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Long Term Capital Works Programming to Achieve Better Project Outcomes Thursday 06 October 2011 Paul Northey General Manager Capital Projects.

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Presentation on theme: "Long Term Capital Works Programming to Achieve Better Project Outcomes Thursday 06 October 2011 Paul Northey General Manager Capital Projects."— Presentation transcript:

1 Long Term Capital Works Programming to Achieve Better Project Outcomes Thursday 06 October 2011 Paul Northey General Manager Capital Projects

2 MELBOURNE 70 km BARWON WATER Assets $1 billion Revenue $128 million Connected properties 133,000 Growth 2% p.a. 20 treatment plants 10 reservoirs, 38 service basins 6 groundwater bores +7 under construction 6,000 km water and sewerage pipes




6 Above Ground Decommission Rehabilitate / Replace Operate & Maintain Create Assets Below Ground CONTEXT: ASSET MANAGEMENT Above Ground Below Ground Capital Works Process - PARMS (Water) - SIMS (Sewer) - FMMS - FOCUS - Spreadsheets

7 CONTEXT Historic Capital Delivery Performance

8 Approach to Delivery CAPITAL PROGRAM Horses for courses for major projects Recurrent works by operations departments (term & individual contracts) Majority of works through a program alliance

9 BARWON WATER ALLIANCE 150 individual projects 4 (+2) years ~$450m 80 EFT staff Local subcontractors

10 Barwon Water Capital Works – Project Phases ConceptPlanning Functional Design HandoverConstruct Detailed Design Operation Project Initiator / Asset Planning Client DeptCapital Works Alliance Milestone 1 Project included in BW Corporate Plan Budget Milestone 3 Functional design developed. Procurement strategy approved. Milestone 4 Detailed design developed (>75%). Bus Case / TOC approved. Milestone 5 Asset is operable. Milestone 6 Commissioning and Testing complete. Handed over to Client. Milestone 2 Planning Business Case approved. Project handed over to Alliance Milestone 7 Asset capitalised. Gain/Pain share determined. Project Initiation Relevant Policy / Procedures Project Prioritisation Capital Works Management Committee Charter Risk Management DTF Gateway Procurement Policy Project Program Business Case Statutory Engagement Community Engagement Project Reporting Project Transfer Risk Management Contract Delivery Strategy Design Management & Review Community Engagement Project ReportingBudget Variation Statutory Engagement Procurement Policy Envir Management Safety Management Statutory Engagement Risk Management Design Management & Review Community Engagement Project Reporting Budget Variation Envir Management Safety Management Probity Procurement Policy Project Program Risk Management Envir Management Safety Management Probity Community Engagement Quality Plans Statutory Engagement Project Reporting Budget Variation Risk Management Envir Management Safety Management Inspection & Test Plans Quality Plans Statutory Engagement Project Reporting Budget Variation Commissioning Plan Project Transfer Final Cost Reporting Project Review Project Completion Barwon Water Barwon Water Alliance

11 CONSTRUCTION Use of Subcontractors Most construction delivered by subcontractors Limited self-perform on higher risk jobs with day- hire labour. Safety inducted over 1000 inductees in contractor induction program. SQE contractor forums – network forming between subcontractor. Lead to pre-qualification panel reduce site supervision over time. Colac Pipeline

12 Has delivered program to date Equal number of employees from each partner has led to strong culture Development opportunity for client staff Improve capability and capacity of regional contractors Bundle procurement of material delivering cost savings Manage workforce in areas to achieve efficiencies ALLIANCE Positives

13 High transaction cost $500k Early KPIs have required lot of monitoring and reporting streamlined down to 6 TOCs are not like old project estimates on tendered prices – all cost identified – this lead to some tension on early TOC approvals. Can create differing standards within client organisation between Alliance and no – Alliance projects ALLIANCE Negatives


15 Competitive tenders received for construction contract Leaving pipe material option open led to competitive process for the pipe supply contract Managed risks with uncertainty on design of realigned section Pipe and fittings delivered to schedule or earlier Low transaction cost – use of AS2124 MGP PROCUREMENT MODEL Positives

16 Number of separable portions leads to complicated contract management Involved tender essessment process – difficultly in assessing Standard contract requires updating MGP PROCUREMENT MODEL Negatives

17 CORIO BAY GEELONG N Proposed Northern Water Plant NORTHERN WATER PLANT Shell Refinery 10 km to Black Rock Water Reclamation Plant and ocean outfall

18 NWP PROCUREMENT MODEL Getting the Model Right

19 Client involvement in design – managing whole of life risks Cost certaintity: –Single margin competitively big up front –Competitively tendered work packages –Fixed construction cost Contractor carries design into construction, provide working facility following proving period. Operational hand over and training for Barwon Water staff Transaction costs around $250K NWP PROCUREMENT MODEL Positives

20 Stage 1 cost estimate process inefficient and difficult to administrate due to: –contractor incentivised to influence work packages to increase margin return –Work packages tendering process not fully transparent –considerable effort required through independent estimator and extended negotiations to bring cost down Delay and variation claims for inefficient process Paying for risk twice? NWP PROCUREMENT MODEL Negatives


22 TO PPP OR NOT? Is project of sufficient value? Is there a history of in-house delivery and operation of this service? –Is it core business? Characterise risks –Are risks significant? –Which party is in the best position to manage risks (can risks be transferred)? –How will the private sector cost the risks that will fall with them? Will a PPP deliver economic value to the public sector? Will the projects value bear the transaction costs (typ. $2-3 million)?

23 Project costs and schedule have significantly extended but at no cost to Barwon Water. Proponent has had full responsibility for managing difficult IR issues. BIOSOILDS - PPP Positives

24 No Barwon Water control on how project was delivered or timeframes Agreements made by PPP proponent can influence other Barwon Water projects High transaction cost - $2-$3 million BIOSOILDS - PPP Negatives

25 CONCLUSION Choosing The Best Model s t r u c t, F i n a n c e & O p e r a t e ) MAX MIN LOW HIGH E P C M MIN MAX MIN A L I N C L E A PPP Project Procurement Options (adapted from PricewaterhouseCoopers, 2005, unpublished paper) DBO DBFO D&C EPCM CFD RISK TRANSFER (PRICE PREMIUM) PRICE CERTAINTY TRANSACTION COSTS FLEXIBILITY TO CHANGE CONTROL OVER BUILD QUALITY

26 SUMMARY Five year Water Plan requires assessment of required capital spend and appropriate delivery strategy Bundling of projects enables cost savings in procurement of materials and construction Alliance has delivered increased capital works program Thorough business cases and demonstrated ability to deliver increases potential to obtain government funding

27 Thank you

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