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Introduction
Procurement = method of acquiring , securing , obtaining infrastructure
assets, facilities or services.
Involve the selection of various actors (public and private) and organization
of activities for infrastructure provision and production.
The provision includes planning, financing, designing, construction,
monitoring, regulation, O&M.
Procure public projects by public funds (e.g. taxation, borrowing) or private
investments (e.g. turnpikes). Source of funding for developing countries, e.g.
World Bank, regional development banks

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 Introduction
 Overview elements influences procurement selection
 Examine Conditions of procurement
 Proposed framework for procurement options.
 Identify and select most appropriate procurement options to provide best
chance of project success.

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 Elements of an Infrastructure Procurement Strategy
1) Cost and financial consideration
2) Division of responsibility
3) Needs and project characteristics
4) Willingness to pay
5) Innovation and New Product Development

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 Elements of an Infrastructure Procurement Strategy
1) Cost and financial consideration
 Infra project involve substantial capital investment
 To consider operation, repair, and maintenance throughout operational life cycle;
disposal, recycling, replacement.
 Self-funding from use charges more interested to private investors.
 Procurement methods involve a wide range of activities (e.g. PFI) are more
expensive than others (e.g. traditional, design and build) due to higher transaction
and logistic.
 Timescale of achievement, portfolio analysis , financial analysis (e.g. DCF, life cycle
costing (LCC))

2) Division of responsibility
 Central government agency controls schemes of national importance, local
government deals with small regional/district projects
 More efficient under private control? Publicly controlled lack of incentive, increase
innovative thinking, etc.
 Government normally retain ultimate sanction to public ownership, especially
strategic importance (e.g. gas, water) or to find another private investor.
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 Elements of an Infrastructure Procurement Strategy
3) Needs and project characteristics
 Need in support of socio-economic, environmental, institutional , political
aspirations, land use planning, and overall direction.
 To assess regarding sustainable operation (life cycle), consumption of non-
renewable resources, pollution, potential to recycle resources and reduce waste;
 If project risk prone, investigates fundamental viability and desirability
 Public expect progressively higher level of service in line with advances and other
developments.

4) Willingness to pay
 Natural reluctance to pay for previously free services
 If charges are considered excessive, users will seeks alternative’ thus fall in volume
of use
 Infrastructure provided free, normally public funding through taxation and
borrowing.
 Public not favour to pay for more infrastructure, thus requires a liberal approach ,
i.e. flexible procurement framework (e.g. PPP)
 Extremes framework, i.e. totally public or private funded.

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 Elements of an Infrastructure Procurement Strategy
5) Innovation and New Product Development
 Contributes to the performance and affordability of projects.
 Bidders can introduce new ideas, concepts and technologies.
 Normally increased levels of performance, greater efficiency, sustainability,
conservation, safety of users.
 There was greater attention on PPP, life cycle performance.

 Innovation ≠ Research

 Innovation = to make changes in something established, introducing new

methods and new ideas or products. (New Oxford Dictionary)
 Innovation base on creativity and invention, may be discovered by chance or
accident, not by a planned programme or scientific study.

 Research = a systematic investigation to establish facts and principles or to

collect information on a subject
 An inquiry to discover new or old facts by the scientific study of a subject.

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 Project Evaluation
 After the decision to proceed the project. How the project will be funded?

 Key action : determine profitability, funded by private / public/ both?

 So look into the factors :
 Benefit and costs
 Potential of project success
 Degree of risk
 Procurement methods
 Incentives for private investment
 Design and technical issues

 Infrastructure projects are usually long term and reactive to macro economy,
changes in government policy, society. The extra factors for project evaluation
would be :
 Contribution to economic development
 Potential for strong financial returns (attract private investment)
 High economic benefits, low financial returns, introduce incentives for
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investment.
 Drivers for Infrastructure Procurement Selection
 The elements / Drivers relationships are not exhaustive. i.e. the driver could have
the impacts to more than one element.

Key element Driver

Need and project characteristics Nature and project size
Complexity
Impact on national, regional and local economies
Innovation / new product development Necessity for new technologies, R&D
Flexibility
Speed
Division of responsibility Impact on the environment and society
Regulation of service, quality assurance
Monopolistic service
Willingness to pay Potential to generate revenue from users
Income levels
Cost and financial considerations Portfolio of serial projects
Sustainability of services
Project viability Profitability
Economic returns
Impact on environment and society
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 Framework for Procurement Delivery
 Procurement Framework : look into relationship between –
degree of public control, level of private funding, level of
integration. (Pg 119, Infra for the Built Environment)

 The procurement methods can be adopted individual or in combination

 measure of control will have direct impact on the amount of fund (public
or private)
 fragmentation = different roles are conducted according to different
paradigms that have little / no cross linkage.
 Integration provides smooth processes, eliminate duplication and
inefficiencies, but meticulous planning needed to mitigate uncertainties,
thus reduce risk.
 Projects of high uncertainty and high risk – not suitable for private
investment. The prices normally was adjusted in view of risk. Government
may use autonomy to minimise risk as project progresses.

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 Framework for Procurement Delivery
 Pg 120, Fig 6.1

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 Procurement Methods
 Framework sector A1

Competitive tendering : Traditional Method

 Responsibility of design and tender document on the client. Work contractor construct
 Project brief : client
 Design : client appoint. Principle designer – project manager
 Construction : work contractor
 On project completion : handover for client occupation
 Maintenance : contractor until DLP, after that client
 Advantages : flexibility, demonstrate public accountability, lowest tender bid
 Disadvantages : lack of incremental improvement, poor team work, adversarial disputes.
 Fragmentation level ? Degree of Integration ?

Design & Build (D&B)

 Offer integrated package that promotes communication and co-ordination between D&B teams. Contractor
in charge of D&B.
 Project brief : prepare on behalf of client
 D&B: client appoint prequalified work contractor, guaranteed maximum price
 On project completion : handover for client occupation
 Maintenance : contractor until DLP, after that client
 Advantages : mitigating fragmentation between D&B teams
 Disadvantages : not flexible, changes on agreed design are more expensive
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 Framework Sector A1
Fast Track (concurrent Engineering / parallel working)
 Overlapping of Design and construction activities into phases.
 Need exceptional project management and other skills.
 Advantages : shortest construction period,
 Disadvantages : possibility of disruptive elements, non-productive time

Fee Contracting
 Client engages contractors on a fee basis for the management and project delivery. Client will
reimburse FULL cost and additional fee
 Suitable if the was strong partnership / trust over a series of project
 Advantages : suitable if client has very expert in-house team, uncertainty that discourage
contractor to submit competitive tenders
 Disadvantages : high risk procurement method to client, client fully responsible for cost overrun
 E.g. management contracting :
 Design : client appoint management contractor (MC) as Consultant, to provide
construction expertise an improve efficiency.
 Construction : MC will appoint work contractor, and contractual agreement between both.
 Client will reimburse FULL cost and additional fee to MC; client is in high risk.
 Client try to impose maximum tender sum; become less popular in global construction
market
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 Framework Sector A1
Construction Management
 Client direct contact with each specialist contractors and suppliers
 Design : client appoint management contractor (MC) as consultant to integrate design teams, manage
and control construction process.
 Construction : work contractor
 Advantages : client has more control over work contractors
 Disadvantages : project complexity, level of risk
 Share many merits and demerits of Management Contracting.
Bob/Leslie?

All the above 5 methods are commissioned and completed facility. Client will face the tasks of
Operational, Maintenance and repair.

Term Contracts
 Intended as a basis for the reimbursement of maintenance and repair activities
 Base on agreed rates and on-costs
 Client own works officers to authorize the work, measurements, rates, schedules,

Fragmentation provides greater procurement and decision making flexibility. But it demands
for much project management and integration of all participants

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 Framework Sector A2
Design, Build And Operation (DBO), Design, Build, Operation, Maintenance (DBOM)
 High degree public control,
 greater integration by extending procurement method to cover Operation & Maintenance
 Client : provides initial planning and design criteria; and appoint single contractor
 Contractor : provides DBO, can be extend to DBOM
 Turnkey is a variant (differ) of D&B, more integration, earlier products delivery to the client.
 Fund : public series of payments, charges from users

Bob/Leslie?

 Advantages : contractors is forced to consider the aspects after commission (i.e. O&M)
 Disadvantages : client subsidies if user revenues are insufficient, clients retain revenue risk

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 Framework Sector B1
Pure Operation & Maintenance (OM)
 Low degree public control
 high fragmentation
 All post-occupation activities, divorced from design and construction
 Client : outsource all O&M under a separate contract
 Client not involve in daily activities until contract renewal (periodic)

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 Framework Sector B2
 Low degree public control
 high integration
 Sector B2 is the Domain of PPP : important pre-requisite – potential to generate sufficient
revenue (against private prospect returns), at a perceived risk
 Companies who build well do not necessarily operate well

Build Own Operate & Transfer (BOOT)

 Earliest model
 concessionaire Build, OO&T; concessionaire collects user revenues
 At the end of concession period, all transfer back to public
 concessionaire’s legal ownership terminates at the end of CONCESSIONARY period
 E.g. of political importance for the social welfare such as highways, roads mass transit, railway
transport, and power generation. Not attractive for private investments
 Ownership : issues involving upgrading, capital investments, strategy in terms of upkeep
(maintenance)

Build Operate & Transfer (BOT)

 The only different with BOOT is ownership at the end of construction period
 concessionaire’s legal ownership terminates at the end of CONSTRUCTION period
 E.g.  discrete asset not whole network, entirely new e.g. toll road projects,

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 Framework Sector B2
Build Own & Operate (BOO)
 full privatization
 concessionaire in charge of design, funding, construction, O&O
 ownership of the project remains with the concessionaire until a fixed period, therefore the
concessionaire gets any residual value benefit of the project
 E.g. mobile phone network, water treatment plants, private railway – government resume land
 large amounts of finance and long payback period, used when the physical life of the project
coincides with the concession period, some continuing level of government involvement

Build Own Operate & Remove (BOOR)

 The only different with BOO is the facility at the end of concessionary period
 The facility may be sold, decommissioned, or removed

Lease, Renovate, Operate & Transfer (LROT)

 Client own facility
 concessionaire negotiates a rental to upgrade the facility
 In exchange, the concessionaire is granted concession period
 concessionaire’s legal ownership terminates at the end of CONCESSIONARY period
 E.g. government-own car park and vehicular tunnel in HK, water and sewage treatment plant in
Malaysia
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 Framework Sector B2
Design, Build, Finance & Operate (DBFO)
 very similar to BOOT except there is NO actual ownership transfer.
 concessionaire in charge of design, construction, financing, O&M
 At the end of concession period, client resumes O&M
 E.g. toll roads
 Client provides land/premises free of charge, inspection of facility before concession
termination to ensure hand back in good condition,
 A basis will be agreed on how income is to be provided over concession period, e.g. users
revenue, fixed fees, performance-related shadow tolls, rent.

Design, Build, Finance, Operate & Manage (DBFOM)

 Same as DBFO but extend to management of business within the facility
 very similar to BOO

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 Other Procurement Considerations
 Revenue from taxation should not be used exclusively to support the
provision, and maintenance of infrastructure.
 Should have strategy to seek source of revenue from users (Fig 6.2)

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 Innovative Procurement Options
Private Finance Initiative (PFI)
 a way of creating "public–private partnerships" (PPPs)
 Developed in UK
 From capital expenditure to revenue expenditure
 specification defined by the public sector
 private sector debt and equity, underwritten by the public
 Concessionaire O&M over concessionary period
 Government should only bring forward viable proposals and genuine need,
reasonable price if risk is high

Partnering
 Not a contract; it is an agreement sets out mutually agreed obligations not
directly enforceable in court of law
 The agreement in the form of aide memoire, act as a reminder for parties
 To remove inter-organizational barriers
 Increase transparency, encourage teamwork
 Need a genuine desire, agreed objectives

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 Infrastructure Procurement Selection Using a
Portfolio-based Strategy
 The preferred procurement method
will be analyzed by simulation using
various models, e.g. DCF, LCC.
 Portfolio strategy …is a continuous
Improvement model, assessing the
key components.
 If the outcome is not satisfactorily,
select another option from
Procurement Framework Sector
 If still no effective solution,
review overall nature of design

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Procurement of Infrastructure in Developing Countries

 World Bank Group (WBG) and regional development banks greatly support and funding
infrastructure projects in developing countries
 WBG has five associate agencies

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Procurement of Infrastructure in Developing Countries

 International
Procurement rules
are applicable to
development agencies

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Procurement of Infrastructure in Developing Countries

 International
procurement
rules

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 Private Participation in Infrastructure

 Private sector involvement in infrastructure projects was acknowledged.

 Private Participation in Infrastructure (PPI) urge for more private investment. Four stages
of PPI :
1) Establishing policy
2) Setting the legal and regulatory framework
3) Bidding
4) Project management
 When selecting procurement method for PPI, the range of options are:
 Service contracts (fixed fee) 2 – 5 years
 Management contracts 3 – 5 years
 Leases 10 – 12 years
 Concessions 15 – 30 years
 Greenfield contracts 10 years – ever
 Procurement method to select (Fig 6.6) is influenced by degree of ownership, and
responsibility that government wishes to retain.

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 Private Participation in Infrastructure

 Fig 6.6

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Selection of Bidders
 Encourage pre-qualification of contractors
 Client compensation for the adoption of unsuccessful bidders ideas or innovations
 Beware of public accountability requirements and trading block rules, e.g. European Union

Information Provided for the Bidders

 Depend on project nature, should be informative to reduce unknown, degree of risk,
 Provision for innovation , new ideas, new technology.
 The information shall be :
 Project description
 Preferred scheme design, outline drawings
 Project functional specification
 Geological data
 Etc

Evaluation of Bidders
 Financial viability – value for money, collection of revenue, etc
 Excellent in design, technology and engineering – quality, team cohesion & integration, etc
 Reliability - previous knowledge and experience, life cycle costs, performance benchmarks,
etc

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~ END ~

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