2. Civilution Congress 2014 CESA: Break-Away Plenary Session Panel Discussion 1 Infrastructure Procurement Civilution : Best Practice Approach PROCUREMENT STRATEGY Dr Ron Watermeyer watermeyer@ioptions.co.za

3. Consulting Engineers of South Africa Public infrastructure Infrastructure Procurement Civilution – A CODESA of Infrastructure Procurement has little inherent value creates value through the economic and social activities it supports. Public infrastructure which provides improvements or efficiencies in services, production or export capabilities is delivered and maintained in a manner which minimizes waste of materials, time, and effort in order to generate the maximum possible amount of value is most likely to contribute to economic growth Key question - “does the investment provide value for money?”

4. Consulting Engineers of South Africa Recent cost overruns in SA Infrastructure Procurement Civilution – A CODESA of Infrastructure Procurement 5 ProjectInitial Budget (R bil) Estimated or final Cost (R bil) % over budget Gautrain25.130.521 Kusile9012134 Medupi33.6105213 Gauteng Toll Roads 6.3901329 NMPP11.123.4111 OR Tambo5.28.564 De Hoop Dam7.920153 FIFA Stadiums8.118.4126 N4 toll roads2350

5. Consulting Engineers of South Africa Value for money concept Optimal use of resources to achieve the intended outcomes Underlying VFM is an explicit commitment to ensure that the best results possible are obtained from the money spent or maximum benefit is derived from the resources available VFM is a means for developing a better understanding (and better articulation) of costs and results so that more informed, evidence-based choices can be made

6. Consulting Engineers of South Africa Results chain framework Activities Outcomes Economy (cost of resources) acquiring inputs of the right quality at the right price Efficiency (productivity) how well inputs are converted to outputs. Effectiveness (achieving of outcomes) how well outputs achieve desired outcomes Cost Impact Outputs Input Equity considerations What equity (promotion of secondary objectives) can be leveraged through a project planning implementationclose out 7

7. Gap between achieved and expected outcomes Activities Outcomes Economy (cost of resources) acquiring inputs of the right quality at the right price Effectiveness (achieving of outcomes) how well outputs achieve desired outcomes Cost Impact Outputs Input Gap Value for money? Gap puts value for money for a project at risk 8

8. Consulting Engineers of South Africa Root causes for lack of success Activities Outcomes Cost Impact Outputs Input Planning (economy) efficiency effectiveness Optimism bias (the human mind’s cognitive bias in presenting the future in a positive light) Strategic misrepresentation (behaviour that deliberately underestimates costs and overestimates benefits for strategic advantage 9

9. Consulting Engineers of South Africa Root causes for lack of success Activities Outcomes Cost Impact Outputs Input What proactive action can be taken during implementation (efficiency) to minimise any gaps? Implementation (efficiency) Procurement strategy–selected * Packaging * Contracting * Pricing * Targeting strategy and procurement procedure? Organisation of work packages into contracts How to secure financial offers and to remunerate contractors Nature of the relationship between the parties Procedures for promoting secondary procurement objectives

10. Consulting Engineers of South Africa Recent cost overruns in SA Infrastructure Procurement Civilution – A CODESA of Infrastructure Procurement 11 ProjectInitial Budget (R bil) Estimated or final Cost (R bil) % over budget Gautrain25.130.521 Kusile9012134 Medupi33.6105213 Gauteng Toll Roads 6.3901329 NMPP11.123.4111 OR Tambo5.28.564 De Hoop Dam7.920153 FIFA Stadiums8.118.4126 N4 toll roads2350 optimism bias / strategic misrepresentation poor / lack of procurement strategies poor procurement practices in selecting contractors and consultants Issues to address

11. Dr Ron Watermeyer watermeyer@ioptions.co.za