MAJOR PROJECTS GUIDANCE FOR LOCAL GOVERNMENT JUNE 2014

Transcription

1 MAJOR PROJECTS GUIDANCE FOR LOCAL GOVERNMENT JUNE 2014

2 Maddocks and Ernst & Young (June 2014). This Major Projects Guidance is distributed under licence by Local Government Managers Australia. This document may be downloaded, printed and reproduced in whole in an unaltered form provided this copyright notice is retained. Other than those rights under the Copyright Act 1968 (Cth) all other rights are reserved. The copyright in this Major Projects Guidance is jointly owned by Maddocks and Ernst & Young. Copyright enquiries should be directed to Maddocks. Maddocks Major Projects contacts Greg Campbell Tel: greg.campbell@maddocks.com.au Andrew Chapman Tel: andrew.chapman@maddocks.com.au Tara Chandler-Scott Tel: tara.chandler-scott@maddocks.com.au Patrick Ibbotson Tel: patrick.ibbotson@maddocks.com.au EY Infrastructure Advisory contacts Darrin Grimsey Tel: darrin.grimsey@au.ey.com Ben Carlton Jones Tel: ben.carlton.jones@au.ey.com Chelsea Albert Tel: chelsea.albert@au.ey.com Disclaimer This Major Projects Guidance provides general information which is current as at the time of production. The information contained in this communication does not constitute legal or other advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information and any action taken or decision made by any party based on this Major Projects Guidance is not within the duty of care of Maddocks or Ernst & Young. Maddocks and Ernst & Young disclaim all responsibility and liability (including, without limitation, for any direct or indirect or consequential costs, loss or damage or loss of profits) arising from anything done or omitted to be done by any party in reliance, whether wholly or partially, on any of the information contained in this Major Projects Guidance. Any party that relies on the information contained in this Major Projects Guidance does so at its own risk. Access to this publication is not intended to create nor does it create a solicitor-client relationship between the reader and Maddocks. Ernst & Young has not prepared or reviewed any of the legal content in this Guidance. Ernst & Young's liability is limited by a scheme approved under Professional Standards Legislation. Cover images: Courtesy of Thinkstock and GHD Maddocks and Ernst & Young

3 MAJOR PROJECTS GUIDANCE FOR LOCAL GOVERNMENT June 2014 Maddocks Level William Street Melbourne Victoria EY Level 23 8 Exhibition Street Melbourne Victoria Maddocks and Ernst & Young

4 Major Projects Guidance for Local Government Contents of the Major Projects Guidance Overview Part A Part B Strategic assessment Business case Part B1 Business case development Part B2 Procurement options Part B3 Funding and financing options Part C Part D Part E Part F Annexure 1 Annexure 2 Annexure 3 Annexure 4 Annexure 5 Project development Tender process Contract management Project review Reports to the Council Sources of power for local government Risk checklist Gateway review process Case Studies Case Study 1 Mornington Peninsula Shire Council, Safer Local Roads Project Case Study 2 Brisbane City Council, The Go Between Bridge Case Study 3 Community Chef Kitchen Project Case Study 4 St George Regional Waste Project Bibliography Maddocks and Ernst & Young

5 Major Projects Guidance for Local Government Foreword In the 30 years I have been involved in local government, the sector has consistently called for more support and cried out for better practices in relation to infrastructure development and delivery. Councils are increasingly asked to do more with less, and major projects present a particular challenge in this context. It is easy to understand why procuring a major infrastructure project can be a complex process requiring significant experience and expertise, and for many Councils this can be a daunting challenge. A range of guidance material has been published on asset management, financial planning and general procurement. Some of this material is specific to local government and some is framed more broadly. However, no comprehensive guidance exists specifically for local government procurement of major infrastructure projects. The Major Projects Guidance fills that gap. The Major Projects Guidance steps local government procurement professionals through each stage of a project in an accessible and practical manner. At each stage it addresses issues in the context of local government procurement processes, such as: managing timelines with reference to Council approval processes; resourcing across departments; managing delegations; best use of external advisors to ensure value for money on transaction costs; managing stakeholder relations; and probity requirements. The Major Projects Guidance presents an opportunity for Councils to take a fresh approach to the task of delivering major infrastructure assets and related services to their communities. It invites Councils to consider a broad range of procurement models, and financing and funding options. Some case studies are included to illustrate where an innovative approach has been undertaken successfully. Importantly, the Major Projects Guidance also presents a structured approach which ensures Council budgets are expended incrementally so as to avoid wasting public funds on unsupportable or illconceived projects. Maddocks and EY have drawn together a team of specialist lawyers and commercial advisors with expertise in local government and infrastructure development to produce this Major Projects Guidance for Local Government. These firms have emerged as thought leaders in this space with a strong track record in capacity building projects for local government. The Major Projects Guidance will be available to download free of charge on the LGMA website and a series of seminars supported by the LGMA will be launched to support the publication. The LGMA proudly supports this initiative and acknowledges the contribution of Maddocks and EY to the sector. John Ravlic Chief Executive LGMA National Maddocks and Ernst & Young

6 Major Projects Guidance for Local Government Acknowledgements A broad consultation program has been undertaken with relevant Federal and State based organisations and government bodies. The purpose of this program was to liaise with relevant stakeholder groups to determine the key issues facing local government infrastructure procurement, and to familiarise ourselves with the policies and programs in place across Australia to ensure that the Major Projects Guidance would be consistent with those policies and procedures. Through the consultation program, our team gained an understanding of existing policies and programs for local government, and how local government could be best assisted to procure major infrastructure projects. We have consulted with the following organisations, or provided copies of relevant sections of the Major Projects Guidance for the purpose of feedback and review, and thank them for their time and contributions: Federal Department of Infrastructure, Transport, Regional Development and Local Government, and subsequently the Federal Department of Regional Australia, Local Government, Arts and Sport relevant State Government departments including state treasury departments, departments of infrastructure and local government departments Infrastructure Australia (IA) Infrastructure New South Wales (INSW) Institute of Public Works Engineers Australia (IPWEA) Local Government and Shires Association of NSW (now Local Government NSW) Local Government Procurement NSW Local Government Infrastructure Services, Queensland (LGIS) Municipal Association of Victoria (MAV) Mornington Peninsula Shire Council, Victoria Maurice Stabb, Wyndham City Council, Victoria Brisbane City Council, Queensland RFK Pty Ltd trading as Community Chef Hurstville City Council Kogarah City Council Rockdale City Council. Special thanks to Infrastructure Partnerships Australia (IPA) and Local Government Managers Australia (LGMA) for supporting this project. IPA representatives formed part of the steering group that progressively reviewed the drafts of this document and provided other valuable assistance along the way. LGMA has been active in supporting and promoting the publication of this material and associated educational programs. Maddocks and Ernst & Young

7 Overview Part A: Strategic assessment Part B1: Business case developing the business case Part B2: Business case procurement options Part B3: Business case funding and financing options Part C: Project development Part D: Tender process Part E: Contract management Part F: Project review Annexure 1: Reports to the Council Annexure 2: Sources of power for local government Annexure 3: Risk checklist Annexure 4: Gateway review process Annexure 5: Case studies Bibliography Maddocks and Ernst & Young

8 Contents 1. INTRODUCTION APPLICATION STRUCTURE OF THE GUIDANCE TIMELINES FRAMEWORKS Part A Strategic assessment Part B Business case Part C Project development Part D Tender process Part E Contract management Part F Project review...16 GLOSSARY...18 TABLES Table 1: Case studies... 4 Table 2: Project planning timeline... 4 FIGURES Figure 1: Structure of the Major Projects Guidance... 3 Figure 2: Overview of Part A Strategic assessment... 6 Figure 3: Structure of Part B... 7 Figure 4: Overview of Part B Business case... 9 Figure 5: Overview of Part C Project development...11 Figure 6: Overview of Part D Tender process...13 Figure 7: Possible components of the contract management stage...14 Figure 8: Overview of Part E Contract management...15 Figure 9: Overview of Part F Project review...17 Maddocks and Ernst & Young

9 1. Introduction The successful delivery of major infrastructure projects is a challenging task for all levels of government, and local government is no exception. Budgetary pressures and ever increasing community expectations mean that projects need to be planned and delivered more effectively and efficiently than ever before. Councils are looking for value for money in overall project solutions as well as the transaction costs of developing a project. In this context, Maddocks has partnered with Ernst & Young to develop this guidance material (the Major Projects Guidance). The Major Projects Guidance sets out a best practice procurement framework for the delivery of major infrastructure projects by local government. It has been prepared specifically for local government in Australia, and is designed to take into account the unique financial, legislative and political constraints on local government in each State and Territory. This material has been developed following consultation with local government and local government associations, State and Federal Government departments and other organisations. No guidance material can provide 'a one size fits all' approach to the procurement of local government infrastructure. However, the purpose of the Major Projects Guidance is to assist local government to approach the planning and implementation of projects in a structured manner, and ensure that resources are applied efficiently so as to deliver good project outcomes to local communities. 2. Application The Major Projects Guidance has been developed specifically for the delivery of large, complex or innovative procurement of infrastructure and related services by local government. It has the potential to be applied to a wide range of infrastructure maintenance and renewal projects, as well as new infrastructure developments. The Major Projects Guidance applies to: one off major projects bundled projects regional collaboration projects. It is difficult to set a monetary threshold for what constitutes a 'major project' for local government, given the range in size and capability of Councils in Australia. As a general guide, a project with a capital value of $10 million of more may be regarded as a major project. The framework provided in the Major Projects Guidance is intended to be flexible to meet the needs of each Council and to take into account the complexity, scale and cost of a project. Some steps in the framework are critical to every project, and this will be made clear in the relevant sections. However, some of the activities included in each section will only be relevant for very large, complex and high value projects. Again, this is noted throughout the document. It will be important for the Council and the project team to assess whether some of the less critical aspects of the process should be skipped or expedited in light of the particular circumstances of each project. Cost and size are not the only issues to consider when deciding whether to undertake a project using the Major Projects Guidance. There may be instances when a Council plans to deliver a high risk project or use an innovative project delivery model not often utilised by the organisation, such as a land exchange arrangement or a long term design, build and maintain contracting arrangement. In Maddocks and Ernst & Young page 1

10 these circumstances, even where the dollar value of the project is not high, the Council may find it useful to use the framework set out in this Major Projects Guidance to navigate the process, with some aspects of the process expedited in recognition of the lower capital cost. 3. Structure of the Guidance The Major Projects Guidance is divided into six parts which follow the life cycle of a major infrastructure project. Each part includes practical advice on: project management and resourcing governance and probity use of external advisors risk management benchmarking and stakeholder engagement legal requirements. Each part of the Major Projects Guidance represents a distinctive stage in the project life cycle. It is recommended that the Council does not proceed to activities in the next stage of the project until the objectives of the previous stage have been achieved, and the relevant Council approval to proceed to the next stage has been formally obtained. Figure 1 provides an overview of the structure of the Major Projects Guidance and the key considerations for each stage of a project. More detailed frameworks for each of these stages are set out in section 5, Frameworks. Maddocks and Ernst & Young page 2

11 Figure 1: Structure of the Major Projects Guidance Part A: Strategic assessment Identify the business/community need Identify the infrastructure required Assess the investment logic Scope and validate the project Outline governance and probity framework Council approval to proceed and resource Part B: Business case Is there a compelling case for investment? Engage project stakeholders Develop a budget and timeline Consider the funding options and determine the preferred investment strategy Establish the commercial framework Establish the project team Council approval to proceed and resource Part C: Project development Review project resourcing requirements Select and establish site Begin statutory approvals and consents processes Develop risk management and allocation strategies Develop the project documents Council approval to proceed and resource Part D: Tender process Select and define the tender process Evaluate tender Select preferred tenderer/supplier Finalise contract negotiations Contract award Financial close (if relevant) Council approval to proceed and resource Part E: Contract management Develop and implement a contract management system for the construction phase Develop and implement a contract management system for the service delivery/maintenance phase (if relevant) Part F: Project review Evaluate the project outcomes Assess the benefits delivered including value for money Assess the processes of the Council Report to the Council Maddocks and Ernst & Young page 3

12 The Major Projects Guidance includes a number of case studies of innovative procurement of infrastructure by local government. Table 1 provides an overview of the case studies, which are included in Annexure 5, Case studies. Table 1: Case studies Project Council/organisation Delivery model Safer Local Roads Go-Between Bridge Community Chef Kitchen Project St George Regional Waste Mornington Peninsula Shire Council (Victoria) Brisbane City Council (Queensland) A joint venture between 21 Victorian Councils, the Victorian State Government and the Federal Government (Victoria) St George Region of Councils Hurstville City Council, Kogarah Municipal Council and Rockdale City Council (New South Wales) Hybrid of design, build and maintain and design, build, finance and maintain arrangements Alliance Regional collaboration shareholding in central shared service Regional collaboration single bidding process, separate services contracts 4. Timelines The planning and delivery of a major infrastructure project requires a significant investment of time and resources. A realistic timetable for developing a project is critical to managing the expectations of stakeholders. The time invested in upfront planning and project development activities can minimise the risk of costly mistakes and delays. Table 2 provides an indicative timetable for the planning stages of the project up to contract award. However, it is important to note that the particular timeline of a project will differ for a wide variety reasons. Table 2: Project planning timeline Project life cycle stage Section of the Major Projects Guidance Approximate duration Strategic assessment Part A 1-3 months Business case Part B 2-6 months Project development Part C 4-8 months Tender process Part D 3-6 months Maddocks and Ernst & Young page 4

13 5. Frameworks 5.1 Part A Strategic assessment Part A guides the project team through the process of identifying, validating and scoping a project. In the Major Projects Guidance that process is called the 'strategic assessment' stage. A strategic assessment is used to determine whether there is a need for the project and, therefore, if the project should proceed to the next stage. The strategic assessment also allows the project team to outline the objectives and scope of the project. A robust strategic assessment will lay the foundations for the project. From a planning perspective, a clearly established project scope will allow the project team to determine the resources required to support the project at each successive stage of project development. It will also help to support applications for funding by the Council or other levels of government, or applications for external financing (if required). Part A seeks to provide the Council with a structured approach to the strategic assessment of a project, while also offering a level of flexibility to accommodate the differing circumstances and conditions in which projects arise. Prudent allocation of time and resources using this framework can ensure the rationale for investing in the project is established well before more significant investment is made in any detailed business case documentation or procurement analysis. This helps to avoid time and money being spent unnecessarily on projects, which are ill conceived or unlikely to be supported by key project stakeholders. By the end of this stage, the project team should be in a position to make a recommendation to: abandon the project review the project undertake a pilot exercise, or proceed to detailed business case stage. This will be documented in a strategic business case. Where the strategic business case recommends proceeding to the detailed business case stage, the project team should develop a report to the Council seeking approval for the following: development of a detailed business case for the project expenditure of Council funds (within a budget allocation) for the purposes of developing a detailed business case appointment of external advisers and consultants for the detailed business case stage (if required) delegation of authority to members of the project team where necessary for the purposes of developing the full business case. Figure 2 presents an overview of the strategic assessment stage. Maddocks and Ernst & Young page 5

14 Figure 2: Overview of Part A Strategic assessment Section 1 Where to begin? Section 2 Project management and resourcing Section 1 discusses the benefits of a structured approach to the strategic assessment of a project. Section 2 briefly discusses the internal and external resources which may be required for the strategic assessment. Section 3 Identifying the need The first task in the development of a major infrastructure project is to determine the business or community need and the infrastructure and services required to meet that need. This process is described in section 3. Section 4 Validating the project Once the need has been identified, the process of further validating the project can begin. This includes assessing the project rationale or investment logic. The Investment Logic Map (ILM) is a useful tool in this validation process. This is covered in section 4. Section 5 Defining and scoping the project The next step is to define and scope the project. This can be achieved by undertaking a preliminary assessment of the proposed project and developing a strategic business case. Section 5 provides guidance on what to consider at this early stage. Section 6 Project governance In section 6 guidance is provided on establishing good governance processes for a major project and how this differs from the usual governance arrangements for the day to day operations of the Council. The key governance issues to be considered at this stage are outlined. Section 7 Council approval Major projects require the approval of the Council at a number of points during the development of the project. Section 7 sets out the typical approval points in the life cycle of a project and methods for keeping the Council informed of progress. Maddocks and Ernst & Young page 6

15 5.2 Part B Business case Part B guides the project team through the process of developing a full business case for the project. The primary role of the business case is to enable the Council to clearly understand the direct benefits that may be achieved by the project, and how the project can be procured. Part B is divided into three sections as illustrated in Figure 3. Figure 3: Structure of Part B Part B1 Developing the business case If supported Part B2 Procurement options Part B3 Funding and financing options In Part B1, Developing the business case, the project team builds on the strategic business case prepared during the strategic assessment of the project to develop a detailed business case. This involves a more detailed analysis to decide if the Council should invest in the project, and explores the delivery options. This is a staged process. The project team should first undertake the work required to determine if an investment in the project is supportable, before it proceeds with examining the procurement options and the funding/financing options described in the other sections of Part B. Part B2, Procurement options, sets out a range of delivery models relevant to local government. These include: construct only design and construct Engineering, Procurement and Construction (EPC) design, construct and novate development agreement construction management managing contractor alliance Early Contractor Involvement (ECI) Design, Build, Operate and Maintain (DBOM) Design, Build and Maintain (DBM) Design, Build, Finance and Maintain (DBF) Design, Build, Finance and Maintain (DBFM)/ Design, Build, Finance and Operate (DBFO) Maddocks and Ernst & Young page 7

16 Build, Operate and Transfer (BOT)/Build, Own Operate and Transfer (BOOT)/Build, Own and Operate (BOO) long term maintenance and infrastructure service contracts. Part B3, Funding and financing options, looks at a range of funding options available to local government for infrastructure projects, which include: funding from general operations/general revenue funding through special schemes or arrangements (such as special rates and charges schemes, developer contributions, sale of assets, transfer of land and land exchange) Federal and State Government grants. Part B3 also sets out some of the key financing options for local government infrastructure projects. These involve the following: borrowings (debt financing) sourced through State Government treasuries (where available) borrowings (debt financing) from private banking institutions Public Private Partnership (PPP) arrangements long term private sector debt financing. The business case presented to the Council should generally comprise the business case report. The proposed funding strategy and procurement strategy documents should be attached (or incorporated). Once completed, the business case report becomes the core document that establishes the need for the project and for developing the project plan. If the business case supports proceeding with the project, the project team will need to seek Council approval for the next stage. Having completed the tasks set out in Part B, Business case; the project team will be in a position to seek the Council s approval for the: full development of the project proposed funding strategy for the project proposed procurement strategy for the project appointment of external advisers, where required, for the project development stage expenditure of Council funds, within a budget allocation, for the purposes of project development delegation of authority to members of the project team for the project development stage. Figure 4 presents an overview of Part B1, Developing the business case. Maddocks and Ernst & Young page 8

17 Figure 4: Overview of Part B1 Developing the business case Section 1 What is a business case and why is it important? Section 2 Project management and resourcing Section 3 Identifying the need Section 1 outlines the benefits of developing the business case. Section 2 outlines the project management considerations for developing the business case. Section 3 presents an indicative document structure and key stages of the business case report. Section 4 Confirming the need Section 5 Goals, objectives and benefits Section 6 Council, State/Territory and Federal plans and policies Section 7 Stakeholder analysis The initial tasks in developing a business case involve confirming the project s service need, objectives and stakeholder issues. Sections 4, 5, 6 and 7 consider the process for validating these matters. Section 8 Summary of project options Section 9 Options analysis The next step is to undertake the options analysis. Section 8 presents a framework for identifying project options with a view to developing a shortlist of options. Section 9 provides guidance on the detailed analysis of the shortlisted options, including an evaluation of the financial and non-financial impacts of a project in order to select a preferred option. Section 10 Risk analysis A key component of the business case is the identification and quantification of project risks. A framework for approaching this task is set out in section 10. Section 11 Procurement strategy Section 12 Funding strategy and budget analysis Section 13 Forward planning Key considerations in analysing project delivery models and selecting a preferred procurement strategy are set out in section 11, including the value for money assessment. Section 12 discusses the funding options and the identification of a preferred funding strategy. Budgetary impacts are also discussed. Section 13 discusses the forward planning which should form part of the business case. Maddocks and Ernst & Young page 9

18 5.3 Part C Project development Part C covers the development of the project from the time the Council approves the business case to the point where the Council is ready to embark on the tender process. The project development stage sees the forward procurement path for the project mapped out. This may comprise project establishment activities such as: project planning and due diligence developing the commercial framework developing the legal and technical documents. By the end of the process described in Part C, the Council should be in a position to: finalise the legal, technical and financial project documents for the project request Council approval to proceed to the tender stage of the project request approval for expenditure of funds, within a budget allocation, for the tendering process and the appointment of advisers and consultants, if required. Each Council will have its own approval procedures, and the project development processes for some projects funded by other levels of government will be affected by relevant State, Territory or Federal policies and procedures and the requirements of the funding agreement. Part C provides a flexible framework for project development which accommodates the specific requirements of the Council or other levels of government. If done well, this stage can put the Council in a strong position when approaching the market to tender the project. Figure 5 presents an overview of the project development stage. Maddocks and Ernst & Young page 10

19 Figure 5: Overview of Part C Project development Section 1 Project development Section 2 Project management and resourcing Section 1 introduces the project development stage and section 2 sets out some of the key project management considerations for this stage. Section 3 Due diligence Section 4 Securing property and access rights Section 5 Statutory approvals It is critical for the project team to investigate existing conditions and contractual arrangements affecting the proposed site. This due diligence process is explored in section 3. Section 4 goes on to discuss how to secure appropriate property and contractual rights in respect of the site. Section 5 examines the statutory compliance considerations at this stage of the project. Section 6 Commercial framework After the due diligence process has been undertaken the commercial framework outlined in the business case needs to be fully developed. Section 6 provides guidance on this process. Section 7 Project agreements Section 8 Specifying technical requirements The final step in the project development process is to develop the project documents, including the commercial contracts and technical specification. Sections 7 and 8 discuss the key considerations. Section 9 Financing and funding documents A brief discussion of the impact of Federal/State/Territory government funding or project financing arrangements is set out in section 9. Maddocks and Ernst & Young page 11

20 5.4 Part D Tender process It is through the tender process that the Council selects its preferred contractor for the delivery of the project, and awards the contract or contracts for related works and/or services. An effective and transparent tender process that achieves value for money is in the interest of all stakeholders to a project the Council, the community and the bidding parties. The Council's tender process must comply with the tendering framework for local government in the relevant jurisdiction. This framework imposes a number of controls within which the Council's own process should be undertaken in addition to legislative requirements and best practice guidance. These 'controls' are designed to ensure that the process is carried out in accordance with probity principles, and in a competitive environment conducive to the Council achieving best value in the award of public contracts for major project works and/or services. Part D focuses on structuring an effective tender process for major infrastructure projects by looking at each of the stages involved. The aim of the tender process outlined in Part D is to achieve an approach that is: structured to facilitate competitive tendering transparent in order to withstand public and private scrutiny clearly defined with specified timeframes structured to achieve certainty and value for money while effectively managing process risks compliant with statutory requirements in accordance with good probity principles. Figure 6 presents an overview of the tender process. Maddocks and Ernst & Young page 12

21 Figure 6: Overview of Part D Tender process Section 1 and 2 The tendering process The first step in the tendering process is to understand the powers of the Council to enter into contracts for works and services for the purpose of delivering major projects, the value for money and probity principles, and the risks associated with the manner in which the Council conducts its tendering process. Section 3 Expression of Interest stage For major projects, the Council is recommended to use a two stage tender process. The first stage involves the Council issuing an invitation for an EOI for the purposes of the Council assessing the capability of respondents to carry out the works and/or services under the major project contract. This is discussed in section 3, which also includes guidance on the evaluation process including the development of evaluation plans, determining the criterion and the application of the criterion. Section 4 Request for Tender stage The second stage of the tender process is the RFT stage. Section 4 provides guidance on the development of comprehensive tender documentation, communicating effectively and objectively with tenderers with regard to briefings and clarifying tender issues during the process. Section 5 Evaluation of the tender submissions Effective evaluation of the tender submissions is critical to the Council selecting the best tender for the delivery of the major project. As with the EOI phase, the Council should develop specific criteria for the evaluation team to use for assessment purposes. This is discussed in section 5. Section 6 Negotiation Section 7 Selection of preferred tenderer Section 6 guides the project team through the negotiation process and section 7 briefly covers the selection of the preferred tenderer. Section 8 Briefing unsuccessful tenderers Section 9 Clear audit trail Section 10 Completion The evaluation plan and communication protocol established in accordance with section 4 provides for the debriefing of unsuccessful tenderers and section 8 provides more detailed guidance in relation to this step of the process. Section 9 explores why the Council should ensure the tender process is transparent and how to maintain a clear audit trail. Financial close and contractual close represent the sealing of the deal whereby the contracts become binding and, where relevant, finance becomes available. This is discussed in section 10. Maddocks and Ernst & Young page 13

22 5.5 Part E Contract management Following the execution of the project agreements, the project moves to the full implementation or project delivery stage. In this Major Projects Guidance, the contract management stage refers generally to the period immediately after contract award through to expiration or termination of the central project delivery agreements. This may include one or more of the phases depicted in Figure 7. Figure 7: Possible components of the contract management stage Contract management Award of contract Project development phase Construction phase Operations phase Expiry or termination of key project delivery agreements Just what comprises the contract management stage of a project depends largely on the nature of the project and the procurement model selected. Although a number of the procurement options do not include an operations or maintenance phase as such, the project itself may include a service delivery or operational component which will be delivered by the Council or a separate specialist contractor. For some major projects, this phase may be best facilitated by a dedicated project team, rather than being absorbed into the wider operations and maintenance programs of the Council. (This will have been identified in the project development stage of the project.) In such cases, the guidance in Part E will apply equally to those operational activities. The framework suggested aims to enhance the Council's ability to achieve the most effective and efficient delivery of the project, and to maintain a productive relationship with key contractors. The key objectives for the project team during the contract management stage are to: develop and implement a contract administration manual for the construction and operational phases develop and implement a commercial calendar for the construction and operational phases seek the approval of the Council to carry out a project review and for expenditure of Council funds (within a budget allocation) for such purposes obtain the approval of the Council for the appointment of external advisers or consultants for the project review stage (if required). Figure 8 presents an overview of the contract management stage. Maddocks and Ernst & Young page 14

23 Figure 8: Overview of Part E Contract management Section 1 Effective contract management The components of the contract management stage and the benefits of effective contract management are discussed in section 1. Section 2 Project management and resourcing The project management and resourcing considerations for this stage are presented in section 2, including considerations for transitioning the procurement team to the contract management team and transitioning the construction phase contract management team to the team for the operational phase. Section 3 Risk Section 3 highlights the key contract risks and discusses how the risk profile of the project may change over the life of the project. Section 4 Contract management tools Section 4 provides guidance on establishing a contract management system and presents contract management tools which may assist the project team in this stage the contract administration manual and the commercial calendar. Section 5 Forward planning The Council may wish to conduct a formal project review. The timing and initial planning considerations for such a review are set out in section 5. Maddocks and Ernst & Young page 15

24 5.6 Part F Project review Part F provides an overview of the process for undertaking a project review at the post-implementation phase of the project life cycle. The key objective of a project review is to capture the experiences gained in order to improve the delivery of projects in the future. This involves highlighting the positive outcomes of the project as well as the areas that could be improved. The scope and nature of the review will depend on the type, scale and complexity of the project. However, each review will have certain elements in common. Part F focuses on the principles and practices involved in developing a feedback mechanism for measuring the outcomes of a project. The project review process will enable the Council to: collect and utilise knowledge learned through a completed project to improve the delivery and outputs of future projects maintain a consistent project evaluation process for infrastructure projects. The process outlined in Part F is aimed at assisting the Council to produce a consistent quality of project evaluation across projects. The process is flexible and should complement other Council processes and tools. Figure 9 presents an overview of the project review process. Maddocks and Ernst & Young page 16

25 Figure 9: Overview of Part F Project review Section 1 Project review Section 1 considers the purpose and potential benefits of undertaking a project review. Section 2 Timing for a project review Section 2 outlines the suggested timing for undertaking a project review. Section 3 Who conducts a project review? Section 3 explains who should undertake a project review. Section 4 Project review process Section 4 outlines the process for undertaking a project review. Section 5 Reporting Section 5 outlines the key elements to be included in the project review report. Maddocks and Ernst & Young page 17

26 Glossary Term ACCC Definition The Australian Competition and Consumer Commission. BAFO Best and final offer. Base capital cost estimate An estimate that includes the components described in Part B1, section 12.3, Delivering a project budget but excluding any contingencies or cost escalation. Benefit Management Plan (BMP) A plan specifying how the delivery of the expected benefits will be measured and who will be responsible for measuring and realising each benefit as described in Part A, section 4.5, Investment Concept Brief and Benefit Management Plan. Build, Operate and Transfer (BOT) A delivery model as outlined in Part B2 section 14.1, BOT and BOOT. Build, Own and Operate (BOO) A delivery model as outlined in Part B2, section 14.2, BOO. Build, Own, Operate and Transfer (BOOT) A delivery model as outlined in Part B2, section 14.1, BOT and BOOT. CEO The chief executive officer of a Council. Commercial calendar A tool setting out the critical dates for implementing the procedures in the contract administration manual. Competitive alliance A delivery model as outlined in section Part B2, section 8.4, Competitive alliance. Contract administration manual A tool developed specifically for the project setting out the contract administration procedures for the construction and/or operational phase of the project. Construct only A delivery model as outlined in Part B2, section 2, Construct only. Construction management A delivery model as outlined in Part B2, section 6, Construction management. Cost comparator models A quantitative tool that can assist the Council in weighing up whether a project represents value for money as outlined in Part B1 section 11.6, Value for money and cost comparator models. Maddocks and Ernst & Young page 18

27 Term Council Definition A local government authority constituted under the relevant State or Territory Local Government Act or constitution. Council strategic plan A plan identifying the broad objectives and priorities of the Council for the medium to long term,, as described in Part A, section 3.3, Local priorities Council planning documents. Delivery model A contractual structure for the procurement of a project. Delivery models options analysis A method of analysis that evaluates potential delivery models against project objectives, criteria and any rankings associated with the criteria to identify the preferred delivery model as described in Part B1 section 11.4, The framework. Design and Construct (D&C) A delivery model as outlined in Part B2, section 3, Design and Construct used interchangeably with the term design and build. Design, Build and Finance (DBF) A delivery model as outlined in Part B2, section 12, Design, Build and Finance. Design, Build and Maintain (DBM) A delivery model outlined in Part B2, section 11, Design, Build and Maintain (DBM). Design, Build and Maintain (DBOM) A delivery model as outlined in Part B2, section 10, Design, Build and Maintain (DBOM). Design, Build, Finance and Maintain (DBFM) A delivery model as outlined in Part B2 section 13, Design, Build, Finance and Maintain (DBFM). Design, Build, Finance and Operate (DBFO) A delivery model outlined in Part B2, section 13, Design, Build, Finance and Operate (DBFO). Design, construct and novate A delivery model as outlined in Part B2, section 4, Design, construct and novate. Detailed business case A detailed business case exploring the potential for the project proceed, typically a further development of the outlined business case, as outlined in Part B1, section 3, Structure of a business case. Development agreement A delivery model as outlined in Part B2, section 5, Development agreement. Early Contractor involvement (ECI) A delivery model as outlined in Part B2, section 9, Early Contractor Involvement (ECI). Early Tender Involvement (ETI) A variation to the ECI delivery model as described in Part B2, section 9.1, Description. Maddocks and Ernst & Young page 19

28 Term Economic infrastructure Definition Infrastructure that supports economic activity that is often characterised by user-pays or demand-based revenue streams such as tolls on toll roads or landing fees for an airport. It is usually where there is the capacity for the project company to derive a revenue stream from end users and third parties rather than from government. Engineer, Procure and Commission (EPC) A delivery model as outlined in Part B2, section 3.4, Engineer, Procure and Commission (EPC). EOI An expression of interest. Financial impacts The impacts described in Part B1, section 9.3, Financial evaluation of options. Full business case A term with the same meaning as a detailed business case. General Manager (GM) The general manager of a Council. Governance plan A description of the proposed governance regime for the project as it progresses through the stages of the project life cycle. Gross Domestic Product (GDP) The total market value of all goods and services produced within Australia in a given period of time. Gross Regional Product (GRP) The total market value of all goods and services produced within a particular region in a given period of time. Gross State Product (GSP) The total market value of all goods and services produced within a particular Australian State in a given period of time. Investment Concept Brief (ICB) A two page document that depicts the logic underpinning an investment and identifies the likely costs, risks, dependencies and deliverables of the proposed solution. Investment logic map (ILM) A 'story board' showing the assessment undertaken by the project team for the purposes of determining whether there is a need for the project. Invitation for EOI An invitation for an expression of interest. Key Performance Indicator (KPI) Quantifiable measurements that reflect the critical success factors of a project or a particular aspect of the project. Major Projects Guidance All of the documents comprising this Major Projects Guidance for Local Government. Maddocks and Ernst & Young page 20

29 Term Managing contractor Definition A delivery model as described in Part B2, section 7, Managing contractor. Multi-Criteria Analysis (MCA) A form of qualitative analysis for comparing unvalued costs and benefits. Net Present Value (NPV) The present value of an investment's future net cash flows minus the initial investment. Non-financial impacts The economic, social or environmental impacts described in Part B1, section 9.4, Socio-economic analysis. Output specification A document prepared by (or on behalf of) the Council that sets out the outputs and performance requirements for the constructed asset. Where post construction services are relevant to the procurement, the required output and performance requirements for the operation and/or maintenance of the asset will also be included. Also referred to as a 'performance specification'. Procurement options analysis A process for evaluating different procurement options. Procurement options Alternatives for the procurement of projects set out in Part B2, Procurement options. Also referred to as delivery models. Procurement strategy report A summary of the key findings of the procurement strategy, the procurement options considered and the preferred delivery model. It typically incorporates the elements described in Part B1, Table 9 in section 11.2, What is a procurement strategy? Project plan An implementation plan for the project which is typically developed in more detail as the project progresses. Project team The team assembled by the Council to plan, manage and procure the delivery of the project. PPP A public private partnership between the government procuring agency and a private sector party or consortium for the delivery of a project. RFT A request for tender. Resourcing plan An outline of the internal and external resources and specialist skills required for the planning and implementation of the project. Maddocks and Ernst & Young page 21

30 Term Risk adjusted project budget Definition A project budget that had been adjusted by allocating a financial estimate of the impact, or cost of treatment (for example insurance), of particular risks. Risk analysis A qualitative and/or quantitative method for assessing the impacts of risks on projects. Risk The uncertainty of the occurrence of future events. Risk management plan A document that outlines the potential risks for a project, and incorporates the identified risk and their likely consequences as well as options to treat and monitor them. Risk management process A process that identifies potential risks, analyses their consequences, and devises and implements responses to ensure that procurement and service delivery goals are achieved. Risk treatment plan A document that outlines how particular risks will be managed, including factors described in Part B1, section 10.9, Risk treatment plan. Service period The operation and/or maintenance period post construction of the project asset(s). Single TOC alliance A delivery model as outlined in Part B2, section 18, Alliance (single TOC). Social infrastructure This class of infrastructure typically includes assets that accommodate social services where the private sector party derives revenue from periodic service payments or availability charges paid by the Council or other government-procuring agency. Examples of social infrastructure include schools, hospitals, prisons and community housing. Socio-economic analysis the assessment of the quantifiable and non-quantifiable costs and benefits of the economic, social and environmental impacts of the project on the community and the Council's budget. Special Purpose Vehicle (SPV) An entity created to act as the legal entity for a project consortium. In establishing a project consortium, the sponsor or sponsors typically establish the private party in the form of a special purpose vehicle which contracts with government. Stakeholder Individuals or groups who have an active interest or investment in the project. Strategic assessment A determination of whether there is a need for the project and the high level options for project delivery. Maddocks and Ernst & Young page 22