential to throw the VfM of an agency’s broader portfolio out of balance:

‘Scenario: What’s the Best for the Community?

“The alliance for ‘Route 66’ is well advanced in its planning and has taken the initiative to hold a ‘community legacy workshop’. Exciting initiatives have been identified that are supported by the alliance and that will improve community amenity for many years to come. These initiatives are outside the business case, and will cost approximately $5m. The alliance workshop was facilitated on a ‘best for project’ basis.

“However, when considering whether to fund the initiatives, the owner decided that a greater public good for the State’s community could be achieved if $5m funding was instead applied to one of the high accident road intersections or railway crossings located across the state. That is, the owner’s decision to take a ‘best for state’ approach in relation to the legacy issue took precedence over the alliance’s ‘best for project’ decision-making.”

Tamburro comments:

“The whole thrust of the debate from the Treasury perspective is that we need to make investment decisions based on researched, robust and rational thinking. We’re in the business of rationing resources, so we need to consider all the fundamentals e.g.:

• ‘How can I maximise the benefits of the outputs against the scale of the inputs i.e. the costs?’

• ‘What is the value to me of the outcomes in relation to the costs that I face for the inputs?’

• ‘How can I maximise what I get for the cost?’

• ‘Is there something I value more for the input costs?’

“An issue that is often forgotten in relation to VfM is opportunity cost. VfM assessment is a way of helping us determine where to channel our resources.

“At a Government level, the opportunity cost of any portion of capital must be viewed both across the range of sectors as well as across projects.

“The Government has finite public resources and needs to balance these against community service needs and also against election promises.

“In fact, we’re juggling three balls in any given decision: 

1. How many dollars we have to spend.
   
   
2. Community service needs.
   
   
3. Election promises, and the prioritisation of these.

(This, says Tamburro, is a straightforward although detailed process whereby, literally, in the lead-up to an election, different coloured election promise implementation books are compiled – one for the party currently in power, and one each for the other parties competing for Government. After the election, “we destroy the documents of the losing parties, then we present to the winning party, now the Government, the book relating to their promises. This book now contains, for their consideration, a strategy and a budget for delivering on their many and varied election promises.”)

“Something that the construction industry by and large doesn’t truly appreciate is this: 

“At a whole-of-Government level, where our peak investment decisions concern, for example, health, law and order, education, public and private transport, we have several layers of decision to make. If our current priority were improving public transport, then the next layer of decision becomes which mode of transport best meets community needs e.g. should we spend more money on buses, or rail? That needs to be followed by a geographic decision. Then comes the question of exactly which services to improve.

“The other thing that’s not often appreciated is that investment in a capital project is essentially a last resort. Infrastructure costs a lot of money not only to build but also to maintain, and so investment in capital assets should be made only when it’s essential to improve community services that are high priority.

“Therefore, assumptions should not be made about capital investment; some of the services that Governments talk about might not require lots of capital or infrastructure works. For example, it might be a priority to improve health outcomes for seniors. But it might be that the best away to do that is not to build something, but to employ more nurses to improve home visits.

It’s About ‘Outcomes’

“Or we might find that the best way to improve educational outcomes is to invest in more teachers in primary schools, versus building more classrooms onto schools. An assessment of the school sector, for example, might have shown up that more effective communications aids, rather than smaller classrooms, is the best way to improve educational outcomes.

“If you look at improving health care outcomes, you might investigate improving IT systems, or providing better management and utilisation of existing capital resources, rather than investing in new capital resources. While the cheapest thing about the health industry is the buildings, if you opt for that route you are also then faced with the associated cost of the doctors, nurses and the medical equipment – ongoingly. You also have to maintain the building itself.

“We use the term, ‘enabling assets’ in Victorian Government,” says Tamburro. “It essentially means that we don’t build a bridge because it’s an object of beauty, we build it to serve a community need. The message there is that it’s not just about building things, the message is that you can improve community services in ways that don’t necessarily mean you have to build something.”

He explained that many Governments around the world own an asset base that they struggle to maintain and service. After the UK’s Thatcher years, he says, the British school system was reportedly in an advanced state of disrepair due to lack of maintenance funding.

“Maintaining capital assets comes at a huge cost, and can become a huge burden on the public purse.

“Treasuries need to be careful about the long-term implications of our investment decisions. And for the contractors and designers that participate in alliances or other joint delivery forms with agencies, there needs to be an understanding that investments in capital assets is not a win/win. In fact, investment in capital assets needs to be thought out very, very carefully in the context of the associated long-term budgetary demands.”

Tamburro says that, as a rule of thumb, only one in 12 business cases submitted to Treasury for funding is approved.

Once the funding is approved, the decision has thus been made with regard to which sector – e.g. law and order, health, education – the public funds will be invested into.

The next level is the sector-specific world of the infrastructure delivery agency.

“What the agencies do is to say, ‘We understand what the Government is interested in, we understand their election promises, and we’re interested in addressing our sector’s involvement in that agenda.’

“So, for example, the Government wants to reduce travel time between points A and B. The agency’s business case will detail the community services they intend to target and draw a link to the relevant election promises associated with these objectives. Election promises are taken seriously today, and all political parties produce a very clear agenda of undertakings for the forthcoming term in office.

“So the business case is all about the best way of providing these upgraded community services. Let’s assume I’m a road authority. The best way might be to turn a particular four-lane highway into a six-lane highway, or it might be to build a new road, or it could be to put part of the existing road underground. The critical role of the business case in this scenario is to identify the best way of making this travel time saving between A and B. (Incidentally, an agency will table multiple proposals outlining the different ways things can be achieved and the different levels of solution for the different levels of budget).

“The next thing the agency will articulate in the business case is the cost.

“So the agency has now said, ‘If you give us this much money we can achieve these travel time savings between points A and B.’ At this point, Treasury will be considering the proposal or proposals from that road agency, against other proposals for other projects from the same agency.

“The Victorian Government outlays in the order of $40 billion a year across all sectors; that’s our total State budget for all Government activities. So we get a lot of funding proposals.

“Let’s say that Government approves this business case i.e. $100m of funding to reduce travel time between points A and B.

“So the agency has a $100 million project. This kicks off the detailed planning and construction phase and, with that, a whole new level of VfM. This is the nuts and bolts level where engineers get to employ their smarts and creativity.

“The problem is, that many Non-Owner Participants don’t see anything else but that level. That’s all they comprehend, in terms of the whole value for money picture.”

More on Prioritising & Apportioning the Taxpayer Dollar

Also interviewed for this book was Richard Mann, Executive Director of Strategic Projects for Western Australia’s Department of Treasury & Finance, who gave his own take on the investor-level perspective.

“VfM, in its broader sense, is achieving the best possible balance in ‘triple bottom line’ outcomes for the particular project/program/operation in question.

“That blend of what’s more important in the triple bottom line will obviously vary from project to project. From the Government perspective, the blend is decided at the time the Government takes the investment decision, and is an integral part of it.

“Government effectively decides that, for a specified funding allocation, it is going to receive a series of defined outcomes and benefits.

“If we are following good asset management practice, these should be articulated in a business case, which culminates in a recommendation of the best investment option for Government. What we want to see is the basis for that investment decision translated into project procurement.

"This is where we have traditionally not performed as well as we might: If we don’t communicate to the private sector the basis behind Government decision-making and the outcomes that we’re seeking to achieve through the project, then we run the risk of inconsistency in the understanding between the parties with regard to what VfM represents.

“Let’s illustrate that:

“Assume we have a significant building project: a hospital.

“In justifying the need for investment in a new hospital, Government will typically identify the scope of clinical and non-clinical services it needs to provide – the volume of those services and the quality standards to which they must be delivered.

“Obviously, associated with that will be an estimated cost.

“Then there’s a whole range of related benefits and objectives out of the project: sustainability requirements, environmental targets, other social benefits. These will vary from project to project but will combine to provide a set of outcomes that are to be achieved within the allocated funding.

“Then we move through to delivery. We might, for example, through the procurement process, deliver a significantly higher level of service within the original budget. But that does not necessarily represent value for money, because we might not need that higher level of service.

“Or say, for example, that we’re building a secondary hospital and, while we require a designated level of clinical capability, we end up providing a higher level. That is not necessarily a better solution than the required original level of capability at a lower cost.

“It works in reverse as well. Reducing scope to save dollars does not necessarily represent VfM, if that results in a lower level of service than was assumed when Government decided to fund the project.

“In summary, what I’m saying is that right through the planning and delivery of any project, we need to continually keep revisiting the original basis for doing it.”

What does that continual re-visitation look like in practice?

“It applies not only to the NOPs but also to the Owner Participants, who also often lose sight of the whole-of-Government business perspective, and instead of looking outwards from the project, they look within and they only think about the internal project environment. So they lose the focus on that over-arching triple bottom line VfM justification that the business case is based on in the first place.

“There are responsibilities in both camps for continual review. To enable that review, the agency must make sure they have a robust business case upfront. Then those business case objectives need to be clearly communicated to whoever is responsible for project delivery.”

VfM . . . An Agency Perspective

Graeme Newton, Queensland’s Co-ordinator General, says that to effectively translate whole-of-government objectives at project level “takes the right people on the team; people who can see and interpret the big picture goals and then translate them into actual project specifications.”

However, in his interview for ‘Cracking the VfM Code’, he stresses that he speaks more from the perspective of an owner participant in project alliances than from the perspective of his Co-ordinator General role.

“Two members could be sitting side by side, with the same backgrounds, the same qualifications and even the same experience, and yet one might have that very special talent and ability, while the other is stuck at the purely technical level and doesn’t have the ability to think at that elevated, helicopter-view level at all.

“Having alliance experience is helpful, but possessing a commercial mindedness rather than being purely a technician is integral to milking out the full VfM potential of a project.

“The real skill set or talent of value on an alliancing team is the member who sees past the technical issues and understands, for example, which aspect of a project needs the gold plating, and which aspect requires a more moderate approach based on issues that, from the client’s perspective, go far beyond the actual specifications and immediate delivery-related conversations.

“It’s about being able to see past what’s presented in the scope; understanding the nuances and the intent of the specification rather than just what’s specified; identifying what the agency is really endeavouring to achieve through its specifications. Collaborative contracting allows you great flexibility, so you want to extract the full value out of that flexibility by having people who can see the wood for the trees.”

Common Understanding Central to VfM

In his interview for ‘Cracking the VfM Code’, John King, Queensland Rail’s General Manager – Capital Delivery Program, said a common understanding between the parties is a fundamental plank of actually achieving value for money.

“An area not done well in alliances to date is to ensure a common, working understanding of VfM.

“From the client’s perspective, he determines the outcome he wants to achieve in a project as part of his business case . . . basically, his reason for doing it. That should then form a framework of what value he wants to receive out of the project.

“But as clients, we’re not used to articulating that to the contractors. We’re just used to translating it into technical specifications. So they know we want to build a railway from A to B, but we don’t tell them why we want to build it.

“There will be a number of reasons why we want to build that piece of infrastructure – and the value we want out of it is directly related to those reasons. Therefore, if we don’t clearly articulate that reasoning, contractors will tend to see value for money as ‘how can we provide extra stuff’. Because that’s their world.

“In my experience, I see contractors saying, ‘The community needs a bike path. We’ve got some builders here, so let’s build one.’ But it’s spending Government’s money and Government’s got a framework from which to decide whether that represents value for us or not.

“So the client should be spelling out what the business objectives of the project are, and the value is then dictated by how well – i.e. how cost effectively – the alliance achieves those objectives.

“And if they can achieve the objectives at a lower cost, that’s adding value. But it’s not necessarily adding value to simply go and add scope that may or may not be enhancing the Government’s core objectives for that project.”

Community Value vs Team Value:  Potential Divergences

Gary Liddle, Chief Executive of the Victorian state road authority, VicRoads, also has concerns over potential divergence between what the alliance team considers value and what represents true value to the community.

“These aren’t necessarily the bigger items or considerations that Treasury involves itself in. Some examples of this sort of debatable item would be ‘skills transfer’ and ‘independent branding’ of an alliance team.

“The project team might see the potential for increased knowledge or skills transfer (up-skilling of agency personnel by NOP experts). But the team might rate this far more highly than the community would. In fact, I think there has often been too much emphasis placed on this supposed alliance benefit.

“The value might be there philosophically, but it’s very hard to demonstrate it in a tangible way. It’s very hard for an agency to prove that this increased knowledge is of direct benefit to the community it’s doing the project for.”

Liddle also says he doesn’t accept the importance of independent branding of the alliance team.

“It’s certainly hard to demonstrate the VfM of that to the community. Logos and new clothing all cost money and, from an agency’s perspective, that money could have represented a reduction in the price of the project.

“There needs to be other intrinsic value that project members can see themselves getting out of the project; like knowing they’ve been part of an organisation (be it Thiess, Abigroup or VicRoads, or whoever) that has contributed to and had a connection with an important public infrastructure project. That’s a mindset that can be achieved without going to the expense of creating a new visual identity and all the furniture that goes with it.”

Liddle clearly sees a further dimension to VfM: the “value of demonstrating value” for the project’s community.

“Too often the focus is on the project team’s insular thoughts about VfM.

“Let’s take one of our own alliances as an example. On the Springvale Road Rail Separation Alliance, the project team supported the local community to do an art display. While the immediate-vicinity community was delighted because it received tangible benefits, those benefits didn’t necessarily translate into anything for the broader community. From its perspective, that was simply money that could have been spent on providing another set of pedestrian signals.

“So it’s weighing up the cost of providing those broader legacy items on a specific project versus what other things that money could have been invested in. I think that maybe there should be a limit on the funds put into that sort of ancillary item.”

VfM & the NOP

As a bid strategist, I have seen alliancing bid teams really struggle with the concept of VfM.

Reading all the preceding, the bidding NOPs might well ask why Request For Proposal (RFP) documentation has so often asked them to demonstrate the “value for money” they will deliver on the project in question i.e. since they’re not in possession of the business case, and rarely in possession of anything that represents a complete and authoritative VfM Proposition/Statement.

Until they’re privy to the detail of the business case and fully fleshed out, authoritative VfM requirements from the agency, then past whatever their research has revealed and whatever clues they find in the RFP, the best they can do is parrot the agency’s own words or engage in guesswork.

One could argue that they should have had ample discussions with agencies in the lead-up to the project hitting the market – and indeed this is the very minimum business development activity they should have been engaging in. But until an agency’s thinking is clear – and clearly articulated – they are still, to a degree, mind-reading and taking punts at saying the right thing.

A bidding team in this territory resorts to all manner of definitions of value for money. I’ve seen everything from the most imaginative and largely irrelevant bell and whistle thrown in as the bidder’s own “value proposition”, to a basic assumption that “certainty of delivery” somehow constitutes “added value”. Which begs the question, if it didn’t deliver this “added value”, would the project “certainly” be delivered?

The ground for achieving real VfM is created by the NOP understanding the project as well as the client does – and applying its specific strengths to the achievement of actual hard dollar value in aspects where it knows something strategic that the agency does not.

A classic example was an Early Contractor Involvement (ECI) bid I worked on:

This bid was for a major Queensland roading project. The drivers for this project (which included unacceptable accident statistics) rendered its (successful) delivery particularly urgent. The characteristics and unpredictable elements associated with the project, however, were such that speed of delivery would, for most contractors, be either difficult to achieve, or difficult to achieve economically.

In putting together a detailed picture of the competitive landscape for the bid, we drilled deep into the advantages of the specific characteristics, and operating and commercial policies surrounding my client organisation’s plant and equipment. We identified the critical enabling factors provided by these aspects of the equipment, aligning each with the specific challenges of the project, which we invested the time, resources and effort to quantify and qualify in considerable detail. (In this light, it could be seen that these elements would be the lynchpin factor in its success or failure.)

In conducting this research for the bid strategy, we pulled in more “on the ground”, delivery-associated personnel than would typically be involved in a bid. This also enabled us to anticipate the essence of each competitor’s likely response, and in many instances also the detail each competitor would likely put forward in its bid. This, in turn, gave us the further opportunity to provide an informed and insightful range of alternative scenario-based calculations, for the benefit of the client.

If our research, (tested) assumptions and calculations were indeed correct, our efforts thus far knocked out all but one other competitor. We continued on, identifying and quantifying risks and benefits at a yet more detailed, albeit cumulative, level. 

Again, taking the project owner’s perspective, we then performed and documented our actual calculations with regard to each competitive advantage our solution offered, and highlighted each risk arguably associated with the type of alternative that would be offered by the competition (we did this in a manner that did not refer to the competition or any elements of its solution specifically).

We took every opportunity to provide the client with insights directly relevant to the on-the-ground delivery of such a project, which they might well not have previously possessed. This made crystal clear the connection between our solution and the client’s specific project challenges, and provided an accompanying level of clarity around our solution’s time, budgetary and other distinct advantages when stacked up against the competition.

Having undertaken and provided, in detail, these deep insights “from the coalface”, detailed background explanations, multiple scenario-based calculations, and very specific, comparative risk and benefit analyses, the project owner was immediately able to see from the macro perspective, and from the numerous micro perspectives, the many ways in which my client organisation’s solution offered very real value for money.

The moral of the story is: 

The bidding NOP applied its researched understanding of the agency’s needs and challenges to identify the path of greatest client value at a technical level. It then lined up its own corresponding competitive advantages and explained these (complete with detailed calculations) to the project owner in the bid.

So, supplementing an agency’s business case and VfM proposition with its own research – both at the project and the “bigger picture” level – can help a switched-on contractor/design team or other form of NOP be incredibly effective in achieving value for money for a project owner.

Once on the project, though, the Treasury departments have a strong message for NOPs: As the project investor, Government retains full right of sanction throughout.

Says Victorian Treasury’s Nick Tamburro:

“If you’re part of an already in-action alliance, and you have a great ‘VfM’ idea (e.g. something of substantial social, economic or environmental value), first analyse its costs, risks and benefits. Then you must – before implementation – seek approval from the owner, who must in turn seek approval for it from the Government.”

The message is clear to all:   Seek to understand, and then never lose sight of, the big picture. And always remember whose money it is.