Value-for-money in practice

1. Value-for-money in practice EU Twinning Project: “Implementing PPP policy” 6 June 2008

2. Content • On Value-for-Money in practice: • Real-life examples • Its sources • Its drivers • Its management • The affordability-dilemma • The do’s and don’ts Morning session Afternoon session

3. Real-life examples

4. N31 Motorway Project • A 25 km provincial road • Upgrading to a two-lane motorway • Road infrastructure, bridge and aqueduct. • DBFM-contract • Contract value: € 80 million • Contract duration: 15 years

5. Value-for-money 21% 11 months shorter construction Cost savings from different material use 25% less lane closures N31 PPP Motorway Project

6. A’dam – Brussels High Speed Rail Link • A 125 km high-speed rail line • Greenfield + Upgrading existing rail • Infrastructure and superstructure. • 2 DBFM-contracts / 1 O-contract • Contracts value: € 7 billion • Contract duration: 15 – 25 years

7. A’dam – Brussels High Speed Rail Link Value-for-money 2% Greater availability Non-application of unproven technologies Embedded-rail

8. Renovation Finance Ministry • Accommodation of Finance Ministry • Renovation • 1 DBFMO-contract • Contracts value: € 175 million • Contract duration: 25 years

9. Renovation Finance Ministry Value-for-money 15% Improved logistics Energy efficiency

10. Montaigne School Building • School building • Greenfield • DBFM-contract • Contracts value: € 27 million • Contract duration: 30 years

11. Montaigne School Building Value-for-money (Quality) Large “learning spaces” Multi-purpose rooms

12. Delfuent Water Sanitation Plant • Water sanitation plant • Greenfield & modernization • DBFMO-contract • Contracts value: € 450 million • Contract duration: 30 years

13. Delfuent Water Sanitation Plant Value-for-money 17% Shorter construction Lower exploitation costs Process innovations

14. Real estate development • Port and accommodation • Greenfield, expansion & renovation • Multiple DBFM-contracts Value-for-money Flexibility Phased-implementation Alternative usage

15. The sources of value-creation

16. Quality The main principles

17. The Value-tree Value-for-money Timing Cost-saving Revenue-generation Quality-improvement Flexibility Life-cycle costing Innovations Exploiting commercial value Off-balance financing Technical know-how Business process skills Commercial expertise Incentive structure Risk allocation Output specifications Payment mechanism Competition Project scoping

18. Key Value-drivers: N31 Motorway Project

19. Output specifications Functional output specifications on safety and comfort standards By Ministry of Transport Technical specifications By private partner Conditions tree

20. Responsibility matrix

21. Risk allocation

22. Financial selection criteria Market testing € Procurement Contract implementation Qualitative Minimum requirements Payment mechanism Output specifications Incentive structure

23. Payment mechanism

24. Payment mechanism – N31 / trends

25. Payment mechanism

26. Payment mechanism

27. Competition Competitive dialogue procedure Stages Selection Phase Dialogue Phase 1 Dialogue Phase 2 Final Evaluation Phase Dialogue Phase 3 Final Negotiation phase Preperation for Realisation Realisation Phase Operation Phase Key Decision-making points Announcement Invitation for Dialogue Ph. 1 (Incl. Selection) Invitation for Dialogue Ph. 2 (Incl. Shortlist of three firms) Invitation for Submission BAFO Selection of preferred bidder Contract close / financial close Aanvangs-certificaat Certificate of Commence-ment Invitation for Dialogue Ph. 3 (optional) Certificate of Completion Oplevering

28. Value-for-money management

29. Process, instruments and time Dynamic PPC Qualitative Quantitative Conventional implementation PPP potential scan Time PPP implementation Business case Request for proposals Procurement 6 months 6 months

30. Organization PPP Unit Treasury Market

31. Contract management Private consortium Project organization Ministry of Transport Project organization Process management / supervision Quality management plan Contract management plan Show performance and contract compliance Quality supervision Civil works Maintenance activities

32. Contract management Ministry of Transport Verify process Verify product quality Main focus’ Process control Product control Private consortium Contract management plan Quality Management Plan product process On an exceptional basis Check process directly Check product directly

33. The affordability-dilemma

34. Conflicting objectives Optimal risk transfer Value-for-money Affordability Risk transfer to private sector

35. The do’s and don’ts

36. The do’s and don’ts • Do allow for task-integration by private sector partner • Do parallelize the interests of public and private partners • Do ensure competitive tendering • Do promote cooperation and partnership • Do make use of international - both UK and continental - experiences • Do not create, but enable value-creation • Do not transfer all risks to private sector or keep everything yourself • Do not increase project scope indefinitely (do create appetite) • Do not create extensive tender procedures causing high transaction costs • Do not tender unfeasible projects

37. Risk transfer Government Private sector • Traditional model • Early DBFM-contracts • New PPP deals..

38. Contact information Rebelgroup Advisory BV Geert Engelsman Wijnhaven 3-O, 3011 WG Rotterdam, The Netherlands Tel +31 10 2755995 Fax +31 10 2755999 www.rebelgroup.nl geertjan.engelsman@rebelgroup.nl