1. Briefing to the Portfolio Committee on the Comparison on Procurement Methodologies 6 June 2006

2. Introduction The objective of this presentation is to provide details of the advantages and dis-advantages of three different procurement methodologies in relation to the procurement of new correctional centres. The three different procurement options compared in this presentation are: A conventional procurement by DCS more commonly known as a Public Sector Comparator procurement; A complete Public Private Partnership with full services required rendered by the private partner; and A project finance model (partial Public Private Partnership) where specific core functions will be provided by DCS and the balance by the private partner.

3. Public Sector Comparator (PSC) Procurement (Conventional Model) By adopting the Public Sector Comparator Procurement option the Department with the assistance of NDPW will be responsible for the complete implementation of the project from start to finish and will be responsible for managing each of the elements of the project itself. As a rule, the majority of risks will remain with DCS and numerous sub-contracts will be entered into by DCS with third parties to deliver the required services.

4. Public Private Partnership (PPP Model): The Public Private Partnership procurement option is based on a model whereby the risks are allocated to a third party to manage them. Responsibility for all services required will be allocated to the private partner and for most, the private party will take the risk of operations and construction.

5. The Project Finance Model (PFM model): In essence this option is still a public private partnership with the exclusion of certain specific services required from the private partner. Core services to DCS will be provided by DCS and the balance will be provided by the private partner.

6. DESIGN PSC Will be input driven and design provided by DCS/DPW. DCS able to ensure exact design according to own preferences. RISK OF DESIGN REMAINS WITH DCS. PPP Design to be developed and provided by private partner in response to output specifications. DCS/DPW able to ensure design meets requirements without sign-off. RISK OF DESIGN TO PRIVATE PARTY. PFM Design to be developed and provided by private partner in response to output specifications. DCS/DPW able to ensure design meets requirements without sign-off. RISK OF DESIGN TO PRIVATE PARTY.

7. CONSTRUCTION PSC DCS/DPW to issue construction contract. Construction according to design as provided by DCS/DPW. DCS to manage correct construction according to design. Cost overruns, certain delays and insurance may be for account of DCS if not managed adequately. PPP Construction contract issued by private party. Private Party to manage correct construction according to design. Construction risk to private party. Cost overruns, certain delays and insurance all private party risks. PFM Construction contract issued by private party. Private Party to manage correct construction according to design. Construction risk to private party. Cost overruns, certain delays and insurance all private party risks.

8. COMMISSIONING PSCDCS responsible for commissioning and planning of commissioning once construction is completed. PPPCommissioning the risk of private party after construction subject to independent certifier declaring facility ready and available. PFMDCS responsible for commissioning and planning of commissioning once construction is completed

9. CUSTODIAL OPERATIONS PSC DCS responsible for all staff deployment, recruitment, training and staff related matters. Facility custodial services remains with DCS including management function. PPP Private Party responsible for all custodial services and staff recruitment, training and other staff related matters. This include management of the facility. PFM DCS responsible for staff deployment, training and all staff related matters. Facility custodial services remains with DCS including management function.

10. FACILITIES MANAGEMENT SERVICES PSC DCS responsible for all facilities management services either by means of providing the services itself or through sub-contracting various third parties. All risks remain with DCS /DPW. These services include cleaning, food services, medical and others. PPP Private Party responsible for all facilities management services. All risks relating to these services are transferred to the private party. Penalty regime in place for non-performance. DCS remain accountable. PFM Private Party responsible for all facilities management services. All risks relating to these services are transferred to the private party. Penalty regime in place for non-performance.

11. NON CORE FUNCTIONS PSC DCS is responsible for all non-core services. This include medical and nutritional services. PPP These functions are transferable to the private party. Although risk is transferred to the third party with a penalty regime accountability is still vested within the Department. PFM These services will be considered to be transferred to a private party with a penalty regime for non performance. (Partially)

12. BUILDING MAINTENANCE PSC DCS / DPW responsible for all building maintenance over the period. All risks relating to maintenance and budget availability remains with DCS / DPW. PPP Private Party responsible for all building maintenance during the project period. PFM Private Party responsible for all building maintenance during the project period. Will also be responsible for ensuring building life lasts past concession period. Penalty regime in place for non- performance. The Department can consider the extension of the period with another 5 years and proper budget projections will be possible.

13. BUDGET ASPECTS PSC DCS to be able to fund upfront capital outlay during two year construction period. All staff recruitment, training, services, building maintenance and upgrades for account of DCS. Budget will have to take account of price escalations over and above CPIX. May be difficult to keep budget constant due to unexpected escalations other than in the building industry. PPP DCS only commences with payment once facility is available and pays for the number of beds on a daily basis and a capital fee related to the building. Penalty regime in place for non- availability. Unitary Payment fixed at contract signature and escalates with CPIX over contract period. PFM DCS takes responsibility for all staff related and custodial services costs from day of occupying facility. Construction costs together with normal facilities management costs to be paid per unitary payment regime including penalties for non- performance. Unitary payment to escalate with CPIX

14. INTEGRATION ISSUES PSC Integration risk remains solely the responsibility of DCS. With different suppliers and different parties involved, integration between design, construction and operation may be extremely difficult. PPP Integration risk solely the responsibility of the private party. Low risk as operator and construction partner will ensure that integration works. The risk to develop operational output specifications variations remains with the Department. Any variations will have financial implications. PFM As custodial services are performed by DCS and facilities management and other services are provided by the private party, integration of the two aspects will be investigated and dealt with during the feasibility phase in conjunction with National Treasury.

15. DAMAGE TO FACILITY PSC DCS will remain the sole party responsible for any damages to the facility due to forces of nature, offender or staff actions. PPP Private party is responsible for damage to facility. Offender and staff actions causing damage will be the responsibility of private party. DCS to implement penalty regime for non-availability. Private party required to insure against these potential damages. PFM Private party is responsible for damages to the facility. Any damages due to will full actions by staff or offenders will be dealt with according to the penalty regime.

16. SECURITY RELATED ISSUES PSC No problem in case of staff dis-satisfaction. Staff can be moved between facilities where and if problems arise. Security problems related to staff as well as offenders can be managed between the various correction facilities. Movement of staff and other resources is possible were problem areas arise. PPP Since no further PPP facilities, current operators face problems as no additional staff can be utilised if potential problems arise. May see South Africa as a small market and slowly withdraw for South Africa. With the 2 facilities the service providers has limited resources to manage major staff related problems. PFM No problem in case of staff dissatisfaction. Staff can be moved between facilities where and if problems arise. Security problems related to staff as well as offenders can be managed between the various correction facilities. Movement of staff and other resources is possible were problem areas arise.

17. COMPLEXITY PSC Conventional procurement reasonably simple to implement as long as implementation project management function works efficiently. Although we use the same procurement process special attention will be given to the interface between operations and facilities management. PPP PPP’s in general more complex and requires more skills. PFM Could be potentially very complex depending on final structure of services required and provided by DCS. Similar or more complex than PPP.

18. RISK TRANSFER PSC Limited risk transfer to a private party for the operation of the facility remains with the Department. PPP Risk is transferred to a private party through a PPP agreement. Not withstanding the penalty regime according accountability remains with the Department. PFM Less risk transfer than under full PPP.

19. Conclusion The above table provides a summary of the more significant issues and differences between the three procurement models. After completion of the next stage of the feasibility study, the Transaction Adviser will be in a better position to advise on which option is better and include a comparison of detailed costs, affordability and detailed risk transfer issues.

20. Figures PPP 2005/06 PPP 2006/07 DCS 2005/06 DCS 2006/07 INMATES5 952 197 952181 552 PER CAPITA COST R 257.63 R 266.83 R 119.24 R 151.77

21. Captured Budget PPP – 2006/07 INDEX FEE383 661 FIX FEE196 015 TOTAL BUDGET579 676

22. Thank you Building a caring correctional system that truly belongs to all