1. Managing Risks During Tendering and Contract Procurement Tanya Jackson, Principal Consultant

2. Presentation Overview Case Studies Drivers Elements to Consider/risk allocation The Risk Management Process Risk Mitigation Implementation of an ongoing management plan

3. The Biogas and Upgrading Plant (the Vaxtkraft Project) in Sweden Started in 2001-02 A similar plant had never been built before Technology had to be developed after the contract had been signed The project involved innovation including the creation of new markets. A complete system for handling waste was integrated with a production facility for bio ‐ fuel local public agencies could introduce vehicles that would run on bio ‐ fuel.

4. The integrated waste management contract with the Greater Manchester Waste Disposal Authority (GMWDA)

5. Expenditure on Waste Management General government sector expenditure on waste management activities was $2.2b during 2009-10. (Australian Bureau of Statistics)

6. Drivers Lack of existing facilities or infrastructure is one of the main factors hampering resource recovery activities. NSW Government’s Focus Area 4 of the “Reducing Waste: Implementation Strategy” (Facilitating investment in waste infrastructure)

7. Why Worry About Risk? Three aspects of significant government projects that make risk management desirable: 1.The project size 2.Potentially long lives 3.Where private sector funding is required, what are the residual risks for government

8. Crucial Elements to Consider Strategic project development Potential partnerships Technology due diligence Market capacity and market testing Contract design and process The balance of risk, affordability and value for money Financing the procurement process Current legislative and strategic waste issues

9. Definitions Risk = the ‘effect of uncertainty on objectives’ ISO 31000 (2009) /ISO Guide 73:2002 ISO 31000 Risk = Likelihood x consequence (AS/NZS 4360:2004)

10. The Risk Management Process Extracted from AS/NZ 4360:2004

11. Establishing the Context Involves; 1.Identification of risk in a selected domain of interest 2.Planning the remainder of the process 3.Mapping out: The social scope The identity and objectives of stakeholders Risk evaluation criteria 4.Analysing risks 5. Mitigating risks

12. Framework for Risk Identification Contract Planning and Preparation Unrealistic time/cost expectations Conflict with existing supply arrangements Lack of a clear procurement strategy Inaccurate specification Delivery and installation delays Limited options/availability Technical capability and capacity Lack of communication from supplier Ineffective evaluation Failure to adequately address public concerns Conflict Changes in government policy Legal issues/ Insolvency issues Time validity Supplier default Product/Service/ Technology Tendering and Procurement Process Qualified Suppliers Management Stakeholders Probity Issues Scope or specification changes Value for money Limited number of suppliers Competing contracts Lack of capacity

13. Risk Analysis Different risks can impact projects in different ways. Risk assessment criteria needs to address multiple impact areas and be defined for each impact area.

14. Potential Areas of Impact Cause damage to an organization’s reputation Have a financial impact Affect ability to comply with regulations/legal implications Impact on the operation of the project/timeframe for delivery Have a strategic impact

15. Levels of Consequence Catastrophic Major Moderate Minor Insignificant In developing criteria for financial risk assessment councils should be aware of their risk appetite including triggers such as economic reporting requirements, levels of authority for expenditure, budget tolerances etc.

16. Likelihood The timescale should reflect that of the project to which the risk assessment relates. DescriptorDescription Indicative Frequency (expected to Occur) Almost Certain The event will occur at least once during the project timeframe Once or more during the project timeframe Likely You have seen the event occur several times previously on other projects Every third or so project PossibleThe event might occurOnce every ten projects UnlikelyThe event does occur from time to timeOnce every thirty projects RareYou have heard of something like this happening elsewhere but have never experienced it Once every hundred projects

17. Risk Ranking and Matrix RareUnlikelyPossibleLikely Almost Certain CatastrophicHigh Extreme MajorModerate High Extreme ModerateLowModerate High MinorLow Moderate High InsignificantLow Moderate

18. Management or Mitigation Requirement Risk RatingAction Required Extreme Risk Immediate action required including allocation of responsibility and required resources High RiskSenior Management Attention Moderate RiskManagement Responsibility must be specified Minor RiskManage by routine measures Insignificant RiskAddress as appropriate

19. Developing a Risk Management Plan Consider the risk treatment options available: 1.Accept the risk 2.Transfer the risk 3.Reduce the likelihood of the risk 4.Avoid the Risk For risks you are prepared to accept, a detailed risk management plan should be developed.

20. Purpose of the Plan To ensure; –Senior management support –Adequate allocation of resources –Consistency in approach with the organization’s risk management policy –Ongoing management for the risk is embedded into existing practices and procedures.

21. The risk management plan should consider; The current controls in place The planned course of action to minimize or mitigate the risk Allocation of responsibility Timeframe for implementation Effectiveness of the treatment Severity of the remaining risk Monitoring and reporting procedures

22. Embedding and Ongoing Management Back up the activities with : –A risk management policy, –A risk management plan and: –Ongoing support arrangements Use existing systems, processes and practices. Ensure the risk register is regularly reviewed and updated throughout the various stages of the procurement process/project.